Public Accounts CommitteeWritten evidence from Serco

Further to the hearing of 20 November we offered to respond with further information in writing. Our response, along with additional information and clarification in a number of areas, is supplied below.

Q47—50—Serco Geografix Ltd

Having read the exchange in the transcript and gained more information than I had at the time of the hearing, I wish to clarify my comments regarding transparency with the Ministry of Justice (MoJ) on the interaction between Serco and Serco Geografix under the Electronic Monitoring contract. The transparency to which I referred related to the basis of the ownership relationship between Serco and Serco Geografix Ltd. rather than the transparency of Serco’s financial arrangements with Geografix, into which I have now initiated further investigation, about which I am informing both the MoJ and the relevant authorities

Q74—Bid costs as percentage of contract value

The average bid cost incurred by Serco as a percentage of revenue falls within the same 1% to 2% range cited by other witnesses in respect of their companies in the hearing.

Q138—Risk transfer (Work Programme)

Further to my answer to this question, I am able to supply some additional information. First of all, under all circumstances we retain the reputational risk of delivery—if our sub-contractors do not deliver it would be Serco’s responsibility to make good on our promises. Secondly, those organisations with which we sub-contract do bear a proportionate element of financial risk based upon their delivery against their contract with us. Nonetheless, our pricing mechanism within a Payment-by-Results contract, such as the Work Programme, is structured to assist providers (particularly the SMEs and VCS organisations within the supply chain) with cashflow and management of financial risk. The assistance is in many cases significant: for example, attachment fees are paid to the supply chain when customers start the Work Programme for five years. Serco on the other hand only receives attachment fees from the Department for Work and Pensions (DWP) for the first three years. Fees are also paid to the providers when customers start work and also when they remain in work for 13 weeks, although Serco receives no revenue from the DWP for these outcomes.

We believe that this provides the information requested in addition to providing further clarification in a number of areas where we feel this would be helpful. However, please let us know whether the Committee have any further requests for information following this letter and we will endeavour to provide it.

Alastair Lyons CBE

26 November 2013

Prepared 13th March 2014