The 1153 pricing methodology was a process unique to Kier Highways Ltd (KHL). It was understood to have commenced when Kier took on Area 9 07/2014 and was abandoned in or about 10/2015.
Furthermore, 1153 has an impact upon claims beyond those in which it has been used to calculate an invoice submitted by KHL directly i.e. below threshold. We would suggest it has a bearing upon post-1153 matters and those presented to drivers, fleets and insurers by KHL’s such as Highways England i.e. above threshold matters.
What is 1153?
1153 involves a process that could be helpful to insurers if employed properly, accurately, honestly. The practice is that of establishing an average cost per incident and involves KHL taking the annual cost of each element of attending an incident (such as a crash, fluid spill or fire) and dividing it by the number of incidents in the year.
Obviously, in order for the resultant figure to be accurate, the numbers used in the calculation must be correct. In the case of KHL’s calculation the sums resulted in over-charging, by 5-fold or more
The figures KHL used can be found by clicking on the following link – 1153 and result in an average price per incident of about £4,700.
Why does 1153 fail?
For a number of reasons:
- 1153 is not the annual number of claims per annum. If the number was twice this (2306) then it follows the calculation would result in an average figure that was halved, about £2,350. But the figure, ascertained 10/2015 appearing in Kier’s ‘Insurers Guide’, was 5400.
- The staff employed, subject to 1153, do not spend all their time attending to the ‘1153’ incidents; they undertake other tasks – and these tasks are paid for by others, for example, out of the public purse for pot-hole filling, clearing drains, picking litter, cutting grass etc. Third Parties were paying for all of this – again!
- The claims that are presented to Highways England do not feature in the 1153 methodology; HE (and KHL’s clients) are no charged using 1153. So how is 1153 associated with all claim attendance costs when it is selectively applied to Third Party Claims only
- Why are Highways England paying any claim attendance costs when Third parties have picked up the bill?
Where did the number 1153 come from?
Initially, even KHL could not say! On 18/11/2015, KHL stated to us:“1153, for love nor money I cannot find that number”KHL had advised that 1153 was the number of claims during 2014. However, at a meeting the number was described as one “produced for tender” and ‘assumed’ it would apply to either 2010 or 2011.
It appears that the number originates from 2010 or 2011 but even KHL appear uncertain. Furthermore, why would KHL be using a number from 2010 /11 for gauging claim value in 2014?
What is the average number of claims per annum?
It appears this is actually 5,400 (source – Kier’s ‘Insurers Guide’). That is to say almost 5 times the figure KHL have used to calculate an average fee!
Some simple math’ ….
- 1153 claims x £4,700 = £ 5,419,100
- 5400 claims x £4,700 = £25,380,000 …
a difference of almost £20 million.
or, to put it another way, to ascertain the actual average cost:
- £5,419,100 / 5400 = £1,003 … as opposed to £4,700 … a difference of almost £3,700 / claim.
And the above only deals with the emergency attendance aspect (as opposed to repair) and does not take into consideration that the staff do not just deal with emergency incident attendance and that KHL receive a lump-sum payment form Highways England (and other clients).KHL have been a Highways England contractor years. Indeed, as ‘Enterprise Mouchel’ they were the subject of a Highways England Audit the final report of which was issued 18/07/2010. The report contained the following statement:
On damage to Crown Property the auditee documented evidence that demonstrated that a total of 2849* green claims incidents had been recorded 1709 had successful identification of culprits of which 1630 had been invoiced with a total value of (redacted) and to date 1003 had been settled with (redacted) recovered.
The audit does not clearly identify whether 2849 is an annual figure or ‘claims to date’.
Why do KHL need (apparently) to refer to a tender document from 2011 for a claims number, to justify 1153 put into place during 2014? At the time of implementing the 1153 process they had 2 or 3 years of claims experience.
The above number of 2849 is for Area 3 only, KHL have the following contracts, in place before 1153 was used (at or about mid-July 2014):
- 04/2007 London Borough of Hillingdon – completed 03/2014
- 07/2010 Area 1
- 07/2010 Area 13
- 10/2011 London Borough of Croydon
- 11/2011 London Borough of Enfield
- 04/2013 LoHAC South (Transport for London)
- 04/2014 City of Westminster
- 07/2014 Area 9 – just as 1153 came into force(?)
It appears anyone presented with a bill from KHL that used 1153 between 2014 and 2015 is owed at least £3,700.
At a meeting, KHL acknowledged that 1153 was likely (certainly?) low stating ‘that was where the model started from’ but conceded “at the end of the day we have to take into the fact that we gained the contract since then, the number of incidents has actually increased overall, but that was because we’ve got Area 9 as well, so that’s what you would expect”.
Yet KHL were using a 2010/11 figure to divide total claims values, using this as the basis upon which to invoice drivers, fleets and insurers.
At a meeting on 09/12/2015, we left KHL in no doubt that although we understood the process had been abandoned, we would return to them on the matter as people (our clients) were expecting updates on it. When we advised KHL “this 1153 ain’t going to go away” the response from KHL was “Well it is, I’ll be honest with you, I hope I never hear the number again in my life”
Subsequently, KHL claimed we had informed them that we had dropped the issue (of 1153) yet in February 2016, we continue to see invoices presented using the 1153 methodology!
- What else do 1153 staff do?
It should be obvious to all that the 1153 methodology is wrong, that it does not add up. The figures speak for themselves:
- 1153 incidents per annum
- 38 staff attending incidents (emergencies)
The staff work in pairs, hence there are 19 vehicles. There are 52 weeks in a year and therefore about 22 incidents per week (1153 / 52). These incidents are attended to by the 19 ‘crews’ (AIW’s), that is to say, just over 1 each per day. Assuming that there are always a number on leave, some sick or training etc. they may each deal with 2 claims per week … for arguments sake, let’s say 3 incidents per week.
As the AIW works a 5 day week, what are they doing on the other 2 days? as we rarely see an AIW at the scene for more than 2 hours, what are they doing for the other 7 hours of their day?
It matters not, clearly they are not attending to emergencies BUT whatever they are doing has been paid for by drivers, fleets and insurers because 100% of their cost is paid for, divided among the claims. yet Highways England also pay for these other tasks.
It appears anyone presented a bill from KHL that used 1153 between 2014 and 2015 should have a further 50% shaved off their bill … £1,003 (above) should be about £500.
- Highways England & 1153
Of all the claims we have seen above-threshold, those where KHL invoice Highways England directly (as opposed to an insurer) we have yet to see any mention of 1153. Yet Highways England claims are handled in the same way; the emergency is reported (at which time often no one knows for sure whether the ultimate invoice will be above or below the threshold), KHL staff are assigned; the very same staff, driving the very same vehicles arrive at the location. These are the staff and vehicles that have already seen their cost divided among the 1153 incidents (sub-threshold).
If the invoice is over threshold, the invoice to HE makes no reference to 1153, it does not feature in the makeup of the 1153 figure. KHL charge HE an hourly rate for these staff and vehicle (KHL assets) the cost of which has already been divided among sub-threshold claims.
And HE then seek to have drivers, fleets and insurers pay for these emergency staff and vehicles, items that drivers fleets and insurers have already paid for (under the 1153 process)! This charge appears to be icing on the icing on the cake for KHL. But for HE possibly there should be concern about the unintended consequences of allowing a contractor to do what they like …
- why should drivers, fleets and insurers (DF&I) be meeting the charges presented by HE? DF&I have already paid once for the ‘services’ under 1153!
And then there is the issue of the ‘multipliers’ that KHL will charge DF&I that can see an hourly rate of £70 escalate to well over £100.