In June 2020 the Ministry of Housing Communities and Local Government issued a document titled “Review into the risk of fraud and corruption in Local Government”1 . This report focussed on the risks of fraud and corruption when councils procure and commission goods, works and services.
Amongst the many observations one in particular struck a chord with some of our clients. Robust contract management was seen as key to the successful management of fraud risk within the procurement process. Whilst there was clear evidence of good practice being applied during the tender process, the report stated that an increased focus was needed on the phases after contract award. The report further commented that weaknesses within contract management can leave councils open to the risks of fraud and corruption by staff and external parties, through overcharging and invoicing for work that is not carried out .
Whilst this report was not intended to consider the general risk associated with poor contract management the implication of the comments throughout the document clearly indicates a need for improvements in this area.
This theme was recently highlighted again in Procurement Policy note 09/20 – the Construction Playbook2. The Construction Playbook sets out 14 key policies for how the government should assess, procure and deliver public works projects and programmes. The playbook applies to Central Government Departments, their Executive Agencies and Non Departmental Public Bodies Importantly however, the document states that the guidance in the playbook should be considered good practice for the wider public sector.
One of the key message within the document related to the need to strengthening financial assessment and monitoring of suppliers. In short robust contract management during the life cycle of the contract.
Gallagher has long advocated the need to actively manage contract risk and all signs are that as we move into the recovery phase of the pandemic public sector organisation will be expected to increase their activity in this area.
One of the areas of focus for insurance professional within the public sector is likely to be outsourced services under PFI and PPP contract. Both will require contractors to procure project specific insurance. Unfortunately a challenging insurance market has led to some contractors being unable to procure the required levels of cover. Whilst some contractors have been open about this with the Contracting Authorities some have been less so.
We have also seen a change in the way certain advisors are interpreting the cost sharing mechanism in PFI/PPP contracts. These mechanism enable positive and negative variations in insurance costs to be shared between contractor and contracting Authority and for many, this has resulted six figure windfalls in recent years. The new approach to premium cost sharing mechanism has effectively ended the windfall and only those who truly understand the calculation methodology are in a position to negotiate a better outcome.
Gallagher has invested heavily in resource to support clients with the more technical aspect of contract risk management and have particular speciality in reviewing the reports contractor brokers are required to issue under PFI and P20PP arrangements.
If you would like to find out more about how we can help your organisation more effectively manage contract risk or you would like support with reviewing PFI/PPP Insurance Costs reports please contact us.
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as at 20,02,2021, but you will recognise that matters concerning COVID-19 are fast changing across the world. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual Gallagher contact.