Serco secures its largest ever contract award
Serco Group plc has been awarded two UK asylum support services contracts, which together will be the largest contracts by value ever awarded to Serco, with an estimated value of £1.9 billion. Serco Group plc has been awarded contracts by the UK Home Office Visas and Immigration department for two regions of the new Asylum Accommodation and Support Services Contract (AASC), being the North West of England and the Midlands & East of England.
For the two regions in aggregate the total contract value is estimated to be around £1.9 billion over a 10-year term and this value will be initially added to Serco's order book; the final contract value will reflect the actual Service User volumes and indexation adjustments over the life of the contract.
Courtesy Serco
Commenting on the award of the contracts to Serco, Rupert Soames (above), Serco Group Chief Executive, said: “We are very pleased to have been awarded contracts for two large regions by the Home Office; together these will be the largest contracts by value ever awarded to Serco.
"Over the last six years, Serco has cared for many tens of thousands of people whilst their asylum claims were being processed and I am proud of the extraordinary commitment, skill and care Serco colleagues have shown whilst looking after some of the most vulnerable people in the UK.
"This award vindicates our decision to continue to invest in building our capability and expertise in what is an extremely sensitive, complex and nationally important area of public service delivery.”
AASC is the successor framework for the current COMPASS (Commercial and Operational Managers Procuring of Asylum Support Services) contracts, which were awarded in 2012. Of the current COMPASS regions, Serco is responsible for two: North West of England and Scotland & Northern Ireland, and is currently looking after some 17,000 asylum seekers.
Under AASC, Serco will be responsible for the provision of properties for initial and dispersed accommodation requirements, for transportation to and from properties and for a range of other services to support the welfare of asylum seekers. In the two regions for which Serco has been selected, there are currently approximately 20,000 asylum seekers living in more than 5,000 properties. Serco will ensure all accommodation is safe and habitable and in accordance with the Decent Homes Standard, using its extensive experience of working with the communities, local authorities, suppliers and other specialist organisations to achieve strong partnerships and service delivery standards.
While the core service lines are similar between the COMPASS and AASC contracts, there have been a number of improvements for Service Users and changes to contract terms, including: the introduction of volume caps and certain other protections for surge events; greater graduation of volume charging bands; improved inflation protection; and mechanisms for handling certain other risk scenarios and change events.
In 2020, the first full financial year of Serco’s new AASC contracts, the annual revenue is anticipated to be approximately £150 million, which compares to revenue in 2018 on Serco's COMPASS contracts of approximately £70 million. The COMPASS contracts incurred a loss of approximately £15 million in 2018, which has been offset by utilisation of an Onerous Contract Provision (OCP). In 2019, the new AASC contracts are expected to have a negligible effect on profitability as mobilisation and transition costs will be expensed as they are incurred in the year but in 2020 and thereafter Serco expect the AASC contracts to be materially positive to both profitability and cash flow.