160107 Audit by Highways England

Green Claims investigation

Introduction and Executive Summary:

Further to complaints raised by Philip Swift of Claims Management and Adjusting Limited (CMA) a review of the Green Claims process used by Kier Services (Kier), the ASC Provider (Provider) for Highways England (HE) in ASC Area 3 was carried out.

The audit was undertaken on the 7th January 2016 at Kier’s Basingstoke office between 10:30 and 16:30. The review was conducted by a team of 2 Highways England staff, one Operational and the other from Commercial to ensure independence.

The audit focused on:

• The contractual requirements within the ASC Area 3 Contract
• Kier’s Green Claims process and its fitness for purpose
• A sample audit of Green Claims (including sub and over threshold claims) against Kier’s process/contractual requirements
• A specific review of the complaint made by CMA as set out in their document dated 26th October 2015

It is considered that the process and claims were audited in a thorough manner, though the number of claims audited were limited given the time frame set aside to audit and produce this preliminary report.

Executive Summary

The processes used by Kier have evolved over the life of the ASC Contract (since November 2013).The processes meet the requirements within the ASC Contract. There was no evidence that Kier recovered over their entitlement though the early claims did contain a small number of minor errors. The errors, it is considered, were by flaws in the process rather than by design.

Kier’s processes have been improved and whilst they continue to meet the requirements of the ASC Contract they are now better tailored to meet the expectations of the insurance industry. The key improvements are with regard to granularity of data, and the capturing of claim / incident specific costs rather than relying, in part, on average annual costs for some of its resources (administration costs in particular).

Provisions of the ASC Area 3 Contract

The Conditions of Contract, Service Information (and annexes) were reviewed. In summary, the scope for recovery for a Green Claim is on a defined cost basis; however the path to which party (Provider or HE) pursues the claim varies on the initial estimated costs of the claim and dependent upon the severity of injury suffered by the third party.

In general terms;

• should an estimated cost be less then £10,000.00 the Provider (Kier) the claim falls within the Lump Sum duty of the Provider and he may pursue a claim against the third party to recover the costs involved in the name of the Employer
• for claims where the estimated cost of the works is in excess of £10,000.00 the Provider follows procedure as set out under Annex 23 of the ASC Contract, “TR430” and the HE Green Claims team will process the claim using the defined cost data supplied by the Provider.

Kier’s Green Claims Process

The processes adopted by Kier are predominantly consistent between sub and over £10,000.00 claims with the few differences being outside issues raised by CMA.

The process Kier use has evolved since the commencement of the ASC Area 3 Contract in November 2013. With changes to the process implemented to meet the changing requirements of the ASC from the previous MAC Contract in conjunction with changes in the expectations of the insurance industry as to the presentation and granularity of claim costs.

It is considered that the original process was based on Kier’s aim to meet the requirements of the new ASC Contract with HE alone. However the output was not in a format that best suited the requirements of the insurance companies.

Specifically, the processes of cost capture used a number of cost elements that were derived from annual average cost data which were applied to individual claims rather than incident specific cost data captured against individual claims. For example Asset Inspection Watchman (as raised in CMA report at page 13), with the annual costs for staff and resources being equally split between incidents based upon an estimated total number of incidents; i.e. total cost divided by total expected incidents.

From the investigation it is considered that this was a reasonable but, perhaps not the most appropriate approach to take under the requirements of the Contract. It also fell short of the expectations by the insurance companies with regard to granularity of cost and incident specific cost capture.

In addition it was noted that with the earlier claims a number of errors existed within the cost data, errors with both a positive and negative effect on value. It is considered that this was by poor practice rather than by design. Within the claims audited, the end figure was within a reasonable tolerance of the actual costs for the resources expended; however some of the build-up of those costs was flawed.

In addition to the review of individual claims, the audit team had sight of Kier’s internal management Cost / Value Reports for Damage to Crown Property claims from which it has been shown that the costs are marginally less than value (approximately – 3.5%), though it is considered that this loss will be mitigated through recovery of some of the aged debts (claims outstanding after 12 months).

Following a dialogue and meetings with several insurers in 2015, Kier have improved their allocation and presentation of costs to be much more incident specific cost with an improved clarity within their paperwork. Kier have produced an Insurer’s guide to Incident Management and claim recovery which is attached with every claim pursued (copy attached).

The current processes implemented in the later part of 2015 uses minimal annualised costs with the vast majority of costs being incident specific with back up supplied to incident specific timesheets and plant and labour returns.

It is considered that for those few costs that are based upon annual average cost data, it is reasonable to do so, for example the time claimed by the DCP depot admin assistant.

Conclusion:

It is considered that the processes currently in place by Kier are compliant with the requirements of the Contract with the HE and produce claims that are the reasonable incident specific costs incurred by Keir when they respond to, plan and repair the damage caused to Crown Property.

Examination of the specific complaints raised by Mr Swift of CMA

We have focussed on the specific issues raised about Kier’s practices as detailed within Mr Swift’s 55 page précis of issues. For convenience, we have referenced each of the issues examined within that précis:

Page 13 – Scene attendance costs by AIWs

Mr Swift describes scene attendance costs starting in the £100s, going up to £1500, then £2700, then higher still and then back down to a reduced level.

Kier explained that the figures of £1500 and £2700 are not purely for Asset Incident Watchman (AIW) attendance on scene but also for planning for the permanent repair. A typical permanent crash barrier repair may take place a few nights after the incident and this will require a job pack (e.g. risk assessment, traffic management drawing etc) to be produced. This work was described as Planning and was, in the past, charged for in the same cost item as scene attendance. These costs are now being split out and so it appears to Mr Swift (as reported in August 2015) as though the AIW attendance cost has come down. Kier explained that this is the main reason for AIW attendance going down, although as will be shown later, the methodology for calculating AIW costs has since improved.

Mr Swift writes that Kier stated to him in February 2015 that the £2700 charge was actually undercharging for the AIW attendance. Kier responded that Mr Swift emailed one of the DCP administrators at Kier and was told that, for the particular claim under discussion, the £2700 fee represented an undercharging of incident specific costs due to the complexities of that particular incident.

It was simply a statement considered as fact for that particular incident by Kier’s representative and not representative of an upward trend on claims generally from £2700.

Kier informed the HE audit team that they have explained all of the above to Mr Swift and also that this methodology is no longer used for charging.

Page 13 AIW attendance and 1153 incidents

Emphasis has been placed upon the use of 1153 incidents as a basis for allocation of annualised costs.

1153 is the number of incidents (traced and untraced) per year that was stated in the ASC3 tender as an assumption to be used by tenderers as to the annual number of claims.

On page 14, Mr Swift raises concerns that this includes incidents outside of the ASC Area 3 Contract.

This was queried with Keir and the source of this is from the ASC Area 3 Contract only and does not include for assumptions of incidents in other contracting areas be these with the HE or other bodies (such as TfL).

From our audit it has been seen that until the processes were revised in the last quarter of 2105 this figure was used as the basis for apportioning annualised cost data, ie., an annualised cost such as AIW would be divided by the 1153 assumed number of claims to arrive at a cost per claim.

We have been informed that Kier have explained to Mr Swift the source of this figure and the period it relates to.

With regard to concerns raised by Mr Swift with regard to the estimated the salary for an AIW at around £72,000. Kier explained that this is not the salary of an operative but is the cost of the operative and includes the costs of salary, pension, national insurance, training etc.

On page 14, Mr Swift raises the question as to what AIWs do when there is no incident. AIWs do not solely attend incidents they also carry out safety inspections, detailed inspections of certain assets, identify renewal schemes needed etc. The costs that are outside are met (under the ASC Contract) by lump sum payments, the value is a fixed sum under the Contract between the HE and Provider, costs are captured though they do not affect the payments made.

Kier stated that they believe that Mr Swift was under the impression that AIWs were the same as Incident Support Units, that were part of the requirements under the MAC Contract (i.e., prior to November 2013).

Incident Support Units were, to an extent, a more reactive resource in place to deal with incidents accidents, which it is believed the centre of misunderstanding between the roles that Mr Swift has made reference to. Kier stated that they have explained and clarified the difference between ISUs and AIWs to Mr Swift.

A further issue raised by Mr Swift centred on that the number of incidents should be approximately 2849 per annum, not 1153, based on a 2010 audit.

As stated above, changes to the methodology with regard to the use average annual costs used to calculate AIW costs has changed, as a result it was considered that this matter was no longer an issue.

Page 17 – 07/2015 new schedule of charges for AIW attendance

The schedule of AIW and vehicle rates given on page 17, criticised by Mr Swift as “naïve, ill-conceived, unreasoned and unsupportable”, were based on a standard four-hour charge for every incident. The use of this schedule of charges no longer applies and all claims being dealt with by Mr Swift have, we have been informed, been resubmitted under the revised incident specific process, therefor consider this matter closed.

Current practice uses the actual number of hour’s attendance applied to notational hourly cost rates derived in accordance with the prevision of the schedule of cost components under the ASC Contract. This is factored by time of day/week, as set out in the Insurer’s Guide document attached.

The vehicles are also charged using a blended rate for the vehicles used with the time claimed being that incurred in dealing with the individual incident. This is not factored by time of day/week.

As stated, Kier have stated that they have recalculated all of CMA’s claims using the previous methodology and resent them to Mr Swift in the new format.

Page 17 – AIW vehicles

Kier informed Mr Swift that the vehicle rates are based on a Ford Ranger. However Mr Swift identifies that a Mercedes Sprinter van and an Audi appear to have been used on occasion. Kier state that the Mercedes Sprinter Van and the Audi car referred to by Mr Swift at the bottom of p17 are not used. The confusion is believed to stem from a degree of illegibility of the recorded number plate on the operatives timesheet / job sheet. CMA have traced the vehicles from this data and, as a result, a different vehicle has been generated by the Motor Insurance Database.

Appendix 3

This Appendix relates to a claim under the LoHAC Contract; this is a separate Contract between Keir and Transport for London. Unfortunately Kier sent backup for an Area 3 claim to support a LoHAC claim in error. Kier have explained this to CMA.