Defence Fire and Rescue Project Independent Review and Lessons Learned September 2019 © Crown Copyright 2019 Contents
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Defence Fire and Rescue Project Independent Review and Lessons Learned September 2019 © Crown copyright 2019 Contents Background, Conclusions and Recommendations 1 Background 1 Conclusions on Key Findings 2 Recommendations on Lessons to be Learned 4 Fuller Description and Assessment 7 Methodology for the Evaluation 7 Evaluator Training 9 Did MOD Follow the Stated Evaluation Process? 9 Discrete Risk and Pricing Adjustments 11 Resourcing of the Evaluation 13 Moderation Process 13 Summarising and Explaining Evaluation Results 14 Use of the Financial Model 14 Adjustments made by Bidders in the Final Stage to Address Affordability 15 Governance, Assurance and Approvals 16 Use of External Legal and Financial Advisers 21 Issuing of Award Letters and Related Information Provided to Bidders 22 Annex A: Terms Of Reference - Summary 25 Independent Review and Lessons Learned 3 Defence Fire and Rescue Project Background, Conclusions and Recommendations Background 4. The competition was run under the Defence and Security Public Contracts Regulations 1. Fire and rescue services for the Ministry (DSPCR) 2011. Thirty companies expressed of Defence (MOD, or the Department) are an initial interest, of which eight submitted a currently provided both on permanent bases pre-qualification questionnaire. In December and on operations by Defence Fire and 2014, four passed pre-qualification. They Rescue (DFR, formerly called DFRMO – the submitted outline solutions with indicative Defence Fire Risk Management Organisation). costs in April 2015. Alongside the outsourcing Approximately 1,900 personnel are drawn option, MOD also developed an in-house from the military, MOD civil servants, locally value for money benchmark against which to employed civilians overseas and contractors. compare proposals. 2. The Defence Fire and Rescue Project (DFRP 5. Following three rounds of dialogue, in or the project) arose out of the Strategic September 2016 the IAC considered the Defence and Security Review in 2010, when project’s Main Gate Business Case.2 It gave a decision was made to seek efficiencies approval in March 2017 to call for final in a number of areas. One was to consider tenders for a 12-year contract once the outsourcing the DFR service. The project to bids were sufficiently mature.3 By this time, do so was initially led by a central MOD team. two bidders had withdrawn, leaving two In 2013, when the project received its initial companies bidding: Capita Plc (Capita) and formal approval, responsibility was transferred Serco Group Plc (Serco). The competition to the Army. A project team was established was important to both bidders, both because under a director-level civil servant who of its size and 12-year duration and because worked for the Adjutant-General and to whom the winner would become the dominant the role as the Senior Responsible Owner provider for Fire and Rescue services across (SRO)1 was later delegated. MOD as a whole. 3. In 2014, the Department’s official-level 6. The invitation to submit final tenders was Investment Approvals Committee (IAC) issued in July 2017 and the companies agreed a procurement process using submitted final bids in September 2017. Final competitive dialogue. This involves a series of tender evaluation took place from September structured bilateral discussions with bidders 2017 to January 2018. to shape a solution before holding a final tendering round, and gives flexibility to clarify 7. On 15 January 2018, the project sought elements of the requirement and propose approval to award the contract to Capita. solutions during the procurement. At that However, on the same day Carillion, a major stage, the team estimated that contract award contractor for outsourced government would take place in February 2017. services, went into liquidation. As a result, 1 The senior responsible owner (SRO) is accountable for ensuring that a programme or project meets its objectives, delivers the projected outcomes and realises the required benefits. He or she also typically chairs the project board and is responsible for ensuring that the right expertise and governance is in place. 2 The document that sought approval to issue an invitation to submit final tenders and for the expected time, cost and performance parameters for the project. 3 IAC approval dated 3 March 2017. Independent Review and Lessons Learned 1 under arrangements coordinated by the that should be learned, focusing on the final Cabinet Office covering all major contracts, stage of the process between September the Department undertook a further 2017 and the issue of Serco’s claim in July thorough review of aspects of the project. 2018. Our terms of reference are at Annex A. This meant there was an extended period before contract award. 12. We have not carried out a review of the process before September 2017 but have 8. Approval to award the contract to Capita referred to some earlier events where was eventually given within Government on relevant. Nor have we carried out a forensic 14 June 2018.4 The projected value of the investigation or audit; or considered the contract to Capita over the 12-year contract comparison of the bids to the public sector period was then around £500m at outturn option, the due diligence carried out by MOD prices, while the project as a whole was into the financial sustainability and technical assessed to cost in total some £1.4bn at expertise of the bidders, or MOD’s dealings outturn prices. This total included continuing with Serco and Capita since July 2018. Our MOD costs - mainly from military and locally work was carried out between June and employed overseas personnel who would August 2019, based on documents provided remain MOD employees. by MOD and interviews with a range of those involved from MOD, Serco, Capita and 9. On 18 June 2018 a written ministerial Deloitte. This timetable allowed meetings statement was laid before Parliament to with Serco and Capita that could not be held announce the award and the two bidders until after the contract was awarded in July. were sent letters notifying them of the result and of the overall scores and costs of both Conclusions On Key Findings tenders. On 22 June Serco sent a pre-action protocol letter to MOD alleging, amongst 13. Our conclusions are: other things, breaches in the evaluation of both bids and lack of transparency in cost C1 We have found nothing to show that there evaluation. They sought an extension of was actual bias in the treatment of the final the standstill period ahead of the award two bidders to make the procurement open of contract and disclosure of further to challenge. information. Serco were dissatisfied with the C2 The evaluation methodology was fit for response received, and on 17 July issued purpose. We see no fundamental flaws in formal legal proceedings challenging the it, or in the financial model used for the decision. This automatically suspended the evaluation. award of the contract. C3. However, there were several deficiencies 10. The suspension was lifted in May 2019 in the conduct and recording of the final following an MOD application to the court. evaluation that did make the procurement On 18 July 2019 MOD announced that it open to challenge: had completed arrangements to award the contract to Capita at an outturn price of a. The criteria for evaluating MOD’s £525m and that the litigation with Serco had confidence in the technical elements of been settled out of court. the bids were described too generically. Technical subject matter experts should 11. As a result of the challenge to the have been more involved in preparing the procurement, in June 2019 the Permanent evaluation criteria and the application of Secretary of MOD asked a small team from the criteria should have been tested more outside the Department to carry out this fully before the process went live; independent review to establish the lessons 4 DFRP Treasury Clearance Note approval 14 June 2018. 2 Defence Fire and Rescue Project b. Evaluation records often used language C4. MOD ultimately decided to award the that did not properly reflect the scoring contract to Capita because it had higher criteria. Many referred to concerns about confidence in Capita’s solution and Capita’s bidder responses that nonetheless scored whole life cost was some 0.8% lower than ‘Good Confidence’ or ‘High Confidence’. Serco’s. We have found no evidence that On the face of it this should not have this position would have been reversed by been possible. It arose with both bidders, any of the individual deficiencies we have but there were more examples in Capita’s identified, and we consider it unlikely that scoring than in Serco’s; a more robust process would have led to a different outcome to the competition. But in c. In scoring some of Capita’s responses, our view the deficiencies were sufficient to moderation notes referred to reliance on justify MOD’s decision to reach a settlement the presence of “commercial levers” (i.e. with Serco, given the resource and cost that contractual measures to increase the would have been involved in defending the likelihood of things being done), which claim and the significant risk that the claim should not have been taken into account. would have been successful. We heard that this did not affect the scores awarded, but references to an C5. Lessons should also be learned from certain extraneous factor do not give confidence underlying factors in DFRP that helped to about the process or the way it was cause the deficiencies in the conduct and recorded; recording of the evaluation and reduced the d. The evaluation did not entirely follow chance that the risk of legal challenge would the process that had been set out for be fully recognised and addressed: explaining risk adjustments to each bid: a.