NAO report questions Home Office’s £3bn spend: 5 ways to ensure your contracts drive right values

By Allan Watton on

contract drive right valuesWhen the National Audit Office (NAO) conducted a departmental overview of the Home Office, issues were raised about the way it managed its £3 billion a year spend on goods and services.

These issues were about how challenges on these contracts had been handled and include project delays, high delivery risks, poor due diligence and the extension of ‘troubled contracts’ beyond their expiration date. Given these challenges are relatively commonplace, we have outlined our five key evidenced-based observations to ensure that your contracts are always as fit for purpose as is reasonably practical and drive the right post contract values.

When reading this report, most troubling for us was the section on Brook House Immigration Removal Centre (IRC).

Contract Underperformance? Brook House, star of the small screen – for all the wrong reasons

In 2009, G4S was awarded a 9-year contract to run Brook House Immigration Removal Centre once it had opened. The facility is a 448-bed, male-only centre located near Gatwick Airport, built to house foreign nationals who have served jail time in the UK and/or include those who are thought to have entered the UK illegally, and are awaiting deportation.

At the time of the NAO report, the facility was being operated by approximately 150 staff who supported 227 detainees.

G4S were responsible for self-reporting failures against 30 measures, and the Home Office conducted compliance checks.

So, how did the Home Office believe that G4S were doing on the contract? The NAO report states: “The Home Office told us that, overall, it believed G4S was delivering the current contract to operate Brook House well. It did not consider the deductions for underperformance to be indicative of significant poor performance. G4S and the Home Office both told us their relationship was good.”

The Home Office had actually made deductions in almost every month of the contract for poor performance, though these were only small sums. However, between June 2013 and April 2019, approximately 3,000 incidents were recorded, almost all of which were apparently raised by G4S themselves.

However, in 2017 a BBC Panorama report shocked everyone. A count of 84 separate incidents were shown – including physical and verbal abuse of detainees, and though the documentary initiated a shift in attitude towards this contract, the Home Office concluded that “the behaviour depicted in Panorama did not constitute evidence of systemic failures or a material breach of the contract and that it was not necessary to try to terminate G4S’s contract”.

G4S contract extension

The NAO report went on to discuss the extension of the G4S arrangement, defining it as a ‘troubled contract’, and implying the question of why it should, therefore, have been extended for a further two years. The report also concluded that “the Brook House contract does not provide it with the levers it needs” to drive the right behaviours from G4S.

In September 2017, the report stated that the Home Office had been expecting to award a new contract. However, in the wake of the Panorama report, it believed that further due diligence was required on those who had submitted their bids. While this was being conducted, the outsourcing market received another shock as Carillion collapsed, which, alongside a number of other factors, led to the Home Office deciding to scrap its current procurement round and start again. G4S was therefore granted a two-year extension to the contract.

NAO’s concluding remarks

In the report’s concluding remarks it states: “The Home Office has since concluded that the contract as written is not fit for purpose. The inability of the Home Office to impose any significant financial consequences on G4S for the abuse of detainees highlights limitations in the contractual approach. While Brook House is also subject to regulation and scrutiny beyond the contract monitoring, if G4S had not wanted to demonstrate improvement, it would have been difficult to contractually enforce action.” It goes on to say that with the new contract awarded to Serco in 2019, the Home Office had an opportunity “to give more importance to issues of safeguarding, staff culture and staff training. Even so, it is vitally important that the Home Office continues its new approach of managing its provider to both the letter and spirit of its contracts”.

According to the NAO, the Home Office planned to bring in a number of changes to its contractual approach. Namely:

  • specifying staffing inputs (the number of staff expected on each wing) as well as outcomes (such as cleanliness);
  • changing the performance indicators to provide a more rounded view of detainee experience; and
  • linking the provider’s level of profit on the contract to its performance. This requires effective use of open-book contracting and the staff to do so, but can improve incentives while limiting the provider’s risk.

What now for Brook House IRC?

In 2020, the Home Office awarded a £200 million, 8-year contract to Serco to manage both Brook House and Tinsley House IRCs.

The department is reported to have included improved performance monitoring within its new contract and were prepared to inflict financial penalties should performance standards drop. They claim they are committed to the health and welfare of the detainees above all else.

Serco’s chief executive, Rupert Soames, is reported to have stated that: “The Home Office has made a significant investment in the design and resourcing of the new contract, and we are committed to ensuring that there is a healthy, decent environment in the centres for all residents and employees.”

Five ways to ensure your contracts drive the right value(s)

Your complex service delivery contracts should be formed to build a relationship that optimises your mutual capacity and desire for the successful completion of a project and its relationship objectives. Therefore, not only must it set out the framework for each stakeholder’s responsibilities and rights under the agreement, but it should also offer guidance on managing your relationship, evolving your framework and handling issues that may stand in the way of a satisfactory conclusion to your efforts to achieve the future state envisaged in the business case for your relationship.

There are five evidenced-based observations you can use to influence the quality of your service levels, contracts and relationships:

    1. Fully appreciate the purpose of your agreement

Unfortunately, the odds are against you in complex service delivery relationships as research puts the chances of failure at 56% to 87%. Nobody enters into these relationships believing they will fail, but along the way, something occurs that makes relationship after relationship just another statistic in this grim reality.

So, if you wish to buck this trend, to give your relationships a better chance of success, it’s important to start out in the right way with carefully structured, fair, agreed and understood contractual, business requirements and governance documentation that can guide you through good times and bad.

    1. It’s easy to make things complicated when you’re not aligned

Complex service delivery incorporates many moving parts, parties and potential for mistakes and misunderstandings. While we can hope that every possible scenario has been considered at the outset of a project after the considerable time and intellect that has gone into the process of getting the relationship to the starting blocks, this is not always possible.

There are many opportunities along the way for parties to become misaligned from one another or the project to become misaligned with its business case. This will provide an opening for friction, dispute and delay. However, a carefully drafted, agreed and understood contract, governance and business requirements can offer a pathway to dispute resolution you can rely upon, even if it is not possible to know the exact nature of the dispute at the time of its drafting.

    1. A good contract comes from a great supplier’s due diligence process

The supplier’s due diligence process is a vital relational starting point where things can begin to go very right, or very wrong. Working together to better understand one another, giving freedom to the creative process and allowing the supplier space to determine the very best solutions, designs and plans for the project, creates a stronger foundation for the relationship. Getting the strategy for achieving stated outcomes right from the outset is important and if detailed in your agreement using the right approach in the right way, will offer a structural framework for both the project and relationship going forward.

    1. Don’t put too much focus on non-operational aspects of your contracts

Most contracts drafted for complex service delivery relationships are produced by competent, highly skilled solicitors. While the nature of those in the legal profession is to focus on the detail, it’s just as important that they focus on the right detail. Many contracts drafted for the parties of the hundreds of relationships we have worked on have shown that they lean towards the non-operational aspects of the agreement.

However, it’s the operational aspects of your contract which guide the actions and reactions of the parties, that develop the right environment for innovation and disagreement resolution, and that allow for a more rapid realignment when divergence from behaviours, productivity or expectations are identified.

    1. Five things to know in intimate detail before drafting your contract

There is a formula to a clearer, fairer, more effective contract and it involves the following five elements:

    • a clear understanding, by all parties, of the specific benefits you hope to achieve on the completion of the project;
    • the quantifiable difference between ‘before’ and ‘after’ in order to show that objectives have been met;
    • knowing and sharing the behaviours which should be encouraged (and discouraged) in order to facilitate this shift in states;
    • SMART KPIs to mark the milestones along the way to your objectives; and
    • a built-in review and refine process that allows for parties to come together to revise the business outcomes, expectations and contract terms (at least once every 6 months) where it’s found necessary in order to realign it in an ever-changing world.


Subsequent to the Panorama report, G4S immediately suspended 10 staff. Over the following 12 months, 14 staff (including the suspended 10) were either dismissed or resigned. A new management team was brought in and 71 actions were proposed.

The Home Office believes that its new contract with Serco is far more suited for its purpose and that they have learnt from their experience.

What the NAO report highlighted is the importance of a contract that’s fit for purpose, which drives the right behaviours, and which has the ability to not only encourage parties to highlight when things are going wrong, but to financially incentivise them to do so. A contract that’s truly up to the job of guiding a relationship is often the difference between one that succeeds and one that fails – underlining its vital importance to the process.

Photo credit: iStock