Scoring Supplier Bids and Proposals – Yes, Even That Can Lead to Bad Buying!

Evaluating bids and tenders is not perhaps the sexiest topic within the buying world, and perhaps because of that it does not get the attention it deserves. I remember a few years back, the UK government issued a detailed 100-page guide to running public procurement competitions, but pretty much the entire section on evaluation read, “now evaluate the bids”!

And yet, if the evaluation process is not structured and executed properly, it can lead to problems – selection of the “wrong” supplier that will not best meet your needs perhaps, or unhappy suppliers and legal challenge in the public sector.

One seemingly minor but important point relates to how bids are scored. For major purchases, it is usual to have multiple people on the buy-side reading and scoring the suppliers’ proposals. So there might be three of four people all reading and scoring the same answers to questions like “explain how your quality processes will help to ensure you meet our needs….” 

I was recently advising a firm on how they could compete better for public sector business. I looked at tender documentation from a bid they had lost, and whilst the feedback from the buyer to the firm was somewhat ambiguous, it looked like the individual scores of the bid evaluators had been averaged. That is, in my opinion, the wrong approach, and this is why.

Let’s imagine you have three people doing that work, and that the scoring system is a basic 0-5 scale where 5 is a brilliant response and 1 is pretty rubbish. Evaluator A scores 1 out of 5 against that question. Evaluator B scores 5 out of 5, and C scores 3 out of 5. The average is therefore 3.

But we know that there is a very good chance that 3 is not the appropriate score. We also know that A and B have seen the supplier response VERY differently. One of them might be right in their scoring; but we really need to know why there is such a difference. They can’t both be right!

So we need a process of moderation. Someone, and I usually advise that the moderator should not score the bids themselves (although they do have to read them), chairs a discussion to arrive at an agreed moderated score.

It may be that scorer A has identified a major flaw in the response that the other two missed. Or A has herself missed a key part of the answer (I have literally seen a marker not notice a key project plan attached to the document). Perhaps B just loves this bidder, and needs talking down from his over-enthusiastic marking.  And if you only had two scorers who marked it 1 and 5, then 3 would almost certainly be the wrong answer!

We need to arrive at a single agreed score, which could in this case feasibly be anything from 1 to 5. Maybe it will end up as 3; but not via an averaging process. I’d also strongly suggest that in the public sector, you don’t document any initial individual marking; you record the key points of the discussion, which is important if the end result is ever challenged, and the end result.

So in our case, if the score ends up being 4, you might note that scorer A initially had some concerns but was reassured when she was pointed to the project plan in the appendix (or whatever). When I chair moderation meetings, I ask the participants to come along with their initial view of their scores, but I don’t want those in advance and I don’t want them formally recorded.

That’s not being devious; it is just recognising that we are going to do the scoring on a moderated, team basis. And yes, I admit, I don’t want a disgruntled supplier saying, “how come the CIO initially gave us a mark of 5 on that response, but we only ended up with a 3”?

Anyway, this might seem like a fairly technical aspect of potential Bad Buying, and indeed it is. But there have actually been some very expensive legal challenges that hinged to some significant extent on dodgy scoring and suspect averaging or moderation processes. There is a great example in my book actually, one that cost the UK taxpayer over £100 million believe it or not.  (Pre-order the book now… out on October 8th).

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Care Homes in the UK and Beyond – Bad Buying by Omission

One of the first disasters of the current Covid crisis in the UK was the transfer of thousands of people out of hospitals into nursing and care homes, without checks as to whether they had the virus. That put the focus again on the social care sector, and although most of the staff in homes have conducted themselves with great dedication and bravery since then, many issues remain.

I wrote an article on the topic some 5 years ago – here is an excerpt.

What market presents the biggest single challenge in public sector procurement? It has to be Social Care. A spend category worth some £20 billion a year in terms of local authority third-party spend. A category almost totally outsourced now, where funding is being cut by local authorities as their grants from central government are slashed. That is causing a reduction in supply, which in turn is driving severe problems for the NHS as record numbers of ”bed-blockers” are stuck in hospitals because of the lack of a social care-supported  alternative at home. A market where major providers have gone bust and more are teetering on the brink, with the vultures of private equity waiting in the wings.

Since then , we’ve seen more major providers going bust, and yes, the private equity firms have moved into the sector. Many homes rip off their privately paying residents, charging them far more than they charge those funded by councils who use their negotiating power to beat down prices. Meanwhile, too many staff are badly paid, staff turnover is high, and the quality of care is variable.

But these issues are not restricted to just the UK. In the Observer yesterday, Will Hutton wrote about the private equity sector in general and the care home issue in particular. He described the tragic death in a home in Spain of an 84 year old man, Zoilo Patiño, whose body was found in a locked room 24 hours after he died.

“The subsequent investigation into the management company – DomusVi, which had been contracted to operate the home – showed it had been stripped down to a “fast-food version” of healthcare by years of cuts: there was only one care worker for every 10 residents, with not even the PPE to help cope with a dead body”.

But DomusVi, Spain’s largest care home operator, is actually owned by ICG, a British private equity company. As is usually the way with private equity, the company was refinanced and is loaded up with debt – that leverage being one key way in which private equity makes its money. Stripping out costs, or “increasing efficiency” if we’re being kind, is another route often followed. For instance, Hutton claims that Care UK, backed by Bridgepoint private equity, has reduced staff numbers by a third while doubling the number of beds provided in the homes it operates.

Social care services, including care and nursing home provision, are bought by dozens of local authorities around the UK.  Many do a good job in a difficult situation, but this is a spend category that really cries out for some serious national thinking and strategy. We need to ask whether this is a suitable sector for private equity investment; whether there should be more scrutiny of the financial state of providers; what minimum standards might be imposed; and perhaps how to encourage more local, third sector and diverse suppliers into the market – as well as sorting out the funding of care, which is an issue that goes well beyond procurement.  

But the UK central government has never shown any appetite for this sort of involvement on the procurement front. This is in effect, national “Bad Buying” by omission. Whilst over the years, huge amounts of effort, skill and money have been spent putting together strategies and collaborative approaches to buying stationery (!), energy, cars or laptops, OGC, CCS, YPO and all the other collaborative bodies have shied away from social care, as have the strategists in Cabinet Office, the Department for Local Government (whatever it is called this week) or Treasury. 

Perhaps the promise of a new approach to social care funding will provoke some serious action on the procurement and market side as well. We can only hope so.

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Fraud, Charities and Steve Bannon – Where’s the Money Going?

The arrest of Steve Bannon, President’s Trump ex-adviser, hit the headlines this week. Along with several other men, he is accused of siphoning off funds that were given to a charity which sought private donations to support the building of the Trump-promoted wall (fence, barrier, whatever) between Mexico and the USA.

Without getting into the mentality of the donors who would give their hard-earned cash for that cause, the case does point out the difficulties of knowing exactly where you money is going when you had it over to any charity.  There have been many examples over the years of charities that do genuinely support good causes, but appear to be just as interested in spending money on fancy offices and big salaries for executives.

Even an organisation as reputable as the Australian Red Cross ran into controversy recently when it had to defend its decision to spend up to 10% of bushfire relief donations on administration costs. That doesn’t seem too unreasonable to me, but in the past, it had promised to put 100% of all money raised directly to a cause.

Then there are the actual fraudulent “charities” that act as a front for criminal activities. For instance, four men were found guilty recently of fraud in the UK when they expropriated over £500K of donated money rather than using it for genuine purposes.  Collectors in camouflage trousers and “Save Our Soldiers” shirts rattled collection tins and conned people at railway stations into thinking they were giving to support disabled troops. But the  money went to fund the lifestyles of David Papagavriel, Terence Kelly,  Ian Ellis and Peter Ellis. That’s the reason I never put money in collecting tins if I don’t know the charity, by the way, even if it looks like a great cause.

The third type of charity-related fraud comes when a charity itself is the victim. Every organisation that sees large amounts of money flowing through it can be a target for what I define as “procurement related fraud”, and charities are no exception. There are some interesting examples of this in my new book, Bad Buying – How organisations waste billions through failures, frauds and f*ck-ups (to be published by Penguin Business on October 8th).

The fraud may originate from outside the organisation, but often there are insiders involved, or in some cases it can be a purely internal affair. For example, one story in my book covers the exploits of the CEO of an education charity, Philip Bujak. He was sentenced to six years in jail in 2018 at Southwark Crown Court in London for swindling some £180,000 out of his organisation. Using a company credit card, false invoices to Fake “suppliers” and other routes he got the charity to fund his honeymoon, and family events at hotels. One bill for a “charity conference” was really his mother’s 80th birthday party, and he was also keen on buying and restoring paintings.

So don’t think that everyone who works within a charity is automatically a good person. There can be the odd bad apple, which means that charities (like every other organisation) need to take strong anti-fraud measures to protect against internal or external villains. I haven’t got the space here to go through all those suggested steps, but my book goes into that in more detail, with seven key principles to avoid buying-related fraud and corruption listed and explained.  And we will come back to those here at a later date as well.

Meanwhile we will watch the Bannon case with interest …

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Ayanda Capital Facemasks Contract – Were Basic Procurement Principles Forgotten?

It is a while since I wrote about the PPE (personal protective equipment) process in the UK government and health sector, but the stories continue to emerge and some are troubling to say the least.

The case of the contract with Ayanda Capital to supply face masks is one that continues to develop. Andrew Mills was the CEO of Virtualstock (a supply chain software firm) until 2018 but has acted as an unpaid government adviser since then. He secured production capacity for masks from a Chinese factory, but asked Ayanda Capital Ltd (an investment firm, registered in Mauritius but based in London) to “front” the proposal and then contract with government, as Ayanda had more experience in handling foreign payments.

The contract is worth at least £150 million, but now product has been delivered, fifty million masks can’t be used in hospitals because of safety fears. The masks use ear-loop fastenings rather than head loops, which means they may not fit tightly enough to be effective.

So did Ayanda fail to meet the specification? In normal cases, a product that does not meet the specification simply means that the supplier does not get paid.  No, says the firm, it’s not our fault.

“The masks supplied went through a rigorous technical assurance programme and met all the requirements of the technical specifications which were made available online through the government’s portal,” they say. If true, that suggests the technical specification given to suppliers was simply incorrect.

But why is the government not challenging this? We can only draw two possible conclusions.

  1. Ayanda is correct. The specification was wrong and the error was the fault of the government procurement team.
  2. The government wants Ayanda to have the money even if they have failed in some way – for whatever reason, maybe to avoid more embarrassing debate – and simply wants to ignore the apparent specification problem.

The Good Law Project is challenging the government through the courts on this and some other questionable contracts that have been let during the crisis.  Jo Maugham QC is leading the challenge, and on Twitter he has suggested, based on analysis of market prices, that Ayanda may have made over £50 million profit on this deal.  That leads to another question. What measures did the procurement team take to ensure that the supplier was not going to make “excess profit” out of this deal?

Was there an open book provision, so the cost price from the factory was visible? Clawback provisions? Maybe even a cost-plus pricing formula? Or was the Ayanda price simply accepted without analysis, benchmarking, negotiation or questioning?

In the heat of the PPE crisis, we might forgive a certain amount of unusual procurement in terms of the selection of suppliers and perhaps less focus on track record and capability than we see in normal times, in order to simply get access to product.

But if the procurement team really did fail on the specification, that is very disappointing. “Getting the specification right” is literally Chapter 1 in my new book, (out in October) because it is so fundamental. Equally, a failure to negotiate or construct a robust commercial arrangement in order to allow a supplier to make a reasonable but not excessive profit is really pretty basic procurement work.

If failure on these two fronts has led to the taxpayer losing millions, and undeserving businesspeople making millions, then this truly will be a contender for the 2020 Bad Buying Trophy.

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The Explosion in Beirut Highlights Major Procurement and Supply Chain Failings

The explosion and resulting disaster in Beirut this week is a tragedy for all the people affected and for the entire city, as well as for the country of Lebanon.

According to the BBC, the ammonium nitrate which seems to be the cause of the blast arrived in Lebanon “on a Moldovan-flagged ship, the Rhosus, which entered Beirut port after suffering technical problems during its voyage from Georgia to Mozambique, according to Shiparrested.com, which deals with shipping-related legal cases. The Rhosus was inspected, banned from leaving and was shortly afterwards abandoned by its owners, sparking several legal claims. Its cargo was stored in a port warehouse for safety reasons, the report said”.

The ineptitude and corruption that taints Lebanese public affairs then led to years of inactivity. Apparently, the head of the port and customs authorities had warned the judiciary about the dangers of storing such dangerous material in the middle of a busy, industrial area, and asked for action, but nothing was done. Were backhanders and bribes involved at this point? The end result in any case was this disaster, which has killed over 100 people and devasted a city that was already on its knees because of the Syrian refugee crisis, the pandemic and economic collapse.

We have written previously about the dangers of corruption, and how it can lead to endemic problems in an organisation or even a country.  Lebanon appears to be an example of that, with corruption at the heart of its decline into virtually “failed state” categorisation. That’s why, if we are lucky enough to be in a country where corruption is not so much of an issue, we have to be really vigilant to make sure it stays that way.

Giving the odd low value government contract to a firm run by our friends without a competitive process might not seem like a big deal – but it is the “slippery slope” argument that I find relevant here. If that is OK, then what is  the next step? And the next? And the next? And before you know it, those in power are saying, “who needs public procurement rules really … just trust us”.

Anyway, there is more around corruption in my forthcoming book of course, which doesn’t mention Lebanon actually but does have stories from Brazil, Russia, the US, the UK and many other countries. But aside from corruption, and indeed the issue of who had purchased this marial from whom and what commercial deals lay behind it, there are two other important Bad Buying lessons to be learnt from this event.

  1. Supply chain risks, problems and even disasters don’t just occur in the core supply chain processes (farming, mining, processing, manufacturing). They can also happen during the logistics processes that are also key to the overall supply chain cycle – shipping, storage, transportation and so on.
  2. Bad Buying and bad supply chain management can affect a much wider group of stakeholders than simply the buyer and seller in the transaction. In this case, hundreds have lost their lives, and thousands have had their lives changed in a terrible way. All because the management, storage and shipping of the products involved were not managed properly.
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