With Serco is it a case of one bad apple spoiling the entire corporate barrel? by Jon Hansen

Posted on July 19, 2013


Last week , the Procurement Insights European Union Edition was one of the very first blogs to report on the news that the Minister of Justice Chris Grayling had announced that the Serious Fraud Office (SFO) had been called in to investigate G4S and Serco.  Grayling indicated that there was evidence that both companies had overcharged the UK government by 10s of £millions for contracts related to tagging criminal offenders.

As the news of the investigation began to spread globally, the Obama Administration announced that they had awarded a contract worth as much as $1.2 billion to a British company to help them sift applications for health insurance and tax credits under the new health care law.  That company is Serco.

PI EU Fraud Triangle

This apparent disconnect in contracting sensibilities led me to seek out Andy Akrouch who is the President of the Centre for Relational Outsourcing and Strategic Management.

Similar to the questions raised in Canada relating to the SNC-Lavalin scandal as a result of the introduction of this government’s new integrity policy, which stipulates that “companies can be blocked from bidding on government contracts if the company or one of its directors has been found guilty of offences such as fraud, bid-rigging, money-laundering, tax evasion, bribing a foreign official, drug dealing or being involved with organized crime,” one wonders if it is fair to penalize an entire organization for one or two bad apples.

For example, with the Canadian policy, “Companies can escape the provisions of the federal government’s tough new integrity policy for procurement if an official under a cloud leaves the company before conviction.”

Even if you are inclined to accept this sifting of the bad apples to preserve the entire barrel approach, an even bigger question that needs to be answered is how something like what happened at SNC-Lavalin as well as with G4S and Serco in the UK, could occur in the first place?  This is where Akrouche’s insights come into play.

The following is from a comment that was posted by Akrouche relating to the July  11th, 2013 article BREAKING NEWS: Evidence of fraud on the part of government suppliers G4S and Serco reported by Minister of Justice by Colin Cram:

First let me say that in no way I would attribute this behavior to G4S/Serco company policy or to a management directive. Colin is the expert on this, but I would assume this is always done by individuals who do not conform to policy, ethics and good governance. I would suspect that there many more instances and cases similar to this than we know. We just simply don’t know and had no way of knowing.

Why am I not surprised by this? Until the SRS Relational model came along, public sector organizations structured business arrangements as deals or transactions and employed layers over layers of oversight to manage these contracts. This UK- Serco-G4S finding confirms what we have been saying all along that it is not possible to achieve optimum contract performance and minimize risk (all risks including fraud risk) by means of oversight mechanisms only. The only real way you can truly mitigate risk is via insight.

Insight, however, is gained through shared purpose, active management, joint governance and open book financial management framework. It also means that we employ different methods of sourcing and managing these contracts – relationship based methods. I just finished delivering a two-day course on relational contracting and had extensive dialogue with public sector leaders on exactly this same issue. The Relational Model OBF provides the means for complete financial transparency and accountability in the management and effectiveness of funds throughout the entire relationship life cycle.

What are your thoughts regarding Akrouche’s comment?  Are events such as what happened with SNC-Lavalin here in Canada and G4S and Serco in the UK going to serve as the impetus for changing the way in which government contracts and related risks are managed?

Finally, and perhaps this is the most important question as it can certainly fuel the desire to make any necessary changes to the contract management process   ̶   should companies who are under investigation for fraud be allowed to bid on government contracts both domestically as well as internationally?