KPMG has taken the unusual step of withdrawing from bidding for UK government contracts as it seeks to manage a threat by the Cabinet Office to ban it from winning public sector work after its involvement in a series of scandals.
The Big Four firm, the third-biggest winner of public sector consulting contracts by value in the financial year to March 2021, has halted bidding for new assignments pending the outcome of a Cabinet Office review.
It caps a chaotic year for KPMG UK, in which its chair quit after telling staff to “stop moaning” about their work conditions during the pandemic and the accounting regulator branded the quality of the firm’s banking audits “unacceptable”.
The firm was fined £13m in August by an industry tribunal for serious misconduct when it pushed bedmaker Silentnight into insolvency to help private equity firm HIG Capital buy the company without the burden of its pension liabilities.
KPMG’s decision to pull out of bidding for new government work followed a letter it received from the Cabinet Office, revealed this month by the Financial Times, seeking assurances that previous misconduct would not be repeated.
The letter also threatened KPMG with a ban on bidding for public contracts if recent scandals were repeated.
Officials at the Cabinet Office stepped up their review of the firm at a meeting on Wednesday but a spokesperson said a decision on whether to bar it from government contracts was not expected until the new year.
However, KPMG decided to halt bidding on further government work pending the conclusion of the review.
“We have been working with the Cabinet Office to demonstrate the significant work that has been done, and is being done, to deal with the firm’s legacy issues,” KPMG said.
The firm said it “has stepped back from pursuing new tenders for central government whilst these conversations are ongoing”. “We believe this is the right thing to do whilst the firm works with the Cabinet Office to progress this matter,” it added. The decision does not affect existing government work.
KPMG’s withdrawal from bidding has echoes of an offer by its rival Deloitte in 2016 to abandon pitching for government contracts for six months after a leaked note written by one of its consultants sparked a political furore by suggesting that the government did not have a coherent Brexit strategy.
An outright suspension of a large contractor from bidding for government work is rare. The UK temporarily barred G4S from winning public contracts in 2013 and 2014 after the security company overcharged the government for the electronic tagging of criminals, some of whom were dead or still in prison.
KPMG has already been banned from bidding to run training for civil service apprentices after an Ofsted report last year deemed an existing programme “inadequate”, the lowest possible score.
The firm, which generated revenue of £2.3bn in the 12 months to September 2020, had been expected to announce its latest financial results this week but has delayed doing so until the new year. KPMG did not disclose the reason for the delay.
It won government contracts valued at £244m in the 12 months to March 2021, according to data provider Tussell. The work included advising on setting up temporary “Nightingale” hospitals to provide extra beds to treat Covid-19 patients.
The firm, which employs about 16,000 people in the UK, will be in the spotlight again next month when an industry tribunal hears allegations by the Financial Reporting Council that individuals at the firm provided it with false and misleading information during routine inspections of audits, including at collapsed government outsourcer Carillion.
Separate investigations continue into KPMG’s audits of Carillion, Rolls-Royce and Conviviality.
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