Dark Money Investigations: Investigation

Revealed: ‘Failing’ Serco won another £57m COVID contract without competition

As Serco's share price soars, government accused of "shovelling huge sums of public money to a handful of outsourcing companies without competition, rigour or accountability".

Peter Geoghegan Screenshot 2020-05-28 at 15.49.09.png caroline m.jpg
Peter Geoghegan Russell Scott Caroline Molloy
16 October 2020
In the money....
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Kris Tripplaar/SIPA USA/PA Images

Outsourcing giant Serco was given a £57 million contract to run COVID testing centres across the UK without any competition, openDemocracy can reveal.

The Department of Health and Social Care handed Serco and other private firms previously secret multi-million pound contracts to provide “management services” at sites across the country.

The news comes as the FTSE-listed firm announced this morning that the government has renewed an earlier contact-tracing contract – worth a reported £410 million – despite a swelling chorus of criticism of the scheme’s failings.

Sage, the government’s scientific advisory team, has warned that “engagement” problems and “delays” means the track and trace system is only having a “marginal impact” on reducing the spread of the virus.

Serco’s unscheduled trading statement Friday sent its shares soaring. The company predicted that profits could hit £165m, thanks largely to a slew of lucrative government contracts.

Under the terms of the newly unearthed contract, the government paid both Serco and outsourcers G4S an initial fee of £57 million to run COVID testing sites at locations across the UK. Another outsourcing firm, Mitie, was given £32 million to provide similar services. All these contracts were awarded without a competitive tender process.

The contracts were only published last week – despite rules stipulating that contracts must be made public within thirty days.

This government seems obsessed with shovelling huge sums of public money to a handful of outsourcing companies without competition, rigour or accountability.

Rachel Reeves, shadow Cabinet Office secretary

The British government’s decision to outsource much of its flagship £12 billion test-and-trace system has been heavily criticised. Labour this week called on Boris Johnson to ditch “failing Serco” as rates of contact tracing have dropped and many Britons have complained about problems accessing COVID tests and testing sites.

Shadow Cabinet Office secretary Rachel Reeves told openDemocracy: "This government seems obsessed with shovelling huge sums of public money to a handful of outsourcing companies without competition, rigour or accountability. We deserve to know where taxpayer money has gone and why.”

Government contracts are usually awarded after a tender process which allows different providers to compete to offer the best value. But since the COVID-19 pandemic struck, the government has used an exemption in procurement laws to avoid opening public contracts to competition. Labour MP Dawn Butler, a member of the House of Commons science and technology select committee, said the lack of transparency around pandemic outsourcing is a “national scandal”.

Steve Goodrich, senior research manager, at Transparency International UK, said: “Whilst it is imperative for government to provide a timely response during the pandemic, there is growing reason to question why so many multi-million-pound contracts are awarded without competitive tender.

“Departments have the option of running rapid open competitions for COVID-related contracts, so it raises the question of why they are instead opting for a more arbitrary and opaque approach.”

‘Cementing the private sector’

Serco is a major plank of British government outsourcing. Among other things, it runs six prisons, an immigration removal centre and the sleeper train from London to Scotland.

The FTSE 100-listed firm is no stranger to controversy. Last year, the company was fined almost £23 million in a settlement with the Serious Fraud Office over claims it had overcharged the government for electronic tagging.

Serco has also received numerous NHS contracts, detailed in a report co-published by the University of Greenwich and campaign group We Own It. The report’s authors conclude that Serco’s record is “dotted with failures”.

Earlier this summer, Serco chief executive Rupert Soames told staff in a leaked email that the COVID pandemic is going “a long way in cementing the position of the private sector companies in the public sector supply chain”.

The government refused to answer questions in Parliament this month about when the contact-tracing contract was due to be renewed. openDemocracy’s investigations revealed that the contract had been renewed on 24 August for a period of eight weeks, and also that staff were told to expect further renewals “at the last minute”. Today’s investor statement would appear to be confirmation of a last-minute renewal of one of Serco’s most valuable – and controversial – contracts.

openDemocracy revealed last month the existence of a previously unreported Serco COVID contract to run test centres. At the time the Department of Health and Social Care claimed the deal was for £45 million, but our latest investigation reveals this figure is at least £146 million - split between Serco, G4S and Mitie. Costs could rise further if the contract extension options are taken by the government.

G4S is also no stranger to controversy: in 2014 the firm agreed to pay back £109 million to the UK government after overcharging on contracts to tag offenders. This year the Serious Fraud Office (SFO) ordered the outsourcing firm to pay a further £44 million after the company was found to have “dishonestly misled” the government over electronic tagging.

‘Sack Serco’

In May, Boris Johnson promised that the UK would have a “world-beating” test-and-trace regime. But earlier this month, the government’s Scientific Advisory Group for Emergencies (SAGE) was scathing about the government’s £12 billion test, trace and isolate regime, warning that the system “will further decline in the future”.

Both Serco and the Department for Health and Social Care have refused to release the names of the roughly thirty subcontractors that employ 9,000 of the 10,500 staff, mostly fielding phone calls.

Many are on zero-hours contracts and complain of poor training. One contact tracer – who worked for a travel agency that had been hired by Serco – previously told openDemocracy that she was “alone, working from home dealing with a pandemic none of us knew anything about.”

Serco – which has regularly failed to trace up to 30% of contacts – could be spared any penalty costs after it emerged that the Department of Health and Social Care failed to include a penalty clause in the outsourcing firm’s £410 million test-and-trace contract.

When David Davis MP questioned Helen Whately about the missing penalty clause, the health minister claimed that “contractual penalties are often unenforceable under English law so they were not included in test-and-trace contracts with Serco.” The response led one Labour MP to tweet simply “sack Serco”.

When approached for comment by openDemocracy, Serco told us to address any questions about contracts to the Department of Health and Social Care.

A Department of Health and Social Care spokesperson said: “All contracts to help with our fight against coronavirus have been awarded in line with public contracts regulations, which is consistent with Cabinet Office guidance. This allows the department to directly award contracts to procure goods, services and works with extreme urgency in exceptional circumstances.

“Proper due diligence is carried out for all government contracts and we take these checks extremely seriously.”

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