1. UK Trade & Investment did not have the right governance, skills or experience to procure the contract. UK Trade & Investment (UKTI) failed to keep proper records to support the procurement, for example there is no formal record of the final contract price agreed with PA Consulting Services Limited (PA). UKTI does not appear to have produced a final business case for this procurement, so there is no evidence the procurement was properly considered within a formal governance structure. The business case that did exist could not be found until several months after the contract had ended. The person leading the procurement had no relevant training, had a poorly-resourced team and was reliant on a part-time procurement adviser. UKTI does not appear to have received sufficient advice to prevent it from making some questionable procurement decisions.
2. UKTI’s handling of the procurement significantly breached good practice, was unfair to other bidders and left UKTI open to being exploited. Despite negotiating significant changes to the contract, including transferring in part of another contract, UKTI did not re-open the competition and the signed contract was based on PA’s original bid rather than the negotiated terms. The current UKTI team believe the negotiated changes were material and that the procurement should have been re-opened to other bidders to see if UKTI could have secured a better price. Failing to do so reduced UKTI’s leverage in its negotiations with PA and was unfair to other bidders. UKTI and PA also signed the contract before they had finished negotiating details such as specialists’ rates and the staff mix. At nearly 600 pages, the contract was overly complex for a relatively simple service and the pricing template provided to bidders did not fully define the cost categories. This created confusion and left UKTI in a vulnerable position, which was worsened by its failure to challenge PA sufficiently when discussing the contract pricing.
3. PA obfuscated about its costs and profits and allowed UKTI to believe that PA had not increased its profit when it had. PA was repeatedly unclear about the breakdown of its costs and profits, as asked for by UKTI. Several of its explanations were contradictory and changed over time, including such questions as whether the specialists’ day rates included overheads and whether certain costs were fixed or variable. Despite having underbid on the back-office costs and having won only three of the available work packages instead of all five, PA decided to proceed with running a full back office and to charge the extra costs to UKTI. PA did not make it clear to UKTI that this was happening; instead it presented the extra costs as part of the specialists’ day rates. When the final specialist rate card was agreed, UKTI believed that PA’s profit had fallen slightly when this was not the case.
4. On termination of the contract, UKTI’s previous carelessness left it unable to recoup from PA the full amount that it considered it was owed. UKTI believes it lost £5 million on hidden overcharges in the contract, however, it was only able to recover £3 million in the settlement it agreed with PA following termination of the contract. UKTI told us it considered the settlement to be the best it could have achieved given the state of its documentation and record keeping. If UKTI had been clearer originally about how the contract should have been priced, and if it had kept better records about agreed changes to the contract price, it is likely it could have achieved a more favourable settlement.
5. We are not convinced that PA accepts the seriousness of its misrepresentations to UKTI or its failure to honour its duty of care to UKTI and the taxpayer. PA showed a serious lack of due care for its client in a number of ways: it failed to tell UKTI it was procuring the wrong thing; it failed to provide a full and clear explanation of its costs to UKTI when asked; and it described passing extra back-office costs to UKTI as being in UKTI’s interest. PA has told us it accepts it could have been better at communicating and providing explanations to UKTI. However, its inconsistent and unclear submissions and explanations, to us and the National Audit Office as well as to UKTI, seem to us to be more designed to obfuscate and confuse than to provide clarity and do not give the impression of an organisation that is facing up to its responsibilities and accepting of the need for change. PA changed its explanation of what happened frequently, both ahead of and during our public session.
6. These failures indicate inadequate quality assurance, internal control and commercial and relationship management within PA. PA’s repeatedly inconsistent explanations are indicative of poor record keeping and a lack of corporate understanding of what happened. It beggars belief that this would have got through proper quality assurance and management review processes. We are also concerned that PA’s bonus scheme for its partners risks incentivising poor behaviour in the absence of proper controls. PA has acknowledged that the team negotiating with UKTI did not have the right skills to undertake a commercial negotiation or to make fair representations to UKTI. It has also acknowledged that the issues with the UKTI contract should have been escalated sooner internally. PA has informed us that it has now made changes to its procedures, controls and training in an effort to address some of these issues but, in our view, it needs to do more to provide reassurance that its internal controls are adequate.
7. Although, in government terms, this was a relatively small contract, there are some serious lessons that need to be learned by all government bodies undertaking procurements. Suppliers hoping to contract with government should also take note. With this in mind, we make the following recommendations.
i)PA Consulting Services Limited (PA) should provide the Government with formal assurance that its failure to give a full and accurate account of its costs and profits will not happen again because of control problems or for any other reason. That assurance should be applicable to all contracts it holds with government. In providing that assurance PA should satisfy itself that it has a sufficiently good system of internal control that will not allow individual members of staff to act contrary to company policy. Obtaining the required level of assurance may require PA to commission an independent review of its practice management and internal controls.
ii)The Department for International Trade needs to satisfy itself that all its contracts will in the future be run with people with the required level of experience. It must put processes in place to ensure that all senior responsible owners (SROs) are properly qualified and given appropriate support.
iii)The Cabinet Office and the Government Commercial Function should extend their capability programme so that it supports arm’s-length bodies, and should ensure that all government bodies have arrangements to ensure SROs are properly qualified and given appropriate support.
iv)The Cabinet Office and the Government Commercial Function should prescribe a minimum level of documentation that all public bodies should maintain for all procurements and contracts.
v)The Cabinet Office and the Government Commercial Function should write to government bodies reminding them to procure simple things in simple ways.
vi)The Committee will want to review the efforts of the Department for International Trade to improve its commercial capability in the future and satisfy itself that adequate action has been taken. In response to our report in March 2016 on Transforming Contract Management, the Cabinet Office undertook to develop and agree a Capability Blueprint with each department, which will contain a future operating model for commercial activity and a plan to build that future model. Once the Department has completed its Capability Blueprint, it should write to the Committee to inform us of the outcome and its plans for further development.
vii)The Government should commission the National Audit Office to conduct an independent forensic audit of both UKTI and PA Consulting to get to the bottom of what happened. It is not enough to describe incompetence at a Parliamentary committee especially when information and explanations have changed before, during and after our public session. We need to see a rigorous pursuit of the truth.
30 March 2017