Secretary of State for Justice, Chris Grayling, has made a statement in the House of Commons today (11th July, 2013) with regard to electronic monitoring contracts with Serco and G4S. He said:
“Mr Speaker, I would like to make a statement about the Ministry of Justice’s electronic monitoring contracts with G4S Care and Justice Services and Serco Monitoring. These contracts provide for the tagging of individuals on bail and offenders under supervision in the community. The current contracts were awarded under the previous Government, in November 2004, and are due to expire shortly.
“The House will recall that I made an announcement on 17 May indicating that my Department had identified a number of issues surrounding the way in which we have been billed for monitoring under the current contracts, and that as a result I had ordered an independent audit of the billing arrangements under both contracts.
“Let me begin by explaining to the House the nature of the issues that prompted the audit. As part of my Department’s work on tightening up procedures, both to prepare for the new electronic monitoring contracts which are now out to tender and also to improve the quality of our contract management, we identified what appeared to be a significant anomaly in the billing practices under the current contracts. It appeared that we were being charged in ways not justified by the contracts and for people who were not in fact being monitored.
“Following this discovery, I took immediate steps to investigate the issue, commissioning an audit by PricewaterhouseCoopers.
“I also sought assurances that there was no risk to the public as a result of issues we discovered, and I am clear that these billing issues have not given rise to any risk to public safety.
“This audit has now confirmed the circumstances in which the Department was billed for services. This has included instances where our suppliers were not in fact providing electronic monitoring. It included charges for people who were back in prison and had had their tags removed, people who had left the country, and those who had never been tagged in the first place but who had instead been returned to Court. There are a small number of cases where charging continued for a period when the subject was known to have died. In some instances, charging continued for a period of many months and indeed years after active monitoring had ceased. The House will share my view that this is a wholly indefensible and unacceptable state of affairs.
“The audit team is at present confirming its calculations but the current estimate is that the sums involved are significant, and run into the low tens of millions in total, for both companies, since the contracts commenced in 2005.
“The audit shows that the overcharging began at least as far back as the commencement of the current electronic monitoring contracts in 2005. It may date back as far as the previous contracts let in 1999.
“The audit also reveals that contract managers in the Ministry of Justice discovered some of the issues around billing practices following a routine inspection in 2008. Whilst it appears that these contract managers had only a limited idea of the scope and scale of the problem, nothing substantive was done at that time to address the issues. None of this however justifies the billing practices that have been followed by the suppliers.
“The House will share my astonishment that two of the Government’s biggest suppliers would seek to charge in this way. The House will also be surprised and disappointed to learn that staff in the Ministry of Justice were aware of a potential problem and yet did not take adequate steps to address it.
“Mr Speaker, let me set out for the House what we are doing in response to these findings.
“The billing practices in question were clearly unacceptable and the Government will take all necessary steps to secure a refund for the taxpayer. However, in view of the seriousness of the issue, and having taken full legal advice, I am clear that, as Lord Chancellor, I must not only take action in terms of financial recovery, but should also seek to rule out the possibility that what went on involves dishonesty by anyone involved in the contracts.
“I have put to the two companies that we should now carry out an independent forensic audit, not just of the contractual arrangements, but also of evidence like internal e-mail trails between their executives to establish the detail of what happened. I have now received their responses. Let me deal with each company in turn.
“Serco, which is one of the Government’s biggest and most important suppliers has agreed in full to such a forensic audit taking place. They have said that they will co operate fully with our auditors, PriceWaterhouseCoopers, They have said that they take the issue extremely seriously and assure me that senior management were not aware of it. They do not believe that anything dishonest has taken place, but we have agreed that if the audit does show dishonest action, we will jointly call in the relevant authorities to address it.
“They have also agreed that there will be a forensic audit of all of my Department’s contracts with their company to ensure that there are no other issues elsewhere.
“In addition, they have decided that it would not be appropriate for them to continue to participate in the current tender process for electronic monitoring, and have agreed to withdraw from that process.
“I am grateful to Serco for their co-operation.
“Let me now turn to G4S.
“We put the same proposal for a further detailed forensic audit to take place to G4S last night. They have rejected that proposal.
“I have given careful consideration as to how to respond. I should state that I have no information to confirm that dishonesty has taken place on the part of either supplier. But given the nature of the findings of the audit work that has taken place so far, and the very clear legal advice that I have received, I am today asking the Serious Fraud Office to consider whether an investigation is appropriate into what happened in G4S, and to confirm to me whether any of the actions of anyone in that company represent more than a contractual breach.
“I am disappointed that G4S still feel it appropriate to participate in the tendering process for the next generation of electronic monitoring contracts, which we are currently in the process of renewing. I have therefore started a formal process to determine whether to exclude them from this competition.
“Furthermore, we will be commencing forensic audits of all existing contracts that the Department has with G4S.
“Let me deal with some other immediate procurement issues that I need to address.
“My department was also due to announce the results of the competition to take over the management of prisons in Northumberland and Yorkshire. I can tell the House that the winning bidder for Northumberland is Sodexho, and that this transfer will continue as planned. However, the leading bidder in Yorkshire was Serco. I have decided that we will delay the award of this contract, until the audit process I have put in place is complete. Clearly it will only be awarded if that process is completed to our satisfaction.
“We have also begun work on two new houseblocks at prisons run by Serco and G4S. Since these are construction contracts at existing prisons and are an essential part of our replacement strategy for the older parts of the prison estate, I intend to proceed with this work.
“But, as I have said, it is not only the behaviour of the suppliers that needs to be examined closely. I am making changes in my Department because it is quite clear that the management of these contracts has been wholly inadequate. I have put in place an entirely new contract-management team, led by my Procurement Director, and validated by the independent auditors. The Permanent Secretary is also instituting disciplinary investigations to consider whether failings on the part of individual members of staff constitute misconduct.
“I have also commissioned an urgent review of contract management across my Department’s major contracts, which will report by the early Autumn. It will include independent audit expertise and will be overseen by my Department’s lead Non-Executive Director, Tim Breedon, the former Chief Executive of Legal and General. I want to ensure that we have put in place arrangements that are robust and at all times deliver value for money for the taxpayer.
“With regard to wider government contracting, my Rt Hon Friend the Minister for the Cabinet Office is today announcing a review of all contracts held by both G4S and Serco across government. In addition, this review will determine how Government will better manage similar contracts in the future.
“Separately, the NAO is looking at the scale of Government contracting activity with key suppliers, and how effectively those relationships are being managed by Government.
“I have made clear from the outset that I regard this as a very serious issue, and I have taken immediate action to address it. I would, though, like to reassure the House that, however serious these problems, they concern billing arrangements rather than wider issues of public protection.
“I remain committed to the use of electronic monitoring as a powerful tool in supervising offenders. The steps we are taking to retender the contracts will deliver a significantly improved service, which will be subject to robust contract management in the years ahead.
“I believe the private sector brings significant benefits in delivering efficient and cost effective services to the public but we will not tolerate unacceptable activity of any kind – no matter who is responsible. I am angry at what has happened and am determined to put it right.
“I commend this statement to the House.