EMERGENCY AID: THE KOSOVO CRISIS
Managing the supply chain
14. At the beginning of the crisis the Department
did not have an extant air broker contract. Their arrangements
for seeking quotations from two companies had expired in December
1997. Between 31 March and 1 July 1999 the Department provided
61 airlifts for the Kosovo crisis. For 54 of these airlifts, costing
£2.3 million, they used aircraft chartered through Hanover
Aviation, one of the previously selected firms. The Department
did not obtain written quotations for the 54 air charters. They
requested and reviewed paperwork from Hanover Aviation on two
occasions, but they did not retain any documentation and they
could not demonstrate whether they had obtained the best available
price in each case.[11]
15. Asked how this situation had arisen, the Department
said that because they increasingly worked through international
organisations, they had not expected to find themselves again
in the business of directly contracting air charters. As soon
as the crisis began they renewed the previous arrangements by
means of an oral contract with Hanover Aviation. The Department
considered that their oral contract to continue the previous contract
had not led to any loss of value for money or competitive pressure,
because each individual air charter had still been subject to
a requirement for competitive tender. They said it was difficult
to say what would have happened had they sought quotations from
two brokers as provided for under the previous arrangements. But
bearing in mind the limited number of planes that had been operating
in a very constrained market, they thought it probable that two
brokers would have been competing for the same air capacity, which
would have done little more than create a paper chase. The Department
had concluded that it was not sensible to have two brokers working
in competition. They had subsequently had a competition to find
the best broker and had awarded a single brokerage contract to
two companies in equal partnership. They accepted the need to
keep appropriate documentation and told us that they were now
doing so.[12]
16. The Department's contract with the Crown Agents
to provide an emergency response service is central to their capacity
to respond to crises. The Department did not re-tender their original
1995 contract with the Crown Agents until eight months after the
original expiry date, and did not sign a new one until six months
into the Kosovo crisis. During this period services were provided
on the basis of extensions to the original contract. The extensions
introduced a significantly revised cost structure. This included
an increase in core staff and the introduction of a management
fee for additional staff provided under the call-down services
element of the contract.[13]
17. We asked the Department how this situation had
arisen and what it said about their state of preparedness. They
told us that they had extended the original 1995 contract for
a further year to March 1999 to ensure continuity of response
to emergencies ongoing at the time, including Montserrat. They
did not believe it would have been sensible to re-tender then.
They had done so six months before the extended contract was due
to expire and had selected the Crown Agents as the preferred bidder
about a week after the Kosovo crisis broke. In view of the grave
humanitarian crisis they were then in, the Department had amended
the existing contract several times to take them through until
the end of the crisis and the completion of their post-tender
negotiations with the Crown Agents. They signed the new contract
on 28 October 1999.[14]
18. During post-tender negotiations with the Crown
Agents the cost of the core element of the contract rose from
£893,000 (the winning bid) to £2,298,000.[15]
In the light of their experience of Kosovo and other recent crises
the Department had recognised that it was essential to have the
capacity to implement six simultaneous operationstwo rapid
onset disaster responses, two chronic crisis responses and two
UN support operations. It had been clear to the Department that
this would require a permanent increase in the core team of six
staff specified by the Crown Agents in their bid. The Department
had therefore asked the Crown Agents, as the preferred bidder
for the new contract, to present a new budget covering the cost
of an enhanced core team of 15 people for the three-year period
of the contract. The revised budget of £2,298,000 was incorporated
in the contract signed by the Department.[16]
The Department accepted that the contract should have been re-tendered
but they considered it impractical to do so given the complex
and uncertain nature of operations in Kosovo during this period.[17]
19. The people employed by the Crown Agents to staff
the field offices were on short-term contracts specifically for
the operation. They were not given detailed written guidance on
financial controls, on procurement practices, or on key personnel
matterssecurity, local employment contracts, and health
and safety.[18]
Asked why this had been the case, the Crown Agents told us that
they had not had standard operating procedures because it had
not been a standard operation. They had briefed their people as
best they could and the staff they had employed in the field were
experienced and well-qualifiedfor instance, the head of
the Skopje field office had worked for them in Bosnia and Sierra
Leone. There had been a presumption that it was difficult to draw
up standard requirements for this kind of emergency, but experience
had persuaded them of the benefit of having standard operating
procedures which the Crown Agents had now produced.[19]
20. The Department's procurement policy for their
field offices was to use local suppliers because it would help
revive the local economy. Where this was not possible, field offices
passed requests to ELMT headquarters at the Crown Agents in the
UK. ELMT headquarters competed some requirements among potential
suppliers themselves and referred others, which were complex or
outside their competence, to the Crown Agents Procurement Services
Group. By 31 October 1999, the Crown Agents Procurement Services
Group had handled £3.3 million of the £5.5 million of
field office purchases involving procurement fees payable by the
Department of some £228,000.[20]
21. In view of the potential conflicts of interest
in Crown Agents' field staff placing work with their employer,
we asked the Department what they had done to ensure that procurement
decisions taken on their behalf by employees of the Crown Agents
had been appropriate and had resulted in value for money. The
Department told us that they had looked very carefully at the
pattern of procurement by ELMT and they had not found any evidence
that ELMT had behaved as if influenced by conflicting interests.
They wanted these procurement arrangements to continue as they
considered them to be effective and fast. They had, however, now
instructed their own procurement team to visit ELMT four times
a year to audit the way in which they were using their discretion
under the procurement arrangements.[21]
Conclusions
22. The Department have now let a new contract for
arranging air charters. They now use one broker, whereas previously
they had two. This arrangement will only achieve better value
if it succeeds in generating sufficient competition between prospective
suppliers. In the past the Department have had insufficient documentation
to demonstrate that the broker is getting the best deal on their
behalf. They assured us that they would now keep appropriate documentation
to be able to show that they were getting value for money.
23. The Crown Agents had been working in the region
during the crisis for six months by the time the Department signed
a new contract with them. These were less than ideal circumstances
in which to be conducting post-tender negotiations and agreeing
a contract. We note that over this period the cost of the core
elements of the contract rose from some £900,000 (the basis
on which Crown Agents won the competition) to more than £2
million. Without re-tendering the Department could not demonstrate
that they got the best price. By allowing post-tender negotiations
to run on for so long and by initiating a major change to the
basis of the contract, they ran the risk of unfairness to other
bidders.
24. By agreeing the new core element when they were
under pressure during the crisis, the Department may have become
locked into a contract at too high a rate. The Department should
review whether the level of support agreed at the height of the
Kosovo crisis is what they require, and re-tender the contract
at the earliest opportunity.
25. Although staff recruited to run the field offices
in the region were experienced people, they received little in
the way of written guidance on how to run the operation. The absence
of such guidance may increase the time staff have to devote to
administration and divert attention from the emergency. It also
increases the risk of inappropriate systems being put in place.
We note that the Crown Agents have now established standard operating
procedures, and we look to the Department to ensure that they
draw on these for future operations.
26. Crown Agents staff working in the Department's
field offices made the decisions about whether or not to arrange
procurement of items through the Crown Agents in London which
incurred a separate management fee for the Department to pay.
This represents a potential conflict of interest. The Department
will need to act on the assurance they gave us that they would
carry out regular checks on the procurement decisions made by
local staff on their behalf.
11 C&AG's Report, paras 2.28-2.32 Back
12 Evidence,
Qs 3-4, 31, 98-100 and Evidence, Appendix 1, pp 17-18 Back
13 C&AG's
Report, paras 11, and 2.21-2.23 Back
14 Evidence,
Qs 3, 39 Back
15 C&AG's
Report, para 2.26 Back
16 Evidence,
Q43 and Evidence, Appendix 1, pp 17-18 Back
17 C&AG's
Report, para 2.26 Back
18 ibid,
para 2.7 Back
19 Evidence,
Qs 16, 26-27 Back
20 C&AG's
Report, paras 4.6-4.9 Back
21 Evidence,
Q15 Back
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