HMRC’s Contract with Concentrix Under the National Audit Office Spotlight

Concentrix

The National Audit Office has today published its findings from its investigation into HM Revenue & Customs’ (HMRC) contract with Concentrix. The three-year contract, signed in May 2014, was to provide additional capacity and analysis to review and correct personal tax credit payments. The contract did not work as HMRC intended and, in November 2016 HMRC and Concentrix agreed to terminate it and a number of Concentrix staff transferred over to HMRC.

The investigation looks at the aims and management of the contract; the decision to terminate it; and the impact of the contract termination.

The key findings of this investigation are as follows:

• HMRC expected its contract with Concentrix to provide good customer service standards for claimants. It required Concentrix to follow the same procedures as HMRC when investigating tax credit claims, after training provided by HMRC. Concentrix collected and assessed evidence on claimants' circumstances and determined whether the award was accurate, and made amendments or stopped awards altogether where it believed the award to be incorrect. It then made amendments to those claimants' tax credits or stopped them altogether. HMRC continued to manage awards, recover any overpayments and deal with claimants' appeals.
• HMRC estimated in November 2013 that its contract with Concentrix would save £1 billion over the life of the contract. HMRC estimated that Concentrix would provide additional capacity to investigate up to a further 1.5 million awards per year. Savings would come from stopping incorrect claims, reducing overpayments, and the recovery of money already paid out. HMRC expected to pay Concentrix between £55 million and £75 million over the three-year life of the contract.
• In March 2016, HMRC had reduced its forecast of expected savings to £405 million. HMRC analysis identified two main factors that led to the reduction: a two month delay to the contract start date because of delays in developing the IT infrastructure to transmit and manage cases and Concentrix working fewer cases than HMRC originally expected. Concentrix, however, believes that the reduced level of savings was as a result of less fraud and error in the system and changes in the mix of cases it was given to work.
• The contract included incentives for Concentrix to meet customer service and quality targets. HMRC’s business case recognised the risk of the supplier increasing profits at the expense of customer service. To mitigate this risk, HMRC reviewed a sample of cases each month to measure the quality of compliance decisions by Concentrix and also required them to meet key performance indicators for customer service which Concentrix reported its performance against on a daily, weekly and monthly basis.
• Between November 2014 and September 2015 Concentrix consistently failed to achieve over half of its performance targets, meeting only 104 of a total 242 applicable monthly performance indicators. Its performance was worst during the peak renewals period in mid-2015 when in July it answered an average of 4.8% of calls within five minutes (target 90%).
• HMRC reduced Concentrix's commission payments by a total of £3.5 million over the life of the contract, after it missed quality and customer service targets. HMRC paid Concentrix only for the percentage of cases meeting quality standards and in October 2015, introduced a further penalty that reduced the commission paid to Concentrix when it failed to meet customer service targets for handling calls and post.
• In October 2015, HMRC and Concentrix agreed to vary the contract, introducing a revision to the performance management arrangements and an increase in the level of commission payments. Concentrix's level of commission increased to 11%, compared with 3.9% (with a possibility to earn 6.9% if savings reached particular thresholds) in the initial contract.
• After some improvement, the performance of Concentrix fell again during the 2016 renewals process. Concentrix’s failure to process compliance cases in accordance with its plan meant resourcing in call centres was not sufficient to meet the resulting increase in customer calls. Higher than expected terminations where claimants failed to renew their tax credit awards and IT issues in August further increased call volumes and delayed processing.
• By 20 September when the high-risk renewals process was scheduled to complete, there was a backlog of 181,000 open cases. Although Concentrix opened 324,000 compliance investigations on high-risk renewal cases, as was planned, it did not conclude its enquiries and close the cases as expected. This backlog of cases contributed to the higher than expected call volumes and award terminations when claimants failed to renew.
• Concentrix was unable to cope with the volume of calls from claimants during August 2016, which were significantly above forecast. It had estimated weekly call volumes at around 8,000 during August 2016 but volumes reached six times this level.  For example, in the week commencing 15 August, Concentrix received a peak of 48,000 calls, of which 19,000 were unanswered. Concentrix redeployed staff to call centres but it was insufficient to cope with the volume of calls and meet service standards, and was below the resourcing set out in its plan. This meant that some claimants were unable to contact Concentrix to discuss their award.
• More awards were terminated as a result of the renewals process than were expected, increasing demand on the call centre. HMRC stops making provisional awards to tax credits claimants where they fail to renew their claim by 31 July. In 2016, the number of provisional awards terminated as part of the high risk renewals process conducted by Concentrix was significantly higher than expected, at 45,000 against 21,800 anticipated in its plan. These higher than expected terminations would have been lower if Concentrix had processed more cases prior to 31 July.

Concentrix's performance in August 2016 was also affected by IT failures. A routine technical update to Concentrix’s systems on 11 August 2016 prevented its staff from accessing or updating claimant details for a total period of 26 hours. This lack of access led to higher call volumes from 12 August onwards. There is evidence that some claimants had to call multiple times to get in contact with Concentrix. Concentrix cites two further IT failures in its and HMRC's systems as contributing factors.

• HMRC took steps to mitigate the impact on customers after the problems were escalated to its senior management on 5 September 2016. HMRC reallocated a weekly average of 670 (full time equivalent) staff between 12 September and mid-November 2016 to work on clearing 181,000 cases returned from Concentrix and to answer calls.
• In November 2016 HMRC and Concentrix agreed to terminate the contract with immediate effect. In September 2016, HMRC announced that it would not use the option to extend the contract beyond May 2017. Following discussions, and consideration of options, HMRC and Concentrix agreed to terminate the contract.
• In total, Concentrix stopped or amended tax credit awards in around 12% of cases investigated, of which 32% of these decisions were overturned following a mandatory reconsideration. Concentrix has stated that the average length of time for which claimants had their tax credits stopped and then subsequently reinstated was between six and eight weeks. Between November 2014 and mid-December 2016, HMRC had paid a total of £86,815 in compensation for complaints relating to cases handled by Concentrix.
• The contract with Concentrix delivered estimated savings of £193 million against a payment of £32.5 million. Estimated savings are assessed as £223 million net of opportunity costs of £30 million relating to the diversion of HMRC staff to complete Concentrix cases. The payments to Concentrix included £23.1 million in commission and £6.9 million that related to mandatory reconsiderations where decisions were overturned and HMRC agreed as part of termination not to adjust payments to Concentrix, along with amounts for partly worked cases and sub-contractor costs following termination, and additional IT-related costs. HMRC did not meet any severance costs for staff leaving Concentrix following the agreement to terminate the contract. Concentrix told us that it made a loss of £20.5 million on the contract.
• HMRC will not replace Concentrix with another third-party provider and has transferred 243 staff from Concentrix under TUPE regulations to work on tax credit error and fraud interventions. HMRC concluded that the risks of a third-party arrangement to customer service outweighed the benefits, notwithstanding the 'net positive' savings against costs it reports.

About information in this report

1. Tax credits are an annual award (NAO report Figure 2). Because a household's income is liable to change during the year, the Tax Credits Act 2002 requires HMRC to make a provisional award and calculate payments based on estimated income. At the end of the tax year, claimants are required to renew by reporting actual income and circumstances. Error occurs when claimants do not give HMRC accurate information on their circumstances before their award is finalised, or provide inaccurate information that they         believe to be correct, or when HMRC makes a mistake when processing the claim. Fraud occurs when claimants knowingly give HMRC inaccurate information or deliberately conceal information to increase the value of their award.
2. Mandatory reconsiderations are the process by which claimants can ask to review a decision on their awards made by HMRC or Concentrix. It allows the claimant to provide further evidence to assess the correct award. Claimants can appeal following mandatory reconsideration. Concentrix handled reconsiderations of its decision during the contract, HMRC retained responsibility for handling appeals and complaints.
3. TUPE refers to the Transfer of Undertakings (Protection of Employment) Regulations, which preserve employees' terms and conditions when a business or undertaking, or part of one, is transferred to a new employer.

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