Ministry of Justice and Serco / G4S contract over-billing; the inside story

We featured the Ministry of Justice (MoJ) staff event last week and promised more around the whole saga of supplier over-billing on the Serco and G4S offender tagging – ‘electronic monitoring’ (EM) - contracts. Here it is, as told to delegates including me, by Vincent Godfrey (Procurement Director) and Ann Beasley (Finance Director-General).

They explained that they wanted to dispel a few myths, such as that the problem was basically just a misunderstanding, or different interpretations of the contract, or that it came to light via whistle-blowers, or via a PWC audit. However, they are still limited to some extent in what can be said because Serious Fraud Office and the City of London Police investigations still continue and may lead to court cases.

However, we still got a fascinating story. And its origins lay in the re-tendering process for the EM contract back in February / March 2013, and some seemingly technical data.

The ‘order length’, as MoJ call it, is the period of time for which monitoring of a particular offender continues. And the average order length is  a key element of pricing for potential bidders.  So during the bid process, a procurement executive noticed what seemed to be inconsistencies in the G4S tender. She talked to an analyst from the MoJ analytical services team, who were working with procurement on the programme, and together they looked at the data in more detail.

G4S had provided historic data on order lengths to the procurement “data room”, so that any potential supplier could look at the contract information and better construct their own bids. But the data in the data room was somewhat different from the assumptions that G4S had built into their own pricing model in their bid for the new contract. The difference was “not huge, but it raised some alarms”.

The procurement exec and analyst raised this with Vincent Godfrey, the MoJ Procurement Director. Calls to G4S did not result in a satisfactory answer to the mystery. So not long after, the three MoJ people went to a G4S centre, to listen in on a night shift where call centre staff were taking calls from offenders ('subjects') or checking up on their locations. Godfrey described the moment when they realised something was really wrong - that subject case files weren't being closed down properly.  “It became clear that I was listening to a subject who was in prison”, he told us. His next call was to Ann Beasley, his boss. Something was very wrong here.

A key decision then was to engage the best possible advice – it wasn’t clear quite how big this was going to be, but they took no chances. The PWC Forensic Audit team were engaged, as were two top legal brains, Sarah Hannaford QC and Andrew Edis QC. “I’d come up against Sarah before and never won, so decided to get her on my side”, Godfrey told us. The MoJ Permanent Secretary was told of the issue, as was the Cabinet Secretary and the National Audit Office.

On the 17th May, a statement was made by their Minister indicating that some issues had been discovered and an audit would be carried out. Now around this time, a whistle-blower raised some issues with the NAO, but these were different in nature and never proven. But the PWC audit was jointly commissioned by MoJ and NAO.

Further work suggested real problems with G4S and Serco contracts and by now, Godfrey was in daily discussion with contractors and Ian Elliott of the PWC team.  It was decided that a full forensic audit of documents was needed – not just for the EM contract, but for other key contracts those firms held with the MoJ.

Serco agreed to this but G4S didn't.  That left MoJ with little choice but to refer the matter to the Serious Fraud Office - “we had to highlight the issue we had found, but it was not for MoJ to judge whether criminal acts had been committed”.   That would be up to SFO to decide. (After further audit, Serco was referred as well).

On 11th July 2013, MoJ decided that another public announcement was needed, explaining the SFO involvement and that they had clearly identified a number of issues with billing – this “put us on the front foot”.  The financial claims could be in the “low tens of millions”, according to the statement. The share prices of the two firms fell, as they did of course on the back of subsequent announcements. “We were well aware of the effect we could have and all announcements were carefully considered and very measured because of this damage”.

The wider audit also found irregularity in the Serco criminal transportation contract in London, after persistent complaints from users that the poor performance on the ground did not tally with the performance data from contractor. That case got referred to the City of London police in August. Issues with two G4S facilities management contracts were also discovered. Meanwhile, the SFO was going through their pre-investigation phase, which determines whether to instigate full criminal investigation. On the 4th of November, they announced that would go ahead in the case of the EM contracts.

(To be continued)....

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