Agenda item

(To receive a report by Richard Wills, Monitoring Officer, which provides the Committee with an opportunity to consider the report by KPMG on the Review into the Serco Contract which was commissioned by the Audit Committee in June 2016 as a result of a resolution of the Council on 20 May 2016)

Consideration was given to a report by Richard Wills, Monitoring Officer, which introduced the report of the Review into the Serco Contract which was commissioned by the Audit Committee in June 2016 as a result of a resolution of the Council in May 2016.  The full report from KPMG was appended, and Paul Diamond, Head of Local Government Technology Risk Consulting (KPMG) was in attendance at the meeting to present the findings of the review and answer questions from the Committee.

The Committee was guided through the report, and some of the points highlighted were as follows:

·         The delivery of programmes this size was always complex and challenging, and it was considered very positive that the Council had taken the opportunity to engage KPMG to be able to learn from the process.

·         The procurement process used by the Council to appoint Serco was examined and was considered to be sound, with the exception of the inclusion of the 12 month time table for implementation.  This timescale was considered to be tight by KPMG who suggested that an 18 – 24 month timetable would have been more appropriate.

·         It was highlighted that more site visits would also have been beneficial.

·         In terms of data migration, it would be expected that it would be signed off as accurate and complete by every party.  The meeting of key milestones needed to be checked throughout.

·         There was a need for very robust and effective challenge from both sides.

·         The need to have a contingency in place in the event of not being able to go live when scheduled was also highlighted.  It was essential that a method of paying staff and contractors was in place.  It was clear Serco had not delivered this.

·         It was also commented that it was usually expected for any remaining issues to be resolved within the first 3 months.

Members of the Committee were provided with the opportunity to ask questions in relation to the information contained within the report and some of the points raised during discussion included the following:

·         It was queried what the cost of the report was and who would pay for it.  Members were advised that the report had cost £50,000, and would be paid for by the Council.  The report was requested by the County Council which therefore would pay for it.  Members asked whether Serco, as the contractor, should be responsible for this cost, and members were reminded that service credits were being applied, which had been included in the original contract.  These credits were there in the event of service failure, and was possible that the report could be paid for with these.

·         In relation to project management, it was queried what sort of assurances were given, and whether they were verbal or evidence based.  One member of the Committee suggested that the Council was ultimately responsible for the failure of the contract, as it 'felt entitled to expect that a contractor of Serco's size and experience would deliver on their contractual obligations without the Council needing to implement at cost to itself a full client side programme capable of checking their every move.'  The Council had a substantial team in place to manage this and would always have to balance quantity of resource with the cost of that resource. 

·         In terms of risk, the Council had transferred the majority of the risk for the project to Serco, however, the one element that could not be transferred was the reputational risk to the Council.  It was the Council that the press coverage was directed at.  Moving forward, it would be expected to see more robust challenge from the supplier.  However, it was noted that there was governance in place.

·         KPMG were brought in to review lessons learned from the project.  It was commented that it was common practice for organisations such as KPMG to carry out a deep review of a project at key stages during its progression.

·         In terms of independent oversight, Internal Audit did make recommendations throughout the process.  It was commented that during the review, work which had already been carried out would be reviewed to understand what the scope was and whether any findings had been acted upon.

·         The Council would respond in due course to the report, and it was suggested that the Audit Committee made a recommendation that the Chief Executive consider the points raised and bring back an action plan.

·         Members were advised that the governance put in place was designed and agreed with Serco.

·         It was commented that there was possibly too much focus on the financial aspects rather than the reputational risks.

·         It was also commented that the legal liabilities and costs of the failure were the responsibility of Serco.

·         It was queried whether there was any additional action the Audit Committee could have taken.  The Committee was in a position where it could only report to the Executive that it was less than satisfied with performance, and from an audit point of view were uncomfortable with the situation.  As an Audit Committee, members were unable to do anything but make recommendations.  It was commented that the Serco contract had been a matter of concern to the Committee for the past 18 months, and the minutes of the meetings should reflect that.

·         The Chairman reported that she had prepared the Audit Committee Annual Report, and presented it to the Informal Executive and so Executive Members were aware of the processes that the Audit Committee had gone through.

·         It was suggested that the Audit Committee should focus on dealing with the recommendations in the report and also focus on the good practice that was already in place. 

·         Concerns were raised that there were still schools experiencing issues 20 months after the commencement of the contract.

·         It was acknowledged that progress was being made in rectifying the errors in payroll.

·         The main issue for the Council was the need for contingency arrangements to have been in place.  It was noted that there were many assurances given by Serco that the issues would be rectified, but were not delivered.  The Council understood the need for contingency arrangements and had made provision in the contract for this.

·         Members were advised that it was written into the contract that Serco would be responsible for any contingency arrangements, but with the benefit of what was known now, different triggers could have been put in place.

·         It was believed that Serco did not have enough sufficiently trained staff to run the payroll at the time of the go live date.

·         Members commented whether too much trust and confidence had been put in the assurances that Serco gave, and it was noted that Serco had attended committee meetings many times, and were challenged robustly.

·         Members commented that the report which had been produced was good.

·         Members were advised that the nature of the relationship between Serco and Unit 4 did not seem to have been satisfactory.  Between them, they were not clear on who was responsible for what in terms of delivery.  For contracts in the future it would be very important that the governance between a supplier and any sub-contractors was examined.

·         One member commented that it was felt that there was an absence of commercial due diligence by Serco.

·         It was queried why the Council did not insist that all decisions were recorded.

·         Site visits could be useful to be able to see where potential bidders had implemented the package of services that it was hoped to procure, as it was an opportunity to meet with the implementation team rather than just the sales team.

·         It was reported that other authorities which were already using Agresso, were not using it as fully as the Council had intended to.

·         It was queried why it was not picked up that Serco did not have a sufficient number of trained staff to deal with the payroll functions.  Members were advised that Serco had planned to train up their own staff, with no cost to the Council.  However, this did not happen, and the Council only became aware of this during implementation.

·         It was commented that a lot of the points were fairly simple and should be implemented as standard in a business.  In terms of contingency planning, it was felt that a contingency plan should have been in place, due to the Council's reputational risk if there were any problems.

·         Members were advised that the Council's payroll function had been outsourced for a considerable number of years.  When Mouchel ran the payroll, they were responsible for any contingency arrangements, and this had worked successfully for 15 years and so it had not been flagged as a risk.  The Council had now had a different experience and would look at things differently in the future.

·         It was commented that that the 12 month mobilisation period should have been sufficient, if it was organised correctly.  It appeared that there was not enough monitoring and assurance during that time.

·         Service credits had been imposed on Serco, and it was queried whether Serco had accepted the report.  It was also queried whether Serco had been asked if they were prepared to pay for the report.  However, it was noted that the review had been instigated by the County Council.  It was also noted that the report was not contended by Serco, but neither was it accepted.

·         It was noted that the Audit Committee had raised questions about Serco's performance for a long time, and it was queried whether the remit of the Committee needed to be amended.  It was suggested that there may be a need for the Audit Committee to have greater powers than what it currently had.  It was commented that in terms of the remit of the Committee, it was a 'watchdog', but the constitution could be reviewed.  However, members were advised that the key thing was to not get involved in decision making.  It was about ensuring that governance and controls were in place.

·         The Audit Committee was able to report to Council who could direct the Chief Executive to take action.  There was a need for caution to ensure that activity did not move into operational issues.

·         Members were advised that it would be right for this Committee, in response to this report, to ask for its comments to be reported to the Chief Executive.

·         Members raised concerns regarding how they could challenge officers when provided with a report and assurances, and then they were not lived up to.  It was commented that it was thought that the Committee was not at fault, as members had asked the right questions.  Officers did not think that Serco had deliberately been mis-leading the Council, but that they may have been mis-leading themselves.

·         The report did not say that the Council had not done anything, but that what had been done was not sufficient for the circumstances.  There was a need to look at how things could be done in a better way in the future so the council did not find itself in a similar situation again.  There were some specific lessons to note about outsourcing this type of service, but there were also lessons for other services where contracts could be let.

·         It was queried what remedies could be put in place to ensure that any contractor would face action if they did not meet their contract terms.  Members were advised that each contract would have to be considered in its own right, and the methods for holding them to account would be different depending on what service they were providing.  There would also be a need for balance, as if the amount or nature of remedies was too stringent then there would not be any bidders for the contract.  It was noted that no two contracts would ever be the same. 

·         It was reported that there had been substantial oversight and governance, and a lot of assurances were given.  However, it was commented that most of the people in Serco who were giving assurance did not understand the scale of the issues.

·         Fewer staff than expected transferred over to Serco under TUPE from Mouchel than expected, particularly payroll staff.

·         It was highlighted that a key feature was that the Committee never saw the same senior manager twice, and it was queried whether this was something that should have been picked up.

·         It was queried how it would be ensured that knowledge that had been gained throughout this process would not be lost in light of the fact the Chief Information and Commissioning Officer would be leaving the Authority in March 2017.  Members were assured that there was a sizable team of people engaged with the contract, as each service area had a senior officer who understood the contract in detail as well as understanding what challenges had been met and what still needed to be resolved.  It was also reported that the team around the payroll function had also been significantly strengthened.  There had been a considerable improvement, and the payroll run in October 2016 had been the best one since the start of the contract.  However, it was noted that this did not excuse the problems which had occurred previously. 

·         There had always been issues with payroll, and there always would be issues, as there would always be complications, such as people starting late, or information being passed over late.

·         It had been accepted that the report was factually accurate.  However, it was the Council's report, not Serco's or Unit 4's.

·         It was clarified that the report stated that Serco had included comment against Edinburgh City Council saying "Serco's understanding is Edinburgh City is at least 10 months behind plan".  However, Edinburgh Council and its partners (CGI and Agilisys) had an implementation plan for go-live in April 2017.  The parties were on track to achieve this plan.

·         It was suggested that as next steps, the Audit Committee recommend to CMB that the report be accepted and the recommendations taken on board and an action plan produced.  The Chairman advised that she was finalising her Audit Committee Annual Report which she would be presenting to Council in December 2016.

It was proposed, and agreed, that the word 'directs' in recommendation 3, be amended to ask.

RESOLVED

1.    That the Audit Committee receive KPMG's report of the Review of Agresso ERP System Implementation and Management of the Serco Contract.

2.    That the comments made by the Audit Committee on the report's findings and recommendations be noted.

3.    That the Audit Committee ask the Chief Executive:

                      i.        To act on the findings and recommendations, especially in relation to future major procurements; and

                    ii.        To monitor and report on the progress of the actions taken.