The Public Accounts Committee identifies ‘significant failings’
in the management of PPE contracts that have led to a stockpile
of almost 4 billion items that are not needed.
The Department of Health and Social Care remains in dispute with
many suppliers it entered into contract with over the quality of
the PPE provided and accepts that some surplus stock will end up
being incinerated.
In their report published today, MPs say there is little sign of
the Government taking action against potentially fraudulent
suppliers despite DHSC’s estimate that as much as 5% of PPE
expenditure may have involved fraud.
The Committee concludes that “suppliers and intermediaries are
likely to have made excessive profits while providing substandard
PPE”.
Insufficient due diligence checks prior to contract agreement
have left the Department paralysed from acting in some cases.
Disputes with suppliers on 176 PPE contracts worth up to £2.7
billion are still to be settled.
The Department of Health and Social Care spent more than £13
billion sourcing PPE during the pandemic but has since failed to
set up a systemto catalogue equipment, currently spread across 70
locations in the UK as well as in China.
MPs warn that the government cannot assume that a rapid
procurement on this scale will not be required again and urge
more robust and transparent practices to be put in place.
Report conclusions and recommendations
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The Department has a significant challenge in reducing
the estimated 3.9 billion items of excess stock it currently
holds. Of the 37.9 billion PPE items purchased, just
over 10% (3.9 billion) are no longer needed. According to its
modelling, many of these items will have already expired their
use by date. It is looking at selling, donating and recycling
PPE items with just under 800 million offloaded so far but
accepts that incinerating PPE may also be necessary. It has
engaged two waste management companies to assess the best
options available. The Department is continuing to spend money
storing these excess items, and while overall monthly storage
costs have reduced, it estimates that it is still spending £7
million per month on excess items alone.
Recommendation: The Department should set out in its
Treasury Minute response to the Committee:
- Where responsibilities will lie
between itself and SCCL for the management of all excess
stock;
- What its assessment is of the need
to retain any of this excess stock as part of a future stockpile;
and
- How much it intends to sell,
donate, recycle and incinerate.
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The Department still lacks a stock management system
that enables it to fully understand what PPE it has and where
it is. The Department believes that it has now
received nearly all of the 37.9 billion PPE items that it has
ordered, with 300 million items yet to be received. The
management data on total stock numbers, however, has rarely
been accurate. The Department blames inconsistencies between
the volumes of PPE ordered and quantities shown in stock counts
on the lack of a single end-to-end stock management system that
captures all the stock it holds. This is exacerbated by the
fact that the Department is still storing PPE in 70 locations
across the UK, with items also held in China and also by
suppliers. In order to make informed decisions about the
appropriate amount of PPE to stockpile in future, the
Department will need accurate and complete data on the stock it
currently holds.
Recommendation: The Department should set out in its
Treasury Minute response to the Committee how it intends to work
with SCCL to build and maintain an effective stock management
system that is complete and accurate in its data
collection.
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The Department remains in dispute on 176 contracts for
PPE with £2.7 billion of taxpayer money at risk and has made
little progress in tackling potential fraudulent supplies of
goods. The majority of these 176 disputes relate to
the quality of the PPE provided by the supplier. Eighty-three
of the 176 contracts are still in the first stage of the
commercial resolution process with a further 59 having entered
formal commercial discussions. At present, no cases have moved
into the litigation stage of the commercial dispute process.
The Department estimates that of the 176 contracts in dispute,
35% will not be resolved until 2023. Although the Department
estimates that total fraud from PPE contracts could be between
0.5%-5.0% of expenditure it was unable to give us any details
on how it is progressing any fraud inquiries for these
contracts under dispute.
Recommendation: The Department should explain in its
Treasury Minute response to the Committee its progress in
resolving these cases and provide as full an update as is
possible on the status of those negotiations.
The Department should also update us on how it is working with
relevant authorities in assessing and acting on any fraudulent
cases.
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The Department had insufficient due diligence checks at
the outset of the pandemic to prevent potential profiteering
and to identify conflicts of interest. We recognise
that the Department had to act quickly at the start of the
pandemic to secure vital supplies of PPE but believe that there
was still scope to perform appropriate due diligence,
particularly on potential new suppliers. The Department
acknowledges that before May 2020 not all due diligence checks
on areas such as financial, commercial and legal issues were
completed before awarding contracts. A formalised eight-stage
due diligence process was established in May 2020 but 46 out of
115 contracts awarded through the VIP lane pre-dated this. The
Department believes that it had the necessary due diligence
checks considering the circumstances and environment of the
COVID-19 pandemic in which it was purchasing PPE. At no point
was consideration given to the extent of the profit margin that
potential suppliers would be taking on payments for PPE.
Neither was consideration of any potential conflicts between
individuals making referrals through the VIP lane and the
companies they were referring. We are therefore unsurprised to
see the reports of excessive profits and conflicts of interest
on PPE contracts.
Recommendation: The Department should set out in its
Treasury Minute response how its commercial reset will ensure
that sufficient processes are now in place to prevent such issues
occurring again.
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The Department has handed back responsibility for the
PPE programme to Supply Chain Coordination Limited (SCCL) with
many issues still to be resolved. Since October 2021,
oversight of SCCL transferred from the Department to NHS
England and in April 2022 the Department transferred the
responsibility for managing the supply of PPE to SCCL. This
means that responsibility for the logistical management and
distribution of PPE across the 70 sites that the Department
built up now resides with SCCL. In other areas, however, such
as the resolution of the 176 contracts in commercial dispute,
responsibility is to remain within the Department. The
Department was due to produce a PPE strategy where we expect
roles and responsibilities to be clearly set out, but this has
been delayed and is now not expected to be completed until
summer 2022.
Recommendation: The Department should release its PPE
strategy in full as soon as possible, setting out how it will
work with SCCL and what the respective roles and responsibilities
of each organisation will be in the ongoing management of
contracts and future procurement activities. If the strategy is
not available by the end of September, the Department should
write to the Committee to explain the reason for the delay.
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The future of the UK-based supply chain for PPE is
unclear. The global demand for PPE at the start of the
pandemic pushed up the prices from suppliers around the world.
In an effort to create a more resilient UK-based supply chain,
the Department encouraged some UK manufacturers to repurpose
their businesses to supply PPE. It signed 37 contracts under
its “UK Make” programme and collectively, these contracts
helped deliver 3.9 billion items of PPE. However, now that
demand for PPE has reduced and with the Department holding a
large amount of excess stock, it is unclear what role these
suppliers might play going forward. Only seven of them have
been moved onto SCCL’s procurement frameworks enabling them to
bid for future PPE contracts. In the event of a future
pandemic, it is unclear what role these suppliers might be
expected to play to meet the renewed demand.
Recommendation: The Department should explain in its
Treasury Minute response what the role of UK based suppliers of
PPE is expected to be going forward. This should include what
role UK-based suppliers can expect to play in ongoing procurement
activity and what the expectation is for capacity to be increased
in the event of future pandemics.
