HMRC criticised over ‘catastrophic’ Concentrix contract

The public accounts committee (PAC) has branded HMRC’s contract with outsourcer Concentrix for checking tax credit claims as ‘a catastrophic failure’, which delivered just £193m of savings compared to an estimated £1bn and resulted in ‘appalling’ customer service

PAC said HMRC lacked the commercial capability to design the contract effectively. Despite Concentrix missing its performance targets for customer service from the start in 2015, HMRC renegotiated the contract in October 2015 to try and make it more commercially viable for Concentrix. It almost trebled the level of commission paid to Concentrix from 3.9% to 11%, while also introducing different performance measures for customer service.

HMRC acknowledges that its commercial function did not have the required skills and resources and says that it is revamping its commercial and contract division.

HMRC originally estimated that the contract would deliver £1bn of savings, but estimated savings at November 2016 were £193m. HMRC told PAC that the investment of £32.5m for a saving of £193m represented a reasonable rate of return.

The report states: ‘Nevertheless, HMRC told us that it does not intend to involve the private sector to conduct tax credits compliance checks in the future. Concentrix said that HMRC’s original assumptions about the number of available tax credits cases for review were incorrect, with Concentrix making a loss of £20.5m from the contract.

‘HMRC does not yet know whether it can make more savings from using its own resources instead. It now has further capacity to conduct tax credits compliance checks after 250 Concentrix staff were transferred to HMRC as part of ending the contract.’

The committee’s report says the problems which occurred during the 2016 tax credit renewals process were ‘entirely predictable’, and caused severe hardship and distress for claimants.

PAC said HMRC and Concentrix are still blaming each other, with the supplier claiming it expected HMRC to stagger the 2016 terminations over several weeks, as it had done in 2015. HMRC instead terminated all 45,000 awards in one week, but later went on to reinstate some 30,000 awards to which people had been entitled.

As a result, Concentrix was overwhelmed by the number of claimants trying to get in touch to find out what had happened to their awards; in August 2016 it answered just 35% of calls in five minutes against a target of 90%.

HMRC claims that staggering the terminations would only have made a marginal difference and it would have been prepared to do so if Concentrix had only asked. The PAC report notes that ‘communication between the parties had clearly broken down’, and says HMRC has recognised that there are lessons to learn concerning the thorough testing of contingency arrangements and escalating issues to senior decision-makers more quickly.

Meg Hillier, PAC chair, said: ‘Having taken the work contracted to Concentrix in-house, it is critical that HMRC now delivers for tax credit claimants.

HMRC is undergoing significant change and, as our committee has previously documented, in recent years experienced a disastrous decline in its own customer service.

‘This must not be repeated as HMRC faces the challenge of providing an improved and consistent service for people claiming tax credits.

‘It must also put right the damage done. That means fully reinstating the awards of all claimants who wrongly lost their tax credits and ensuring they are properly compensated for any impact on their entitlement to other benefits.’

Hillier also said HMRC was ‘woefully ill-equipped’ to design the Concentrix contract, with too little importance given to customer service, and the use of an ‘inappropriate’ payment-by-results model.

An HMRC spokesperson said: ’HMRC is absolutely committed to paying tax credits claimants all the money to which they are entitled, efficiently and on time and we have apologised for the failings that occurred during the contract.

‘HMRC terminated the contract with Concentrix when it became clear that it was not delivering the quality of service we expect for our customers. Those who had their payments stopped incorrectly are now back in payment.

‘It is important to make checks on tax credits claims to ensure the right people are receiving the money to which they are entitled under the law, and this work will now be done by HMRC. HMRC will not be entering into external contracts for this work in future.’

PAC’s report on HMRC’s contract with Concentrix is here.

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