The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
"The Home Office decided to replace 22 separate contracts to provide accommodation for destitute asylum seekers with six regional contracts in order to save £140 million over 7 years. The change was poorly planned and badly managed and is unlikely to yield the savings intended.
Three contractors secured the new big contracts. Two, G4S and Serco, had no previous experience of accommodating asylum seekers. Instead of brokering a smooth transition between outgoing and incoming contractors and with local authorities, the Home Office short-sightedly decided to take a hands-off approach and only allowed three months to get the new contracts up and running.
G4S and Serco failed to inspect and check the properties before taking them over. This lack of information contributed to delays, extra cost, and disruption and confusion for a very vulnerable group of service users.
The Home Office’s decision to rely on fewer and larger contractors was risky and lies at odds with the Government’s stated commitment to encourage SMEs to deliver public services. The knowledge of experienced specialist providers has been lost and there are fewer alternative options available to the Department if the contractor fails.
The standard of the accommodation provided has often been unacceptably poor for a very fragile group of individuals and families. The companies failed to improve quality in a timely manner. None of this was helped by the Department’s failure to impose penalties on contractors in the transition period. It is disturbing that over a year into the contract the accommodation is still not of the required standard and the Department has only chalked up £8 million in savings.
Progress was also hampered by the failure of the Home Office and its contractors to establish a proper working partnership and to share necessary information, such as forecasts of demand for asylum accommodation.
Looking beyond the COMPASS contracts, the Home Office must insist adequate plans are in place for how it will manage the introduction of any new contracts in the future, including an understanding of what will be inherited from previous contractors, and clear arrangements for exiting previous arrangements."
Margaret Hodge was speaking as the Committee published its 54th Report of this Session which, on the basis of evidence from the Home Office and its three contractors, G4S, Serco and Clearel, examined the provision of asylum accommodation, following the introduction of the new COMPASS contracts in March 2012.
Conclusions and recommendations
At any one time the Department provides accommodation for around 23,000 destitute asylum seekers awaiting the outcome of their application to remain in the UK, although this number fluctuates as world events impact on the numbers seeking asylum. The cost of providing this accommodation in 2011-12 was £150 million. In March 2012 the Department decided to introduce a new delivery model involving fewer and bigger housing providers than under previous contracts. There are now six regional contracts (known collectively as COMPASS), delivered by three prime contractors (G4S, Serco and Clearel, each of which has two contracts). Only Clearel had previous experience running asylum accommodation. The Department, through the introduction of these new contractual arrangements, aims to save around £140 million over seven years. The Department has reported savings of £8 million from the new contracts in the first year of their operation.
The Department’s decision to rely on fewer, larger contractors was risky and has so far led to delays in providing suitable accommodation. The six new COMPASS contracts, won by three private providers, replaced 22 separate contracts with 13 different suppliers from across the private and voluntary sectors and local authorities. The Department expected this to result in economies of scale. However, it is inconsistent with the Government’s wider approach of encouraging more small and medium size enterprises (SMEs) to supply services to government. The Department no longer has the diversity of provision it once had, nor the specialist providers, and has fewer alternative options available if a contractor fails. Any failures by a single contractor under COMPASS would impact on a greater number of asylum seekers.
Recommendation: The Department should not change its contracting model without a clear business case justifying that change. The Department should develop a well-informed understanding of the risk appetite associated with such changes.
The transition to the new contracts was poorly managed by the Department and contractors did not inspect the properties they inherited. The three month mobilisation period for such complex contracts was very challenging for the new contractors to be operationally ready in time, particularly as two of the three – G4S and Serco – had no prior experience in the asylum accommodation sector. It was vital, therefore, that the Department did all it could to broker the smooth transition between outgoing and incoming contractors and with local authorities. The Department’s decision to adopt a hands-off approach, while rushing through transition activities due to the previous contacts expiring, was short-sighted. The Department did not facilitate an exchange of information between outgoing providers and the new contractors, for example, on the condition of housing. The incoming contractors should have carried out their own inspection and checks as part of the due diligence process. This lack of information contributed to delays, additional cost, and disruption and confusion for a very vulnerable group of service users.
Recommendation: The Department must insist adequate plans are in place for how it will manage the introduction of new contracts, including an understanding of what will be inherited from previous contractors, and clear arrangements for exiting previous arrangements.
The Department has incurred additional costs and so is less likely to achieve the expected savings. The Department intended that the COMPASS contracts would make cost savings of £140 million over the seven year lifetime of the contracts. The Department had saved £8 million from these in 2012-13, which appears to us to be below where the Department needs to be. However, it did report that it expects to secure a saving of about £27 million over the first 18 months of COMPASS. The savings have been affected by the additional costs incurred because of the Department’s need to extend existing contracts during the transition period, and the Department’s higher than anticipated level of involvement in the contracts, such as its decision to inspect accommodation itself.
Recommendation: The Department must re-examine its savings forecasts in the light of the additional costs to make sure these are still realistic and achievable, and make any adjustments that are necessary.
Throughout the contracts – tendering, transition and delivery – the quality of data shared by the Department has been poor. Contractors considered that data the Department had shared with them at the outset of the tendering process was inadequate, most notably in terms of the quality of the housing stock they would inherit. Poor data contributed to flaws in some of the contractors’ key assumptions which underpinned their bids, such as the ease with which new properties would be approved by local authorities. The lack of experience of Serco and G4S meant that the companies failed to challenge the Department’s assumptions on how quickly new accommodation could be brought on stream and the quality of the housing provided. Clearel with its previous experience managed the transition better. During the early days of the contracts, the Department also failed to share data on the estimated flow of asylum seekers into the UK – information that could have helped contractors better plan the amount of accommodation needed. This hindered the development of the working relationship and trust required between the Department and providers, and led to difficulties once the contracts were operational.
Recommendation: The Department must clearly understand what data is needed to effectively let and manage contracts such as these, and ensure that such data is available and accurate.