31/10/2019, Highway England, ‘suspending’ NSORC, stated:
‘Contracts between Highways England (and in the past the Highways Agency) and maintenance contractors have often referred to the basis of recovery as “actual” or “defined” costs.
We do not have schedules of rates for the unplanned/emergency repairs specified in those contracts.
This lack of transparency led to concerns in the insurance industry that drivers and insurers were not being correctly charged for repairs’.
‘This’ lack of transparency is NOT the issue.
Assuming, for one moment, the Authority possessed no schedule of rates for years, no price list or failed to agree on one with their contractors for the components (labour, plant and materials) used in repairs following damage to the Strategic Road Network (SRN*), so what?
Aside from appearing bizarre, unlikely, absurd and/or reckless, does this absence currently matter from a Third Party’s perspective? Probably not because we have claims data and rates, even if the Authority does not.
The situation described suggests the Authority has been unable to reconcile the 1,000’s of contractor invoices presented, that they were rubber-stamped for payment. This accords with our examination of the often overstated claims and the Authority’s approach; it is too expensive to check them.
But why was this lack of a price-list not identified until 2019, why did the Authority ignore the concerns and enable inappropriate conduct:
- 10/2015 – we raised the alarm with Highways England
- 06/2017 – we met the Authority and provided documentary evidence
- 11/2017 – we explained the issue to KPMG
- 01/2018 – we sent examples of the overcharging
- 09/2018 – KPMG’s enquiry was concluded
- 01/2019 – Highways England declare ‘we have no rates’
- 06/2019 – NSORC commences – new rates process
- 10/2019 – NSORC concludes … unworkable
Contractors raise invoices daily to Third Parties (drivers, fleets, hauliers or their insurers) and/or Highways England following incidents, as many as 100 / day. Contractors have a price list, a schedule; the bills they issue demonstrate this. The Authority need only ask their contractor for the schedule … instant ‘transparency’!
The existence, or otherwise, of a schedule should be of concern for the Authority. However, it is less so for us or our clients; we know the rates, we have a schedule.
- So what is the actual problem?
In brief, very much as we told NSORC 04/07/2019 (extract here). In more detail:
Defined Costs: We acknowledge and agree; contracts between Highways England (previously the Highways Agency) have referred to the basis of recovery as ‘defined costs’. This is important because a ‘defined cost’ is a common denominator, or should be.
A defined cost to you, me, Highways England … anyone, should be the same on a given date or for a period of time. A ‘defined cost’ or ‘actual cost’ is the pre-profit cost of something. This cost is made up of many components but is unaffected by the intended recipient of the bill. This is not just something we think, it is what we and the Courts are told. It is also common sense.
But the Authority appears not to understand this writing (Third-Party Claims):
‘The contractual arrangements between Highways England and its service providers, often containing separate regimes for claims above and below a £10,000 threshold, and different pricing methodologies, have led to varying labour and equipment rates and therefore significantly different repair costs being applied to similar repairs’
The rates should be identical, it is the uplift which differs …
Uplifts: Doing work at ‘cost’ is not a good business model. ‘Profit’ is not a dirty word. To make a gain, the contractor needs to charge more than ‘cost’. But how much more, what is reasonable? Our dog is not in this fight (today) and whilst we may question the approach, Highways England have done much of the work for us. For example, in Area 9:
- 7.41% uplift to Highways England, referred to as a ‘fee’
- 25.29% uplift to a Third Party, referred to as the ‘Third Party Claims Overhead’ (TPCO)
This in itself raises a question; why bother? Why set a TPCO and then let the contractor do their own thing, ignore it? Maybe the Authority did not.
However, using the prescribed process of ‘fee’ and ‘TPCO’, if someone costs £10 / hour, if this is their ‘defined cost’, the fee uplift causes the charge to be £10.74/hr. to the Authority and £12.53/hr. to a Third Party.
The process of ‘defined cost’ (£) + TPCO (%) = maximum (£), is set out in Appendix A to Annex 23 of the ASC (contract).
That is the procedure, it really is that simple.
Whether or not there is a schedule of rates, whether or not the Authority can lay its hands on a price list, is NOT the concern. This lack of transparency is not what led to concerns drivers and insurers were being incorrectly charged for repairs.
The Concern: is the process is not complied with. Defined Costs are not common, a Third Party is being charged more, substantially so. This is occurring under the nose fo the Authority who we have made aware of the situation.
Initially, possibly the Authority failed to identify the issue. Subsequently, they have failed to put a stop to it. Third parties, those the Authority serve are the subject of ‘Profiteering’ (a dirty word) and in some instances fraud.
The Evidence: At any given date and time the ‘defined cost’ for a contractor’s asset whether it be staff, operative, plant or material, has a cost. This cost should be the same the Authority and Third Party. It is not.
21/06/2017, we met Highways England. We prepared two 2016 claims, a week apart, one billed to the Authority, one to a Third Party. To take, as an example, the operatives attending the incidents, they were the same employees and charged:
|fee 7.38%||£ 1.75|
If the contract was complied, with a Third Party would be charged £23.71 + 25.29% (£6) = £29.29 not £73.05/hr.
The problem: is transparency, but insofar as compliance with the process is concerned.
The problem becomes more serious when a contractor, acting in the name of Highways England:
- states they are complying with the process
- tells a Court they are acting in accordance with the contract
- raises charges that they do not incur but again, seek to convince Third Parties and the Courts, they do
In the above example, the operative was not charged to a Third-party at £73.05/hr, but £109.58/hr. Why?
The contractor explained to us and a Judge, these operatives work 8am to 5pm after which, of a weekday, they are paid a 50% uplift, of a weekend, double-time. The contractor has nailed their colours to the mast, page 10 of 18 in their DCP Insurers Guide conveys this information, it is documented. But the operatives tell a different story:
- they work shifts
- they are not paid the uplifts after 5pm
- even overtime is at a flat rate
This uplift on an already inflated rate appears to be a dishonestly made false representation intended to make a gain.
Do Highways England have schedules of DCP Rates or are they hiding them? Could it really be the case that when entering into various ASC’s (contracts), the Authority agreed on prices for scheme works, pre-planned maintenance and upgrades but, whilst agreeing a Third Party claims process, overlooked a pricing schedule for the repairs? No … read more here
*we will help the Authority move away from the use of the term ‘Crown Property’
‘Strategic’ – a key factor, necessary of great importance, yet it has been left in the care of those who cannot be trusted!