PPN 01/20 sets out information and guidance that in exceptional circumstances, contracting authorities may procure goods, services and works with extreme urgency such as the Covid-19 pandemic under current regulations (32(2)(c) of Public Contract Regulation 2015) (PCR 2015); hereinafter referred to as, ‘extreme urgency contracts’. To understand the level of which fraud risk was managed, NHSCFA asked NHS organisations for details of such contracts.
Key findings
There was a total of 1032 directly awarded contracts worth a total value of £508.2m between 1 April 2020 and 31 March 2021. 756 (73%) were extreme urgency contracts worth a total value of £385,696,125.02 (£385.7m). The below table depicts the value of all directly awarded contracts throughout the financial year, however this section will focus only on extreme urgency contracts.
| Reason for direct award of contract | Number of contracts awarded | Value of contract |
|---|---|---|
| Call for competition using a standard procedure with accelerated timescales | 3 | £838,315.00 |
| Call off from an existing framework agreement or dynamic purchasing system | 73 | £27,626,896.52 |
| Direct award due to absence of competition or protection of exclusive rights | 91 | £30,743,383.70 |
| Direct award due to extreme urgency (regulation 32(2) (c) | 756 | £385,696,125.02 |
| Extending or modifying a contract during its term | 64 | £53,795,548.67 |
| Method and reason of direct award not recorded | 7 | £1,399,918.10 |
| Unknown | 36 | £7,752,993.10 |
| Waiver | 2 | £397,382.10 |
| Grand Total | 1032 | £508,250,562.21 |
The highest proportion of extreme urgency contract spend (60%) is attributed to acute trusts, with health and care and ambulance services accounting for 7%, and mental health trusts accounting for 5%. The remaining 28% was awarded by the Welsh Local Health Boards.
468 (62%) extreme urgency contracts were awarded to pre-existing suppliers whilst 288 (38%) contracts were awarded to non-existing suppliers. During the pandemic period the ability to procure goods and services through normal routes was severely interrupted. A higher proportion of directly awarded procurement activity with new suppliers could identify a higher vulnerability and level of risk in procuring goods and services during the Covid-19 pandemic. Anecdotal evidence suggests that during the height of the pandemic, when NHS organisations were actively attempting to procure high in-demand medical equipment vital in the fight against Covid-19, regular procurement routes did not suffice. As a result of the urgency posed by the pandemic, NHS organisations were forced to accept additional risks such as new overseas procurement routes, use of multiple intermediaries, and inflated prices.
30 (4%) extreme urgency contracts worth a total value of £18.9m were identified as having either not met satisfactory levels or not delivered goods and/or services on time, in accordance with the requirements set out in their contract. Most of these contracts were for staff clothing (13), and medical and surgical equipment (12). Issues were centred around the suppliers’ ability to fulfil orders; this is likely due to the high levels of demand for the goods and services during the pandemic period. There were however four NHS organisations that accounted for 21 of the contracts which is likely to indicate a heightened state of urgency when procuring goods and services. Furthermore, the heightened state of urgency may have impacted suppliers’ ability to fulfil their contracted requirements as well as the NHS organisations’ ability to manage contracts effectively.
PPN01/20 and PCR 2015 required contracting authorities to maintain records of decisions and actions taken. 68 (9%) extreme urgency contracts worth a total value of £34.2m were identified as not maintaining adequate records as required. Record keeping acts as a significant component of transparency and good governance. If proper records are not kept, it shows a lack of governance over this process. Whilst the proportion is not high, 58 of the 68 contracts are attributable to five NHS organisations which means that the failure of this requirement is concentrated to a small number of NHS organisations. It is important for all NHS organisations to ensure that financial governance arrangements are maintained throughout an emergency management situation.
PPN 01/20 stipulates that, contracting authorities should keep records that demonstrate whether the tests set out in PPN 01/20 were met. Those tests are focused on ensuring the following:
- There is genuine reason for extreme urgency.
- The events that have led to the need for extreme urgency were unforeseeable.
- It is impossible to comply with the usual timescales of a ‘normal’ procurement as set out in PCR 2015.
- The situation is not attributable to the contracting authority.
674 (89%) contracts met the tests, and such records were maintained. Given the obvious urgency faced by NHS organisations during this period, this result demonstrates a significant focus on financial governance was maintained – even during a challenging period for the sector.
69 (9%) contracts were identified as not meeting the tests, little information was provided as to why the contracts did not meet the tests. Of the 69 contracts, 57 were attributable to four organisations. Only one directly awarded contract had further internal action taken as a result of the PEA exercise. 6 (1%) contracts partially met the tests, and for 7 (1%) contracts it was unknown whether the contracts met the tests stipulated.
As a result of the PEA exercise, we asked participating NHS organisations whether any further action was taken by the organisation or LCFS. 709 (93.7%) contracts required no further internal action.
21 (2.8%) contracts required the NHS organisation and/or LCFS to make enquiries into the directly awarded contract, but findings were deemed satisfactory.
16 (2.2%) contracts were terminated as a result of the PEA exercise.
2 (0.2%) contracts were investigated as a result of enquiries made and subsequent fraud investigations were opened and ongoing. A further 3 (0.4%) contracts were followed up for internal review with an unsatisfactory outcome (with no suggestion of fraud).
PEA reviews of 5 (0.7%) contracts led to policy / SOP changes.
The proportion of contracts that raised concerns after internal PEA checks were undertaken is minimal. This suggests that the level of risk management that was applied to the awarding of extreme urgency contracts was largely sufficient and effective, under the circumstances of an emergency management situation.
Due diligence is an essential tool in a risk management framework, and it helps identify and manage fraud risks that may arise in transacting or dealing with a third party or supply chain. Of the 288 extreme urgency contracts awarded to new suppliers, the following levels of due diligence was conducted:
- 59 (20%) contracts worth a value of £42.8m had due diligence checks
undertaken via three or more sources.
Each source of due diligence refers to (but is not limited to) the following:
- use of Cabinet Office’s Spotlight due diligence tool
- Companies House / VAT registration check
- financial stability
- 52 (18%) contracts worth a value of £22.4m had due diligence checks undertaken via two sources.
- 154 (54%) contracts worth a value of £93.8m had due diligence checks undertaken via one source.
- 23 (8%) contracts worth a value of £6.8m had no due diligence checks undertaken.
Our assessment reveals value for money and good commercial judgement was achieved through the application of extreme urgency contracts, however, the level of due diligence undertaken on new suppliers is concerning. When entering into a contract with an unknown entity, it is paramount to understand what risks lie within a contractual relationship. When no due diligence is undertaken on a new supplier, a contracting authority is accepting a high level of risk by entering into the unknown. It is important for NHS organisations to build a capacity of commercial due diligence – a function that NHSCFA has previously raised concern over. It is however understood that in an emergency management situation, it may be necessary to accept higher levels of risks.
Notable areas of good practice
Our assessment in respect of directly awarded contracts showcases a positive level of financial governance, transparency, and risk management on procurement activity during the Covid-19 pandemic. It was also evident that value for money and good commercial judgement was achieved through the application of existing procurement protocols. There are however some caveats to the positive outlook; most of which were heightened by the sense of urgency in managing the NHS’s response to Covid-19.
The majority of extreme urgency contracts had records maintained, met the tests stipulated by PCR 2015, and performed to a satisfactory standard. The proportion of contracts that raised concern after internal PEA checks were undertaken is minimal. This suggests that the level of risk management that was applied to the awarding of extreme urgency contracts was largely sufficient and effective in the circumstances of the pandemic.
Notable areas of improvement
Regular procurement routes throughout the pandemic did not suffice. As a result of the urgency posed by the pandemic, NHS organisations were forced to accept additional risks such as new overseas procurement routes, use of multiple intermediaries, and inflated prices.
The heightened state of urgency may have impacted suppliers’ ability to fulfil their contracted requirements as well as the NHS organisations’ ability to manage contracts effectively.
Whilst records of decisions and actions taken on individual contracts were largely present, a number of NHS organisations repeatedly failed in this aspect. If proper records are not kept, it shows a lack of governance over the procurement process, especially when normal routes to procurement are circumvented due to the nature of extreme urgency. It is important for all NHS organisations to ensure that financial governance arrangements are maintained throughout an emergency management situation. Therefore, it is recommended that NHS organisations ensure they have arrangements in place and review the suitability of their contract management database function.
Whilst our assessment reveals value for money and good commercial judgement was achieved through the application of extreme urgency contracts, the level of due diligence undertaken on new suppliers is concerning. When entering into a contract with an unknown entity, it is paramount to understand what risks lie within a contractual relationship. When no due diligence is undertaken on a new supplier, a contracting authority is accepting a high level of risk by entering into the unknown. It is important for NHS organisations to build a capacity of commercial due diligence – a function that NHSCFA has previously raised concern over. It is however understood that in an emergency management situation, it may be necessary to accept higher levels of risks.