The basis upon which Highways England and Third Parties (drivers, fleets, hauliers and insurers) are charged following damage to Crown property should be very simple; there is a ‘base’ or ‘notional’ rate also referred to as a ‘DCP Rate’ or ‘defined cost‘ for assets (people, vehicles and materials) and to this is added an uplift to cover a variety of costs, such as ‘planning repairs’ – administration.
It is the uplift that should cause the cost to a Third Party to be more than the cost to Highways England. The uplifts are (or were):
- 7.38% to HE and called a ‘fee’
- 20.58% to a TP (25.29% in Area 9) and called the Third Party Claims Overhead (TPCO)
Therefore, the difference in cost between HE and a TP should be 20.58% – 7.38% = 13.2%. But it is not … it is well over 100%!
Notional Rate = Base Cost = Defined Cost
Ms Granville, Kier’s former claims manager, gave evidence at Court where she was asked about the rates:
Q. The base rate is a notional rate?
A. Is a notional rate, yeah.
Q. Whose notion is it?
A. So it’s the notional rate against in this particular instance the asset incident watchmen, but every individual on a contract has a notional rate.
Q. You have got an asset incident watchman. He has a notional rate. How is that fixed?
A. So the notional rate is calculated from the actual costs associated with the role and then divided by the number of working hours, and that’s done annually and audited by
Highways England for every single staff member and operative, so it’s not just in the …
THE DISTRICT JUDGE: Just so I understand it then, it is £70.32 an hour, is it?
A. In this particular instance the notional rate is £70.32*, yes, because that is our working area overhead added to that.
£58.32.+20.58% = £70.32 / hour – breakdown here.
Ms Granville was also asked in Court:
Q. 20.58% is what?
A. Is the contract claims overhead, so it’s an overhead that’s been calculated by Highways England during the tender stage that we are told to apply to claims, and it’s based on all of our overhead costs and a ﬁgure, and then a calculation is done with the procurement team that basically says, you know, to recover your overall overhead costs you need to apply X per cent to each claim. Every contract in the country has a different contract overhead that is based on actual cost.
Q. All right. What is the 20.58 per cent applied to?
A. Our, our notional rate which is our deﬁned cost rate, so I think it’s 50 something pounds, off the top of my head.
02/02/2017 Ms. Granville, former head of Kier Highways Ltd (‘Kier’) claims dept., gave evidence at Basingstoke County Court before a Judge, a continuation of 30/01/2017 hearing (CMA ref: T06B428) and cross-examined:
Q. You also said that the uplift that is applied in relation to insurers like the defendant is a ﬁgure of 20.58 per cent.
The uplift that you apply for Highways England is 6.5 per cent.
A. There’s a fee. So, yeah.
Q. It is a fee.
Q. All right. Now, on Monday you explained that the uplift applied for claims pursued against insurers like the defendant in this case is an overhead—
Q. —uplift. What is the difference between that and the 6.5 per cent fee?
A. The fee is supposed to cover I think the ﬁnancial side of it, so it’s, it’s to do with, like, the… Fees and overheads are different things. I always ﬁnd this hard to explain myself. It’s terminology brought in by Highways England, but effectively, there isn’t … an overhead as such on the above threshold claims. There is a fee, but the fee is fundamentally, I suppose… I think it’s to do with, like, the fact that we’ve had to pay out, effectively. It’s, like, covering… I can’t remember exactly how you explain it, but they’re different, it’s not actually an overhead.
So fees and overheads are different things. Highways England, Highways England have always used this fee approach and, to be honest, it’s something that I’ve had quite a lot of difﬁculty with because the way that I see it is a claim is a claim, and if an overhead’s applied it should be applied throughout. And it is something that they’re addressing as we speak at the moment to come into effect this year, and they’re taking away this use of a fee. But they’ve used fee for 20, 25 years. But it’s something to do with covering the back ofﬁce …. like, the ﬁnancial side of it so, like, the ﬁnance manager, the payments, the different people and things like that.
Q. Why are they not charged a working area overhead like insurers? What makes the working area overhead reasonable?
A. Well, it is our overhead. It is our overhead costs, it’s calculated and it’s calculated, like I said on Monday, with the procurement team from Highways England and deﬁned to the contractors use. Every contractor has … Every (inaudible) is calculated from ﬁxed, from costs, effectively.
THE DISTRICT JUDGE: Sorry, what is? The overhead.
COUNSEL FOR THE CLAIMANT: The working area overhead, sir.
THE DISTRICT JUDGE: That is 20.58.
COUNSEL FOR THE CLAIMANT: 20.58 per cent.
A. Yeah. That is calculated from costs. So it’s calculated from overhead costs and then there’s, like, a, a calculation that takes place, but it’s something that takes place at the tender stage with Highways England procurement team and we’re just told, “This is the one you have to use.”
Every contractor has, to be honest, a slightly different one which you would expect because they have different costs bases.
Q. It has been put to you that you are charging insurers like the defendant in this case higher rates than that which you charge Highways England directly.
A. So if you take, taking away the overhead, they’re exactly the same, so the base rate is the same. The overheads are a different factor, and that is just down to the way that Highways England has put a process out.
I know that they’re going to take that away now this year, but it’s a historical way of working. That’s not a contractor way of working, that’s just how Highways England chose to differentiate between over and under threshold claims. I don’t really understand why.
From the above, it will be noted the base rates are the same, it is the overhead that is different. Therefore:
- Highways must possess a copy of the base rates – it is the basis upon which they are charged
- The process is NOT being applied correctly to Third Party claims:
Ms Granville provided the base rate for an AIW, the breakdown of the nominal rate or ‘defined cost’, the rate totals £58.32 and can be found here with the 20.58% uplift added (the figures also appear at the foot pf this page).
But Highways England are not charged £58.32 + 6.5%, they are not even charged £58.32. In 2015, in Area 9 where we were advised costs were the highest, an AIW was charged at under £25 / hour. Indeed, all labour was charged at less than £25 / hour as evidenced by a bill submitted to Highways England by Kier Highways (image left).
The base ‘rate’ of an AIW was £22.73 / hour.
To this, Kier added the 7.38% ‘fee’
The hourly rate was therefore £24.40 / hour.
A Third Party should be charged:
£22.72 / hour + 20.58% = £27.40 / hour
They were charged £70.32 / hour and to this day, the charge is over £65 / hour.
However, after 5pm of a weekday, Highway England still pay the flat rate (£22.72) whereas a Third Party is charged a further uplift, a multiplier which sees the hourly rate escalate … £70.32 x 1.5 = £105.48 / hour.
Kier were not even covering the cost to themselves (as described) of £58.32 / hour (see below). But is appears facts were being misrepresented to us, Third Parties and the Courts.
Further evidence that the base rate to Highway England and Third Parties was to be the same is as follows:
19/01/2016 From: Sophie Granville @ kier
Refer to my other email please.
The HE are not charged a different fee not sure why you are convinced of this.
The notional rate is the notional rate and there is only one per person so it doesn’t make a difference if the claim is for the HE or an insurer.
I would suggest unless you have something quoting the AIW £25 (which you will not have as it is not ever charged out at that) rate then you need to await the contract cut and paste you asked for. If you have some actual information from a TR430 quoting £25 by all means send it over but would find it impossible based on the fact we just completed our annual reconciliation with the HE and demonstrated the rates are the same.
We did have ‘actual information form a TR430 quoting £25 – well, less and on 31/03/2016 we sent Ms Granville evidence of HE being charged less than £25 / hour. The report was not acted upon and shortly thereafter Kier refused to communicate with us.
The rates being the same was also conveyed:
02/02/2016 From: Sophie Granville @ kier
Notional rates are consistent regardless of who the claim goes through as I have relayed to you previously.
I will break it down during week when I have chance as you have asked for something in addition to the standard notional breakdown.
The ‘notional rate’ was sent and appears below. Ms Granville reinforced the statement that rates to HE and TP’s were the same:
24 March 2016 16:39 Subject: RE: Your Ref: S08B618 – Our Ref: GC19174
The notional rate for any individual is the same regardless of if it is a HE claim or an under the threshold claim.
The differing pounds is a result of the contract overhead which does differ but the HE are looking to make more consistent in the future.
Other than that the numbers are identical and I have given you the full notional breakdown* which also shows the contract overhead.
If you cannot understand this please by all means call me. But it is in the schedule I gave you as I was trying to share more data than I actually needed to in the interest of transparency and collaboration.
*Notional rate breakdown from Ms. Granville:
|Wages & Salary||£18.30|
|Bonus & Incentives||£7.38|
|absence due to sickness and holiday||£0.96|
|meeting legal requirements||£0.17|
|pensions and life assurance||£1.26|
|consumables for vehicle||£9.17|
|third Party Claims overhead||£12.00||20.58%|