14/11/2017 – Highways England investigates Kier ‘inflated claims’ allegations
- The full construction news article can be read by clicking here
Highways England is investigating allegations that Kier made “inflated claims” to insurers on one of its long-term maintenance contracts. A Freedom of Information request, seen by Construction News, revealed Highways England started looking into the allegations “in relation to the costing of Kier’s claims in Area 9” – which covers the Midlands – in July. If the cost of work is greater than £10,000, Kier presents costs to Highways England which Highways England will recover from the insurer. However, if the work is valued at under £10,000, Kier is expected to recover money from the insurer directly.
Highways England confirmed to Construction News that it had received allegations regarding claims over road repair jobs carried out by Kier, but would not confirm whether KPMG was currently auditing.
A Kier spokeswoman said: “Under our contract, we are entitled to recover the costs we incur in repairing the damage. “These costs are then typically reclaimed from drivers, who may in turn pass the claim to their insurers. “Some insurers appoint claims management companies to attempt to achieve a reduction in those costs, via a number of methods. “If we’re unable to reach agreement with an insurer/claims management company, the claim is decided by a court. “The judge has found in favour of Kier in all such cases in recent years and the contract is subject to a periodic external audit.”
We make the following observations:
The Freedom of Information request, referred to above can be found here:
The concerns are not new having been raised with Kier Highways Ltd (KHL), when they were EM Highways i.e. before their acquisition by Kier Ltd in 2015. The charging process used by the Highways contractor from mid-2014 to late 2015, which resulted in substantial exaggeration, appears not to have been identified by Kier Ltd’s due diligence pre-acquisition.
The pricing procedure, referred to as ‘1153’ saw 1,000’s of invoices raised for excessive amounts. When we asked about the methodology we were informed that it was ”concocted by a group of people” who “set the bomb off”. The concerns we raised about 1153 were well founded though it took over a year for KHL to change, in late 2015 the pricing process was abandoned.
There needs to be a caveat applied to the statement “Under our contract, we are entitled to recover the costs we incur in repairing the damage”; specifically that the driver must have been ‘negligent’. Whilst we see the conduct undertaken by some, a contractor cannot go around strong-arming drivers, fleets and insurers in the name of Highways England simply because damage was caused. Where a driver was negligent then it is appropriate to seek payment from them or their insurer. Some insurers appoint specialist Loss Adjusters. However, again the spokeswoman needs to understand the reality; an insurer understandably wants to pay the correct amount.
Kier Highways acquired Area 9 in July 2014. Their contract sets out how they are to charge drivers, fleets and insurers, collectively known as ‘Third Parties’. There is clearly something wrong as the contracted prescribed methodology has not changed since 07/2014 but we are currently seeing the 3rd charging process presented by KHL … there should have been one!
The issue is not just with how KHL charge insurers; it has become apparent Highways England are also overcharged. In one instance, Highways England sought recovery of a £42,000 bill from KHL only to ultimately accept, following the intervention of a Loss Adjuster, that the invoice was extravagant and should have been under £12,000 – the sum Highways England ultimately paid. Indeed, the Public Authority accepted they had ‘problems’ with the contractor and wrote their claim off, sought no payment.
Courts are a last resort and no one wishes to monopolize their time with such issues. But again, it is misleading so state “The judge has found in favour of Kier in all such cases in recent years”. Firstly, it should be remembered that we, as Loss Adjusters, want to make a payment where the driver was negligent; it is therefore quantum (the amount) that is disputed, not liability. Secondly, with regard to quantum, on 10/07/2017, a Judge, having access to exhibits about KHL’s AIW operatives (emergency incident attendance staff) charges, stated in summing up:
“Only if the sum claimed is clearly excessive can the Court go beyond and investigate the claimed costs of the repairs/replacement”
“… the court did have concerns in respect of the AIW when contrasted with the cost charged to Highways England itself. The costs to Highways England were significantly lower. The court was also concerned with some of the duplication furthermore blended rates and assumptions had been made throughout”
“Overall I found that the overall costing was not an exact art and this allowed Kier to include within the charge an element of their own business expenses and to this extent the costs claimed by the claimant are in addition to the actual loss and therefore not recoverable as they represent excessive charges .”
Highways England sought permission to appeal on the ground that the judge had erred in finding that the charges were excessive. However, leave to appeal was refused on the basis that the judge had found as a fact that the charges were excessive as they did not relate specifically to the actual losses and that this was confirmed by KKL’s own evidence.
The above is not a ‘victory’ for anyone, we have not ‘won’ simply because a reduction was achieved. Both sides have incurred costs and been put to inconvenience. As Loss Adjusters, we seek to agree claims amicably, promptly. But as KHL will not answer questions about their pricing and provide contradictory information, we have found it necessary to present our concerns and evidence to Highway England. Unfortunately, this has taken time.
The issues are not complex, they simply come down to establishing a reasonable price for each facet associated with reinstatement following an incident. To an extent we have achieved this.
AIW’s as an example, are professional people, undertaking a necessary, important and on occasions, life threatening, stressful role. Attending collisions is fraught with potential physical and emotional risks. But we ask ourselves why these staff, who we understand also cut grass, fill potholes and clear litter / debris, are charged at £73 / hour or £105 / hour after 5pm of a weekday to insurers when Highway England, for the very same people, are charged about £25 / hour without a multiplier ‘outside core-hours’ (8am to 5pm).
KHL tell us AIW’s work ‘core hours’ of 8am to 5pm Monday to Friday and after this ian AIW is paid an overtime rate of 1.5x. But this is just one account supplied by KHL; conversely we have also been told AIW’s work shifts, provide coverage 24 hours weekdays. Only one explanation can be correct; which is it and why do we receive contradictions?
KHL do an important job. Our highways are a significant asset and we all want them well maintained to a high standard. We have never had reason to question the quality of the repairs undertaken.
What we ask is that KHL comply with the process instigated in 07/2014 by Highways England; the ‘rules’ that appear designed to protect drivers, fleets and insurers from excessive charging. As they have yet to do so, we have found it necessary to engage with Highways England.