160324 To Highways England re Overcharging by Kier & Lack of Transparency

24/03/2016 to Tim Reardon General Counsel Highways England

Dear Tim,

Thank you for your time yesterday.

We appeared to be talking at cross-purposes about some aspects and in circles about
others.

KHL charges to HE

I am seeking the current charges KHL make to HE for:

  • AIW staff (hourly)
  • Vehicles (hourly)
  • C01 Standard Beam

The above should enable me to make an informed decision about what we are being
presented / told. Additionally, I wish to be in a position to re-cost KHL claims by reference
to current HE charges

I will see the current charges from KHL to HE in 6 months or so, when recent claims filter
through the system and land on our desk. I already possess the 2014 / 2015 charges KHL
made of HE. As an example, I note AIW, plant and materials charges, the ‘overhead fee’
mark-up of 6.5% (more recently 7.3%) and the subcontractor invoice ‘overhead fee’ mark
up of 4% (source – CMA ref. S12C634 08/03/2015 incident).

One other aspect that concerns me is ‘multipliers’:

  • Are HE charged overtime / multipliers for AIW staff?

I am receiving conflicting information about AIW staff working shifts. However, I have yet
to see HE being charged a multiplier.

KHL charging differences

I believe we agreed in a previous conversation that it was reasonable, if not appropriate,
for the charges presented to HE to mirror those presented to drivers, fleets and insurers. It is
evident from our conversation yesterday that you understand this is not the case.

However, KHL will say that the charges are the same. My issue therefore was not ‘what
are the differences’ because there should be none, but:

‘why am I receiving contradictory information?’.

The rates I have encountered differ. KHL wish to ignore my concerns. It appears
profiteering is occurring.

KHL current charges to drivers, fleets & insurers

With regard to the costs currently being presented by KHL, I understand that we have an
option, that we can choose to take a stand and challenge KHL. But why should we have
to; they are your contractor and we have provided evidence that all is not right.

Why does HE enable the environment to occur but sit back and let the parties fight it out – with
KHL employing distasteful tactics?

We cannot obtain information from KHL via FoIA because of the arrangement between
HE and KHL and that KHL is not subject to FoIA. When we seek information from HE we are
obstructed.

In the meantime, whilst we can defend our client’s position due to substantial knowledge,
experience and investigation are HE going to stand by and let other motorists, fleets and
others fall victim to a process HE have created – a self-policing environment that HE have
turned their back on?

Many drivers and fleets will not have the resources and history we have. Why should they
fall foul of the process?

Harmonisation

I note that you have spoken with Sophie Granville of KHL recently, that KHL are looking to
harmonise charges i.e. to ensure charges to HE match those to drivers, fleets and insurers.

I was taken back by this revelation of ‘harmonisation’. It was the first I heard of it.

It appears that we are going to be the subject of another pricing methodology or price
schedule. Despite KHL:’s board-led project, their drilling down, to work out the latest costs,
they still have yet to get it right.

Aside of us being told charges to HE and others are the same (which KHL have clearly
disclosed to you is not the case), we have repeatedly raised the issue of the charging
discrepancy, are told this is a non-issue, that KHL will not re-cost and will instruct solicitors to
pursue the recovery.

It appears KHL wish to instruct solicitors to pursue a recovery that they know to be
incorrect.

On the one hand KHL appear to be telling you that they are looking to harmonise (match)
charges i.e. they acknowledge an anomaly, on the other we are subject to aggressive,
bullying tactics.

It is unbelievable that we and HE are treated so differently; that KHL acknowledge to HE
that there is a pricing discrepancy yet seek to strong-arm us into agreeing their rates.

Again, I understand we can challenge this in a Court but:

  • Do KHL have no understanding of Civil Procedure Rules?
  • Is it considered appropriate to act in this manner?
  • Why should a driver and their insurer be subjected to further inconvenience, distress
    and cost?

KHL are telling me that the charges to HE are the same as those to insurers. It is evident I
am being misled by KHL. It appears we are the subject of dishonest false representations
which are intended to make a gain for KHL or conversely, to cause loss to our client or to
expose our client to a risk of loss.

But this should come as no surprise to HE. A cursory examination of the matters I troubled
to raise in detail would have confirmed a charging methodology that was based upon
unsupportable figures. The mathematical sleight of hand has caused substantial
overstatement of claims for in excess of a year yet HE report:

“There is no evidence that KHL recovered over their entitlement though early claims
did contain a small number of minor errors”

KHL are using your audit to reinforce the appropriateness of their action!

Audit

I referred to HE’s 07/01/2016 audit as a whitewash; a cover-up. It remains to be seen
whether this was intentional or results from ineptitude. I took the time to present a
substantial document the content of which I can substantiate. HE undertook a simplistic,
minimalist audit.

I do not accept, contrary to your audit, HE:

  • Are transparent
  • are concerned to ensure that there is not over-charging and that claims represent
    a fair reflection of the costs involved.

I do not accept, contrary to your audit, KHL:

  • provide more granularity
  • claims which represent reasonable incident specific costs
  • supplied us with considerable amounts of information as to how their charges are
    broken down
  • claims are based upon actual and reasonable costs

I repeat, HE found and reported:

“There was no evidence that Kier recovered over their entitlement though the early
claims did contain a small number of minor errors.”

I am astounded by this statement and question the conduct of HE.

I alerted HE to KHL’s pricing methodology and there is reference to this in the audit. KHL
applied a ‘1153’ methodology; they divided the cost of providing an AIW service, the
initial incident attendance (staff and vehicles) by the number of claims (1153). Each
incident (1153) was then charged the resultant 1153rd (about £2700) during 2014 /15.
1. The 1153 claim number appears to originate from 2010/11 however, the origin has
varied from KHL. It appears accepted that the number is low. In the event the
number, for example, should be double, then it follows KHL overcharged by 100%
on every claim for their AIW service. That is £1,350 per claim. As KHL have a
threshold of £10,000 that is a minimum of 13.5%. In cash terms, at 2,000 incidents,
£2.7 million i.e. about the total cost of the AIW service

A ‘minor error’?

2. An AIW does not just attend to incidents. I have varying estimates from KHL about
the use to which AIW’s are put; 50% to 70% of their time is spent dealing with
incidents. Using KHL’s figures, at least 30% of an AIW’s time is spent attending to
other tasks – possibly those HE pay for using the lump-sum? Irrespective, the AIW’s
were apparently costing KHL about £3 million per annum. If 66% of their time is
spent addressing incidents, that is 33% attending to other matters, the
proportionate charge is £1 million.

A minor error?

What of those claims submitted to HE for 2014/15 events? Please take a look at those
claims that HE received during that period. I have and the one glaring anomaly is the
absence of the 1153 methodology.

  • Why did your audit team not pick up on this?
  • When did HE first know of the 1153 methodology
  • Why are HE not subject to the 1153 methodology
  • Why are HE paying anything for AIW’s during 2014 / 2015 ?

It does not appear that HE featured in the 1153 process, a methodology that saw drivers,
fleets and insurers cover the full cost of AIW’s … so why would HE be invoiced for them?

The above does not take into account that, by reference to your earlier comment, part of
the AIW cost is accounted for in the lump sum payment make to KHL.

How many other members of KHL staff does this relate to? I suspect most ….

I again refer you to CMA ref. S12C634, a 08/03/2015 incident, HE reference 112/003/SG223.
I have the detailed 03/2015 breakdown of charges from KHL to HE and note, as an
example (in addition to the AIW charge – Mr Stroud at £20.65 / hr + 6.3%) and:
Dan Hay is being charged to you at £42.21+6.5%.

Dan Hay is the DCP manager, we are currently charged £53.67 for this gentleman.
On 15/03/2015, a week after the above incident, we were being charged £104.42 for his
(alleged) involvement in a claim (CMA ref: T05B074). The 1153 methodology was applied
the Dan (and numerous others) and his cost per year of £120,395.77 was divided by 1153
i.e. apportioned between the (wrong) annual number of incidents.

Dan Hay’s annual cost has been apportioned between the 1153 incidents, his cost has
been accounted for and HE do not appear to be subject to the 1153 process.

  • Why are HE being charged for Dan Hay?
  • Why is HE demanding payment for him from drivers, fleets and insurers?

Drivers, fleets and insurers have already paid for Mr Hay (see above). In turn, this situation
appears to extend to many other KHL staff.

Please explain:

1. how the 1153 methodology is considered appropriate and HE’s knowledge of same
2. why HE are not subject to the 1153 process
3. on what basis HE believe they should be charged by KHL for the staff costed using
the 1153 methodology during 2014 / 15
4. why HE believe drivers, fleets and insurers should be charged again for the staff i.e.
pursued by HE for payment
5. whether HE will pursue KHL for recovery of the over-claiming or whether it is
considered drivers, fleets and insurers have the claim.

I am mindful that of the 1153 incidents, about 400 of these involve unidentified drivers i.e.
KHL had no one to recover from. However, it does not appear that this was necessary –
the process appears to have ensured that drivers, fleets and insurers picked up the cost.
KHL are currently unable to price a claim. I suspect this is because they do not have a
competent methodology, that there remains a lack of supportive documentation and (as
identified by HE in late 2014) costing is down to experience i.e. by use of a ‘finger in the air
method’.

My concern is supported by your audit making such statements as:
‘The current processes implemented in the later part of 2015 uses minimal
annualised costs with the vast majority of costs being incident specific with back up
supplied to incident specific timesheets and plant and labour returns’

Really?

There cannot exist credible evidence in support of the above as we do not
receive the information. Additionally, reinforcing the ‘annualised’ costs comment above:
‘It is considered that for those few costs that are based upon annual average cost
data, it is reasonable to do so, for example the time claimed by the DCP depot
admin assistant.’

Few costs? This is incapable of support. Then there is:

‘The use of this schedule of charges no longer applies and all claims being dealt
with by Mr Swift have, we have been informed, been resubmitted under the revised
incident specific process, therefor consider this matter closed.’

You have been misled, you have not been provided an accurate account. It appears
KHL believe they can treated you, as CMA; in an indifferent manner, that HE are also
fobbed off. This morning, I asked for some examples of outstanding claims, those yet to
be re-costed:

CMA ref KHL ref: Date of Loss Notes
S12C624 GC/020812 28/07/2015
S10C170 GC/020227 16/06/2015 1153 methodology
S06B190 17268 31/12/2014 1153 methodology

Please note the difference between the manner in which we conduct ourselves and that
of HE & KHL; we evidence our statements.

With regard to the last two, I have personal knowledge of both as, in 09/2015 KHL’s credit
manager Dean Newton, had lost track of every claim and sought to enlist our help – or so I
understood. I reviewed every claim and reported upon each. I never received a
response, it was a total waste of my time and likely to cover the fact that Dean was writing
directly to our clients trying to deals behind our back whilst telling us he was approaching
them to determine the current status of the claims.

However, it appears we need to wait for the ‘harmonisation’ to occur before any claim
involving KHL can be considered for settlement. This will also extend to those claims which
HE are pursuing where the contractor was KHL.

In the meantime, I await your response to enable me to better consider how the 1153
methodology has impacted upon claims and whether, as I suspect may be the case,
KHL’s methodology has resulted in such overpayments by drivers, fleets and insurers that
their 2015 costs have been met and to demand more would be an abuse, possibly
unlawful.

I would appreciate HE advising their claims and FoIA staff that there are serious concerns
associated with the conduct and pricing undertaken by KHL and that the actions of HE to
date give me no confidence HE are seeking to be transparent. Indeed, it appears there is
a concerted effort to keep me from information. At present it appears that HE are part of
the problem, as opposed to the solution. If the issues are going to be resolved amicably, I
expect HE and KHL to come to me with open hands.

I understand Kier have appointed John Harrison to review the claims handling operations
of KHL and Kier. There may be merit in HE liaising with him.

Yours sincerely

Philip