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Boohoo Report on Leicester Sweatshops – Lack of Governance and Supplier Management

We should give Boohoo credit for commissioning an independent report from a top legal expert, Alison Levitt QC, to look into the Leicester “sweat shop” scandal.  Earlier this year, the Sunday Times exposed multiple factories that were paying staff well under the statutory minimum wage as well as raising issues around workers’ health and safety during the pandemic. Boohoo was perhaps the highest profile of the retailers that sold  garments made in these factories.

But the report makes uncomfortable reading for the Boohoo board and investors. The very first paragraph is striking. “One of the aspects that I have observed is a tendency by the Boohoo board to treat every piece of negative publicity about the Leicester garment industry as though it was the first time they had ever heard it.”

But the firm knew about issues months (at least) before the story broke.  One auditor told the Board that the conditions in one factory were amongst the worst they had seen in the UK. Levitt says that there was no intenional exploitation by the firm, but rather that “governance” and processes were weak. Fundamentally, Boohoo felt no responsibility for the conditions in their suppliers’ factories. It was also unimpressive to see John Lyttle, the CEO, didn’t mention a trip he had made to “appalling ”factories when he was interviewed by Levitt. That only came out when she talked to others, which made Lyttle look somewhat devious or maybe just very forgetful …  

There is an interesting philosophical dilemma here of course. When I was a CPO in large organisations, I would have objected if you told me I had to take responsibility for every worker in every one of the thousands of firms and facilities that supplied NatWest or the Department of Social Security. So there is a question of scale and dependence here. But we have seen how the leading firms in the procurement with purpose movement (read our “Procurement with Purpose” interview with Unilever here, for instance) do step up when it comes to their major suppliers. They also look to intervene positively when important supply chains contain major sustainability-type risks and issues, whether they are environmental or social.

So suppliers of the clothes that are the main engine of Boohoo’s business should be defined as pretty strategic and worthy of more diligent supplier management from the firm than we saw in these cases. Boohoo has now accepted the review’s recommendations in full and apologised for failing to “match up to the high expectations we set for ourselves”.  The CEO also said the company would be a “leader for positive change in the city”, and promised to go further and faster to improve our governance, oversight and compliance.”

What about the business impact of all this on Boohoo? Well, the initial scandal certainly did have a negative impact, as the share price crashed by some 50%. But it is interesting to see that it is now back almost where it started, within 5% of so of pre-scandal level.  Does that suggest the group that is the main customer base for the firm – young females – has a short memory? Or do they think Boohoo has apologised and will take action, so everything is OK?   

Some of those customers are undoubtedly very committed to serious campaigning on purpose-related issues, from climate change to diversity. But (and sorry to sound like an old cynic here), it seems like many are happy to jump on a Twitter or Instagram controversy about transgender rights or veganism and express an instant virtue-signalling opinion, rather than do something more demanding and difficult – such as changing their buying behaviour and checking out the provenance of the clothes they buy.

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Peter Smith’s Bad Buying Podcast Episode 1 – Why Bad Buying?

Peter Smith explains why he wrote his book, published by Penguin Business in October 2020 – ” Bad Buying – How organizations waste billions through failures, frauds and f*ck-ups”.  He tells us why organizations need to focus more strongly on the money they spend with suppliers of goods and services, and gives his first key tip on what you can do to improve your own buying … 

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UK Government Spends Millions with Consulting Firms – Did Buyers Know What They Were Doing?

UK government procurement related to the pandemic continues to be a source of some concern and confusion. More consulting contracts were published on the Contracts Finder website last week, showing the vast sums of money that are finding their way into the pockets of the partners at major consulting firms.

Deloitte were awarded two further consultancy contracts, via a call off from a Framework Agreement, worth a total of £8.7 million for:  “Buy Support for Ventilators – ICU equipment & consumables, ventilator sourcing, hard to source products” (£6.7m) and  “Support programme delivery including the identification and procurement of PPE” (£2.2m).

Two other unusual consultancy contracts were awarded to Boston Consulting Group to support the chaotic Test & Trace programme. That represented £4,992,059 for “strategic support” and £4,996,056 for “digital support” (very precise values!)

We don’t know whether there was any competitive process – for those of you who aren’t public procurement experts, you are not allowed to simply choose a “random” or favoured supplier from a “Framework” in most cases without running a competition between firms who are listed on it. Did that happen here? I have my doubts but we don’t know. There have also been comments from within the NHS suggesting that no-one quite knows what Deloitte actually did in terms of ventilator procurement. But hey, it was only £6.7 million.

But there was some good news as well. Gareth Davies, who heads up the UK National Audit Office, was interviewed by the Guardian and amongst other points, he confirmed that a report into government procurement processes during the coronavirus pandemic would be published later this year.

“We’re looking at the procurement process, a lot of public comments and concern about the transparency of some of the procurement contracts around PPE and other areas. We’re doing a detailed piece of work,” he said.

So here are a few of the questions NAO might like to ask the buyers of those consultancy services if they choose to examine that area in particular.

  • Did you understand what it was you really wanted to buy?
  • Did you consider the market in an appropriate manner, and use competition to arrive at the best fit / best value supplier to meet your needs?  
  • Do you understand the difference between the three basic reasons or needs behind buying consulting services – specialist knowledge & skills, intellectual horsepower, or execution / implementation capability?   
  • Did you think about the different commercial mechanisms and models – fixed price, time and materials, target pricing and all the variations? Are you clear you chose the most appropriate for your contract?
  • Do you understand the economics of consulting firms and therefore did you use that to negotiate confidently on daily rates (or fixed price)?
  • If you didn’t use competition, how did you arrive at a fair price for the work?
  • Did you make the deliverables, outputs or outcomes that you were expecting very clear?
  • Did you define the contract management process and the interim reporting that you wanted to see from the firm, and then follow through with professional contract management practice?

Let’s hope those responsible for spending money with these firms avoided Bad Buying and can answer these questions confidently and robustly.

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Track and Trace – Serco Won’t Tell Us Who Is Doing The Work

Private Eye always has some interesting stories, and its coverage of the pandemic has been exemplary  – its medical writer has given some of the best advice and most balanced analysis I’ve seen anywhere.

But one article in the current edition shocked me. The magazine has been trying to find out more about the “track and trace contract”, awarded to Serco. Private Eye has had Serco in its sights since the tagging scandal some years ago, and coincidentally, four ex G4S managers are currently standing trial for fraud in connection with that same scandal.

So the magazine has been interested in how the firm is managing this new contract, which obviously is critical to how Covid is being handled in the UK. There have certainly been questions about how effective the service is proving, with reports that less than half the contacts are successfully traced, and tracing staff complaining of having nothing to do for days on end.

However, it appears that the vast majority of the actual people who are doing the work (such as it is) aren’t employed by Serco, but by sub-contractors. The firm is subcontracting operations to 29 other companies, and 85% (9,000 of a total of 10,500) of staff are apparently not employed directly by Serco. 

But when Private Eye asked which firms were acting in that role, the Department for Health and Social Care (DHSC – the department that “owns” this contract), refused to tell them. So under Freedom of Information rules, the magazine got hold of various documents. They showed that when the Labour Party’s Helen Hayes had asked the same question, the Department didn’t know the answer – and had to ask Serco!

Even more amazingly, it appears that Serco wouldn’t tell the Department the answer. The company’s response (that Private Eye saw) referred to a “panel of 29 subcontractors” and said that  those firms selected are either from a Crown Commercial Services framework or are “known providers”.

It is disturbing is that DHSC didn’t have this information at its fingertips when the question was first asked, and even more so if the supplier doesn’t actually have to disclose who they are using.  This is obviously an absolutely key contract, worth an awful lot of money and critical to the nation’s handling of the Covid crisis. How could you put this in place and not insist on knowing who your prime contractor was using as key sub-contractors? That sounds like a very weak contract and very poor contract management.

I know contracts have been let in haste, for understandable reasons in some cases at least. But there is no excuse for not having a grip on the key aspects of  how major suppliers are delivering the services. Understanding the supply chain must be part of that, and this failure is certainly a contender for Bad Buying – The Sequel!

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HS2 Construction Starts – The Money Pit Gets Deeper

Construction of the HS2 high-speed railway network in England started formally last week. Some will be cheering – not me. At a time when working patterns have been changed because of Covid, perhaps for ever, and everyone is getting used to Zoom, Teams and the like, it seems crazy to be building new rail capacity so businesspeople can go to meetings. Other possibilities such as autonomous road vehicles make also make this very much a 20th century option.

HS2 is basically a job creation scheme, but an incredibly expensive one. The projected cost was initially £1-36 billion, but we’re now looking at £106 billion, incredibly.  The National Audit Office (NAO) report in January said this in summary. “In not fully and openly recognising the programme’s risks from the outset, the Department and HS2 Ltd have not adequately managed the risks to value for money”.

Does anyone really think that those “risks to value for money” will be achieved through the rest of the programme? Look at Crossrail, where the project is now three and a half years (at least) behind schedule, and the cost has risen to at least £19 Billion, some £5 billion over budget.

The business case for HS2 was always highly questionable. It relied on ascribing a value to the extra 20 minutes or so the passengers would have because of their somewhat faster journey from London to Birmingham. It assumed that the journey time was “wasted” from a benefit point of view, which is clearly not true (have they never heard of smartphones or laptops?), and also assumed that passengers wouldn’t use the extra 20 minutes by staying in bed a little longer!

This is an example of a vanity-driven Bad Buying project, and there are others described in my new book, Bad Buying – How organizations waste billions through failures, frauds and f*ck-ups,  published by Penguin on October 8th (you can pre-order it here). Politicians love to spend money in a way that they feel will provide them a “legacy”, assuming that posterity will thank them for their initiative and forget the huge waste of taxpayers’ money once a few years go by.

Another problem with huge programmes of this nature is the lack of anyone in a controlling position who has a vested interest in really managing costs. The engineering and construction firms are probably smart enough to avoid signing up to onerous fixed price deals, so they would like the construction to go on for ever. Likewise the well paid HS2 staff, including thousands of “contingent labour” workers (including procurement people) no doubt earning a very good day rate. The longer the better for them.

We might assume that the politicians have an interest in managing costs, but the problem here is both the relative timescales and the asymmetry of information. Even the Transport Minister has no idea whether they are being spun a line by the experts who are closely involved in the programme. And most Ministers last less than 3 years in post so they know that they probably won’t be around themselves to carry the can – and later Ministers can blame their predecessor! So who really represents the interests of the poor old taxpayer in this? NAO perhaps, but their reports, although excellent, tend to be put together well after the event.

The only positive I can see is that if I do write a sequel to Bad Buying, I’m sure HS2 will give me some good stories. But I’m not sure that offsets the likely spending of £5,000 for EVERY family in the UK, to build what may well become a major white elephant.

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