Overstatement & Inability to Price Consistently

 

08/2018 – over a year of correspondence and no explanation ….

A claim made by Highways England via their lawyers, Government Legal Department, is currently the subject of varying totals – Kier, Highways England and GLD with access to the rates which are kept from Third Parties, are unable to agree the bill:

a) £14103.66 KHL price, paid and claimed by HE
b) £13,841.11 KHL re-price
c) £12,936.33 HE re-price

We have written to Highways England and GLD and an extract is as follows:


(U04B286). Liability has been accepted and we have made a payment noting anomalies, overstatement. It is apparent both Highways England (HE) and Kier Highways Ltd (KHL) accept that the invoice HE paid is inaccurate.

It appears HE rubber-stamp KHL invoices for payment. We understand HE have paid the £14k+ presented and then demanded same from our client. Currently, GLD are demanding a sum higher that HE believe to be appropriate.

KHL have charged for ‘pricing’ the claim. HE’s accounts department have paid the sum, their Green Claims department have presumably reviewed the matter before demanding reimbursement and GLD have also had the opportunity to consider the figures. Despite the invoice passing through these four hands, it is not until our review that anomalies are identified. This is not the first occasion we have had cause to raise the issue of exaggeration. It appears the public purse is being abused.

The figures being presented for payment are:

a) £14103.66 KHL price, paid and claimed by HE
b) £13,841.11 KHL re-price
c) £12,936.33 HE re-price

Despite having the schedule of costs and understanding the process, HE and KHL cannot agree a figure. Yet HE and KHL expect Third Parties (TP’s) to accept and pay these invoices ‘blind’, subjected to obstruction and misrepresentation (see below).

GLD are aware of the concerns; please supply:

  • the defined costs GLD have been provided, the contract extract
  • the calculation GLD have undertaken for the incident

There has been overstatement and we wish to understand how HE and their contractor, KHL, both with access to the defined costs, the ‘base rates’ are unable to agree a figure – see Appendix 1 (below). In turn, we wish to establish the actual cost – something we expect HE would be keen to pursue as a Public Authority with a responsibility to those whom they serve.

With regard to how the charges should be made up, our understanding is:

  1. KHL and HE state charges to TP’s and HE are based upon ‘defined costs’ common to both; that invoices to both HE and TP’s use the same schedule of base rates (defined costs) which represent pre-profit sums for every component of a claim (staff, labour, plant and materials)
  2. Below £10k threshold – KHL ‘retain’ the claim / recovery (KHL are not paid by HE) where the invoice falls below £10,000 and pursue the TP directly. When doing so they should add up the defined costs for a claim and to this add a percentage uplift, the Third Party Claims Overhead
  3. Above £10k threshold – Where the invoice is over £10,000, as in this case, KHL submit their invoice to HE. When doing so they total the defined costs for a claim and to this add a percentage uplift, a fee of 7.38%. HE pays then pursues the TP.

The process at ‘2’ is set out in Appendix A to Annex 23 of the ASC (contract) – Area 9 Appendix A to Annex 23

We receive claims above and below threshold. We are therefore able to compare the charges and the process. KHL are not complying with the Appendix A methodology.

To date, no one has evidenced / confirmed the uplift to be used at ‘2’ above, the Third Party Claims Overhead. It has been said, by KHL, to be figures between 20% and 26%. This appears high – in other areas we see less than 15%. Additionally, we have yet to be provided the defined costs.

It is apparent we require the defined costs, that they should be made available and we again ask to be provided these. In support of our request we cite the following:

  • The process should be straightforward; defined costs have been established and agreed between HE and KHL. There exist base rates, a set of values for staff, labour, plant and materials that were acceptable to both parties. To these an uplift is applied, again a figure agreed by HE and KHL.
  • If the process was adopted, the difference in charges to HE and TP’s would be the difference in uplift, about 13% (20.58% to TP’s less 7.38% to HE). It is not, the difference in some respects is 100%+.
  • The environment is one of ‘monopoly’ with KHL operating in a vacuum as sole-supplier necessarily attending and repairing asap, if not immediately – there is no opportunity for an insurer to repair whether at lower cost or otherwise, though lower costs are clearly available as evidenced by comparison to other Areas.
  • The claimant is a Public Authority with whom costs have been agreed for reinstatement after a detailed tender and breakdown of every facet. The agreement states a TP should be charged ‘no more than’ the process providing a total that represents the MAXIMUM a third party is to be charged – the issue of reasonableness has been addressed in the contract; KHL have agreed to a reasonable, acceptable uplift. However, they have yet to comply with this and we remain concerned their abuse extends to charging HE who seem to have little interest in the figures believing TP will pay in full, without question.

Little faith can be placed in information emanating from KHL and HE. It appears there is a tacit agreement between them; that the contractor can charge ‘whatever they can get away with’ and ignore the contract, while HE keeps the agreement secret and ignores the non-compliant conduct. The TP’s ‘shield’ that is the Appendix A to Annex 23 agreement, affords no protection to those ignorant of it – the Public Authority has kept their public from the very part of the agreement that appears intended to prevent overstatement of claims.

How can HE be unaware of the abuse?:

  • From the outset (07/2014), KHL did not abide by the agreement but charged TP’s using their own process (‘1153’) that saw gross exaggeration on 1000’s of claims. HE failed to identify and prevent this.
  • 10/2015, after failing to have our clients remove us from the claims handling process, KHL abandoned their charging procedure (‘1153’) and presented their ‘defined costs’ plus ‘third party claims overhead’ process. However, it was evident the charges were excessive. However, at this time no one (aside of KHL and HE) was aware the process formed part of the contract – Appendix A to Annex 23 had not surfaced.
  • 01/2016, following receipt of our documented concerns, HE’s General Counsel instigated an audit of KHL but found no significant issues. Of particular concern is that:
    • No mention was made of the contractual process (Appendix A to Annex 23) and that KHL had not and were not complying with this
    • HE stated that they paid £70.32 / hour for an AIW – they do not, see below.
  • HE placed the contracts on-line with the Annexes to the contracts but NOT the appendices. Appendix A to Annex 23 that sets out the charging process (‘2’ above) does not appear. It seems this was intentional, designed to prevent Third Parties becoming aware that there was ‘protection’ against abuse as ’coincidentally’ KHL did not act in accordance with the process.
  • Appendix A to Annex 23 was first noted in early 2017, attached to the end of a HE Annex 23 exhibit. As we receive below and above threshold claims, we could then compare the figures and noted:
    • The presentation to HE differed. For example the costs to HE are displayed with the ‘base rates’ or defined costs plus the uplift. TP’s were simply presented a total without the breakdown
    • An AIW (emergency attendance operative) was £23.71 / hour defined cost to HE plus a 7.38% fee uplift. To a TP the charge was £70.32 ‘coincidentally’ what HE claimed to be paying. The figures cannot be reconciled; if KHL were compliant with the contract, a TP would be charged £23.71 + the TP claims overhead which, if 25%, amounts to about £6 more i.e. a total not exceeding £30 / hour
    • KHL charge TP’s multipliers on hourly rates when operatives work after 5pm of a weekday. No such multipliers are applied to HE claims yet this saw the charges for an AIW to a TP became about:
      • £105 / hour after 5pm of a weekday
      • £140 / hour of a weekend
  • Appendix A to Annex 23 is no longer cited by HE when presenting a matter to a Court.
  • KHL, in the name of HE have made contradictory statements to us, insurers and the Courts. It has been claimed:
    • AIW’s work 8am to 5pm. This we understand to be untrue
    • AIW’s are paid the multiplier uplift. This we understand to be untrue

In 06/2017, after raising concerns, we complained to HE who appointed a manager to investigate but to this date the outcome of the ‘investigation’ has not been disclosed, it appears to have stalled. GLD have stated no issues arose, HE contradict this. More than a year has passed without an outcome to the fraudulent misrepresentation concerns we were able to evidence to HE within a ½-day meeting.

We have been repeatedly kept from the defined costs used to charge a Third Party and in turn upon which HE’s invoices are based. KHL and HE possess the schedule of defined costs and can refer to these to establish compliance and invoice accuracy (though not in this instance and others). Conversely, a Third Party, with less understanding of the processes, is kept from them. Is it coincidence that the schedule of defined costs and A to Annex 23 have been kept secret whilst KHL adopts their own non-complaint charging process to Third Parties. HE’s responses to regard KHL; they are gifted areas 6 & 8 and other Areas have seen KHL’s management period extended.

Some 4 years having passed since the instigation of Appendix A to Annex 23, it appears HE have failed to identify non-compliance when auditing or have turned a blind eye to the process being used by KHL. It is understood KHL invoice on over 5,000 claims / annum, the exaggeration is believed to run into tens of millions of pounds.

On what basis are GLD demanding payment of a sum that has yet to be agreed between HE and KHL, in particular a figure higher than HE’s total and in the absence of the defined costs apparently being used by both parties?

Freedom of information Act

I ask to be provided:

• All information relating to the compilation of the 3 charges made in respect of this matter

• The Third Party Claims Overhead HE agreed with KHL for all areas since the commencement of the contracts.

• The defined costs agreed with KHL for all areas since the commencement of the contracts.

• The outcome of the investigation of KHL, the present position of same and all associated information

Contrary to Appendix 1, defined costs and uplifts are NOT applied in accordance with the contract. We have conveyed this to HE is great detail, evidencing the non-compliance. We have no reason to believe the costs being presented in this and / or other claims to HE and in turn TP’s are compliant with the schedule of defined costs. Indeed, this claim highlights the concerns; HE and KHL cannot agree the total. This suggests the parties are using different pricing schedules and / or one or both is not complying with the agreed process. Irrespective, if HE and KHL cannot agree after a detailed tender and with access to the all relevant information, what chance does a TP have?

We await a comprehensive response and HE’s reference for this FoIA request.

Yours faithfully

 

Philip Swift
Claims Management & Adjusting Ltd


Appendix 1

Explanation of Defined Cost and Uplift
https://www.whatdotheyknow.com/request/explanation_of_defined_cost_and

Ops Dst, Highways England Company Limited 21 July 2017

1. 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.
2. who calculates these
They are calculated by providers and agreed by Highways England.
3. what is the calculation
This is typically the amount of payments due to subcontractors for work which is subcontracted without taking account of amounts deducted for
• payments to others and
• the supply of equipment, supplies and services included in the charge for overhead costs incurred within the working areas in the contract
• the cost of the components for other work.
4. what is the defined cost
This will vary from scheme to scheme depending on the costs incurred by the contractor.
5. What are the uplifts to Highways England and Third Parties

The “uplift” referred to is the Service Provider’s Fee. There is a subcontracted fee percentage which is applied to the defined cost of subcontracted work and a separate direct fee percentage which is applied to the defined cost of other work.
In addition there is a third party claims overhead percentage for damage to Crown property where, in accordance with the contract, the claim is the responsibility of the Service Provider to action.
The Service Provider’s fees form part of their tender bid and are applied in accordance with the contract.
6. who calculates these
The fees are calculated by providers during contract tenders, and agreed by Highways