Ministry of Justice and Serco / G4S contract over-billing; the inside story (part 2)

(Continuing the story of the Ministry of Justice Electronic Monitoring (EM) over-billing, as told to us at the department’s staff event last week by Vincent Godfrey, Procurement Director and Ann Beasley, Director General, Finance).

Now the SFO investigation and forensic audit was in full swing, and Godfrey emphasised that everyone involved – Ministers and officials alike - “wanted to do the right thing”.  They had unwavering support, despite the fact that this was tricky politically.

In the meantime, the ongoing contract management of the EM contracts needed considering and Godfrey’s  team took that over from the ‘business’ line management. He deployed staff to the contractor’s premises, a move that was “not totally welcomed” by the suppliers.  But provisions in the contract allowed this, going back to the 2004 contracts. However, the department had never exercised those rights.

Buy now, it was clear this wasn’t just a problem around the edges of contract interpretation. In one of the most shocking moments of the session, Godfrey said, “we thought from the data provided there were 19,500 subjects – but in fact only 14,500 were being monitored. Some we were being charged for were in prison, abroad, even dead. Some had never actually had equipment fitted”.  In one case, a contractor removed the equipment but “kept billing for 935 days after monitoring stopped”.

Interestingly, the contractor issues were different. G4S had a process to stop monitoring (and billing) when a subject died, for instance. Serco was billing for dead subjects, which led to some pretty shocking discussions when MoJ staff faced their executives.

The aim of the department now was to reach a reasonable settlement – so there was continuous engagement with the contractors and advisers. The process was also involving others, Cabinet Office had engaged their own advisers and were looking more widely across government at the suppliers and issues. The MoJ was also thinking about the future – the Breedon review was published on 19th December, with recommendations for contract management generally.

By now, discussions were underway with Serco at top level. It wasn’t clear from the emails discovered quite who knew what, so MoJ insisted that the discussion had to be with the non-executive Chairman of the firms. That was a surprise to the firms but “we just couldn’t be sure of the engagement of others in the issues we had found”. By now, in any case, there were resignations of senior people – Chris Hyman quit as Serco CEO in October, as did Richard Morris, the UK MD of G4S.

Ed Casey, head of Serco in the US  then joined the process to work with Lyons – he was a breath of fresh air, according to Godfrey and Beasley - “we got the impression that maybe the US business community was more attuned to governance issues”.  Serco agreed that MoJ should have access to all and any data to help determine a fair settlement.

By December 18th, an agreement was close, and the MoJ negotiating team of 7 or 8 people got together with Serco in the MoJ head office at Petty France. They thought it would be a brief meeting, but soon realised that agreeing the final wording was going to be more difficult than expected. At 1 am the fire alarm went off, and the MoJ team joked that they would leave the Serco people to burn if they didn’t sign!  Proceedings were being reported live on Sky News – seeing that whilst being in the negotiations was a strange experience, Godfrey said.

Finally, at 2.45am, the deal was agreed and Godfrey “skipped down the corridor”. Serco agreed to pay £68.5 million and to be audited against a corporate renewal plan.

The team hoped that this would create momentum to reach a deal with G4S, but the firm offered just £24M – the parties were a long way apart, and MoJ still didn't have real access to data. “We still haven't seen all the G4S emails”.  The volume was higher than with Serco and the nature of systems more complex.

Progress was limited, so on the 23rd of January civil proceedings were started in the high court.  “We were surprised G4S allowed matters to get to that point”. Further negotiations ensued and finally, by March 11th it became clear that a basis for settlement was in place – and PWC were confident they had got to the bottom of the data.

Again, the team expected the final negotiations to be relatively swift, and again that showed false optimism. “It was the most intense negotiation I have ever experienced”. Sustained only by “the largest pile of Haribo sweets in the world”, negotiation ebbed and flowed through the afternoon and evening.  At 2 am it looked like it was all off. Beasley said that the prospect of calling the top civil servant, Jeremy Heywood, her ultimate boss, to say matters weren’t resolved was enough to keep her going through the night.

MoJ pointed out to G4S that the Stock Exchange was expecting a statement from them that morning. What would be the impact if that didn’t happen?  And after almost 24 hours of solid negotiation, an agreement was finally reached. The documents were delivered to the Stock Exchange and at 11.21am on the  12th March, G4S agreed to pay £108.9 million to settle, covering both the EM contract and the two much smaller FM issues.

(Phew! And we’ll be back shortly with more on how MoJ are addressing contract management generally as they look to the future).

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