Tiger teams, audit reports and £36m worth of risk

Friday, September 13th, 2013

There is an increasing debate on the “Right of Audit” but less focus on the buying organisation requiring a contractor to disclose records and documents.

A watershed case in 2012 “Transport for Greater Manchester (TGM) v Thales Transport & Security Ltd [2012] EWHC 3717 (TCC)” has, dramatically, clarified matters.

Tiger teams, audit reports and £36m worth of risk

Thales were employed to supply a new tram operating system at a contract price of some £22 million, subject to a number of Deeds of Variation. It is relevant to note that there is the possibility for Thales to be liable for £36m of Liquidated Damages for delays to the project.

The case judgement to which we refer relates to:

“major differences between the parties not only to do with money and time claims but also the provision by Thales of access to records and other documentation”.

It is the latter that is the sole focus.

Clause 27.1 stated

The Supplier shall for a period of 12 years ……………. maintain accurate, up-to-date and complete records relating to its obligations under the Agreement (“Records”) (in a form suitable for inspection under clause 28) relating to the performance of its obligations under this Agreement including:

a)      the acquisition and properties of all materials, parts and items of equipment included in the manufacture and/or supply of the Deliverables

b)      the design and/or the supply and installation of the Deliverables …………..

Clause 28.1 stated

In addition to the information otherwise to be submitted or provided to [TGM] under any other provision in this Agreement, the Supplier shall submit to [TGM] or to any Auditor, or ensure that there is submitted to [TGM] or such Auditor, within such period as [TGM] or such Auditor may reasonably require (having due regard to the time and costs involved in providing such information but disregarding any costs of less than £100 per request),such other information, records or documents in its possession or control or in the possession or control of any auditors, agents or Sub-contractors as [TGM] or such Auditor may reasonably request (including any information requested from [TGM] by the Department for Transport) and which relates to the Records.

Clause 28.2 stated

[TGM], its representatives or agents, the Secretary of State for Transport and any Auditor shall be entitled, on giving reasonable notice and at all reasonable times, to inspect and make copies of:

a)      any of the Records (and the Supplier shall ensure that [TGM], the Secretary of State for Transport and any such Auditor shall be similarly entitled to inspect and make copies of any such records or documents maintained by any sub-contractor); and/or

b)      such other information, records or documents in the Supplier’s possession or control or in the possession or control of any auditors, agents or sub-contractors relating to:

                                            i.      The supply of the Deliverables; or

ii.      The carrying out of any the Supplier’s obligations under this Agreement

[There is slightly more detail here in the judgement but it is not material to this briefing note].

Before you access the second part of this briefing, here are 6 points for you to actively consider:

  1. Do you think that clause 27 and 28 strengthen the buyer’s hand in the event of a dispute with the Supplier? If so, how?
  2. Does your company include such a clause in its contracts, particularly on project?
  3. If your answer to (2) is “NO” – are you motivated to recommend that these clauses (suitably modified) be included in future?
  4. Do you have the motivation to read the detail of the two clauses and understand how they would be applied in real life?
  5. Are you aware of anyone imposing such clauses on Suppliers?
  6. Do you believe that Suppliers will be enthusiastic about accepting such clauses?

Tiger Team

There were a number of documents sought for release by TGM and which were disputed for disclosure by Thales. One category was “All reports produced by the “Tiger Team” a team formed by Thales who were concerned about escalating costs of the project. The case evidence suggests that one report was “a high level ex post facto analysis of some of the difficulties experienced”. The judge held that the fact it is a “high level” does not prevent it from being a document which “relates” to contractual performance within the meaning of clauses 27 and 28. The judge ordered disclosure. This decision is worth reflecting on because in the ordinary course of events a buying organisation would never be given access to such reports. The example warrants the exacting nature of clauses 27 and 28.

Audit Reports

Another category that TGM required disclosure was “All internal audit reports concerning the Train Operating System Contract”. The judge observed that it was said (by Thales) that the reference to “internal audit reports” is too imprecise. The judge disagreed, saying that in almost every moderately or very sophisticated organisation engaged on this sort of project there is invariably a system of internal auditing which concerns compliance with various areas of endeavour, such as safety and design; they will often be in place and provided to deal with things which have gone wrong. The judge ordered disclosure, further observing that internal audit reports should identify whether there has been contractual, statutory or other compliance. Once again this warrants reflection regarding the robustness of clauses 27 and 28.

There were other categories that the judge had to decide whether Thales would be required to release or not. We isolate one more category and urge our readers to access the judgement to see other categories and the judge’s decision.

Category 4 related to:

 “all internal project reports concerning costs and delay incurred in the performance of the ToS Contract (including reports by or to any company in the Thales group of companies.”

Thales argument that the cost information in some of these reports to the project as a whole and, because the contract was a fixed-price one, reports are immaterial, just didn’t wash with the judge. He ordered disclosure, using the logic that any reports that deal with costs also relate to performance both in terms of compliance with the claims and also a reflection of compliance with the Contract.

Tiger teams, audit reports and £36m worth of risk


When engaged in procuring a project study clauses 27 and 28 because they would strengthen many contracts.

We have little doubt that this case will prompt project supply organisations not to accept such clauses in future. Managing contractual risk is a high value procurement activity, seriously underestimated by many organisations. Therein lies the challenge for client-side!


So, what can we do for you?  We can probably help you achieve your objectives – through our consultancy, training and coaching services – let’s start a conversation.

If you can spend a few minutes on the phone with me, I can assess the potential ROI of working with us.

If this is interesting to you, please email me and I’ll set something up.

Or call me on 01744 20698