Conclusions and recommendations
1. At any one time
the Department provides accommodation for around 23,000 destitute
asylum seekersawaiting the outcome of their application to remain
in the UK, although this number fluctuates as world events impact
on the numbers seeking asylum. The cost of providing this accommodation
in 2011-12 was £150 million. In March 2012 the Department
decided to introduce a new delivery model involving fewer and
bigger housing providers than under previous contracts. There
are now six regional contracts (known collectively as COMPASS),
delivered by three prime contractors (G4S, Serco and Clearel,
each of which has two contracts). Only Clearel had previous experience
running asylum accommodation. The Department, through the introduction
of these new contractual arrangements, aims to save around £140
million over seven years. The Department has reported savings
of £8 million from the new contracts in the first year of
their operation.
2. The Department's decision to rely on fewer,
larger contractors was risky and has so far led to delays in providing
suitable accommodation.The six new COMPASS
contracts, won by three private providers, replaced 22 separate
contracts with 13 different suppliers from across the private
and voluntary sectors and local authorities.The Department expected
this to result in economies of scale. However, it is inconsistent
with the Government's wider approach of encouraging more small
and medium size enterprises (SMEs) to supply services to government.
The Department no longer has the diversity of provision it once
had, nor the specialist providers, and has fewer alternative optionsavailable
if a contractor fails. Any failures by a single contractor under
COMPASS would impact on a greater number of asylum seekers.
Recommendation:The Department
should not change its contracting model without a clear business
case justifying that change. The Department should develop a well-informed
understanding of the risk appetite associated with such changes.
3. The transition to the new contracts was
poorly managed by the Department and contractors did not inspect
the properties they inherited.The three
month mobilisation period for such complex contracts was very
challenging for the new contractors to be operationally ready
in time, particularly as two of the threeG4S and Sercohad
no prior experience in the asylum accommodation sector.It was
vital, therefore, that the Department did all it could to broker
the smooth transition between outgoing and incoming contractors
and with local authorities. The Department's decision to adopt
a hands-off approach, while rushing through transition activities
due to the previous contacts expiring, was short-sighted. The
Department did not facilitate an exchange of information between
outgoing providers and the new contractors, for example, on the
condition of housing. The incoming contractors should have carried
out their own inspection and checks as part of the due diligence
process. This lack of information contributed to delays, additional
cost, and disruption and confusion for a very vulnerable group
of service users.
Recommendation:The Department must insist
adequate plans are in place for how it will manage the introduction
of new contracts, including an understanding of what will be inherited
from previous contractors, and clear arrangements for exiting
previous arrangements.
4. TheDepartment has incurred additional costs
and so is less likely to achieve the expected savings.The
Department intended that the COMPASS contracts would make cost
savings of £140 million over the seven year lifetime of the
contracts. The Department had saved £8 million from these
in 2012-13, which appears to us to be below where the Department
needs to be. However, it did report that it expects to secure
a saving of about £27 million over the first 18 months of
COMPASS. The savings have been affected by the additional costs
incurred because of the Department's need to extend existing contracts
during the transition period, and the Department's higher than
anticipated level of involvement in the contracts, such as its
decision to inspect accommodation itself.
Recommendation:The Department must re-examine
its savings forecasts in the light of the additional costs to
make sure these are still realistic and achievable, and make any
adjustments that are necessary.
5. Throughout the contractstendering,
transition and deliverythe quality of data shared by the
Department has been poor. Contractors
considered that data the Department had shared with them at the
outset of the tendering process was inadequate, most notably in
terms of the quality of the housing stock they would inherit.
Poor data contributed to flaws in some of the contractors' key
assumptions which underpinned their bids, such as the ease with
which new properties would be approved by local authorities. The
lack of experience of Serco and G4S meant that the companies failed
to challenge the Department's assumptions on how quickly new accommodation
could be brought on stream and the quality of the housing provided.
Clearel with its previous experience managed the transition better.During
the early days of the contracts, the Department also failed to
share data on the estimated flow of asylum seekers into the UKinformation
that could have helped contractors better plan the amount of accommodation
needed. This hindered the development of the working relationship
and trust required between the Department and providers, and led
to difficulties once the contracts were operational.
Recommendation:The Department must clearly
understand what data is needed to effectively let and manage contracts
such as these, and ensure that such data is available and accurate.
6. The Department did not penalise suppliers
for failing to get the contracts up and running in time. The
incoming contractors were not ready to start operating on time,
but the Department did not penalise their poor performance during
the transition period.The contractors had a three month 'mobilisation'
period (March to May 2012) in which to establish their supply
chain and put in place the staff and systems they needed to become
fully operational. Following the mobilisation period, the Department
planned to have a four month transition period to September 2012,
but it extended this to December 2012 when it became clear that
providers could not meet this timetable. However, during this
extended transition period the Department failed to put in place
an effective incentive regime, so the providers were under no
financial pressure to deliver on time. Clearel, the only pre-existing
contractor, was operational across its new contracts from late
September 2012, whereas G4S and Serco were not operational until
almost three months later.
Recommendation: The Department must design
contracts that both incentivise suppliers to be ready to start
operating on time and penalise those who fail to deliver.
7. The quality of the accommodation provided
by the COMPASS contracts is still not up to standard. COMPASS
contracts require the three contractors to provide accommodation
that meets the Decent Homes Standard. They also include a performance
regime which imposes penalties for poor contractor performance
on issues such as complaints management, timely referrals to properties
and standards of accommodation. The Department acknowledged that
its performance management of the COMPASS contracts should have
been stronger. It only began to extract penalties from all three
contractors for poor performance from July 2013, and in January
2014 had only just reached agreement on the level of penalties
owed by G4S and Serco for the period January to June 2013, amounting
to over £3 million. Over a year into the contract, contractors
have remained slow in providingdecent accommodation for a very
vulnerable group of people. The system for asylum seekers to register
their complaints is not working effectively, which is concerning
given the extent of problems with accommodation highlighted in
the Comptroller and Auditor General's report and reflected in
correspondence we have received.
Recommendation: The Department must conclude
quickly any outstanding issues with contractors on payment of
penalties for their earlier poor performance, and improve the
KPIs against which it will monitor contractors, to ensure this
incentivises contractors to provide accommodation that meets the
standards required.
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