The Justice Secretary Chris Grayling has confirmed a settlement with Serco to recompense the taxpayer £68.5 million excluding VAT for the overcharging found in an audit of Ministry of Justice contracts. This figure is reimbursement for money owed on the electronic monitoring contract and for other costs incurred, including the cost of investigating these matters. It also includes £4.2 million which will be set against future costs for the transition to new electronic monitoring arrangements.

This comes as the Cabinet Office concludes and publishes a review of contracts held by G4S and Serco across all departments, announcing next steps for the suppliers.

On 11 July the Justice Secretary made a statement to the House about significant anomalies in the billing practices of the Ministry of Justice’s Electronic Monitoring contracts with Serco and G4S. The company’s conduct under these contracts is now subject to a criminal investigation by the Serious Fraud Office.

On 28 August the Justice Secretary announced that Serco’s contract for escorting prisoners to courts (the “PECS” contract) had been referred to the City of London Police. This followed the discovery that members of Serco staff had been recording prisoners as having been delivered ready for court when in fact they were not. Serco agreed at that point to repay past profits and forgo future profits earned on the PECS contract, and the company has now confirmed that it will repay past profits amounting to £2 million excluding VAT. The contract remains subject to MoJ supervision and is being robustly managed.

Meanwhile, the Cabinet Office has reviewed 28 of the largest contracts held by G4S and Serco, worth £5.9 billion in total with the support of PWC, Moore Stephens and a highly experienced Oversight Group.

Over the past few months Serco has engaged constructively with government, setting out a corporate renewal plan that is now well advanced. The government is expected to provide a final opinion on the adequacy of the plan in January, following input from the Oversight Group and our independent advisers, who will continue to monitor implementation.

The broader review found no further evidence of wrongdoing or malpractice, but did highlight areas of focus for departments as the civil service continues its efforts to improve commercial expertise across government. Themes such as performance management, change management processes and incentives for service improvements were pulled out as priorities for the government.

Work is already underway to address problems with commercial capability and contract management as part of the Civil Service Reform programme and the Capabilities Plan. The new recommendations from this review build on progress which includes establishing a Crown Commercial Service and professionalising procurement under the leadership of the newly-created Chief Procurement Officer role in the Cabinet Office.

Francis Maude, Minister for the Cabinet Office, said:

It’s good news for taxpayers that Serco have agreed to recompense £68.5 million for overcharging. We are confident that the company is taking steps to address the issues which our review has identified. Since day one this government has been working to reform contract management and improve commercial expertise in Whitehall. Everything we have seen has highlighted the importance of these reforms and we will be redoubling our efforts over the coming months, including through the establishment of the new Crown Commercial Service. Last year our procurement reforms saved the taxpayer £3.8 billion, but there is more to do as part of our long-term plan to drive greater value for hard-working families.

Separately, the Ministry of Justice published its review of its 15 major contracts across all suppliers – with a total value of £3.9 billion. The review identified 21 findings, which align to the 7 themes of the cross-government report. MoJ’s audit of G4S contracts has uncovered problems with 2 further contracts held by G4S for facilities management in the courts. Specifically, the audit revealed serious issues relating to invoicing, delivery and performance reporting against both contracts. While at this stage the department does not have evidence to confirm that dishonesty has taken place, they have today following legal advice referred both matters to the Serious Fraud Office in order to establish whether this is the case.

The government also confirmed that it has asked G4S to produce and implement a Corporate Renewal Plan which will be advised on by the Oversight Group and the independent advisers.

Bill Crothers, Chief Procurement Officer for the government, who led the review, added:

Opening up public services to a diverse range of suppliers means that we can access the innovation that the public sector, private companies and the voluntary sectors can bring. We need the very best commercial skills to be able to make the most of these opportunities and we know that these skills are not yet strong enough across government. We are determined to take action on each of the areas raised in this report.

Commercial reforms being led by the newly-created Crown Commercial Service include:

establishing a Chief Procurement Officer based in the Cabinet Office

running a programme of supplier renegotiation

introducing Crown Representatives and a Commercial Relationships Board

publishing details of government contracts online as part of the transparency agenda

working to ensure that the whole of government operates as a single customer

collecting rigorous data and management information on suppliers

improving commercial capability through the civil service reform programme

Notes to editors

Read the review here.

Our analysis of the detailed findings has identified 7 key themes that represent the most commonly occurring issues. The themes, in order of significance are listed below and explained in the following paragraphs along with examples from the detailed contract reviews:

performance management

“stewardship” of contracts at a senior level

financial control, assurance and lack of transparency

incentives to generate service improvements

change management practices

management of the transition from pre-contract stages

allocation of the right contract management resources

The Oversight Group was set up as a sub-group of the Commercial Relationships Board that was established in May 2012 to strengthen government’s commercial management.

The group consists of 10 senior commercial personnel with 3 Permanent Secretaries, 2 Crown Representatives, Stephen Kelly, UK Government Chief Operating Officer and 3 private sector individuals who work with the government as Crown Representatives or non-executive directors, namely Ian Tyler, Ed Smith and Tim Breedon.

The group is chaired by Bill Crothers, Chief Procurement Officer. In addition, HM Treasury and the National Audit Office have an observer role.

For more, contact Amy Lawson (telephone: 0207 276 2270).