Public Administration and Constitutional Affairs Committee
Oral evidence: The work of the Civil Service, HC 253
Tuesday 24 January 2017
Ordered by the House of Commons to be published on 24 January 2017.
Members present: Mr Bernard Jenkin (Chair); Ronnie Cowan; Paul Flynn; Marcus Fysh; Kelvin Hopkins; Mr Andrew Turner.
Questions 153-225
Witness
I: Rupert Soames OBE, Chief Executive Officer, Serco
Q153 Chair: I welcome our witness to this session about the future of the civil service in which we are particularly interested in the relationship between the civil service and contractors now that so much of Government is delivering public services through private contractors. Could I ask our witness to identify himself for the record, please?
Rupert Soames: My name is Rupert Soames. I am the Chief Executive of Serco.
Q154 Chair: We are very grateful for your joining us today. We will ask short and pithy questions, I hope, and it would help us if you could keep your answers short as well. If the answers or the questions are going on a bit long I will intervene in the interests of an efficient session. Can you set the scene: what do you consider to be the key contracts that you currently hold with the Government?
Rupert Soames: We are now exclusively a Government contractor. We have stopped serving the private sector. About half of our revenues are in the UK and our biggest single customer in the UK is the Ministry of Defence. That would be followed by the Home Office, the Ministry of Justice and the Department for Work and Pensions. We do what would be termed frontline services. We run prisons; we are looking after 15,500 asylum seekers; we do work programme work for the DWP; we do non-clinical care in hospitals. It is a very broad spread of central Government and also some local government services.
Q155 Mr Andrew Turner: Can you give an example of when a strong relationship between Serco and the Government has supported successful delivery?
Rupert Soames: Yes, I can. Serco has been through the valley of the shadow of death. I was brought in two and a half years ago when the company was in severe danger of collapse.
The biggest example of Government working effectively with a supplier was our corporate renewal programme where Government was, not unnaturally, extremely concerned that one of their main actors in the Atomic Weapons Establishment—we run Fylingdales and a whole lot of national infrastructure—could be in financial difficulty. They had to work very closely with us, on the one hand keeping a distance, and a proper distance, and on the other hand keeping our nose to the grindstone. In retrospect, it was a fairly painful process, but they managed it in a pretty sophisticated way in that they said to us, “You have to tell us exactly what is going on”. We were having biweekly meetings with the Cabinet Office and Treasury for getting on for a year until we had worked through our major operational issues and we had gone to our shareholders and raised £550 million to strengthen our balance sheet and we had disposed of a company. It was not a pleasant experience for us. It was very upsetting but the Government had to put in place contingency plans in case we did go bust and I think that they ran that pretty well.
As a generality, Government runs by exception; where there is a problem, the eye of Mordor turns upon you. The COMPASS contract would be another example I would give where they know that between us we have got the COMPASS contract wrong. The COMPASS contract is looking after asylum seekers where we provide housing for asylum seekers and we are looking after 15,500 people. This was a contract where we were told when we took it on that we should expect broadly flat numbers of people to look after, about 5,000 people in the north-west and Scotland for the period of a five-year plus two-year contract. Flat? The numbers we are looking after are up 200%. We are looking after 8,000 more people than we were led to expect at the beginning of the contract. This is costing us getting on for £120 million in losses; we are losing £120 million on that contract.
In this instance, where you say, “How does Government work with you?”, the first thing is Government have to decide whether you are going to stand by your contract. It was a fundamental decision by us that we would. Having done that, to the limits that they reasonably can, they have tried to make it work at an operational level more smoothly, not to make our life drastically more difficult than it needed to be. They have just extended the contract and we are going to suffer a lot of pain but the financial side is not the point—it is the operational side.
Q156 Chair: How come you signed a contract with this kind of open-ended liability on the company?
Rupert Soames: That is a very good question. I think that the point that is often lost on people is that the Government are that rare beast, a monopoly buyer. It is all very well to say, “You didn’t need to take this ghastly contract that was put on you”, but that is short-sighted. If Government put contracts on the market and the wise virgins say no and only the foolish and incompetent virgins says yes, we are going to end up having a whole lot of foolish and incompetent suppliers. What has happened is two things: the Government got into a place where they were advised to do massive transfer of state risk on to suppliers and it became a badge of pride to go and transfer as much risk on to suppliers as you could. At the same time suppliers—I think through foolishness and incompetence, certainly on our part—were foolish enough to say yes and we have been caught.
Interestingly enough, on the COMPASS contract what we have been caught by is pure straightforward state risk. The problem is that there are 200%, two times more asylum seekers coming but the political state risk is that we can’t expand the distribution areas because local authorities have to give us permission to put people into different areas. As a private company, there is nothing we can do about it. We work hard and things are getting a bit better and we are managing, but fundamentally the risk that we would be able to operate in only a tiny number of local authorities is state risk.
Q157 Mr Andrew Turner: This looks to me like an opportunity for the Government to say, “We are not going to use you”, but in fact you are saying it is the opposite. They want you perhaps to a certain extent but it was the Government that were against having in-house contracts to do these things.
Rupert Soames: These things are normally market-tested. The figures are difficult but there are somewhere between £80 billion and £120 billion worth of outsourced services every year. Can we just take a deep breath and acknowledge that the vast majority of these contracts work really fine? You don’t sit here as a Committee and say, “Let’s have the hunt for the really good contracts”. That is not what life is like. I have been in this job for about three years. Let’s say there are 1,000 or 2,000 major outsourcing contracts running at any one time. What do we hear of each year? One or two that go badly wrong.
Q158 Mr Andrew Turner: Yes, but nonetheless the Government could, if they wished, take that contract back.
Rupert Soames: They could, but certainly in Serco’s case they would have been mad to because it would have cost an awful lot of money to do so because we were standing by our corner and saying, “We have an obligation to Government. It is our fault. We are going to stand by that and do it”. The Home Affairs Select Committee tried to get me to say that we did not want to see the contract extended. I said there are many things in life I don’t want to see, like deep root canal surgery but it is going to happen and they will do it because it is in the taxpayers’ interest that they do. They would be mad not to. We just sucked that up. We have gone back to our shareholders, we have raised the money, we are taking the losses and we hope to be able to rebid for that contract when it comes out again and do it better next time.
Q159 Mr Andrew Turner: Could you tell me what the dates are behind this? You have been with them for three years. When was it discovered that these works were causing great trouble?
Rupert Soames: There are two things here. There are two contracts where the Government alleged that we had been cheating. One was the tagging contract, the electronic monitoring contract, and the other one was to do with the transportation of prisoners. The prisoner transportation one was referred to the City of London Police and no action was taken. There was no evidence found of impropriety. The electronic monitoring contract is still subject to ongoing SFO inquiries. What that produced was a situation where it was, frankly, the straw that broke a fairly weighted camel’s back. The chief executive of the management company left and I was brought in. I immediately instituted a review of all the contracts that we had and six months after I arrived we made write-downs and provisions of £1.5 billion on our contracts across the world, which was the equivalent of writing off 20 years’ worth of profits. Of that, about £300 million related to central Government contracts in the UK and we are slowly working our way through that.
Q160 Mr Andrew Turner: Before you went in at 2012 or 2013, when did this start?
Rupert Soames: The bidding for contracts that subsequently went wrong in a major way?
Mr Andrew Turner: Yes.
Rupert Soames: I would date it as probably somewhere around 2010 and I think two things collided. One was the greater sophistication and toughness in the Cabinet Office that in my opinion led to the pendulum on risk transfer swinging too far. There were some practices like putting out highly sensitive Government services to reverse internet auction. The pricing for the asylum seeker contract was decided by internet auction. You had to prequalify to get there but once you were there it was like it was done by a Dutch auction. I do not believe that that is a sensible way to procure services for tens of thousands of vulnerable people. Serco, along with others, got buyer’s fever and bid too low. Most of the losses on the COMPASS contract come from two things. One is that we bid too low—silly us—and the other thing is that there was no way that all the state risk in that contract was put over on to us.
The good news is that the Government are realising that and, under the new leadership at the Crown Commercial Service, they have just brought out new guidance on contracts. One of the key lessons learnt is that Government cannot tender for contracts without giving at least some responsibility for the quality of the data in the bidding documents. You may be aware of the CRC contracts, the reforming rehabilitation contracts, that have been enormously troubled in their early years. That was because the volumes of people that the Government said that these companies would be looking after turned out to be wildly different.
Q161 Chair: Can I ask a couple of supplementaries before Mr Turner moves on? How much do you think civil servants understood that they were transferring this incredible risk to Serco when they signed the COMPASS contract?
Rupert Soames: I don’t know, I wasn’t in their minds, but I think in the procurement arms of people like the MoJ there was a very muscular approach to say, “We are going to create contracts that mean to say that we, as Government, have no responsibility for anything and you, the contractor, have for everything”.
Q162 Chair: Were they saying behind their hands, “Whoopee, what mugs. Don’t they realise what they have just signed?”
Rupert Soames: I can’t speculate, but whatever it was it was a foolish thing to do.
Q163 Chair: What about your side of the bargain? I appreciate it was before you took over but what kind of understanding of risk did your company have?
Rupert Soames: We signed contracts that had risk that we should not have done.
Q164 Chair: How has your business learned from this unless you understand why those contracts were signed?
Rupert Soames: We now say no. We have a sign up that says, “Just say no”. We won’t know, because of the nature of these contracts, for many years but we are bidding big contracts and there are many more that we are saying no to now than we were before. I think that this point about Government being a monopoly purchaser is rather like Bindu the elephant. You probably may not remember but there was an elephant in a zoo in England called Bindu who went and crushed his keeper by giving him an affectionate hug and the zoo owner said, “He just didn’t know his own strength”. There is an element of that about the Government; they don’t know their own strength. They are hugely powerful and because they are Government they have a duty of care, in my view, to act fairly and reasonably towards suppliers, just as suppliers have a duty of care to deliver good service.
Chair: We will come back to duty of care later.
Q165 Mr Andrew Turner: You said, “Working with the Government is really laborious, really cumbersome, they have absolute fiendish terms and conditions”—implying that your company didn’t know what was happening—“and bidding for work is very difficult”. Is there anything that you could add to that?
Rupert Soames: I think that dealing with Government is a specialist business, particularly on large contracts. The Government have a dream that they are going to line up all sorts of small, tiny, wee companies and charities and have them contracting with the Government. I think that probably the quickest way to destroy small charities and small companies is to let the Crown Commercial Service loose on them, because the sorts of things that they are bidding are enormously complex. A typical bid for us will take four years and cost £4 million of investment from us to be able to bid it, because you are talking about very complex services. I think there is a better balance now. There is a greater sophistication and maturity in the Crown Commercial Service. They have expanded their resources and hopefully this pendulum will now come back to a place where there is a more sensible balance between buyer and seller. There are other things that we can do, which we will come on to, like transparency and open book accounting, to make this a better market.
Q166 Mr Andrew Turner: Can small and medium sized enterprises bid? You are saying you are advising them not to bid.
Rupert Soames: What we do is provide an umbrella under which they operate. We have about 4,800 small and medium sized companies as subcontractors who feed around our pool and then we go and deal with Government and we make sure that we have a big supply chain. I think that there is a dream world that the Government would love to have where they have contracts with the small and medium sized companies. It is not kitted out to do that. It can’t handle the volume. What I would be doing is what the Government are now beginning to do, which is to track the proportion of its business that ends up with small and medium companies. In our case, about 40% of our revenues that we get from Government end up with small and medium sized businesses.
Q167 Paul Flynn: You told us that it was discovered that no crime had been committed when you were investigated, but you repaid the Government £68 million. Did you do that out of the goodness of your heart?
Rupert Soames: That was in relation to the electronic monitoring contract, not to the prisoner escort contract.
Q168 Paul Flynn: What went wrong with that? How would you describe it—dishonesty, mismanagement?
Rupert Soames: I absolutely wasn’t there and I’m not declining from that. It is that I am not qualified to say, other than that the Government felt that they had been charged for things like prisoners who were dead.
Q169 Paul Flynn: It was dishonesty on an Olympic scale, was it not? I mean, common theft.
Rupert Soames: Can I say two things? First of all, this is subject to an SFO investigation, so we have to be careful about what we say.
Paul Flynn: Not here we don’t have to be careful.
Rupert Soames: I think we do, actually.
Q170 Paul Flynn: This is a simple matter. Your company paid back £68 million. You made a loss of £990 million in 2014, which again is losses that are on a scale that is enormous by any standards. You then had to pay money back because you claimed for jobs that you had not done. Why is that not a crime?
Rupert Soames: That may be why the Serious Fraud Office is investigating it. It is for them to determine whether there has been dishonesty/crime or not.
Paul Flynn: But you told us that you—
Chair: Let him answer, Mr Flynn. Please answer, Mr Soames.
Rupert Soames: What there certainly was—let’s be completely honest about this—is that if you could maybe pause for a second and think of the other side of it, you were charging for tagging of people who were dead. Let’s just remember the following points. A tag is a court-imposed order. Correct? The only people who could mandate that a tag be taken off were the courts. We have a responsibility to write to the courts three times—
Q171 Paul Flynn: Do you mind, we don’t have much time and I don’t want to know about that. You were charging for work you had not done.
Rupert Soames: No, it is not a simple matter, Mr Flynn. You either want to have an answer or not.
Chair: I would like to have the answer, Mr Flynn.
Paul Flynn: We are not having one.
Rupert Soames: You are saying to me, “It is a simple answer; you were dishonest”, and I am saying it is not a simple answer.
Q172 Paul Flynn: Okay, let me go on to another point. When you came in to rescue the company, you said you were looking forward to concentrating on the sweet spots, which was taken to mean that you were going to go for the soft options. It was interpreted by the press as meaning you wanted to concentrate on the Ministry of Defence contracts because the supervision of them was less rigorous than it is of other contracts. What does sweet spots mean?
Rupert Soames: Sweet spots means the area where we have greatest capability. What it meant was that we were withdrawing from providing services to the private sector because we believe that the Government sector is such an important part of our business, that it is a highly specialised business, and dealing with Government is what you might call our sweet spot. It does not refer to the MoD or the MoJ. Also I may point out that half of our business is overseas where we have done exactly the same thing.
Q173 Paul Flynn: Do you think taxpayers should have trust in a company that can’t tell the difference between living prisoners and dead prisoners to train our pilots?
Rupert Soames: I think that they can have trust. If I go through the list of things that we do really well, if you would like to come and see the prisons that we run really well, if you would like to come and—
Q174 Paul Flynn: Yarl’s Wood?
Rupert Soames: Why don’t you come and see what goes on?
Q175 Paul Flynn: I have read the reports of those who have been to see the prison—Nick Hardwick and the other reports you have had—that tell the story of mismanagement and waste.
Rupert Soames: No, they don’t. They do not tell a story of mismanagement and waste at Yarl’s Wood. We commissioned an independent report by Kate Lampard, who had previously done the Savile report for the NHS. She spent nine months writing a report on Yarl’s Wood. If you want to know what goes on in Yarl’s Wood, read that report. It is in-depth and lays out exactly what goes on in Yarl’s Wood. I have been there many times myself. This is not a place of cruel or unusual punishment. It is a place that you have if the Government wish to have an immigration policy that says that if you overstay or are here illegally, the Government have the right to deport you. If the Government judge that you are in danger of absconding, it has the right to detain you but it should do so—
Q176 Paul Flynn: The independent reports said that it was a matter of national concern—not the independent report that you commissioned. Could I have a final question on this? Could we look at this? Many of us have seen this history of waste, huge costs of overruns, losses by companies such as yours. In my constituency there was a very efficient system where both Governments had approved of having shared services. It had taken services from all over the country that had been done in a very inefficient way and they were run then in a shared services centre. It worked extremely well and this was then put out to a private contractor who lost £4 million within 12 months. Do you really think the Government should carry on with their doctrinaire view, which none of us take on this Committee?
Chair: Speaking for yourself, Mr Flynn.
Paul Flynn: Do you think that there has been huge cost to the public purse by the Government’s doctrinaire belief that everything in the private sector is better than everything in the public sector?
Rupert Soames: I disagree with almost everything in that sentence. First, I don’t think the Government have a doctrinaire belief. Secondly, as I said earlier, 99% of the time most of the contracts that are written by Government with suppliers work fine. Thirdly, if we are getting into an argument about the provision of public services by private bodies, let us look at the example of something that generally works extremely well, run by a whole series of entrepreneurs—it is called GPs. GPs are private contractors providing public services, people have trust in them, and on the whole it works very well. There are many examples of private provision of public services that work well.
Q177 Chair: I want, if possible, to avoid the ideological discussion in order that we can discover more about the relationships that are required that affect contracting. How should the Government ensure that they continue to get both value for money and a quality service after the contract has been let throughout the life of the contract?
Rupert Soames: This is one of the things where Government should improve and needs to improve.
Q178 Chair: What happens now?
Rupert Soames: What happens now is that a contract tends to get put in a box. The Government’s commercial service is very much focused on letting new contracts and commissioning new works. It is an astonishing difference between private and public business. In the private sector you have constant reviews of contracts; you are constantly changing them; you are constantly moving them around to adapt to changing circumstances. This is not something that Government are good at and one of the reasons they are not is that the moment a contract changes you are in danger of being up in front of the Public Accounts Committee saying, “Why did you let them off that thing?” It is a real tension and I think it is one of the ways that Government as a whole, both the political side of it and the civil service side of it—I keep saying to Government, “There is real value in your existing book of business. In your existing book of business we could go round, we could look at those contracts. We could have win-wins. You could let me off this bit and I will do that bit”. This is one of the things where I think that there has been less progress than there has been on the actual procurement side. Having said that, they are now pushing for their major suppliers a thing where we get together quarterly and review all of our contracts, so there is some progress on that.
Q179 Chair: What kind of relationship do you expect to exist between your people and the people in the Department responsible for managing the contract?
Rupert Soames: In an operational relationship they are talking to each other each day, so we are organising to take asylum seekers from London up to—
Q180 Chair: I appreciate that, but I am thinking about what kind of relationship do you expect a senior official responsible for overseeing that contract and a senior figure in your business to have?
Rupert Soames: Constructive.
Chair: Okay. Well, expand.
Rupert Soames: I expect them to have an open and constructive relationship, to be able to talk through the many problems that inevitably arise. It is really no different from any other relationship between a supplier and a customer mid-contract.
Q181 Chair: How do you test how open, transparent and honest that relationship is?
Rupert Soames: I personally am involved in those relationships to a quite considerable degree. We have a Crown representative. The Cabinet Office reviews all of our contracts with us every quarter and where there are problems, perceived or otherwise, they get escalated up the tree. I am struggling to understand what your concern is. Is it that we don’t talk enough or we talk too much? The answer is it is pretty intense. By way of example, I got a call from Sam Gyimah, the Minister, on New Year’s Eve because they were worried about one of our prisons. I spent an hour on the phone with him going through everything that we were doing at Doncaster Prison to ensure what was going on in a very delicate situation. There is constant interaction.
Q182 Chair: I would expect it to be professional, open, honest, candid but not cosy. How should we have confidence—
Rupert Soames: I think that is right. The days of cosy Christmas lunches and turkeys and celebrations and football matches—I am not sure they ever existed, but I would characterise them as being dead professional.
Q183 Chair: So you don’t entertain your customers in that way anymore?
Rupert Soames: No.
Chair: Not off to the races or a day’s shooting or anything like that?
Rupert Soames: I wish. No, actually I don’t wish. I think those days were ghastly.
Chair: Tickets to the opera?
Rupert Soames: They never existed in my thing. It just doesn’t arise.
Q184 Chair: How much do you spend on corporate entertaining?
Rupert Soames: I don’t know, but I would be amazed if my corporate entertainment bill was more than £500 a year and that is mainly with overpaid advisers.
Q185 Chair: What have you seen in Government that has changed in the way that they keep up what is known as the competitive tension in the contract so that you can give value for money?
Rupert Soames: There is certainly a lot of tension. I think they are very good at it. The problem can arise if they can’t get enough bidders to come forward for a contract. It goes back to the earlier point that if too many people have had too many ghastly experiences and lost a lot of money they can become gun shy. They have a whole range of processes for handling competitive tendering. I personally believe that some of them are too structured. There is a thing that the Ministry of Defence use very often, which is called competitive dialogue where you go through a series of iterations of contractual terms and conditions with all three or four suppliers separately in rooms and then they come out with another version, and that is quite effective. What is not effective is turning round and imposing contracts on often ridiculous—remember that a lot of these problems come from contracts that are rolled out and implemented far too fast because of political imperative.
Q186 Chair: But you were answering a question about how contracts are let. I was asking about the way contracts are managed. What changes have you seen in the way Government maintain the competitiveness and quality of the contract?
Rupert Soames: Once you are in a contract such as asylum seekers, we are not competing with anybody to provide asylum seeker care in Lancashire. We have the contract to do it there. What we are doing, though, is working on a daily basis with the Home Office to make that work and, like so many other contracts, there are 241 KPIs.
Q187 Chair: If the way things develop means that contract turns out not to be very good value for money for the taxpayer, that is tough. They have signed the contract.
Rupert Soames: It is tough both ways. What if it turns out to provide exceptional value for money for the taxpayer, but the supplier is subsidising it to the tune of £120 million and can’t get out of it?
Q188 Chair: The Government should take the view that they win some and lose some?
Rupert Soames: No. What I am in favour of is I am a maven for transparency. I think that a lot of these difficult contracts should be done on open book accounting where you set at the beginning of the contract ranges of acceptable margins. You say that the supplier will not make more than X% but equally can’t lose more than Y%. What you need to recognise on this is that things change through the life of a contract and if there is one thing that the Government and the civil service need to accept it is that you are better off putting a structure that is flexible enough to allow change. It is just like in the building trade you go and get—
Chair: I’ve got it.
Q189 Marcus Fysh: Mr Soames, you have talked a bit about some of the potential issues with information at the contracting stage of a contract. Could you comment on how clearly Government contracts are set out and how well the Government communicate their needs and actual terms and conditions through the contract?
Rupert Soames: If you are bidding for a contract that is in its third or fourth generation, the third or fourth time it has been bid, the specification and requirements are really well known. You end up with very well specified bids and everybody knows what they are doing and those kind of run along. Those are easy to do. What is really difficult is where you get a situation where you are outsourcing something for maybe the first time, of which a recent example would be the community rehabilitation thing where the question is: what proportion of the service users would be handled by the National Probation Service? The Government did not pretest that. They did not give it a dry run. It is what suppliers’ revenue is driven by and the numbers have turned out to be very badly wrong. You can’t say to suppliers, “We take no responsibility for the quality of the information that we give you”. We had a contract we were bidding for in Scotland and the Government tried to say, “Here is this mountain of information and, by the way, we have got no responsibility for it. If it is wrong, that is your problem”. It is a lovely idea but it actually is dumb.
Q190 Marcus Fysh: You have said a lot about how it is important to have the flexibility in there and how Government can only turn their attention to when there might be an issue. How well do you think Government do overall in ensuring delivery of their contractual terms?
Rupert Soames: On the whole, well. You either want to believe what I believe the case to be, which is that the vast majority of these contracts work just fine and there is a small proportion that end up in trouble—so says life and it is about the same in the public sector—or you believe that they systematically all go wrong. Actually, they don’t. There are things that we can do to make them run better. I think that there are absurd numbers of key performance indicators and measures on contracts. You may have seen the report into the failure of the Concentrix contract. There was a company providing call centre services to the Treasury. It was having to report on 241 different measures each month. We were fined on a contract in Scotland the other day for not repairing a boiler in a flat that was lived in by two asylum seekers and the penalty was £78,000 for being two hours late on a boiler repair, which was more than the capital value of the flat. Sometimes they get out of hand, but on the whole it works well.
Q191 Marcus Fysh: I understand the Government have been attempting to improve some of the ways that they design these KPIs and so on. What is your impression of how successful that process is?
Rupert Soames: I think we are in slightly middle ground here between don’t let your hand off the nurse for fear of something worse. They can’t resist putting in 241 KPIs on every contract because surely to god they will be able to find something going wrong, whereas in practice when you are in the contract what they care about is the four or five key ones, like are you delivering prisoners to court on time. There is a, in my view, moderately good paper out from Reform called “Faulty by design” about delivering Government services where it talks about the difference between measuring inputs, outputs or outcomes. I think a move to more measurement of output and less measurement of how you do it would be helpful.
Q192 Marcus Fysh: Within that, how useful is the process of open book accounting for these things? How many of your contracts, for example, would have elements of open book accounting? Which Departments are good at doing this, good at sharing information, and which are not?
Rupert Soames: About 70% by value of our contracts are subject to the right to use open book accounting; the Government can come along to us and ask, “How much money are you making?” and we have to open our books. If you look at the frequency with which that is used and its sophistication, it lags far behind, for instance, what you would see in the US. I am in favour of using open book accounting in what I think should be its proper form, which is allowing Government to adjust contracts as they go through to make sure that suppliers are not making egregious profits on the one hand but also that they are not making egregious losses on the other. I think it is a useful tool and it should be supported.
Q193 Marcus Fysh: Where do you think the tension point is between the needs of transparency and the needs of commercial confidentiality in that environment? I note that, for example, in the US some of these things are published online. Do you think that that is a good idea to adopt here?
Rupert Soames: What you have to distinguish between is the commercial transparency and the operational transparency. I am hugely in favour—and I cannot quite understand why we don’t do it—of publishing our operational performance against our major KPIs on every contract, put it on the website every quarter, let every armchair auditor see it, let The Daily Mail, Private Eye see how well we are doing against the KPIs that we said at the beginning of the contract we would do, for a couple of reasons. One is that it is the taxpayer’s shilling: why shouldn’t taxpayers have a right to know how effectively their money is being spent? Secondly, and as important, in my view, is if people can see my KPIs, I can see how they are performing as well. It is letting the competitive dog see the rabbit and that will drive competitiveness between suppliers to do better than each other against operational KPIs. I think that is really good.
Commercially it is not unreasonable for a supplier to say, “I don’t want my competitors to know how much I am paying for my staples, for my energy, what my commercial terms are and what my margins are”. That reasonable request for confidentiality masks what I think is an unreasonable one, which is saying, “We don’t want the taxpayer to see our operational performance”.
Q194 Chair: In whose interest is it to maintain the secrecy?
Rupert Soames: It is beyond my pay grade. All I would say is, you asked me the question: I am in favour.
Q195 Chair: You are being diplomatic. Isn’t it the Government that are resisting open book contracting rather than the contractors?
Rupert Soames: I think what is getting mixed up is the commercial confidentiality one. The other thing is that they know the more information you put out there, suppliers are going to become FOI-able, there are going to be more questions going round the system and it is going to be expensive to maintain. As I say, it is beyond my pay grade but as a fundamental principle—
Q196 Chair: Okay, you have made the point, but you are actually saying that you would be happy for your contract prices to be published?
Rupert Soames: No. I am saying our contract performance.
Q197 Chair: In the United States, your contract prices would be published as well, wouldn’t they?
Rupert Soames: I would be unhappy about that. I don’t see why the price that I have bid for a contract should be freely seen by all my competitors. It is not just the price, because you then get into all the details of the price. If there is going to be competitive tension, we are allowed to see—what is happening is that the price should not be—
Q198 Chair: What would be the effect of the Government publishing contract prices?
Rupert Soames: Every competitor would know its own competitors’ prices.
Q199 Chair: Why would that be a bad thing?
Rupert Soames: It is not the worst thing that could happen. I think we are allowed to be able to deal with customers on a commercial and competitive basis. If everybody knows what everybody else’s price is then the next time you come round everybody is going to bid just above the bottom, and who knows you might have got a better bid. It is not clever or sensible to force people to say—it is not only the price, it is the cost base, it is how the pricing is calculated. You can publish it at such a high level that it is meaningless, but it is more important, in my view, if you want to drive delivery and performance, to publish the operational KPIs.
Q200 Chair: Aren’t we moving into an era where the contract price is just one of the considerations?
Rupert Soames: That is precisely my point. I think that in the other considerations of a first step towards transparency, the one to focus on is publishing the operational performance of contracts.
Q201 Chair: Moving on, typically how long do contract managers in your business stay in their posts managing a contract?
Rupert Soames: The actual contract directors, years. There are some who have been doing them for a few years. A lot of them move around. For instance, in our prison community the person who has been governor up in Kilmarnock has just moved to run Thameside Prison and we have two new people. They may move around within contracts. I don’t know the precise number but let’s say three to four years, something like that, would be an average.
Q202 Chair: They might stay in that same contract but move around within that contract?
Rupert Soames: Yes. Let’s say it is three to four years within a contract. The answer is I don’t have a precise figure but we try not to turn them over—
Q203 Chair: Typically, in your experience, how long do civil servants stay on to manage the contract that they have negotiated and let?
Rupert Soames: The way that it works in a lot of Departments—and this can be fairly unsatisfactory—is you get the people who commission the service and then they hand it over the wall to the people who procure it and then the people who procure it hand it back over the wall to the people who have to run it. It doesn’t happen always but I think it was particularly prevalent in the MoJ, that sort of isolating procurement from the rest, and the truth is you have to have conversations between each. A widely known thing within the civil service, part of the civil service career structure, is that people move on. It is rather like the army.
Q204 Chair: Do you think that undermines the continuity of the relationship with the contractor?
Rupert Soames: No, because the contractual relationship is not one person to one person; it is multi-level. I could get fired—probably for some appalling scandal—but it doesn’t mean to say that the relationship between Government and Serco disappears because there are multiple—
Q205 Chair: In the end relationships are about a person to a person, trust and understanding.
Rupert Soames: We have lots of person to person. Sarah Rapson, who was our main interlocutor on the COMPASS contracts, has left the Home Office and has gone off to the FCA. This is a normal thing, but she had a number two and we had a number two. I don’t think that there is a systemic problem.
Q206 Chair: What effect do frequent staff changes on the civil service side have on the management of contracts?
Rupert Soames: They are not that frequent. For us, it is something that we get used to managing. We get frequent staff changes too, so what is important is that you have strength in depth and multiple layers.
Q207 Chair: How far away are we from having what the Public Accounts Committee wants, a civil service that is first rate at managing contracts? How far away are we from that?
Rupert Soames: I don’t think that that is a journey with an endpoint. I would say they are getting a lot better at it. It is very informative to look at the number of senior civil servants in the civil service. The overall number of civil servants has dropped by 10% but the number of civil servants in grade 6 and above has increased by 18%. There are about 6,000 more people in that senior level. What we have seen in the Crown Commercial Service is that over the last year or so they have brought in 30 or 40 people from outside. They put everybody through assessment centres. There is a lot of energy in the Cabinet Office around the Crown Commercial Service.
Q208 Chair: Give me a few headings. What are the areas that require improvement on the part of the Government?
Rupert Soames: I think that a way of flexing and changing contracts in flight once they are going should be a major area of improvement. From the point of view of governance, I would like to see transparency and publication of operational KPIs and the most recent Cabinet Office instructions about practices in tendering. If that is implemented as the instruction says, it will be a very significant improvement. All this is going to disappear for nought, of course, because of the very large train that is headed down the track in the civil service’s direction in the form of what they have to do to ensure our Government following Brexit.
Q209 Chair: Explain what you mean by that.
Rupert Soames: The civil service has been reshaping itself to deal with a huge challenge, being the increases in efficiency that they have to achieve in the next Parliament. The MoD has to get rid of 30,000 civil servants. It is going to be a generational challenge to do this and they are hiring more senior people to do it and improving that. On top of that, I think that parts of Government have not seen how demands are going to be put on our civil servants to devise, implement, negotiate and set up structures for an entirely new agricultural policy, new immigration policy, new customs policies, setting up clones of the—this is not, because you know my views, a remoaner’s or remainer’s squib; it is me saying that I want to see Britain built really well for when we are out. I think that the Committee needs to consider and ask the questions about how the civil service is going to tackle what is the greatest policy implementation challenge it has faced probably since the Attlee Government in 1945 with the setting up of the NHS and nationalisation. The scale of policymaking, commissioning, implementing and delivery that has to go on in the next five years dwarfs anything. It is on top of a civil service that is already very tightly stretched delivering the existing—
Q210 Chair: You feel that the good intentions of the Cabinet Office to improve contract management across Whitehall are likely to be diluted and diverted into these other efforts. Have I understood that?
Rupert Soames: I would have a real concern that that is going to happen.
Q211 Chair: How do you think we should guard against that?
Rupert Soames: I think that the main thing to do is to have an open conversation about it. Everybody is focusing on the civil service resourcing up to be able to support negotiations. This is not about that. This is not about the act of exiting; it is the act of governing afterwards. When you consider the snafus and cock-ups that we have when you take existing systems like the Rural Payments Agency and evolve an existing system, you are talking about a revolution in the engine of Government across five or six different Departments that is all going to have to be delivered in a very short period of time.
Q212 Chair: Which particular contracts do you have or are you bidding for where you think you are going to be most affected by this?
Rupert Soames: I don’t think this is a problem. We will do what we have to. We are doing prison reform and stuff like that. This is not a problem for suppliers, this is me as a—
Chair: Okay, understood.
Rupert Soames: I am worried to the extent that it is going to cause a huge stretch for the home civil service.
Q213 Kelvin Hopkins: Just before I ask my question, I should say that my views are similar to Mr Flynn’s and my party leader is going to pursue a programme of insourcing rather than outsourcing, and I strongly agree with him. But to set that on one side, in 2014 you told the Public Accounts Committee that providers should have a duty of care to the taxpayer. How do you deliver this in practical terms?
Rupert Soames: In practical terms, by making sure that we deliver in a safe, careful and appropriate manner the services that we have been contracted to supply. We have duties of care to four major constituencies. We have a duty of care to the taxpayers because it is their money that we are spending. We have a duty of care to our service users, be they prisoners or asylum seekers. We have a duty of care to our employees and we have a duty of care to our shareholders. The lesson of Serco is you mess up on the first two and you automatically mess up on the second two. We are an example of a company that may have failed in a duty of care and the consequences of it have been catastrophic. We have paid a very heavy price and we are now rebuilding ourselves to be a wiser and better managed business. But please don’t think that there is something about being a private company and being able to care for the people that you look after, otherwise you go down a road that says you are going to nationalise doctors.
Q214 Kelvin Hopkins: That being said, isn’t it difficult to align duty of care with a profit-driven business? Do they sit comfortably together?
Rupert Soames: No. The reason I gave that answer is that I see no difference at all, no difficulty at all about being a business that is making profit and is delivering good care. For example, doctors. For example, the fact that we are putting up, at our own expense, at the moment over 100 asylum seekers in our territory for whom the Home Office has stopped support but our housing officers won’t evict them from their accommodation. We are paying for that ourselves. I don’t say that to make ourselves saints but to say that a lot of the people in our business are former public servants and we have very high standards of probity, integrity and ethics. I think the fact that we make a profit, albeit a tiny one and not enough, does not take away the ability to deliver highly ethical and appropriate services.
Q215 Kelvin Hopkins: If the service fails, who is responsible, the Government or the contractor, and how should this be decided?
Rupert Soames: It is rather like sailing accidents; a big accident is very rarely due to one single thing going wrong. Sometimes the balance of blame lies on the contractor, sometimes on the Government and sometimes on force of circumstance that makes things difficult. You cannot prejudge them. You have contracts to say what you do when something goes wrong.
Q216 Kelvin Hopkins: Is your view on this different to that of the Government? Do the Government have a shade of difference with you on—
Rupert Soames: I think that we are held to account. This idea that there is a lack of accountability from public servants, the level of information that we report on the contracts—one of the difficulties for Government is that there is so much there that it is difficult sometimes to manage all of it, so I don’t think there is an issue about accountability. My colleague pointed out before I came in here, this is the tenth time we have been in front of a public committee, which I think is entirely appropriate. There used to be a philosophy among providers in our industry of those 1950s nuclear movies called “Duck and Cover”, you know the children being taught to duck under their tables and cover. I think that is the wrong way. We have to stand up, take responsibility, be accountable, take our beatings if necessary, but also be able to talk what we see as being truth unto power.
Q217 Kelvin Hopkins: How much does Serco spend on litigation for delivery failures? Is it a costly business?
Rupert Soames: No. Obviously we have the SFO inquiry going on but beyond that we have very few litigations. Government would not use us to do the work that we do if they did not have some trust in us. This word “trust” is very important. Also people say trust is not a binary thing that you have to tick every box. With employing 55,000 people—30,000 in the UK alone—that I am responsible for, there is one thing I can guarantee: that someone somewhere 24/7 is doing something bloody stupid. Welcome to the world of reality. Welcome to the world of providing Government services on a large scale. It is how you manage them, how you accept responsibility of holding yourself accountable and, more important, how you put them right. I don’t set ourselves up here saying that we are perfect or imperfect. What I would say is we are not the devil’s spawn and the system on the whole works remarkably well most of the time.
Q218 Kelvin Hopkins: My final question is about risk and the Chairman has a number of questions about risk and whether risk is ever transferred to a company such as yours when you are running a public service that cannot afford to fail.
Rupert Soames: I do agree with you. I think that the reputational risk, just as responsibility, may pass contractually to a supplier; at the end of the day it is the Government that is contracting and it comes back and hits you. I will give you rather a good example of what I thought was the rather shameful treatment of, for instance, ATOS on the disability schemes, when ATOS went out to implement the disability scheme and there were voices in administration saying, “They are going to get all the blame”. The public sees through that. ATOS did get a lot of blame and they did have an horrific reputational time, but at the end of the day it is a Government service and that all needs to be done. But I don’t think that is the point.
On the risks that have been transferred to my company on various contracts, we took a risk when we bid the prisoner escorting contract. We escort 20,000 prisoners a month in London between courts. When we took that contract on we had to go and back estimations of the traffic time to go from us to Pentonville Prison and down to Snaresbrook Court. Who would know that in the middle of the contract period the Mayor of London should decide to go and dig up every bloody road and turn it into a bicycle lane and traffic rates all went down. That is risk, we take it and it costs us money. I think that the idea that we are not held responsible for risk is palpably untrue, if I may say with respect. We are spending hundreds and millions of pounds of taxpayers’ money standing by promises that we took against risks that have eventuated. These are costing us real money.
To your other point, though, does Government ever escape? Can Government escape from the ultimate reputational responsibilities? No, it can’t and, no, it shouldn’t.
Q219 Kelvin Hopkins: On the ATOS case, haven’t you made the case effectively for that sort of thing being done directly by public servants who are accountable to ourselves and Parliament ultimately?
Rupert Soames: I was not involved in that, but I think Government need to be really careful when they leave suppliers out to hang when the suppliers are doing what the Government have asked them to do, particularly if the Government think that they are—I just think that it is a dangerous course. Interestingly enough, the Government’s approach to the G4S stuff at Medway was much more measured than might have been the case in the past.
Q220 Chair: Can I ask a question that you must reflect upon, particularly after the change programme you have taken Serco through? Who do you feel accountable to?
Rupert Soames: I have the same duty of care as the company. I feel accountable to my shareholders, my employees, my board, the taxpayer—I am a very large taxpayer and I mind like hell where my taxes are going—and to the service users. As a legal single accountability, I am responsible to the board of Serco but I didn’t come into this job just to go and work for shareholders. I came into this job because I very passionately believe in the effective delivery of Government services.
Q221 Chair: Just a few wrap-up questions. How commercial do you think the Government are now when they are dealing with contracts? How well do they understand the commercial world?
Rupert Soames: Very commercial. As I say, I think it is sometimes like Bindu the elephant, it doesn’t know its own strength, but I believe it is now very sophisticated. I think they have some level of quality and quantity. One of the reasons I know this is that I sometimes go and help on the training courses and I have seen the new intake coming in. There are some incredibly impressive people there, a lot of whom have come in quite recently. I don’t think there is a problem with sophistication.
Q222 Chair: You have said in the past that as contractors, “We are more agile, we move quicker and take decisions faster, we invest faster”. How does that affect the relationship with Government and civil servants?
Rupert Soames: I think that is one of the reasons why private companies can go and operationally run contracts better than the Government can because we are set up to be much more flexible. With the autonomous governor programme in the prisons, our governors have been running their own budgets for CAPEX, recruitment and everything since the year dot. It is very interesting when you talk to people who work for us who have come in from the public service and ask them, “Would you go back there?” A lot of them say, “No”. Why? It is not to do with the pay or anything like that. It is because there are a lot of constrictions and restrictions and the Government sometimes moves really slowly. That is one of the reasons why we go out and run services for them, because we can be Jack be nimble, Jack be quick. We can be more agile and responsive in the operational delivery of a service.
Q223 Chair: The Cabinet Office has a strategic suppliers programme and has had since 2010. I can see how it must be comforting for you to be one of their strategic suppliers but how does it help the Government?
Rupert Soames: It helps both of us because it puts in place a formalised scheme where we get together and go through a fixed agenda; it allows us to go and resolve issues. It is a slightly amazing thing that we have a strategic suppliers programme where we get together with our strategic suppliers. It is what works and it is creating dialogue and a structured framework for dealing with problems. It has just got a whole lot more sophisticated. They are pushing it more and I think it is going to deliver real benefits.
Q224 Chair: Have you seen any changes? What changes and improvements to this suppliers programme have you experienced over the last—
Rupert Soames: We have only just been drawn into the circle of love on this. We may have been by name a strategic supplier but we have only recently been drawn into the circle of love where they have said, “You are now rehabilitated and we want to tell you how this is going to work and how we are going to work together on a broad scale to transform contracts”. We were a strategic supplier by nature of our size. A specific programme that is arranged around having close and very deeply understood relationships cross-cutting across Departments as a strategic supplier is something that we have only just been informed about.
Q225 Chair: That rather underlines the anxiety the public has—and not wishing to dwell unfairly on what you were not there to take responsibility for—that however badly one of these strategic suppliers sins you can never be cast out because you have made yourselves indispensable.
Rupert Soames: This is the too big to fail thing. I think it is a poor argument. Let’s go through all the suppliers where if they went bust tomorrow the Government would have a real problem: British Telecom, National Grid, any of the energy suppliers. The list of the suppliers who supply things that are critical for Government services is endlessly long. There was a yowling and howling that we should be banned from all contracts and we should be cast into outer darkness, just on the basis of a ministerial statement that our business should be destroyed. Luckily sense prevailed on that. But Government had to recognise that we had some contracts that were vital for the national interest and they needed to make sure the show would go on if the worst came to the worst or if they did want to get rid of us. They had to have a plan B, as was entirely appropriate.
But if we can get this into some perspective, at the time we had been accused of behaving badly on two contracts—one of which it has been found that we have not behaved badly on and the other it is unknown whether we behaved badly on because it is subject to a current inquiry. The 27 other major contracts that we had with the Government were forensically examined from top to bottom and not a single material error was found in them, nor have there been any material errors found on the other contracts that we do around the world. I come back to this thing, we do stuff in the public sphere, we are naturally subject to transparency and to abuse, but the Government need to keep—you need to keep—a sense of proportion about this fact. Most of the contracts most of the time are well managed, work fine, deliver the services, and it is appropriate then that we bear that in mind when we deal with those few that worked badly.
Chair: Are there any further questions?
Paul Flynn: Thank you for these alternative facts.
Chair: That is your opinion. I don’t suggest that that was a question.
Paul Flynn: No, I was saying it was an interesting session, as somebody who can look on criticism and make it disappear.
Chair: Thank you very much indeed for your time today.