Highways Concerns Time-Line to 12/2016 and on …

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Provided some ‘defined costs’ for Area 9, we can make meaningful comment about the charges presented by Kier Highways Ltd (KHL). We have concentrated upon AIW (Asset Incident Watchmen) operatives, the first-response staff common to most claims.  

Based on the information obtained, Third Parties (drivers, fleets and insurers) should be paying about £30 / hour for an AIW but are charged from £65 / hour to £170 / hour. For the same staff, doing the same job, Highways England Company Ltd (HE) are paying about £25 plus a small (<10%) uplift.

There are other areas of overstatement, for example:

  • vehicles (plant)
  • planning
  • administration
  • debris removal

We have tried to compress years of information acquisition, collation, examination and presentation into the following.  It is import to be aware of the billing process as who receives a KHL invoice is in some Areas governed by the claim value – though this should change as of 24/06/2019.  However, pre this date, the process in may contracts following damage to Crown property (DCP) such as a motorway barrier:

  • if the repair cost is above £10,000, the Public Authority such as Highways England, is billed by their repairing contractor, pays the invoices then seeks recovery from you.
  • if the bill is below £10,000 the contractor is not paid by the Authority but pursues you, your insurer or your company (if a fleet vehicle) for the money.

Why does this make a difference?  Because above £10k ‘mates rates’ are used, below the threshold a difference process to bill is engaged and the bills are substantially higher.

A brief history:

2012 – ‘Crisis-hit services group Mouchel has gone into administration, enabling it to sell the business to its lenders and management in a deal which will leave shareholders with nothing.’ – source – Telegraph.  KPMG appointed as administrators.

2013 – ENTERPRISEMOUCHEL LIMITED Company number 05606089, change their name to EM HIGHWAY SERVICES LIMITED (and in 2015 after acquisition by Kier, become KIER HIGHWAYS LIMITED

2013 – An example of an invoice for attending an emergency incident displays a charge of about £125. (our ref:R06B037)

2014 – incident attendance example – now over £1,500 (our ref: S03A533), further evidenced by 24/06/2014 incident (our ref: R12C067) from Kier by email 16/10/2014 @ 16:11

01/07/2014 – KHL commenced the Area 9 contract and uses its ‘1153’ process which is NOT contract compliant.  Incident attendance is £2,700 plus £2000 admin’ – £4,700 for just attending an incident. The annual cost (rate) of an item was divided by the number of incidents said to be attended per annum – 1153.

ER01 Asset inspection watchmen 38 Labour 2750935.90 2385.89
4×4 AIW vehicle 19 plant 440183.25 381.77
TM01 Traffic Management Gang (min visit 2 hrs) 10 hours 210.45 2104.46
TM19 Lane 3 of 3 lane motorway with hardshoulder 1 Item 1577.47 1577.47
S12 Cost Analyst 4 staff 19586.98 16.99
S06 Commercial Manager 1 staff 37075.08 32.16
S01 DCP Technical Assistant 12 staff 520417.61 451.36
S11 Senior Tech Assistant 1 staff 66800.61 57.94
S13 DCP Financial Analyst 1 staff 55676.67 48.29
S14 DCP Manager 1 staff 115888.26 100.51
S15 Finance Manager 1 staff 23177.65 20.10
S16 Area 3 tm programmer 1 staff 6903.24 5.99
S17 Area Manager North 1 staff 34766.48 30.15
S18 Area Manager South 1 staff 34766.48 30.15
S19 Asset Delivery Manager 1 staff 25109.12 21.78
S20 Asset Development Manager 1 staff 17378.94 15.07
S21 Assistant to Area manager South 1 staff 28972.06 25.13
S22 Assistant to SMT 1 staff 17378.94 15.07
S23 Customer service coordinator 1 staff 4080.62 3.54
S24 General Manager 1 staff 34757.89 30.15
S25 HSE Manager 1 staff 9657.35 8.38
S26 NCC Manager 1 staff 33406.00 28.97
S27 NCC Operator 11 staff 374787.61 325.05
S28 NCC supervisor and tunnel AIW 4 staff 161840.10 140.36
S29 Network Manager 1 staff 28393.00 24.63
S30 Network Occupancy Manager 1 staff 23660.83 20.52
S31 Regional Business Manager 1 staff 37075.08 32.16
S32 Severe Weather and Contingency Manager 1 staff 47642.95 41.32
S33 Supervisors 2 staff 39565.16 34.31
S34 Traffic Safety Officer 1 staff 8351.50 7.24
S35 Tunnel control centre operator 4 staff 150482.90 130.51
S36 Tunnel control centre Supervisor 2 staff 79500.40 68.95
S37 Assistant Area manager north 1 staff 19782.58 17.16
S38 Inspection Manager 1 staff 19782.58 17.16
S39 M&E 1 staff 24131.02 20.93
S40 TSCO 1 staff 14836.94 12.87
S41 Depot clerks 4 staff 86736.27 75.23
l06 Storeman 2 staff 65851.60 57.11
PR05 Barrier Gang 5 Hour 203.37 1016.87
FEN10070 A55 C/Res Long Driven Post 9 nr 31.06 279.55
FEN10085 F01 TCB Shear Bolt M8x35mm 18 nr 0.17 3.00

The above received by email 02/01/2015@ 09:48 our ref S03A624

04/02/2015 Kier Highways writing:

Due to constant scrutiny by insurers and loss adjusters we have reviewed our charges and have realised that we were undercharging. We have now charged the 4×4 separately for a better understanding. The cost is for the lease of 19 AIW 4×4’s for the entire year divided by 1153 (number of claims on average).

The contract can be found on-line, as can its Annexes.  But the document that protects Third Parties, an Appendix that sets out the process by which the MAXIMUM a Third Party should be charged, their ‘shield’, is unavailable.  What use is a shield if you do not know of its existence or it cannot be found? The document ‘Appendix A’, was not discovered until early 2017 – see below.

From the outset, Kier did not comply with the Appendix and Highways England appears not to have noticed, or turned a blind eye.  Kier used their own ‘1153’ process which is described here, the figures appear here. ‘1153’ saw gross exaggeration with Third Parties owed £millions. Some obvious observations:

  • the process saw total incident attendance costs divided by the number of incidents per year – 1153. But:
    • the resources used to attend incidents also cut grass, filled pot holes and picked up litter / debris – paid for by way of lump sum from Third Parties (tax payers) – ‘we’ were paying twice
    • the number of incidents per annum was about 5400 (click here for the evidence and implications) not 1153 i.e. the exaggeration on those costs which were applicable, was about 5-fold.

Highways England seemingly failed to note non-compliance with the contract, this despite the agreement requiring Kier to send them costs on EVERY sub-threshold claim.

HE repeatedly informed us they hold no sub-threshold data.  But they do (click here for more); the contract requires Kier to convey sub-threshold information on EVERY claim under various headings:

  • the amount claimed from third parties,
  • a calculation of Defined Cost and resulting Third Party Claims Overhead,
  • the amount recovered,
  • an explanation of any differences between any of these amounts, and
  • explanation of why any loss greater than Defined Cost has been claimed.

We attempted to obtain an explanation from Kier about 1153, we sought an explanation of the process which appeared obviously wrong, but were unsuccessful.

10/2014 Kier (then EM Mouchel) were audited and found to have a lack of approved methodology – the report can be read here.

06/2015 – Kier Ltd acquires EM Highways Services Ltd.  Seemingly their due diligence fails to identify the non-contact compliant activities – or turns a blind eye to them?

06/2015 – Kier submits accounts to 06/2015 – approx. £12 million profit on £387.5 million turnover. This appears to be about the amount Kier have overstated claims against Third Parties i.e. it appears without the exaggeration, they broke even.

07/08/2015 – Neil Pendlebury-Green of Kier Highways attempts to progress a 2nd, non-contract compliant process, his ‘4-hour’ charging methodology – click here to view the process.

21/08/2015 – I wrote to Neil Pendlebury-Green – email here.

As evidenced by the above, to our face, Mr Pendlebury-Green was exchanging emails.  Behind our back:

21/08/2015 – Neil Pendlebury-Green writes to our clients, complaining about CMA and their director.

Our clients remained faithful, continue to use our services which, it appears, forces Kier to the table:

27/10/2015 we met with Sophie Granville and Neil Pendlebury-Green of Kier Highways. Neither mentioned Appendix A to Annex 23 (a section of the contract we were unaware of until 01/2017 – see below).

10/2015 – After challenging the costs for over a year, KHL abandoned 1153.  They commenced using their ‘defined cost’ process – which still did not comply with the contract.  However, the existence of the rules contained within Appendix A remained secret:

  • HE did not mention it
  • Kier did not raise the document
  • HE did not place it on line- as they did the contracts and annexes

It appears HE and Kier were acting in concert to keep the public (drivers, fleets, hauliers and insurers) form the protection contained within the contract; Appendix A to Annex 23.

KHL issue their brochure  Insurers Guide to Incident Management v1 that conveys uplifts for operatives out of ‘core hours’ (8am to 5pm) – see page 10 of the pdf – but we understand operatives work shifts and are not paid the uplift. Still, there is no mention of ‘Appendix A’.

18/11/2015 we had a lengthy phone call with Ms Sophie Granville

11/2015 – we asked HECL for information about sub-threshold (under £10k) claims but are repeatedly told they do not possess the records – we are misled – more here.

late 2015 – Kier charging £73.05 for an AIW

09/12/2015 we met with Sophie Granville and Ms Robinson of Kier Highways

Ms Granville blames 1153 on ‘a bit of a tricky individual’ who has now gone to Amey. We are suspicious of this understand the person concerned left the claims arena at Kier prior to 07/2014 (they also deny any knowledge).

01/2016 – HECL audit KHL.  Tim Reardon, HECL’s General Counsel provides the audit 160107 HE audit.  No significant issues found.  No mention of ‘Appendix A’.

Full audit with covering letter and comments here

Kier states the TP Claims Overhead (see 01/2017 below) is 20.58% but makes no mention of Appendix A to Annex 23.

27/02/2016 we had a lengthy phone call with Ms Granville.

23/03/2016 Highways England and the schedule of rates

Breakdown of AIW hourly rate of £70.32 provided by Ms Granville of Kier.

31/03/2016 – we sent a 77-page report to Ms Granville setting out our concerns, the issues and outstanding matters.  We evidenced our concerns about charges, in particular that it appeared Highways England were being charged about £25 / hour for an AIW – something Ms Granville denied.

05/04/2016 – Tim Reardon HE’s General Counsel emails HE are charged £70.32 / hour for an AIW and £35.53 / hour for their vehicle as at 12/2015.  No suggestion the rate is ‘commercially sensitive’ but … this is incorrect and at odds with the ‘defined cost’ process. We have evidence HECL are NOT charged £70.32.  The exchange with Tim Reardon can be read here.

07/04/2016 – internal HE email re ‘notional rates’ – they exist!  These are signed off by HE.

09/09/2016 – Ms Sophie Granville, Kier Highways head of claims makes a statement for the Court – text here

25/10/2016‘defined costs’ (DCP Rates) are held:

The actual defined cost for incident response and repair work resulting from damage by third parties is calculated after the event depending on the work that needs doing. This is calculated in accordance with the defined cost definition in the attached, which references the schedule of costs components also defined in the attached, which specifies specific costs the contractor is allowed to include and the cost of them.

pain/gain – copy here 161026 Draft FOI 743153 Final Response Pain Gain Recoveries

25/10/2016  Lumpsum & Recoveries FoIA 743153 response

All contractors reconcile their costs annually against their recoveries.

If the proportion of traced incidents exceeds expectations an assessment would be made and the Lump Sum payment would be reduced. However, no contractor has ever been in the position where the proportion of traced claims exceeds these assessments and there are various factors for this. The main one being not all damage linked to a driver is reported by the driver.

21/11/2016 email from CEO of Highways England Jim O’Sullivan

I also want to ensure that drivers only pay appropriately for the damage they do to Crown property. I’m sure the current process could be simpler and I know Tim and Nick will be working to achieve this. We are certainly putting a lot of effort into reconciling the past costs that you are talking about.

2017 continues here.