Companies that have paid hundreds of millions in fines and penalties, have defrauded Whitehall or have faced corruption investigations are among those making the most money from UK government outsourcing, the Observer can reveal.
Observer analysis of data from UK regulators has found the Strategic Suppliers, the 40 private companies that play the biggest role in running outsourced government services, have received well over £500m in financial penalties from regulators since 2010.
Only six of the 40 had not been reprimanded by regulators, with many receiving tens of millions in fines without losing their place as a Strategic Supplier.
Around £300bn, or roughly a third of all public sector spending, is spent on contracts with private firms in any given year.
According to one report by data firm Tussell, the Strategic Suppliers not only receive 11% of that spending, but their income from government contracts rose by 24% between 2019-2020 and 2021-2022 alone.
The Strategic Suppliers is composed of a wide array of companies, from G4S and Serco to the “big four” accounting firms – KPMG, Deloitte, PwC and EY – and weapons manufacturers such as BAE Systems, who handle the biggest and most vital government contracts.
Telecoms giant BT had the highest amount in penalties since 2010 at £184m. Most of that consisted of one £117m penalty imposed by Ofcom, the regulator, in 2012 for artificially overcharging. Almost two thirds of its financial penalties consisted of similar Ofcom rulings where they were ordered to pay back wholesale customers in consumer disputes.
In fact, just seven of the firms – BT, KPMG, Deloitte, PwC, Serco, G4S and BAE – made up nearly 90% of the £520m in fines received by Strategic Suppliers since 2010.
G4S, which runs everything from private prisons and armed security to sexual assault support centres for the government, received more than £44m in penalties from UK regulators since 2010.
One of the biggest fines came in 2020 after the company was found to have defrauded the Ministry of Justice by charging for the electronic monitoring of thousands of offenders who were then found to have returned to prison or even died.
At the time, the group chief of G4S, Ashley Almanza, said: “We have apologised to the UK government and implemented significant changes to people, policies, practices and controls.” Just a month later, G4S was given a £300m contract to open “mega-prison” HMP Five Wells from the same ministry it had defrauded.
“Ministerial ineptitude and incompetence have repeatedly cost taxpayers a fortune as good money is thrown after bad,” said deputy Labour leader Angela Rayner, “while their latest procurement bill is a charter for cronies and a recipe for yet more waste.”
Serco has been handed more than £56m in fines since 2010, including for defrauding the government, but has since won billions of pounds in government contracts as one of its top five biggest outsourcing partners, including to run the government’s much-criticised track and trace programme during the pandemic and to manage asylum seeker accommodation.
Weapons manufacturer BAE Systems has paid just over £30m in penalties in the UK since 2010, largely in one payout after it pleaded guilty to charges of false accounting and misleading statements related to several global long-running bribery and corruption investigations which (it also had an additional £257m penalty in the US) related to the highly controversial sale of a military radar to Tanzania, a country that at the time had no military airforce.
KPMG has had £65m in penalties since 2010 in relation to 36 cases almost all relating to accounting fraud or other financial offences. Infamously, tt was found to have forged documents and misled regulators over audits for companies including the now-collapsed Carillion, also once one of the Strategic Suppliers.
Even after promising to temporarily withdraw from bidding on contracts after a series of corporate scandals, KPMG still managed to win £10m in government contracts in everything from advising the Ministry of Defence to supporting the NHS and energy regulator Ofcom.
but have not been removed from their position as Strategic Suppliers.
“The government is serially failing to hold big outsourcing companies to account when they provide poor value for money for the taxpayer or do shoddy work,” said Susan Hawley, executive director of campaign group Spotlight on Corruption. “It’s time they ramped up the use of exclusion from public contracts on the basis of poor performance so that procurement truly works for UK taxpayers and the public.”
“Regulations exist as a form of protection for workers, consumers and the environment,” said a spokesperson for Violation Tracker UK, which created a database of fines issued to these companies used by the Observer. “The UK government should not be awarding lucrative contracts to companies who break these laws.”
A government spokesperson said they constantly monitor the performance of suppliers and “act swiftly to address concerns and prevent future malpractice”, with all fines “returned to the public purse.”
They added that the proposed procurement bill would “strengthen the government’s ability to exclude suppliers who have previously underperformed”.
A BAE Systems spokesperson said: “In 2010 and 2011, we agreed [settlements] with US and UK authorities relating to legacy issues. There was no finding of bribery or corruption in relation to those investigations. We are committed to responsible and ethical business conduct and have a zero tolerance policy regarding corruption in all its forms.”
Serco, G4S and KPMG chose not to comment publicly, but KPMG stressed that there had been no finding of “criminal” conduct on the company’s part and suggested that the breaches related to their audit of Carillion “did not represent the wider culture or practice” of the firm.
A spokesperson for BT added that it takes regulatory obligations very seriously and emphasised that the “significant majority” of its penalties weren’t fines but in cases where regulators ordered BT to provide refunds to other parties.
• This article was amended on 28 May 2023. An earlier version said that, since 2010, G4S had received penalties from UK regulators “in relation to at least 12 cases”. In fact, only two of these were from UK regulators; the others related to employment tribunal settlements. The reference has been removed.
