19/08/2017 Below 10K but ‘Mates Rates’ to Highways England

Substantially higher costs are associated with below-threshold (£10,000) repairs retained by the contractor as they have been able to get away with the process for years by misleading Third Parties, Insurers and the Courts.  Whilst claims are presented to Courts in the name of Highways England, the Authority has repeatedly failed to act upon the conduct.

Below-threshold matters do not differ from above-threshold matter other than by reference to cost:

  • small incident, small cost,
  • big incident, big costs.

What is difficult to grasp about this?

The process … a couple of operatives in a van attending an incident, clearing the road, assessing the damage and submitting a report, do not leave a depot costing any more per-hour because someone has dented a barrier or an HGV has spilled gallons of fuel on the road.  ‘Economy of scale’ plays no part in the billing.

An operative that costs £21.64 (base rate / defined cost) does not cost more because they attend a small incident, their rate is a constant.  There is no ‘economy’ derived from a larger incident attendance, there is a proportional affect:

  • the cost of 1 hour traveling to a small (under £10k incident) is a larger proportion of the bill than that for a big (over £10k) matter.  Logic.

If an operative is at the incident for an hour, they are charged at £21.64.  If they remain 10 hours, £216.40.  It is the time spent, due to the magnitude or complexity of the incident, that causes the larger fee, not any difference in rates – or that should be the case.

Statements that Third Parties are charged more because this reflects:

… the fact that deployment of full resources to undertake repairs on a smaller scale, at completely unpredictable times, in completely unpredictable places, and in completely unpredictable weather conditions, all entails a disproportionate cost to a contractor required as a result to divert resources from the kind of large-scale projects where they enjoy significant economies of scale

are poppycock; naive and misleading.

  • Emergency incidents all occur at unpredictable times. That is the nature of an ‘accident/emergency’.  Above or below the £10k threshold has no relevance to date/time of the incident.  Both are unpredictable.
  • weather conditions are not affected by the size of the incident – the weather may affect the size of an incident.  But again, the weather does not affect the hourly rate of an asset, just the number of hours they are assigned. Bad weather, expect progress attending and reinstating to be slower.
  • There is no disproportionate cost to the contractor, the cost is proportional:
    • small incident, small number of hours, small bill,
    • larger incident, more hours, bigger bill and so on

The ‘disproportionate cost’ is not to the contractor but the bill recipient and only, as with attendance vehicles (above) in respect of attending/leaving the scene; with a small incident, the time taken and hours charged to arrive at the repair scene may be a greater percentage of the overall bill.

Possibly resources need to be diverted but this is seldom the case and not applicable to the attendance.

An ’emergency’ is one thing, expectation (anticipation) of an emergency another. Kier, as an example, handles 5400 incidents/annum (source – Kier’s 10/2015 ‘insurers Guide 2) or about 14 incidents every day of the year.  At 1 incident every 2 hours, emergencies are common, anticipated.  Contractors expect incidents, they are geared up for them.

In Area 9, managed by Kier Highways, since 07/2014 there is a simple process by which to calculate the total cost of attendance and repair, in turn whether the bill is to go to Highways England (if over £10k) or the Third Pary / Insurer (if under £10k).  The process is referred to by a variety of names such as cost-reimbursable or cost + fee but in essence, it is the cost of an asset (labour, plant or material), the pre-profit base-rate, to which a percentage uplift is added.

This methodology is a common-sense approach and understandably, the ‘base rate’ is common to both Highways England and a Third Party – the cost of something, its hourly rate (as an example) does not increase subject to who gets the bill.

  • Kier adopts the agreed process above threshold when billing Highways England.
  • Kier has failed to comply with the process, insofar as insurers, drivers, fleets and hauliers are concerned i.e. over the threshold (£10,000).

To their masters, who are able to audit the contractor, seek information and compare rates used with contractually agreed schedules, Kier complies with the cost-plus process.  In Area 9 the ‘plus’ uplift, or ‘fee’ is (was) 7.4%.

Below-threshold  Kier has failed to comply with the process since 07/2014 charging using their own, unique approach to billing that is not contract compliant.  Third Parties are refused information or facts are misrepresented to them – and the Courts, all in the name of Highways England.

The Public Authority has stood back and let this occur.  They

  • kept the process secret until recently
  • failed to identify the process was not being complied with
  • did not once mention the process in our many exchanges (they complain about the volume)
  • misrepresented what they pay Kier

The process is simple ‘cost’ + ‘uplift’.  Kier tell us the rates are all agreed with Highways England, that the two components are signed off by the Authority, these being:

Base Rate / Cost Uplift % uplift £ Total/hr Actual TP Charge % uplift
Operative AIW
To H.E. £21.64 7.4% £1.60 £23.24
To a T.P £21.64 25.29% £5.47 £27.11 £65.75 303.84%
£13.20 7.4% £0.98 £14.18
To a TP: £13.20 25.29% £3.34 £16.54 £36.91 279.62%

Highways England are NOT charged ‘multipliers’ on the base rates, the Public Authority is charged the set ‘defined cost’ of £21.64. Conversely, Insurers are subject to the uplifts:

1.5x after 5pm of a weekday or £98.63 / hour (455.75% uplift)

2x of a weekend or £131.50 / hour (607.67% uplift)

Why the uplifts?

Kier Highways will tell Third Parties and the Courts:

  • AIW’s work ‘core hours’ of 8am to 5pm
  • AIW’s are paid the uplift after 5pm of a weekday

Kier has nailed their colours to the mast by documenting the uplifts in their ‘Insurers Guide’, the relevant extract reads:

AIW’s tell us:

  • they work shifts, not 8am to 5pm
  • they are NOT paid any uplift after 5pm of a weekday
  • even overtime is at a flat rate