CGP0018

Written evidence submitted by Transparency International UK’s

To address current procurement corruption risks in the UK’s pandemic response, we recommend the Government should:

1. Return to undertaking competitive procurement as a default as soon as reasonably practicable.
2. End the high-priority lane if it has not done so already and publish the details of referrals that have passed through this route, including companies’ names, the sources of referral and the status of any referral.
3. Reduce the need for high-risk procurement in future pandemics through improved bilateral and multilateral forward planning.
4. Embed open contracting systems into its procurement processes to improve the documentation of key decisions and provide end-to-end transparency over the use of public funds.
5. Set out a clear plan for Parliament showing how it will ensure departments meet their legal obligation to publish contract award information.

The COVID-19 pandemic has required a rapid public health response on a scale and speed unseen in modern times. Whilst it is understandable that public bodies have sought to shortcut procurement processes in order expedite the emergency response, this is not without risks. Emerging evidence from news media reports and the National Audit Office’s (NAO) recent reports highlight these in startling detail.

TI-UK has monitored and collated all publicly available contract data from Tenders Electronic Daily (TED), Contracts Finder and Public Contracts Scotland since February 2020, looking at contracts where there are red flags that merit further investigation. To date, the result is a catalogue of over 13,000 contracts, 68 of which, worth over £3 billions in contract awards merit further investigation. This research is still in progress and will be published early in 2021, but where possible we have highlighted early findings from our analysis in this submission and the areas of concern, we have identified are set out in Annex I.

This submission outlines the corruption risks associated with procurement practices during the COVID-19 pandemic, what immediate actions Government must take to mitigate them and learnings that can inform future pandemic responses.

INTRODUCTION

1. The COVID-19 pandemic has required public bodies to procure in ways that would be neither permissible nor desirable during normal times. The NAO’s recent report lays bare the extent to which departments have engaged in emergency procurement practices, awarding contracts worth hundreds of millions of pounds without open and fair competition. According to the NAO, Government awarded £10.5 billion worth of contracts related to the COVID-19 pandemic without open and fair competition between 1 January and 31 July 2020.[1]

2. Whilst legal during exceptional circumstances, uncompetitive procurement increases the risks of awarding contracts on criteria other than value for money. These risks are acceptable so long as there are mitigations in place to safeguard taxpayers’ money, yet these safeguards have been found wanting.

3. The use of a ‘high-priority lane’ to triage offers of assistance via ministers and parliamentarians is deeply concerning given it increases risks, not mitigates them.

4. According to the Government’s own guidance, departments should keep adequate documentation to justify direct awards to reduce the risk of legal challenge, and yet from a sample of contracts the NAO found these were sometimes missing.[2] There are also instances where contracts were backdated to account for work already undertaken.[3]

5. By law, departments must publish the details of suppliers within 30 days of a contract award, but our analysis has found 912 (66 per cent) of COVID-19 related contracts awarded between 1 February and 1 November 2020 worth £8.4 billion were not disclosed within the legal timeframe.[4] Our review of procurement data so far also highlights significant deficiencies in the publication of tenders, contracts and contract spend, which inhibits the public’s ability to follow the money accurately.

6. TI-UK analysis of all publicly available contact data has identified at least 68 contracts worth almost £3.1 billion since February 2020 that deserve further investigation.

7. The Department for Health and Social Care (DHSC) awarded 57 of these contracts worth over £3 billion, 47 of which were for Personal Protective Equipment (PPE) totalling £2.1 billion. Seventeen of these contracts, worth £971 million, relate to companies with political connections. There is no publicly available information to confirm whether any of these were referred through the high-priority lane. We have catalogued 15 areas of concern relating to these contracts, which are outlined in (see Annex I).

WHY OPEN CONTRACTING IS IMPORTANT

8. There are legal requirements covering how public bodies should tender and award contracts for goods. These ensure there is openness about the use of public funds and protect against corruption in the procurement process. We define corruption as the abuse of entrusted power for private gain. In a procurement context, this can include cronyism and nepotism,[5] abuses of conflicts of interest and embezzlement of public funds.[6]

9. Whilst a failure to comply with the spirit or letter of these rules does not necessarily indicate corruption, it increases the risk of this occurring. Similarly, if the context surrounding a contract award contains other red flags for corruption, this can give rise to the perception of wrongdoing. At best, this could have an impact on public trust in our institutions; at worst if could result in the loss of public funds and even put lives at risk.

10. Providing a clear, auditable link between the planning and spending of public money is key to reducing the risks of abuse in public procurement. Using open contracting principles, countries like Ukraine,[7] Moldova[8] and Nepal[9] have sought to increase the efficiency of public projects, provide greater accountability over the use of public funds, and reduce their abuse. The UK is underperforming when it comes to transparency in procurement.

UK GOVERNMENT’S APPROACH TO PROCUREMENT DURING THE COVID-19 PANDEMIC

11. The Public Contracts Regulations 2015 (PCR 2015) set out the rules for major public procurement in the UK.[10] These implement the Public Sector Procurement Directive (2014/24/EU), which apply to all EU Member States and the UK until the end of its transition period for leaving the EU. The purpose of these rules is to ensure:[11]

• Transparency
• Equal treatment of suppliers
• Consistency through a set of detailed procurement procedures

12. In normal circumstances, tenders must run for at least 35 days before a public body can award a contract.[12] This gives time to allow interested business to make their case and provide public bodies with a range of options. Consequently, this should increase the chances of achieving good value for money and protect against misconduct, such as rigging procurement in favour of politically connected companies.

13. The PCR 2015 does allow public bodies to reduce this period in particular circumstances. In cases of urgency, open tenders can run for as little as 15 days.[13] Dynamic purchasing systems allow for mini competitions of only 10 days.[14] Framework agreements allow for mini-competitions with no minimum period.[15] Public bodies may also award contracts without tender in instances where it is:

• strictly necessary,
• for reasons of extreme urgency brought about by events unforeseeable by the contracting authority, and
• where the normal time limits for procurement are impossible.[16]

14. The Cabinet Office published a guidance note on 18 March 2020 outlining the UK Government’s current policy on using this exemption to normal procurement rules during the COVID-19 pandemic.[17] This guidance note emphasises that departments must only use this curtailed approach to tendering in a genuine emergency; caused by unforeseeable circumstances; which prohibits the usual timescales; and the public body itself did not cause the situation.[18] It also makes clear that departments should ensure they keep proper records of their decisions to award without competitive tenders to reduce the risk of legal challenge, and to publish contract award details within the 30-day statutory deadline.[19]

15. Awarding contracts without open competition is legal so long as the context mentioned above applies. Arguably, as the pandemic response has evolved, the rationale supporting direct awards on legal grounds diminishes. Given what we know about the virus and how it is spreading, the needs for equipment, such as PPE, are foreseeable. Similarly, as global production for these goods increases, the competition and time constraints on securing contracts must have waned. Therefore, the continuation of direct awards does not appear to be strictly necessary.

16. Furthermore, the risks associated with direct awards are high. Legally, they increase the risk of legal challenge by those who did not secure business or by public interest lawyers. Combined with contextual factors, such as the red flags mentioned in Annex I below, they can affect confidence in the integrity of Government. In addition, without the rigour of market competition, it risks securing either sub-standard or unduly expensive products.

17. Government should return to undertaking competitive procurement as a default as soon as reasonably practicable.

18. In addition to direct contract awards, below we highlight three areas where issues have arisen because of procurement practices during the COVID-19 pandemic which merit further investigation.

Prioritisation

19. The PCR 2015 require that public bodies prevent, identify and remedy any potential conflicts of interest to avoid distorting competition and ensure equal treatment to companies seeking contracts.[20] This is particularly important when the natural checks and balances of open market competition are absent. Moreover, in this context any political connections to the award of contracts could present a red flag and prove highly contentious, even if those involved in making the decisions are not ministers.

20. The NAO investigation identified a ‘high-priority lane’ used by Government to triage offers of assistance for Personal Protective Equipment (PPE) forwarded by ministers, parliamentarians, senior NHS staff and other health professionals.[21] The Government claims it drew the details of this route to the attention of relevant individuals and organisations.[22] However, this was not included in the guidance note published by Cabinet Office in March 2020 and there is no other easily identifiable trace of it save for the NAO report. It is not clear whether the high-priority lane still exists, or only operated during the early months of the pandemic.

21. The Government accepted ten per cent of these offers (47 out of 493) compared to 0.7 per cent (104 out of 14,892) of those going through the normal channels.[23] In total, we have identified 19 contracts for PPE awarded to six suppliers with political connections worth over £1 billion since February 2020 (see Annex II). Due to a lack of transparency, we do not know how many of these companies passed through the high-priority lane.

22. It is highly surprising that Government prioritised recommendations from politicians given in most other areas of economic activity this raises red flags and deserves scrutiny, not the opposite.[24] Adopting such an approach adds credence to the view that cronyism determined the award of contracts rather than suitability for the job. Regardless as to whether or not ministers were involved in making the decision to award these contracts, the high-priority lane afforded preferential treatment not available to others who went through the usual channels. Arguably, this high-priority lane increases the risks of legal challenge rather than mitigating them.

23. The Government should end the high-priority lane if it has not done so already. To provide greater assurance and accountability over the use of this route for prioritisation, Government should also provide transparency over:

• The names of the companies referred to the high-priority lane
• The source of the referral
• The decision for the referral [i.e. accepted or rejected]
• The status of the referral [i.e. delivered, cancelled and in-progress]

24. Whilst the form of prioritisation adopted by Government was highly problematic, the concept of prioritisation itself was sound. During an emergency period such as a pandemic, departments must be able to triage in some way the offers of help they receive. Processing over 15,000 approaches must have been logistically extremely challenging, especially when many would have involved new or complex intermediary arrangements involving multiple jurisdictions. Having some form of filter using trusted sources is one way to address a range of other risks, such as external fraud or buying poor quality supplies.

25. An alternative option, however, would be to consider whether there were bilateral or multilateral approaches to source and shortlist trusted suppliers of PPE for any future pandemic. This could help address a number of issues experienced during the current crisis, including intense international competition for supplies and high-risk approaches taken to secure supply chains. Feasibly, this could also bring some economies of scale.

26. Government should explore bilateral and multilateral approaches to securing trusted supplies of high-demand equipment, such as PPE, in any future pandemic preparedness plans to reduce the risk of engaging in high-risk approaches to procurement.

Documentation

27. The PCR 2015 require that public bodies maintain full records of their decisions, including why they selected the successful supplier, the rationale for awarding the contract without competitive tender (if applicable), and any potential conflicts of interest detected and addressed.[25] Failing to comply with these requirements invites allegations of impropriety and exposes Government to the risk of legal challenge.

28. The NAO investigation notes missing documentation for contracts awarded in response to the COVID-19 pandemic, including information concerning:

• The rationale for key procurement decisions, such as awarding contracts to companies who had low due diligence ratings.[26]
• The justification for using emergency procurement procedures in some cases.[27]
• The source of some referrals through the high-priority lane.[28]

29. On face value, the first two issues indicate administration that is not compliant with the PCR 2015. The third is problematic because it could obscure a full and proper assessment of any potential conflicts of interest associated with those companies referred through the high-priority lane. We also note that a relatively small sample informed the NAO’s findings; therefore, it is feasible these problems could be more widespread.

30. To help address the risk of this being repeated, Government should seek to embed further its open contracting practices and processes across Whitehall. Providing a clear audit of procurement decisions is a key part of the Open Contracting Data Standards (OCDS).[29] The UK Government is a sponsor of the Open Contracting Partnership (OCP),[30] which promotes these standards and has committed to rolling out the OCDS across departments.[31] Yet it is clear from the pandemic response Government should make substantive improvements to how it integrates open contracting systems into procurement processes as a whole, not just its publication of contract data.

31. Government should embed further its use of open contracting systems to ensure clear documentation of procurement from planning through to implementation.

Transparency

32. Under the PCR 2015, a public body must inform OJEU of the supplier and award details[32] within 30 days of the award.[33] After notifying OJEU it may also publish this information on a local tender portal.[34] In the UK, the local tender portal for the UK Government is Contracts Finder.[35] Government guidance advises departments to publish contract award details on Contracts Finder within 90 days of a contract award.[36]

33. The NAO report notes that out of 1,664 COVID-19 related contracts above £25,000 awarded between 1 March and 30 June 2020, only one in four were published on Contracts Finder within the Government’s own recommended 90 day deadline. Over half (55 per cent) were still unpublished on Contracts Finder as of 10 November 2020.[37]

34. TI-UK have analysed procurement data from Tenders Electronic Daily (TED)[38] and Tussell (a data insights company) to see how many COVID-19 contract award notices were reported to OJEU within the legal timeframe. We found that between 1 February and 1 November 2020, there were 1,368 COVID-19 contracts published on TED with measurable date values. Of these, 456 (33 per cent) were reported within 30 days of the contract award.[39] In total, 912 (66 per cent) worth £8.4 billion of identifiable COVID-19 related contracts were reported over 30 days after the contract award.

35. Government should present to Parliament a clear plan for how it will ensure departments publish contract award notices within the legal timeframe.

36. Equally as important to timeliness is the presentation of data to allow the easy audit from planning through to implementation. Whilst understanding the award of contracts is an important part of the picture, the public should be able to see how much money is actually spent on that contract (in as near to real-time as possible), and the results of the contract (including any issues arising relating to any goods purchased). The OCDS provides a clear framework for how Government can make this available publicly (see Figure 1 below)

37. Currently, Government holds information relating to COVID-19 contracts in silos, which are not easily linkable to members of the public. TED holds all information on tenders and awards subject to the EU Public Contracts Directive, which the PCR 2015 transposes. Public bodies may also publish contracts subject to the EU Public Contracts Directive on Contracts Finder alongside a copy of the contract. However, there is not a direct link between data on TED and Contracts Finder, leading to differences in their records.

38. Departments publish the details of actual spend over £25,000, on the contracts separately on their own websites.[40] Data.gov.uk, a central repository for UK Government data, also hosts this data.[41]

39. Crucially, payment data does not include any reference to their relevant contract, so it is almost impossible for those outside Government to monitor whether a contract has gone over budget using publicly available information. This defies a key purpose of publishing contract and payment data.

40. Currently, performance data for contracts – for example, how many PPE were delivered against a particular contract – is not published in a systematic way.

41. As part of its plans to embed open contracting across departments, Government should seek to provide a clearer auditable link throughout the procurement cycle to allow those outside Whitehall to ‘follow the money’.

Figure 1: The Contracting Process (Source: Open Contracting Data Standard)

ANNEX I: AREAS OF CONCERN REGARDING COVID-19 CONTRACTS

Our analysis of COVID-19 contracts subject to heightened public scrutiny identified 15 areas of concern covering three aspects of the procurement process. Some contracts covered multiple areas of concern; for example, a contract awarded with no competitive tender to a politically connected company who subsequently delivers a faulty product. Whilst these areas of concern do not prove wrongdoing, they provide red flags that highlight where there should be scrutiny.

Procurement process

No competitive tender

Unpublished or late publication of contract award information

Alleged breach of tendering rules

Administrative error / false information published about the contract

Supplier profile

Politically connected

Relatively new company

Offshore owned

No prior experience of delivering product

Dormant company

Awarded before company formed

Low assets

Previous contracting failure

Contract outcomes

Faulty product

Product not delivered

Sub-contractor fraud

ANNEX II: PPE CONTRACTS AWARDED TO POLITICALLY CONNECTED COMPANIES

ABOUT TRANSPARENCY INTERNATIONAL UK

Transparency International (TI) is the world’s leading non-governmental anti-corruption organisation. With more than 100 chapters worldwide, TI has extensive global expertise and understanding of corruption.

Transparency International UK (TI-UK) is the UK chapter of TI. We raise awareness about corruption; advocate legal and regulatory reform at national and international levels; design practical tools for institutions, individuals and companies wishing to combat corruption; and act as a leading centre of anti-corruption expertise in the UK.

We work in the UK and overseas, challenging corruption within politics, public institutions, and the private sector, and campaign to prevent the UK acting as a safe haven for corrupt capital. On behalf of the global Transparency International movement, we work to reduce corruption in the high risk areas of Defence & Security and Pharmaceuticals & Healthcare.

We are independent, non-political, and base our advocacy on robust research.

December 2020

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