Defined Costs – The Responses Evidencing the Existence of a Schedule

Defined Costs, DCP Rates, Nominal Rates, Base Rates or Pricing schedule as they have been referred to are, as we understand, a set of rates that, in some contracts, are to be used to charge both Highways England (HE) and Third Parties following damage to Crown property.  There are the basis of charging, the cost of an item to which uplifts are added; a ‘fee’ to HE, the Third Party Claims Overhead to a Third Party (TP) i.e. a driver, fleet, haulier or insurer.

They are not simply terminology, but a schedule of costs.

HE have argued (repetitively) that they are ‘commercially sensitive‘.  We have challenged this and still rates have been withheld with ‘Public Interest Tests’ being cited and contractors agreeing that release could prejudice their commercial interests.

HE has also said our approaches for the rates are ‘vexatious’ and argued for our requests to be dismissed. Apparently, between 2013 and mid 2018, HE handled over 150 requests or reviews associated with these rates causing some staff to feel harassed or become distressed.

Then, 11/2018, a HE employee told a Tribunal the rates are not commercially sensitive and a further Tribunal undermined ‘vexatious’ giving grounds for the release the rates.

Since then, when asked for the rates, HE has responded ‘They do not exist!’ but that …

Each incident is treated on its own merits in line with the relevant contract and costs are built up from Defined Costs using the Schedule of Cost Components plus fees and third party overheads where appropriate. Defined costs for individual DCP work are provided as part of the claims cost pack.

As each incident is treated on its own merits Highways England do not use or possess a Schedule of Damage to Crown Property Rates in Asset Support Contracts.

21/02/2019, this was reinforced following an Internal Review with additional comment:

The above should now provide additional clarity: 
a. The Schedule of Cost Components does not contain a schedule of rates. 
b. A schedule of DCP rates is not held and has never formed part of the contract. 
c. The contract does not contain a schedule used to build up the invoice or containing base rates. 

FoI 768,922 (768922)

And 31/02/2019, in response to FoIA 768 504 (768504):

The contract does not contain a schedule of Defined Costs.
The Defined Cost for each incident is calculated in accordance with the definition.

Really?  These rates HE has fought to keep us from, has apparently ‘suffered’ repeated (150+) requests, undertaking reviews of, liaised with contractors about, are non-existent figures?  Why not say so on day-1?

Possibly because they do exist but HE is still seeking to keep us from them?


Examples of some of the information, requests and responses
evidencing Highways England possessing the rates are as follows:


01/02/2013
HMEP issue ‘The Form of Contract for Highways Maintenance Services – Notes for Guidance


2.1 This contract provides the following key features:

enables benchmarking of Defined Cost to ensure that prices remain competitive
throughout the service period when compared to open market tendered prices and
generating savings year on year

5.7 Pricing

5.7.1 Option A (Priced contract with Price List)

• The Contractor provides a Price List (probably as part of an initial tender) setting
out his rates prices and amounts for individual items.
• The list of items (which the Contractor has priced) will probably have been
provided by the Employer as part of the tendering exercise. Where services are
provided for which there is no tendered price in the Price List, the forecast Defined
Cost plus the Fee is used to assess the price.

5.7.2 Option C (Target contract)

• A target price is then calculated by reference to these prices, with the Contractor
being entitled to payment based on his Defined Cost plus the Fee, subject to the
adjustment at the end of the service period to calculate the Contractor’s share of
any saving or overspend against the target price.

12.4 The Service Information sets out the requirements for the Contractor to maintain records of his Defined Cost. The principle of open book cost management applies to the contract irrespective of whether or not main Options A, C or E is used. The Contractor is required to maintain records on an “open book” basis that is on the basis that records of Defined Cost are maintained in a transparent and easily accessible form and made available to the Employer.


06/2013
Area 3 Contract Refers to ‘Forecast defined Costs’


Contract here: Area 3 ASC S I Annex 23 CONTRACT Rev 0


01/07/2014
The contract (ASC)

Area 9 Conditions Of Contract For The Asset Support Contract – which makes many references to ‘defined costs’.


27/02/2016
phone conversation with Ms Granville, Kier Highways Ltd former head of claims


Defined Costs or ‘Notional Rates’ are said to be the basis of all claims, the same whether it is Highways England who is billed by Kier or the Third party.  Ms Granville provided us with the make-up of an AIW’s (operatives) notional rate in a spreadsheet (figures here) explaining:

“it’s a make-up of a notional rate. Now you said to me, and the question you asked me was, ‘Where does the £70 come from?’ and I have clearly shown you the breakdown for that amount of money, which has come from a notional rate spreadsheet”

“… we don’t have, you know, all the staff under the sun, and every person has to be broken down and justified, and the client would pay this just the same as you would pay it. You know, because they are happy. They’re the ones that define the notional rate components, not me. You know, they’re the ones that say, ‘This is what you can charge for.’ In fact the list of what we can charge for is a lot longer than what we do charge for, and some of which I find absolutely ridiculous.”


05/04/2016
From: tim.reardon @ highwaysengland.co.uk


Subject: Kier charges

1. For above threshold claims, the contract between the Kier and Highways England (as with other service providers) sets out a precise methodology for calculating the charges, including the relevant fee percentage.

2. The below threshold claims include an additional third party claims overhead* because, for example, in these cases Kier is pursuing the case the whole way through (rather than the claim being pursued against the insurer by Highways England) and therefore incurring additional costs.

3. Nevertheless, notwithstanding there may be some differences, the conclusions of the January audit of the way in which Kier calculate their claims concludes that insurance companies are not being over-charged; differences either tend to balance out or the differences are not significant**.

4. As I have said before, Kier is responsible for justifying to you the sums claimed. If they cannot satisfy you have various legal avenues*** open to you. Highways England (and we think Kier) has supplied you with the information you should need in order to make an informed judgment.

Tim Reardon

General Counsel
Highways England | Bridge House | 1 Walnut Tree Close | Guildford | Surrey | GU1 4LZ

*the difference is the ‘overhead’ – the TPCO.

** they can never balance out; the uplifts are different.

*** the two obvious ‘legal avenues’ are:

  1. FoIA requests which HE either blocks or provides erroneous responses
  2. Court; where HE’s witness make false statements Judges.

From: Tim Reardon @ Highways England

‘The current charges levied by Kier are as follows:
a) AIW staff hourly rate: £70.32
b) AOW vehicle hourly rate: £35.53
c) CO1 Standard Beam:£41.52′

Note:  the above are false. Said to be correct at 12/2015, provided to HE by Kier:

From: Tim Reardon @ Highways England
Sent: 11 April 2016 18:10
To: Philip Swift @ CMA
Subject: FW: Kier charges

Dear Mr Swift

Referring to your email of 6 April, the rates quoted were confirmed to us by Kier as the rates they charge Highways England and were current as at December 2015.

The methodology for calculating the charges is that applicable to an NEC3 contract including both lump sum and cost reimbursable elements. This methodology is well-recognised in the market.

05/2018, in response to an FoIA request, HE disclosed the rates, the defined costs, for an AIW:

  • Area 9, £22.94 / hour
  • Area 3, less than £54 / hour – this included the vehicle

The rates Mr Reardon supplied are those charged to Third Parties – see extract form charges below (02/02/2017 – colour extract from CBD).

a) AIW staff hourly rate: £70.32 this we are told is £58.32 + 20.58% TPCO
b) AOW vehicle hourly rate: £35.53

The breakdown of £58.32 / hour is evidenced here, sent to us by Kier’s former claims manager who instigated the latest charging process. This is claimed to be the base rate, the ‘defined Cost’ or DCP Rate’ but …

  • if it was correct, HE, paying £22.94 / hour, Kier are losing over £30 / hour on each operative.
  • Mr Reardon acknowledges that there is a difference (at ‘2’ above) yet the figures he has supplied of £70.32 & £35.53 are identical, the same to a TP and HE
  • The contract, Appendix A to Annex 23, supports a process of an uplift to a TP and Kier state this is 20.58%.  He paid 6.5% in 2015 (the rate has ranged from 4.5% to 7.41%).  The charges to HE and TP’s can never be the same.

Note: at this time and until 01/2017, we were unaware of ‘Appendix A to Annex 23’; Mr Reardon / HE never mention it, Kier never mention it …


06/04/2016
WhatDoTheyKnow response


Q. What increases in charges have been agreed year on year?
A. In accordance with the contracts, the prices are adjusted by the contract price
adjustment for inflation on an annual basis

Cost reimbursable service: the service provider is reimbursed the actual costs
they incur in carrying out the works, plus an additional fee. This is used where
the nature or scope of the work to be carried out cannot be properly defined at
the outset and the risks associated with the works are high, such as emergency
work.

Q. What increases in charges have been agreed year on year?
A. In accordance with the contracts, the prices are adjusted by the contract price
adjustment for inflation on an annual basis

Full reply here: 160406 FOI 735547 re pricing and inflation


25/05/2016
FoIA – 738640 Kier Rates Commercially Sensitive


The non-existent rates are ‘commercially sensitive’:

FoIA request on WhatDoTheyKnow.com:

Q: What rates are Kier Highways charging to Highways England and others when fixing roads?

Response:
The information you requested is being withheld in reliance on the exemption(s) in section(s) 43 http://www.legislation.gov.uk/ukpga/2000/36/section/43 of the Freedom of Information Act 2000 because information is exempt information if its disclosure under this Act would, or would be likely to, prejudice the commercial interests of any person (including the public authority holding it).

Claims over £10,000 … the cost and resources are captured as set out under the amended New Engineering Contact and follows standard practice principles of Defined Cost plus fee.

Regarding the release of all labour, plant and equipment rates, this is considered commercially sensitive and inappropriate, particularly given that these rates are detailed individually with each claim form submitted to the insurance company.

The full response with PIT can be found here.


04/06/2016
FoIA Request & reply re Pricing Methodologies


A request was made for pricing methodologies in which there is reference to ‘defined costs’.

06/07/2016 response can be found here, with further comment. the request included:

  • There have been annotations made and I am asking what increases in charges have been agreed year on year with Kier Highways Ltd?
  • The specific values agreed and that have occurred. It seems the contacts have been in place for years. For each contract what was agreed and what has occurred, the actual percentages or sums.

The reply confirmed the existence of the information:

I am writing to advise you that we do hold information that is relevant to your request 04 June 2016 but regret to inform you of my decision not to disclose this information.
The information you requested is being withheld in reliance on the exemption(s) in
section(s) 43 http://www.legislation.gov.uk/ukpga/2000/36/section/43 of the Freedom of Information Act 2000 because information is exempt information if its disclosure under this Act would, or would be likely to, prejudice the commercial interests of any person (including the public authority holding it).

A public interest test was apparently undertaken by 7 members of HE staff (Philippa Gardner, Mark Worrallo, Victoria Ridehaugh, Ian Claridge, James Downer, Nick Cotton, Dawn Davies) and includes the following:

If the methodology was made available to competitors in the market place it
would undermine the commercial interests of the consultant when bidding for other contracts by reducing their competitive edge;

To reveal the details of the bid would seriously undermine our ability to negotiate the best value for money for the public purse on future contracts as the rates and methodology are still current;

The consultants object to the release of their bid information on the grounds that it contains commercially sensitive information in terms of a “trade secret” and rates; and such a release would be actionable

Highways England consider the information ‘commercially sensitive’, Kier do not wish it released yet, late 2018, we are being told the information does not exist!

A continuation of the exchanges gives rise to the further entry at 18/07/2017 (below).


06/07/2016
WhatDoTheyKnow request 738,807 / 738807


In your request of 04 June 2016 you asked:

I originally asked for –
How many pricing methodologies has Kier Highways Ltd used over the past 5 years
when charging Highways England for ad hoc work or when repairing damage to the
highway, barriers or signage?
What were the pricing methodologies?
When did they come into effect?
What increases in charges have been agreed year on year?
 There have been annotations made and I am asking what increases in charges have
been agreed year on year with Kier Highways Ltd?
 The specific values agreed and that have occurred. It seems the contacts have been in
place for years. For each contract what was agreed and what has occurred, the actual
percentages or sums.

The information you requested is being withheld in reliance on the exemption(s) in
section(s) 43 http://www.legislation.gov.uk/ukpga/2000/36/section/43 of the Freedom of
Information Act 2000 because information is exempt information if its disclosure under
this Act would, or would be likely to, prejudice the commercial interests of any person
(including the public authority holding it).

full response here: 160716 FOI 738807 S Joseph fv1 commercially sensitive


13/07/2016
WDTK request 738,640 / 738640


Regarding the release of all labour, plant and equipment rates, this is considered commercially sensitive and inappropriate, particularly given that these rates are detailed individually with each claim form submitted to the insurance company.

Conclusion: there are compelling arguments which support withholding the information which outweigh those supporting release.

PIT Members: Philippa Gardner, Mark Worrallo, Victoria Ridehaugh, Ian Claridge, James Downer, Nick Cotton, Dawn Davies

Date of PIT: 27 June 2016


10/2016
The Form of Contract for Highway Maintenance Services HMEP Service Information


Open book recording of costs
The Contractor keeps detailed records of the Defined Cost incurred in Providing the
Service on an “open book” basis, i.e. on the basis that the records of Defined Cost
are maintained in a fully auditable manner and are made available to the Service
Manager whenever reasonably required for purposes of verification in connection with
the service.

The Service Manager and the Contractor agree what records need to be kept by the
Contractor in respect of the Defined Cost and what form the breakdown takes before
the date the first payment becomes due to the Contractor.

The Contractor keeps separate records of all Defined Costs incurred in relation to:
• The service,
• Direct fee percentage (Section 5 Part 3 Contract Data Part Two),
• Subcontracted fee percentage (Section 5 Part 3 Contract Data Part Two) and
the Contractor provides a breakdown of the Prices and Defined Cost for the
service at each assessment date or as otherwise provided in the contract in
the form set out in schedule 7. The Service Manager may review the form of
the breakdown during the Service Period and discuss any proposed changes
with the Contractor. The Contractor complies with all reasonable requests to
change the form of breakdown.
• Key Subcontractors and suppliers (as defined in the Partnering Information)
shall keep detailed records of Defined Cost and this information shall be made
available to the Service Manager]
If requested by the Service Manager, the Contractor keeps separate records of all
Defined Cost in relation to parts of the service that are, for local authority accounting
purposes, treated as revenue and capital funded, provided the Service Manager has
made clear in relevant Task Order(s) which elements are to be treated as revenue or
capital funded.

Access to original separate vouchers and books of account
The Contractor provides to the Employer or its representatives or agents, full access
to and/or details of, all original vouchers and books of account necessary to
demonstrate its Defined Cost if and when reasonably requested to do so by the
Service Manager.

Regular breakdowns of Defined Cost
The Contractor submits to the Service Manager at monthly intervals (commencing on
the date agreed by the Service Manager and the Contractor or, failing agreement,
one month after the starting date) a statement of its Defined Cost with a breakdown
showing how it is made up together with any additional information reasonably
requested.

Service Manager’s objection to any Defined Cost
The Service Manager may (acting reasonably) object to any Defined Cost incurred by
the Contractor on the basis that the cost is a Disallowed Cost.
In the event of any objection, the Parties seek to agree the amount of the Defined
Cost and if considered appropriate by either Party, meet to discuss any differences
between them. Any failure to reach agreement is resolved in accordance with the
Dispute Resolution Procedure.

HMEP Service Information V2 FINAL 31-10 (002)


25/10/2016
Draft FOI 743153 Final Response 25.10.16 same number and commercial sensitivity


Please note I am seeking information relating to the rates. However;

6. I would also appreciate being supplied the actual sums charged, the hourly rate, the fees presented to HE for this specific aspect of the work undertaken by KHL. I understand that the current rate has been disclosed.With regard to the above information,

7. I ask that this be for the period 01/01/2014 to the present i.e. all rates / arrangements during the past 3 years (almost) and that these are separated by area if they differ.

The information you request in points 6 and 7 above is being withheld in reliance on the exemption(s) in section(s) 43 http://www.legislation.gov.uk/ukpga/2000/36/section/43 of the Freedom of Information Act 2000 because information is exempt information if its disclosure under this Act would, or would be likely to, prejudice the commercial interests of any person (including the public authority holding it). In applying this exemption we have had to balance the public interest in withholding the information against the public interest in disclosure. 

8. Please clarify whether the rates / arrangements vary over the areas.

Each service provider is given an indicative number of incidents at the tender stage for the contract and they price accordingly based upon their pricing model. This is checked and challenged to assess, among others, its quality, value for money and sustainability for the life of the contract in the open marketplace.

An internal review was requested and Highways England responded, with regard to the above, as follows:

20/01/2017

Subject: Request for internal review Ref 747,303
Ref : 747,303

I refer to your email dated 22 December 2016 in which you have requested an internal review for ref 743,153 which was sent to you on 25 October 2015.

Question 11 is a request for an internal review regarding our decision to withhold
information in reliance upon section 43 of the FOI Act.

With regards to question 11, where you have queried our decision to partially refuse your request under commercial sensitivity, a public interest test took place where it was concluded that if the information was disclosed, it would prejudice the commercial interests of our suppliers. In order to achieve best value for taxpayers, it is important to maintain the confidence of our suppliers. I therefore agree that the correct exemption (s.43) was applied and I uphold the decision not to disclose the information.

  • What information?
  • What public interest could have been undertaken is respect of (allegedly) non-existent information?

25/10/2016
FoIA Request on WDTK: Highways England responseThird Party Claims queries


Sent: Tuesday, October 25, 2016 at 4:47 PM
From: “PD_HAIL” <PD_MAIL@highwaysengland.co.uk>
Subject: Highways England response – Third Party Claims queries

  • What is the actual Third Party Claims Defined Cost for repair or replacement work already done and how are they calculated?

The actual defined cost for incident response and repair work resulting from damage by third parties is calculated after the event depending on the work that needs doing. This is calculated in accordance with the defined cost definition in the attached, which references the schedule of costs components also defined in the attached, which specifies specific costs the contractor is allowed to include and the cost of them.

This was accompanied by 3 attachments:

161025 Defined Cost SoCC – ASC Conditions of Contract Issue 5

161025 ASC Model Fixed Overheads

161025 ASC Model third party claims overhead percentage rev3


14/12/2016
HE provide clarification about ‘Defined Costs’


The following is a link from the NEC Contract forum to a presentation 
given by Turner and Townsend, this assists with understanding issues 
around Defined Costs. 

[1]https://www.neccontract.com/getmedia/347…

The presentation linked to (above) can also be viewed here: Defined-Cost-NEC-User-Group

slide 9:
Amounts included in Defined Cost are
■ at open market or competitively tendered prices
■ with deductions for all discounts, rebates and taxes which can be recovered

Highways England added:

A principle underpinning the NEC is that of payment by Defined Cost plus
Fee, this is built upon cost reimbursable activities, these are not actual
real costs but an average of the costs over time.

This is logical and to try to give a common place example, a site workers
costs may be seen as his pay packet on a Friday night but the cost to the
employer is more measured over time, he will have training courses through
the year, be issued new personal protective clothing or have absence due
to sickness and ill health. The costs need to be averaged over time to
capture his average “unit cost”. This is in essence what is done under the
NEC but is done so under prescriptive heads of cost. Note reference to a
male operative is incidental and for ease of reading.


31/01/2017
Ms Granville’s evidence to a Judge


Ms Granville was the author of the 10/2015 process using ‘defined costs’ a.k.a. ‘notional rates’, ‘base rates’ or ‘DCP Rates’ and appeared before a Judge to give evidence on claims. When question about Kier’s ‘Insurers Guide’ (Kier Guide v1)and the lack of rates contained within this, Ms Granville responds:

A. I don’t think it’ll specify individual rates. It talks about the basis of the costs and the fact that we’re audited annually by Highways England on it. It talks about the methods used, so we don’t provide a full schedule of every rate, no, because that would be quite a large document.

It is apparent there is a schedule of every rate – that it is a large document. Ms. Granville was question further on this point:

Q. All right. None of that evidence is before the court, either.

A. Not the full schedule in that leaflet, no.

Q. I mean, there are no (inaudible) so it is one thing to say the full schedule is not here, but there are not even the particular rates that correspond to the invoice that you have provided.

A. No, we haven’t put a whole schedule in our, in our claims leaflet. This purpose is to explain the processes that we go through as a contractor for an insurer to understand.

Q. All right.

A. Obviously, if they want to go through that, we’re always happy to do that.

Specifically, Ms Granville was asked about AIW’s:

Q. However, what I mean is: for example, in terms of the invoice you provided, let us look at AIWs, you have not provided the rate at which the contractually agreed rate which you say is the basis at which you charge AIWs. You have not provided that.

A. Yeah, and the notional rate. The notional rate and its breakdown.

Q. However, you have not provided contractual evidence of what that notional rate is.

A. Not within this, no, but on this particular claim, or with the parties (CMA) that are in this room, we have been through it on alternative occasions.

Ms Granville (above) explained that the ‘notional rate’ for an AIW had been provided and indeed it had (click here).  The issue with the rate of £58.32 to which was added a Third Party Claims Overhead of 20.58% (£12) is that it is NOT the ‘notional’, ‘DCP’ or ‘defined cost’ rate as it is not the charge used when billing Highways England, it is more than double the ‘base’ cost to Highways England of about £24 (at that time) – notes about the costs can be found here. Disclosed rates are here.

It was also revealed that these ‘notional’ rates do change – annually (as opposed to more frequently) and this occurs with Highways England input i.e. the Public Authority is privy to th process.  In Court, it was put to Ms Granville:

Q. At no point in those discussions did you ever provide the contractual documentation that showed the rate which you say you were required to charge, did you?

A. We showed the contractual, the contractual components that are allowed as part of a notional rate, and we also provided a copy of our annual audit because notional rates can change …

Notional rates can change every, every, sort of, year, really, there‘s an annual reconciliation that takes place because notional rates are based upon costs attributes and we provided the extract from the contract that said what the notional allowable are, and we went through what that breakdown was at that particular time and we also provided a copy of our audit which I think our last audit at that time was January last year. We have had another one in December


02/02/2017
Ms Granville’s evidence to a Judge (CMA ref: T06B428)


The 31/01/2017 hearing continued 02/02/2017 … Ms Granville was cross-examined:

Q. Do I understand correctly that the rates that you have applied in this case which we see at SG3, I think—

A. Mmm-hmm.

Q. First of all there is an invoice, and then there is a supporting document for the cost breakdown document.

A. Yeah.

Q. Do I understand correctly that these rates are taken from the contract with HE?

A. No, there‘s no schedule of rates. It’s a defined costs contract, which is dealt with in the contract document you passed earlier on. So, effectively, there’s a cost, it’s called a notional looking rate associated with every person, piece of equipment, piece of plant that is calculated so it’s, like, the salary cost, pension costs, you know, training costs, protective (inaudible).

Q. Where do they come from, these rates?

A. So it’s based on actual costs and then—

Q. No, but where do they emanate from?

A. From the costs to us. I’m not quite sure. Who comes up with (inaudible)? Well, our finance team will assess it every year. So every year, basically, all the costs are collected into pots and then divided by people, and then it’s audited by Highways England to make sure that the notional rates are correct

The questioning continued:

Q. Therefore, can you help me just to understand how the base rate figures have been calculated?

A.So, effectively, all the costs associated, attributed to a person are put in to against a person, and then once a year our finance team divide that obviously by the number of working hours, and they come up with an hourly rate. And then on top of the hourly rate there‘s a contract overhead applied, which in this case is 20.58 per cent. That is an overhead that was calculated at the contract end stage and given to us by Highways England to use, and it’s based on all the associated overheads of running an operation like this.

Q. Where do I see the 20.5 8 per cent on these figures?

A. They’re already in the figures.

This one isn’t breaking down. What is the figure to which the 20.58 per cent is applied to

A. Off the top of my head I‘m not sure because I haven’t got it in front of me, but I have provided that to your client before. I think it’s, well, it’s 70 less 20.58 per cent.

The costs appeared in a Cost Breakdown Document (CBD) the relevant extract from which appears here:

It will be noted (above) that the cost of an AIW is indeed £70.32.  Ms Granville had explained (above) how the figure comprised the ‘notional rate’ (£58.32) plus the TPCO (£12) – a process reiterated here – but that they were not broken down to Third Parties in the CBD.

But as evidenced, Highways England were not and rare not charged £58.32 / hour yet this rate is said to be the same to Highways England and Third Parties.

The questioning continued:

Q. What we need to understand is what the defined costs are for items (a), (b) and (c). Items (a), (b) and (c) we see set out in paragraph 2.

A. Mmm-hmm.

Q. Repair of damage including supervision management, traffic management during repair and initial response to incident clear up and make safe. Can you tell us the defined costs for these three items?

A. It’s the figures and the breakdown minus the 20.58 per cent. The financial annual work that goes on to go through the notional rates for each person every year, I don‘t have a copy of that on me because the file’s massive. But we do get audited by Highways England every year to make sure that we’re abiding by this, and I know that your client’s had a copy of that audit several times.

THE DEPUTY DISTRICT JUDGE: Are these the figures in the invoice?

A. Yeah. Yeah. So fundamentally, the figures in the invoice is the defined cost plus the claims overhead that, that annex 23 talks about

The above is Kier stating, to a Judge, that the charges presented to Third Parties are in accordance with Appendix A to Annex 23, a small section of the contract that Kier and Highways England have kept secret for years but which sets out how a TP is to be charged ‘no more than’ the sum of a calculation:

Defined Cost (£) + TP Claims Overhead (%) = Maximum (£)

£58.32                 + 20.58%                 = £70.32

BUT … ‘defined costs’ are to be the same to Highways England and Third Parties, it is the uplift that causes TP’s to be charged more – as explained and evidenced here –  and the ‘defined cost’ to Highways England is less than £25!

  • 01/ 2016 – How did Tim Reardon’s (Highways England’s General Counsel) audit fail to identify the issue?  The audit report can be found here.
  • 06/2017 – We conveyed the facts to Sarah Green (Highways England’s Green Claims Manager) and provided evidence of non-compliance with Appendix A to Annex 23.
  • 11/2017 – we explained this to Highways England’s auditors, KPMG in a 1-hour conversation
  • 01/2018 – We understood Sharon Mccarthy (Highways England fraud) was investigating the issues

23/02/2017
Information appearing upon WhatDoTheyKnow web site about ‘Third Party Claims Queries


Sent: Thursday, February 23, 2017 at 1:48 PM
From: TR430
To: “CCC Closed Calls” <[email address]>
Subject: FW: CCC Customer Response Form – Call # 18256747

Apologies for the delay in a reply from Green claims as I have been off sick.
The above CCC log was sent to Green claims with one question to be answered

· How do the claims costs and overheads differ by contractor, date and area in the United Kingdom

Green claims are a claim processing team they do not have resources or level of capability to analyse the claims costs from the provider. The process is that the providers submit the dcp (damage to crown property) repair costs to the relevant HE area team who analyse the costs against the contracts (ASC, MAC, ALD dependent on area and Contract) once the area team accept the costs they are then forwarded to the Green claims team to pursue recovery with the insurers.

Provider Costs and overhead are checked by each individual Area team not the green claims team.

Regards

Dennis Delaney, Green Claims Administration Manager
Highways England | The Cube | 199 Wharfside Street | Birmingham | B1 1RN
Tel: +44 (0) 300 4702949 | Mobile: + 44 (0) 7825120604


02/03/2017
Rates ‘Commercially Sensitive’


5. On 2 March 2017 the complainant requested information of the following description:

“How do the claims costs and overheads differ by contractor, date and area in the United Kingdom”. 

This was a follow up to a previous request made on 3 October 2016.

6. On 7 June 2017 Highways England responded by reiterating a previous response which had been sent to the earlier 3 October 2016 request. It explained that

“We cannot disclose the actual rates, as this is commercially sensitive information”

  • Clearly, the rates exist but, after a ‘public interest test’ was undertaken, it was decided not to release them.  If they did not exist just what was considered, tested?

Highways England cited the following:

Section 43(1) – The information requested is methodology considered by Keir Highways to be a Trade Secret. This methodology ís owned by Kier and is used in winning bids
Section 43 (2) – Disclosing this information would prejudice the commercial interests of Keir and would allow Keir’s competitors to use the same methodology when submitting tenders to HE or similar organisations.

Note: More detail about this request can be located here. However, it appears there was a previous (10/2016) request about rates and that HE cited ‘commercial sensitivities’ – more about this mater can be found here.  

It appears the contractor, Kier Highways Ltd. failed to provide a summary of their reasons for not wishing the information released.


07/03/2017
FoIA Request for ‘Defined Costs’ – Refused


Dear Highways England Company Limited,

I refer you to a request and response on this site:
https://www.whatdotheyknow.com/request/l…
specifically the document added 06/03/2017 at:
https://www.whatdotheyknow.com/request/3… , the:

Area 9 Asset Support Contract Service Information Annex 23 Third Party Claims

The document states:

“This Appendix sets out the principles to be followed when calculating the maximum amount to be claimed for damage to Crown Property when the Provider is pursuing a claim against any third party to recover the costs involved in the name of the Employer.”

The Appendix, in respect of Area 9, concludes:

“The amount to be claimed is no more than:
Total Defined Cost for Items (a), (b) and (c) + Third Party Claims Overhead.”

It appears the above Appendix is intended to protect road users and their insurers from excessive claims by restricting the amount your contractor can invoice them. I understand:

• Defined Costs are ‘base rates’ and the same no matter to whom the invoice is presented i.e. Highways England, a driver, fleet or insurer .
• The third Party claims overhead is dictated to the contractor by Highways England.

1. If my understanding (above) is flawed, please correct me.

Please provide:

2. The Defined Costs
3. The Third Party Claims Overhead
And:
4. Define ‘third party’ and confirm that ‘third party’ extends to drivers, fleets and insurers i.e. anyone other than Highways England.
5. Explain how Highways England believe a third party can be satisfied an invoice presented by the contractor is calculated in accordance with the contract (Appendix A – above) if Defined Costs are not disclosed; how can a third party make an informed decision
6. Detail what action Highways England have undertaken since the commencement of the contract (07/2014) to ensure the contractor complies with the this Appendix and charges no more than detailed above i.e. the Total Defined Cost for Items (a), (b) and (c) + Third Party Claims Overhead.
7. Disclose any instances uncovered where the contractor has not acted in accordance with Appendix A (above) and the action taken.
8. Provide all exchanges (to and form) with the contractor on the subject of their pricing / invoicing process.


16/03/2017
from HE FoIA response


From HE:

the 20.58% relates to sub-threshold claims. These are pursued by the Service Provider directly against the Third Parties and not through Highways England’s Green Claims team. This percentage relates to a Third Party Overhead fee. The sub-threshold claims include an additional* third party claims overhead because the Service Provider is pursuing the case the whole way through (rather than the claim being pursued against the insurer by Highways England) and therefore incurring additional costs.

Under recent Asset Support Contracts (ASC) this has been stated by the tenderer under Contract Data Part 2. This is contains commercially sensitive data and cannot, therefore, be released.

Under our ASC 3 contract, the Third Party Overhead fee is not specified and the figure stated appears consistent with what has been claimed previously.

*in addition to what?  In addition to the base rate that both HE and TP’s are charged?


25/04/2017
from HE re FoIA request 748189 / 750009


Subject: Internal Review of FOI 748, 189 request for information relating to the Highways England technical validation clarification all areas Asset Support Contracts.

Our Ref: 750009

Dear Mr Swift

I refer to your request for an internal review regarding our response to your Asset Support Contracts query ref 748189

An internal review involves looking at how your initial request was handled and whether the appropriate exemption(s), if applicable, were applied.

On 9 February 2017 you asked for the following information

all of the information relating to the issuance, possible referred to as ‘technical validation clarification’, for successful tenders in respect of [Asset Support Contract] ASC contracts assigned since their introduction.

• The rates stated to be used by each contractor for each contract
• All queries raised
• All responses provided
• All additional queries / responses to conclusion

With regard to Area 10, [you were] seeking all post 05/04/2012 exchanges that ultimately led to agreement and copy of the outcome.

We asked you to reduce the scope of your request on 23 February 2017 and explained that the estimated cost to compile the information you requested would exceed £450. Section 12 of the Act does not oblige us to comply with requests if they exceed this limit. We agreed that we would be able to provide you with all queries relating to third party claims and Annex 23 for Area 10 only, all Tender Clarifications relating to third party claims and Annex 23 for Area 10 only, all emails relating to the requested subject for Area 10 only.

In response to your request for information relating to the ‘rates stated to be used by each contractor for each contract’ we informed you that we do hold information but after conducting a Public Interest test the decision was made not to disclose this information in reliance upon Section 43 of the Freedom of Information Act as it was considered to be commercially sensitive.

I have reviewed the Public Interest Test, a copy which was also provided to you with the response. I have also discussed this with the team who handled your request and agree that disclosing the information would not be in the public interest as it is commercially sensitive.

But, according to HE, the schedule of rates do not exist … so what was reviewed and discussed; what is ‘commercially sensitive’?


07/06/2017
Highways England response to an FoIA Request – ‘commercially sensitive


“How do the claims costs and overheads differ by contractor, date and area in the United Kingdom”

We cannot disclose the actual rates, as this is commercially sensitive information.

Found not to be.


18/07/2017
HE FoIA response 752,498 / 752498


The information to your second point “Please give me the defined costs information” is being withheld under the exemption in Section 43(1) and (2) of the Freedom of Information Act 2000 because information is exempt information if its disclosure under this Act would, or would be likely to, prejudice the commercial interests of any person (including the public authority holding it).

No mention that the data does not exist.


18/07/2017
WDTK FoIA Request 


The information to your second point “Please give me the defined costs information” is being withheld under the exemption in Section 43(1) and (2) of the Freedom of Information Act 2000 because information is exempt information if its disclosure under this Act would, or would be likely to, prejudice the commercial interests of any person (including the public authority holding it)

• The consultants object to the release of their bid information on the grounds that it contains commercially sensitive information in terms of a “trade secret” and rates; and such a release would be actionable


21/07/2017
FoIA response on WDTK – Explanation of Defined Cost and Uplift


From HE:

Thank you for your email. I am writing to advise that we do hold the information you requested but have decided some of the information cannot be disclosed.

Information relating to some points, outlined below, is being withheld under the exemption in Section 43(1) and (2) of the Freedom of Information Act 2000 because information is exempt information if its disclosure under this Act would, or would be likely to, prejudice the commercial interests of any person (including the public authority holding it).

Dealing with the points you raised, in turn:

What are defined costs?

Defined Costs are the actual costs incurred by area service providers in carrying out the services they are contracted to provide.

Who calculates these?

They are calculated by providers and agreed by Highways England.

Note: HE would (as of 2019) have us believe that every claim is calculated separately, that there is no schedule to work from.  If so, based upon the above response, HE have to agree the rates every day, every change … they are provided the rates.


25/07/2017
FoIA request of Highways England ‘vexatious’ cited (over-turned) reference: FS50703446 Swift, Philip EA.2018.0088 (13.12.18) 


A request for defined costs, HE responded ‘vexatious’.

The 25/07/2017 request:

“I ask to be provided from 01/07/2014 in respect of Areas with
Appendix A to Annex 23 and damage to Crown Property:
1. The Defined costs, those referred to in Appendix A to Annex 23 of the
contract
2. The Third party claims overhead
3. all information that relates to how the above are to be applied to
claims
4. confirmation that the charge to Highways England comprises:
a. the defined cost (at ’12 above)
b. a fee uplift
I do not accept that the above is commercially sensitive.”

23/08/2017 Highways England responded on 23 August 2017 stating that it considered the request to be vexatious under section 14 of the FOIA – response: 2017 fs50703446 HE Decison

  • There was no suggestion the information was ‘commercially sensitive’ or ‘not held’.

28/03/2018 – Highways England’s ‘vexatious’ finding was upheld by the ICO (001 280318 Decision notice) but later overturned by a Tribunal.

20/07/2018 When objecting to my appeal of Highways England’s decision, supported by the ICO, the Public Authority issued a response, full text here by CHRISTINA MICHALOS,
Counsel for the Second Respondent : 180720 Response of the Second Respondent

11.3. Information already provided to the Appellant: The majority of the
requests relate to the same information which have been responded to: see
Decision Notice §19 and Jones §18. It is clear from the the Grounds that the
Appellant has been provided with information and/or similar requests have
been answered.

Clearly, I have not been provided with the information – how could I have been, not only am I repeatedly asking for it, as of 12/2018 (some while later) HE is saying ‘it does not exist’.

The 20/07/2018 also includes the statement:

Highways England has identified 9 individuals which it believes are third parties who are associated with Mr Swift (which is not an exhaustive list as noted at Jones §33). Mr Swift and these Associated Requesters have made a total of 175 requests for information or internal review since November 2013 (including Mr Swift’s 57 requests):

Whilst unfamiliar will all the requests, some appear on the www.whatdotheyknow.com web site. I have noted not one,prior to the 20/07/2018, who has been advised the information about ‘defined costs’ is ‘not held’ or ‘does not exist’.

A search of the ‘whatdotheyknow’ web site revealed many references to defined costs’ to include that made 05/10/2018 – below.


Highways England, represented by Government legal department (GLD) reinforced the stance taken by submitting a skeleton argument:

19/11/2018 –  the extract relating to defined costs is as follows:

The information requested and that is the subject of this appeal concerns charges
made by contractors to third parties for the costs of repairing damage to highways
caused by traffic accidents. These charges are made under Asset Support Contracts. Asset Support Contracts (referred to as “ASCs”) which are contracts by which Highways England procures services from subcontractors in relation to the
maintenance and improvements of its road network.

In summary, the Second Respondent contends that disclosure of the requested
information would or would be likely to prejudice the commercial interests of the
five bidding construction contractors who tendered for Area 10 (Cheshire,
Merseyside, Greater Manchester and Lancashire) as well as Highways England’s
own commercial interests in effective procurement exercises that obtain good value for money.

CHRISTINA MICHALOS
Counsel for the Second Respondent (highways England)

Disclosure of what information?  According to recent (2019) responses, the information is not held! We are now told the information is not held … so why did Highways England not respond in such terms initially?


25/09/2017
Further response to ‘pricing methodologies’


To requester @ WhatDoTheyKnow:

I note that you have submitted a number of requests in the past 18 months seeking details in relation to pricing methodologies and defined costs. Some of the information you have requested has been provided to you. The information specifically relating to the rates has not been disclosed because we consider it to be commercially sensitive.

For each request where we have withheld information, you have asked for an internal review. These reviews have been investigated and conducted by myself and I have informed you on each occasion that the correct exemption has been applied and handled appropriately in accordance with the Freedom of Information Act.

Layla Beckett I Freedom of Information Officer I IT Directorate
Highways England | Piccadilly Gate | Store Street | Manchester | M1 2WD


07/02/2018
FoIA response ‘Info’ held – commercially sensitive’ 758 556 / 758556


15/01/2018, the request:

I want to know the rates you pay Kier Highways not what they charge me. I know this cause i have the paperwork. I am not asking you about my claim and what we have been charged I am asking what you are charged cause it’s said it’s very different. what’s the difference?

From HE:
I am writing to advise you that we do hold information that is relevant to your request dated 15 January 2018 but regret to inform you of my decision not to disclose this information.
The information you requested is being withheld in reliance on the exemption in section 43 (2) — Commercial interests https://www.leqislation.qov.uWukpqa/2000/36/section/43
In applying this exemption we have had to balance the public interest in withholding the information against the public interest in disclosure. The key public interest factors for and against disclosure are enclosed.

Response: 180207 Mr Andrew Wright FOI 758 556 info held commercially sensitive
PIT: 180207 Public Interest Test redacted

It appears 3 HE staff undertook the PIT and responded, as an example:

The contractors object to the release of their bid information on the grounds that it contains commercially sensitive information in terms of a “trade secret” and rates; and such a release would be actionable

What did they object to if not the rates that are now (2019) said not to exist?


12/02/2018
Sarah Green of Highways England


When asked where the schedule of Defined Costs is and ‘will somebody not just give it to me?’, Mrs Green replied:

“… it’s all mopped up in the audit, so I can’t release, because if I release one bit of information it’s not necessarily going to all make sense, so it needs to all come as a package.”

I have yet to be provided the ‘package’.


21/05/2018
Email from HE to Kier (obtained via SAR)


From: Highways England
Sent: 18 May 2018 16:32
To: Area3@kier.emhighways.co.uk
Subject: FW: CCC Customer Response Form – Call # 18734328 Philip Swift

We now have sight of the invoice Mr Swift was referring to and he wants a breakdown of the costs please

From: Highways England
Sent: 21 May 2018 11:36
To: Area3@kier.emhighways.co.uk; communications@kier.emhighways.co.uk
Cc: @highwaysengland.co.uk; manager@kier.emhighways.co.uk; DCP@kier.emhighways.co.uk
Subject: RE: CCC Customer Response Form – Call # 18734328 Philip Swift

The attached *is* the breakdown of costs and Mr Swift already has it. This is not what he’s after. Can you quote exactly what he has asked for?

I suspect it is the defined schedule of rates in the contract between HE and Kier which Mr Swift has requested via FOI several times and has been repeatedly turned down on the basis of commercial sensitivity.

I understand this request has been officially deemed vexatious now.


24/05/2018
Patrick Carney


Highways England’s Patrick Carney, who subsequently (11/2018) in formed a Tribunal that DCP Rates were not commercially sensitive, is party to an internal review of an FoIA request undertaking the Public Interest Test (PIT Members: Patrick Carney, Date of PIT: 23/05/18).  The review can be read here – FOI 762168 Redacted Carney PIT re rates

In the review decision, Highways England cited the ‘commercial sensitivity’ exemption:

The following information is being withheld under the exemption(s) in section(s) 43(1&2) (http://www.legislation.gov.uk/ukpga/2000/36/section/43) of the Freedom of Information Act 2000:

4. You replied the release of all labour, plant and equipment rates, is considered commercially sensitive and inappropriate, particularly given that these rates are detailed individually with each claim form submitted to the insurance company. I am told this is not commercially sensitive and you say the rates are detailed on claims so why would it be. I am asking for the rates.

The disclosure of rates in support of a claim as claim packs to the insurer of the Third Party is different to the disclosure of rates to the world at large.
Conclusion: there are compelling arguments which support withholding the information which outweigh those supporting release.

The ‘FOIA Exemption S.43 (1) & (2) – Commercial Interests’ include the statement:

The suppliers object to the release of their bid information on the grounds that it contains commercially sensitive information in terms of a “trade secret”
rates; and such a release would be actionable


13/07/2018
FoIA 764828 response – S43 ‘commercially sensitive’ cited


Q: What are the amounts with fee and what are the fees for below threshold green
claims and over threshold green claims?

Response:
We consider the disclose fee information exempt under Section 43 (commercial
interests) of the Freedom of Information Act (FOIA), a similar request was made
recently and the Public Interest Test (PIT) concluded that there are compelling
arguments which support withholding the information which outweigh those supporting
release. I have reviewed the PIT in light of your new request and it is still relevant. The
full response including the PIT result is published in our Disclosure Log on the
Highways England’s website and can be viewed here –
https://www.gov.uk/government/publications/request-for-asset-support-contractinformation 

Full Response here – Final_Response_764__828_Redacted


10/08/2018
FoIA Request 762433 (762,433) Internal  Review upholds ‘commercial confidential’


Sian Jones of HE, who in 2019 states that the rates dot not exist undertakes an internal review and writes:

In your request dated 15 January 2018 you asked for

“… the charges that you pay so I can compare them. what do you pay Kier for their manpower and vehicles. I know what I am charged cause we have the bill. What are the rates you pay and how are they different why are they different”

In our response Highways England refused to provide the information requested in reliance on the provisions of section 43(2) of the Freedom of Information Act (2000) in that the information held in the report was commercially confidential in nature.

I have reviewed the response and spoken to my colleagues and have decided that my colleagues were entitled to rely on that exemption.

The full response can be found here – 180810 Internal Review 762433


05/10/2018
FoIA Request 766514 (766 514)


Defined Costs sought  – during exchanges, the following were requested:

  • Why am I charged £73.05 for an AIW but you get them for £23.71?
  • What process must Kier follow when they bill me?
  • What is a defined cost and a claims overhead?
  • What is the defined cost for an AIW, their truck and planning staff?
  • What is the claims overhead?

25/10/2018 there is a follow-up:

Dear Jones, Sian,
What costs can I have?
You are not answering my request. I told you we’ve have been charged cause our car hit a barrier and Kier say they attended and cleared up.

02/11/2018, reply from HE:

Thank you for your request for information dated 5 October 2018. We are
sorry but we are not yet able to provide you with a full response. We
hope to be able to update you by 9 November 2018.

The eventual response (Mr Andrew Wright FOI 766 514) does not provide costs nor does it state the information is ‘not held’, ‘does not exist’.


11/10/2018
HE Ref: HE 112/001/SG141 Our Ref: X01A021/PBS


Green Claims team at HE, the experts, write:

2. The schedule of defined costs for the area is commercially sensitive and not disclosable. All relevant rates are shown in the cost package.

So they exist – they cannot be disclosed because they are commercially sensitive.  And again …


06/12/2018
HE Ref: HE112/009/SG830 Our Ref: W11D370/PBS


15. please provide the schedule of defined costs for the Area at the date of incident to enable us to compare the charges with those agreed.

The schedule of defined costs remains commercially sensitive. All relevant rates are shown in the cost package presented to your Principals.


 

AREA 10 – And then there are Area 10 rates which evidence also supports the existence of – for more about Area 10, click here.


COMMENT


Highways England need only look to their own claims to understand the defined costs and total costs presented to and paid by them.  In the absence of a schedule of costs, how are they able to reconcile charges pre-payment.

Tim Reardon informed us (2016) HE was paying £70.32 / hour for an AIW and £35.53 / hour for their vehicle. We believe the figures were nearer:

  • £24 / hour for an AIW
  • £14 / hour for the vehicle

More recently, mid-2018, HE are billed as follows in Area 9 (our ref X01A304):

7.41% HE
Rate fee total
BD14CXA Merc’ Sprinter Hi-Roof AIW £13.20 £0.98 £14.18
LO64VAA Merc’ Sprinter Hi-Roof AIW £13.20 £0.98 £14.18
LO64VAJ Merc’ Sprinter Hi-Roof AIW £13.20 £0.98 £14.18
YH18LVG BMW i8* Merc’ Sprinter Hi-Roof AIW £13.20 £0.98 £14.18

*Once again, the VRM does not relate to a Mercedes van. For labour £21.64 / hour


It is apparent information is readily available, it can be supplied in a spreadsheet format above threshold.  In Area 9, we have removed the names of operatives, the hours assigned and provide the rates, plus ‘fee’ uplift and total hourly rate to Highways England.  We have also displayed the TPCO and what TP’s should be charged.  The information is here: 180000 Area 9 Rates 2018

In Area 9, Appendix A to Annex 23 applies.  If the ‘defined costs’ can be supplied to Highways England on above threshold claims, why can they not be supplied in this format on sub-threshold claims?

Why can Kier not simply substitute the 7.41% uplift to HE with 20.58% to Third Parties?

The answer appears to be that to do so would see Kier’s profiteering severely affected.