Government Pays £38 Million to Firm After Reneging on COVID Contract

Government Pays £38 Million to FirmAfter Reneging on COVID Contract

Matt Hancock’s department was forced to pay a large settlement to a company after deciding to pull out of a ‘Test and Trace’ deal, reports Stephen Delahunty

The Department of Health and Social Care (DHSC) has paid out more than £38 million after reneging on a pre-contract arrangement with a provider of COVID-19 testing services.

This may be the “largest settlement figure” of its kind so far in the ongoing procurement scandal, an NHS procurement specialist has suggested to Byline Times.

The settlement agreement notice published on the Government’s Contract Finder website appears to be the first that has been released during the Coronavirus pandemic. It reveals that the DHSC paid a Dubai-headquartered company called Ecolog nearly £38.5 million for a service it never received. 

Ecolog was originally intended to be one of the companies contracted to meet the capacity for the Government’s COVID-19 testing programme, which was set up last May. As a result, the DHSC entered into a Letter of Intent (LOI) with the firm in September.

The Chartered Institute of Procurement and Supply (CIPS) describes LOIs as “high risk”, which should be avoided where possible. The CIPS explains that an LOI has no distinct legal meaning but their purpose is to allow the preferred contractor – Ecolog, in this case – to prepare for the contract to be awarded at a later date. This may prompt the firm to buy additional materials, for example, or to put infrastructure in place.

However, the CIPS warns that, where the funds or business case has not been approved, “there is a risk that the main contract might not be awarded to the preferred contractor, or indeed to any contractor”.

It is not clear whether the LOI was non-binding or binding as the company did not respond to Byline Times‘ request for comment and the Government said it would not provide a specific breakdown of the contract’s original value or costs for reasons of commercial sensitivity.

However, in response to the settlement agreement, the department explained that the LOI enabled Ecolog to mobilise and equip laboratory units to provide PCR testing. But, as the testing programme progressed, the DHSC decided not to proceed with the agreement – partly due to the roll-out of rapid lateral flow tests, which are processed more quickly than PCR tests.

Therefore, the Government signed a Deed of Settlement to discharge all of its obligations under the LOI and to reimburse Ecolog for costs incurred – which included the delivery of some equipment and laboratory tests.

“The Government’s track record in the procurement of COVID-19 related contracts is littered with numerous examples of unnecessary waste,” one NHS procurement professional told Byline Times. “But this must be the largest settlement figure that’s ever been paid to a supplier on the basis of what is typically a simple letter of intent.”

This settlement agreement will have contributed to the £37 billion budget that has been allocated to the Government’s ‘Test and Trace’ programme this year. Parliament’s Public Accounts Committee (PAC) last month said that there is no evidence that the “unimaginable” cost of the operation has made any meaningful progress in dealing with the pandemic.

Full details of how much money has actually been spent so far are not yet available. The report by the PAC said that, despite the huge sums allocated, the Test and Trace system has failed to deliver on the central promise of preventing further lockdowns and the service must “wean itself off its persistent reliance on consultants”, while it “still struggles to consistently match supply and demand for its services, resulting in either sub-standard performance or surplus capacity”.

It has been reported that roughly 2,000 private sector consultants have been employed on the operation, at a cost of £1,000 per head, per day.

A DHSC spokesperson told Byline Times: “In order to tackle the myriad challenges created by this crises – including ramping-up our testing capacity – we drew upon the diverse skills and experience of the public and private sectors. Our focus last year was to build a network of diagnostic testing facilities to support immediate demand.

“It is only sensible that we keep all of our contractual arrangements under continuous review to ensure we have the right system for the long-term and proceed with contracts which fit the needs of service. We thank all of those who have made a valuable contribution to the programme so far.”