200226 Kier Claims Update

Many Highways England claims are the subject of disputes which could easily be resolved if Highways England were minded, if the Authority could control their contractors:

The situation remains:

  • Highways England is the claimant, in some instances proceedings have been issued.  These claims are progressed in the name of Highways England, they are the claimant.
  • Highways England’s CEO has said Appendix A to Annex 23 of the contract between Kier and the Authority is ‘good’.
  • Appendix A sets out the equation by which to achieve the ‘maximum’ a Third Party is to be charged:
    • Defined (actual or base) cost, plus:
    • Uplift – the highest seen (Area 9) is 25.29%
  • We are content to abide by this contractually agreed process
  • Kier has not, from day one (07/2014) in Area 9, complied with the process
  • The charges presented by Kier and being sought via the Courts are not contract-compliant
  • Highways England appear unwilling or unable to ensure their contractor (Kier Highways) and their lawyers (Corclaim – Shakespeare Martineau) comply with the contract

We have previously encountered Highways England being unable to control their contractor/lawyer – we suspect the Authority is so compromised as to be ineffective.  They have been aware of the situation since at least 21/06/2017 when we met with their former claims manager, Sarah Green.  At the meeting we conveyed our concerns and provided documentary evidence of exaggeration and fraud which Mrs Green took away, an anonymised version can be found here.

Following the 21/06/2017 meeting, Grant Thornton was to be appointed but subsequently, KPMG was to investigate / audit Kier Highways.  15/11/2017, we spoke to KPMG for almost an hour, with conviction, certainty – we rely upon facts capable of being corroborated.  A transcript of the conversation can be read here

We believe Third Parties (drivers, fleets, hauliers and insurers) are owed £millions by Kier, possibly the Authority is liable and concerned about the potential substantial obligation.  Possibly more worrying is that Highways England has enabled this conduct since 07/2014 and failed to put an end to it despite our clear notifications.

Appendix A to Annex 23 represents  a straightforward equation:

Defined cost (£) + uplift (%) = maximum (£)

Simplifying the math’ still further, ‘defined costs’ are to be common to the Authority and Third Parties.  This is logical, common sense; a base rate, the actual cost of staff, operatives, plant or materials, is unaffected by who is to receive the bill.  Therefore:

  • The difference in cost to a Third Party and the Authority should be the difference in uplift percentage.  But it is not

We are not suggesting the differing uplifts is justified or appropriate, simply that we are prepared to abide by the agreement Kier and Highway England reached.  It is arguable, we should pay no more than the Authority.  We have sought to be reasonable.

The Authority will seek to bamboozle citing differing weather conditions, resources, time of day, economies of scale for RATE variations.  But none of these affects an hourly RATE – they may mean more (or less) hours are associated with works but the underlying ‘cost’ (base rate) of an item is unaffected. 

So, an incident occurs and is attended upon, repairs are organised and completed.  But who gets the bill?

It seems the first thing Kier must do is price the claim, but using what schedule of prices?   Kier needs to determine to whom to present there invoice, to determine whether the total is above or below £10,000. 

It appears logical the attendance and restoration are first priced using ‘Highways England rates’.  These are far lower than the schedule used to charge a Third Party.  The Authority is billed using defined costs a.k.a. ‘base rates’ or ‘actual costs’.    If the total is less than £10,000 Kier gets lumbered … but they re-price using exaggerated rates and fraudulent uplifts – there is a Third-Party to be pursued. 

By way of example, let’s say the bill when first applying Highways England ‘defined costs’ + fee uplift, came to a total of £9,999.  The fee to HE is about 7.4% so let’s do the math’ …

  • £9,999.00  = cost + fee, so this comprises:
    • £9,310.06  cost
    • £688.94      fee (7.4%)

But the total is below £10,000, so the invoice is going to be presented to a Third-Party.  Kier should recalculate by substituting 7.4% with 25.29%, the math’ is:

  • £9,310.06   cost (from above)
  • £2,354.51   25.29% (TPCO uplift)
  • £11,664.57 in total

However, Third Parties can expect to be charged substantially more, in one instance, Kier has invoiced £19,972.91 (CMA Ref X08C239, Kier Ref GC36135, Corclaim Ref M-MT-073332/OZB), a 04/05/2018 incident repaired by 11/05/2018 (within the week).  

It will be understood that the cost difference between Authority and Third-Party should 25.29% – 7.4%, or 17.89%. The maximum bill a Third Party should ever see from Kier is about £11,666.

  • Is this so difficult to understand?

From Kier Highways perspective, they only need to compile the total of the defined or ‘actual’ costs once.  To this they either add 7.4% if billing the Authority or 25.29% if billing a Third Party.  Simple, but it does not allow for profiteering.  This is achieved by the use of a second schedule of rates, a different way of presenting the costs and has also involved the presentation of costs not incurred – multipliers on the hours of operatives.  

*“Exaggeration is fraud.” 11/2019 Christina Michalos Counsel to Highways England