The UK government is facing mounting scrutiny over contracts totalling £5.5bn for personal protective equipment awarded to a range of companies in the first months of the coronavirus crisis as it scrambled to tackle a shortage of kit for frontline healthcare workers.
As the pandemic swept Britain, intense demand for masks, gowns and gloves — combined with a shortage of PPE stocks globally — forced the UK to look beyond the normal supply chain.
Around 16,000 potential suppliers contacted a 500-person buying team set up by the Cabinet Office in March to offer to supply kit for hospital staff.
However, the process has been criticised for awarding large sums of taxpayer money to several companies that appear to have no record in supplying PPE and have small balance sheets or poor recent financial performance. It has prompted concern over the extent of due diligence that was conducted before the contract awards.
Peter Smith, managing director at consultancy Procurement Excellence, said normal procurement practice had “gone out the window”, adding: “My hope is that there is some method in the madness.”
The size of the emergency procurement drive is also only just coming to light. The government has so far published details of contracts worth £1.5bn but in a letter to Jo Maugham, director of the Good Law Project, a not-for-profit group seeking a judicial review of at least one of the deals, officials have admitted that the figure is more than three times higher at £5.5bn.
“Vast sums have been spent with no scrutiny of whether they represent value for public money,” said Mr Maugham. “If government will not adhere voluntarily to its own transparency rules we have little choice but to ask the courts to check whether public funds are being properly spent.”
The contracts were agreed at speed without a competitive tender process under emergency rules invoked by ministers to ensure a quick response to the pandemic.
One business, a healthcare recruitment firm named SG Recruitment UK, with headquarters in Eastleigh, Hampshire, was awarded a £24m contract to provide protective coveralls to healthcare workers in April. That was despite a “going concern” warning from its auditors five months earlier, flagging that the company’s liabilities exceeded its current assets by £376,000.
The company made profits of £43,000 for 2019, compared with a £773,000 loss a year earlier. The auditors signed off the accounts in December despite the warning because SG had “continuing financial support” from its parent company, Sumner Group Holdings.
SG Recruitment told the Financial Times it was “proud” to have supported the PPE procurement drive and had won the contract because of its position as a long-term supplier of nurses to the NHS, adding that contracted revenues far exceeded its short-term liabilities.
Another company, P14 Medical, has recorded large losses in its most recent accounts. The Liverpool-based company has eight employees and made a £486,000 loss for 2019, yet it was awarded two contracts in April to supply face shields and other equipment worth £120m. It made a profit of £21,000 a year earlier.
P14 told the Financial Times the losses were owing to heavy investment in new chronic pain technology that it plans to market in Europe and the Middle East this summer. It said it had saved the government £55m on its face shield contracts, which had been completed “ahead of time and on budget”.
At least two companies were less than a year old when they were awarded large government contracts.
Euthenia Investments, a seven-month-old fund manager in the City of London, was given a contract of £880,000 in April to supply coveralls. The company said it was a distributor for a Hong Kong-based industrial conglomerate and had “supplied compliant and best quality PPE” to the NHS.
The letter to the Good Law Project from the government’s legal department detailed 600 contracts awards to almost 200 companies since March. “The nature of the changed market conditions required the development of alternative sources of supply and it was appropriate not to impose unnecessary hurdles in the way of securing that objectives,” the letter said.
It continued: “Given that the entire premise of the scheme was to identify new sources of supply (the established market being no longer able to fulfil demand), it would have been perverse to narrow down the field by imposing artificial pre-qualification requirements such as a minimum turnover requirement or unnecessary prior experience.”
So far the government has published about 80 of the PPE contracts. The largest was a £252.5m contract awarded to Ayanda Capital, a family investment firm that specialises in “currency trading, offshore property, private equity and trade financing”, according to its website.
Ayanda, which was contracted to supply masks to healthcare workers, is run by Tim Horlick, a former investment banker, and controlled by the Horlick family via a holding company registered in Mauritius.
When contacted by the FT, Ayanda said it was a UK limited company that paid UK taxes and was “happy to confirm that the contract has been successfully fulfilled”.
The letter also revealed that the government had wrongly announced a £108m contract with PestFix, a pest control company based in Littlehampton in Sussex, which was first reported by the FT.
Blaming “an administrative error”, it said the deal was actually worth £32m for 2m isolation suits from China. The government said 75 per cent of the cost of the contract was paid upfront to PestFix, which has 16 staff and net assets of £19,000. The company declined to comment beyond saying that 90 per cent of the order had been delivered.
The Good Law Project is seeking a judicial review of the award to Crisp Websites Limited, the company behind PestFix, citing a lack of competition and transparency concerns.
Procurement experts said it was too early to make any judgments on the contract awards. “We don’t know enough about these organisations and it would be good to know why they have been chosen. However, the proof is in the pudding and if they deliver then we should be grateful,” said Ian Makgill, director of consultancy OpenOpps.
Gus Tugendhat, founder of Tussell, which compiles procurement data for the government, said: “In a situation of extreme urgency, public bodies were compelled to back some very long shots. Mistakes were inevitable. The key question is the final outcome: were sufficient supplies obtained and at what net cost?”
The government said: “We have been working around the clock to deliver PPE to protect people on the front line throughout this global pandemic. Almost 28 billion items of PPE have been ordered overall from UK-based manufacturers and international partners to provide a continuous supply in the coming months.
“We have a robust process which ensures that orders are of high-quality standard, meet commercial due diligence and checked for risk and fraud.”
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