SERCO WINS £1.9BN CONTRACT WITH HOME OFFICE
Serco Group, the international service company, 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 - the North West of England and the Midlands & East of England - the total contract value is estimated to be around £1.9bn over a 10-year term and this value will be initially added to our order book; the final contract value will reflect the actual Service User volumes and indexation adjustments over the life of the contract.
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 we are 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. We will use our extensive experience of working with the communities, local authorities, suppliers and other specialist organisations to achieve strong partnerships and excellent service delivery.
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 £150m, which compares to revenue in 2018 on our COMPASS contracts of approximately £70m. The COMPASS contracts incurred a loss of approximately £15m 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 we expect the AASC contracts to be materially positive to both profitability and cash flow.