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Should the UK Government Be Transferring More Risk To Track and Trace Suppliers?

In episode 4 of my podcast, which you can now access from this website (see links below) I talk about fraud and corruption in buying, topics that feature heavily in the Bad Buying book. But I also get into the controversy over the UK government’s contracts with firms such as Serco and Sitel. These relate to the Covid “test and trace” process, which has not been a huge success in terms of its ability to identify contacts of people diagnosed with the virus or in persuading those folk to self-isolate.

The controversy has come first of all from the fact that private firms were awarded contracts to run the process without any competitive process, which raises issues of both favouritism and concerns about value for money. Competition is a key driver in terms of achieving value in public contracts, and without it, there are concerns that firms will make excess profits from the taxpayer funded work.

Whilst local government and NHS staff do some of this tracing work, many experts feel that they should have been asked to do more, and where comparisons can be made, the public sector seems to be out-performing the private. But the latest debate was triggered by questions to the health minister, Helen Whately, around how the private sector firms are being managed.

A conservative MP, David Davis, asked “What performance targets are in place for commercial providers of track and trace functions; what penalties can be imposed for failure to meet those targets; and what penalties have already been imposed for failure to meet those targets?”

Whately answered: “Contractual penalties are often unenforceable under English law, so they were not included in test-and-trace contracts with Serco or Sitel. Sitel and Serco are approved suppliers on the Crown Commercial Service contact centre framework and the contracts have standard performance and quality assurance processes in place. Some information on key performance indicators and service levels has been redacted from these published contracts as it is considered to be commercially sensitive.”

That has led to much discussion in the media around whether Whately was telling the truth. In the podcast, I conclude that this was a classic politicians answer – not a lie, but not giving the full picture either.

“Damages” as a type of contractual penalty can be unenforceable, the general rule being that they can’t be disproportionate to the value and nature of the contract. I can’t ask my builder for £1 million in damages if they don’t complete a small repair to my kitchen by the end of the month, even if we contractually agreed that timescale.

But there are certainly other ways of using “penalties”, in the sense of actions that will hurt the supplier if they don’t perform. Three clear options are:

  • Liquidated damages, agreed up-front (I might get £1,000 from my builder if we agreed that was a reasonable amount to compensate me for their failure to meet the timescale).
  • Service credits – a reduction in the  supplier’s subsequent invoices based on missed targets in this period.
  • Performance related contractual payments (“payment by results”) – putting it simply, the builder ain’t getting paid till the work is done!

I talk about all three in more detail on the podcast, but any (or all) could have been used in the tracing contract. Service credits are frequently used in government outsourced service contracts;  and in terms of performance-related payment, it would not have been unreasonable to have some element of the fee related to the number of people successfully traced by the firms, for instance. Perhaps that is in place; but surely Whately would have mentioned any performance mechanism if she could have?

Now, government procurement professionals aren’t stupid. I’m sure they would have considered these issues, and would have wanted to include performance clauses. But my suspicion is that the firms just refused to accept any serious performance penalties, and because of the urgency (and lack of competition), government backed off. You can have some sympathy actually for the firms – they may have argued that external factors that they don’t control would affect their performance, such as the robustness of the data they are provided with in order to do the tracking.

So it would not have been fair to transfer all the risk to them in terms of penalties. However, in an ideal world, we would always want the supplier to have appropriate incentives to perform well, and it is not clear those are really in place here.

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Why Do Complex Programmes Like HS2 Always Overspend – Conspiracy or Cock-up?

I was interviewed about my new Bad Buying book by Jeremy Vine on his UK Radio 2 BBC show last week – over 7 million listeners apparently. He seemed to have read at least some of the book which was surprising and pleasing, and said it was a “fascinating book … I haven’t read a book like it before”. Which you could interpret in a number of ways!

During the interview, the positioning from Vine was about governments wasting money, which was not my choice really in term of emphasis.  I believe private sector firms probably waste just as much money through bad buying (procurement) as public sector organisations. But it is not as visible, because there is no UK National Audit Office (or their equivalent in other countries) to keep an eye on private firms. And of course the private sector is only wasting shareholders cash, not that funding provided by every citizen via their taxes.

One issue we got onto during the interview was why major projects always seem to run way over budget.  HS2 is a good example. Some £30 billion was the initial budget – we’re now at around £100 billion and I’ll be pleasantly surprised if we come in at even that amount. But why does this happen?

One of the callers to the show identified a key issue. “If we’d known it was £100 billion from the start, HS2 would never have been approved,” he said. Another example is the Scottish Parliament building which amazingly went from initial estimates of around £40 million to a final cost of £414 million!  The eventual report into this said, “The figure of between £40 and £50 million originally put before the Scottish public was never going to be sufficient to secure the construction of a new Parliament building of original and innovative design”.  

My feeling is that there is little incentive for key stakeholders to be honest about costs at the early stages of major construction, technology or other programmes. The supply side wants the programme to be approved as they will benefit. On the buy-side, lots of civil servants, consultants and interim managers see a gravy train going on for years, maybe for the rest of their careers (in the case of something as mega as HS2).

The politicians want their vanity project to go ahead, knowing that when the chickens come home to roost and the overspends become public, they will have long gone to lucrative private sector jobs or the House of Lords.  (I’m sure some Scottish politicians just wanted a prize-winning new building, whatever the cost). So most of the key stakeholders are likely to underplay the potential costs, and overstate the benefits too (the HS2 business case is largely a work of fiction).

It is not just the UK that is vulnerable to this either. In 2019, Jean Nouvel, a celebrated French architect, started criminal action against the owners of the Philharmonie de Paris, the new concert hall he designed. He claimed fraud, embezzlement and favouritism, all in response to a 2017 claim by the owners as well as city and local government against him for payment of €170 million in damages for budget excesses and delays in the construction.

He was contracted to build the auditorium in 2007 for €119 million, but the final cost was estimated at €328 by the owners and €534 million by the regional state auditors (which in itself seems like a big discrepancy).

Le Monde reported Nouvel saying that the €119 million was quoted purely to match the ceiling set for the public tender, and was not really a genuine cost estimate. He claims that €100,000 per seat was the established cost for similar concert halls, and the €119 million total would have required spending only half that much, so it was never realistic. He also claims that everyone knew that the real cost would be much higher – “this is pretty usual in France in public tenders for cultural projects”, he was quoted as saying.

So in cases like this, do buyers really know the supplier isn’t to be believed, but everyone conspires to make sure the programme goes ahead? I’m sure this happen in defence projects, where the buy- side and sell-side are very cosy members of the same industry, and every major purchase seems to lead to a huge cost overrun.

The problem is, I’m not quite sure what we can do about this. Maybe more scrutiny up front, from NAO, the media, or opposition political parties? Or a “citizens convention” to review major spending ideas and bring a note of cynicism to the optimistic projections?  Or perhaps we will just keep spending a fortune, then wondering after the event how on earth it all happened. Again.

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Peter Smith’s Bad Buying Podcast Episode 3 – Stupidity, Avocados and a Book Launch

Peter looks at how “stupidity” is a common driver of Bad Buying, and shares the experience of his book being published – and reviewed in the Times. He also looks at the human rights issues around avocado growing in Kenya and the supply chain for fresh produce, and the link between Bad Buying and “Procurement with Purpose”. 

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Bad Buying Reviewed in The Times – and Why “Sophisticated Frauds” Usually Aren’t

Bad Buying was published last week, and whilst there wasn’t exactly a rush of media appearances, it was reviewed in the Times on Saturday (behind the paywall unfortunately).

The reviewer (Robert Colvile) enjoyed it, although he found it annoying / depressing that governments seem to make the same mistakes time and time again when it comes to spending public money. Well, yes, I’d agree of course, that being one of my reasons for writing the book! He also picked up on one important point that is mentioned in the book but perhaps deserves more focus.  As Colville put it in his review,

“And the mistake was usually pretty elementary (as a rule, anyone who talks about how their organisation was victim to a “very sophisticated” gang of thieves is telling porky pies: far more likely is that there was a failure to attend to the absolute basics).”

This is so true. We see it almost every time there is a fraud case – the organisation that has lost out claims it is the cleverness of the fraudsters, not the stupidity of management that is to blame. That is the case even if all the fraudsters have done is phoned up the finance department and said “hello, this is IBM here, we’ve changed our bank details, please can you pay our outstanding invoices now to this new account”. Very sophisticated…

But it is  certainly not just the public sector that gets caught out. EssilorLuxottica, the worlds leading lens and eyewear firm, was the target of a 190 million euro ($213 million) fraud at one of its factories in Thailand. At the end of last year, the firm announced that it had fired employees associated with the incident (well, you would, wouldn’t you) and was looking to recover the money.

An intelligent guess would suggest that this was a “fake supplier” fraud, where money was paid under the authorisation of someone internally to external firms that were controlled by the fraudsters.  Those firms would not in reality be supplying anything to EssilorLuxottica of course, and by the  time the fraud was spotted, those bank accounts would have been closed and the cash long since extracted.  But this was a huge amount of money to disappear from a single factory in Thailand – it  sounds like it could be equivalent to the firm’s entire annual revenue in that country.

Assuming that was the nature of the fraud, how on earth could such large sums of money be extracted without anyone noticing? What were the policies in place and processes to check up on those new “suppliers” and their legitimacy? Who was allowed to approve high value payments?  Did the firm outsource any part of the payment process to a third party services provider? (That can sometimes lead to weaknesses in the process and less focus on what is going on).  Maybe there was some sophistication here in the fraud, but it really does smack of poor internal management and controls.

Anyway, that story is really told to demonstrate that it is not just the public sector that can waste money and fall down on basic anti-fraud processes. I’d suggest that every procurement or finance leader and every Board should consciously think about this question – “if I wanted to defraud my organisation, how would I do it”? 

Think  through the different options and potential points of weakness, and evaluate whether there are processes, checks or policies in place that would stop you getting away with it. If the answer is “no”, then either tighten up quickly or accept that you might be the next person waffling on to the press about “sophisticated criminals”!  Personally, I would also fire the CFO if such a basic fraud was committed on his or her watch.

The Bad Buying book might be useful too if you are concerned about these issues.  It contains seven key anti-fraud principles, with some practical and clear advice on how you can at the very least reduce the chances of fraud and corruption affecting your organisation.

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Bad Buying – Publication Day!

Today is publication day for Bad Buying — How Organisations Waste Billions Through Failures, Frauds, and F*ck-ups.

After 18 months of planning, writing, editing and production of the book, It is very sad that we can’t have a party to celebrate. Maybe we’ll be able to do a relaunch in a years’ time and get together. But in the meantime, thanks to everyone who has supported me, including all the nice people at Penguin Business, and also thanks to those who read the draft book and kindly provided testimonials and quotes for the book (see below).

If you now have your copy, I very much hope you enjoy it. If you haven’t ordered it yet, check out the links here. There is also a podcast now (“Peter Smith’s Bad Buying podcast”) and the episodes, around 15-20 minutes each, are available on most podcast platforms and via links from this website. There is even a Bad Buying playlist on Spotify (all my section titles in the book are also song titles …) It is a “diverse” playlist, as my daughter described it, but I’ll take that as a compliment!  You can make your own judgment on that.

Finally, if you have bought the book, a short review on Amazon, Google or wherever would be great (assuming it is reasonably positive of course!)  Much appreciated…

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Bad Buying – what the Experts say:

‘Filled with examples of painful, unbelievable, funny and downright stupid buying by organisations, and the people in them. A brilliantly unique and insightful read from one of the most experienced individuals in this space’ Jonathan O’Brien, Author and CEO Positive Purchasing Ltd

‘Factually rich, funny and full of practical hard-earned wisdom, this book is a revelation … actually it’s full of them! All costly catastrophes. If you don’t read this book, you may find yourself in the next one!’ Dr Richard Russill, author and coach

‘Bad buying tells story after story of bad buying for both novices and experts alike – and shows us a roadmap to doing it better’ Jason Busch, Managing Director, Azul Partners and Founder, co-author of Spend Matters

‘A great opportunity to learn from other people’s mistakes, not your own. Through exceptionally well researched examples, Peter teaches both new and established professionals how to avoid the same mistakes. I thoroughly recommend this book to anybody involved in, or responsible for spending money for their organisation’ Garry Mansell, Former GM, Source-to-Contract, Coupa Software

‘An unusual business book in that it is both useful to readers and also genuinely entertaining with fascinating stories of failure and fraud from around the world and every sector’ Shirley Cooper, Commercial Director, Tapestry Compliance and NED, Ministry of Justice

‘A hilarious, enlightening and brilliant look at how organisations – public and private – have been guilty of horrendous buying failures. Not content with just lifting the lid on some of the most egregious excesses in history, Peter Smith provides insightful and practical advice to avoid repeating such disasters. This book will make you think twice about buying anything – but do buy this’ Antonio Weiss, bestselling author of “101 Business Ideas That Will Change the Way you Work”, Director, The PSC

‘A fascinating account of the biggest buying blunders by private and public sectors alike. Written in his trademark dashing and fluent style, doesn’t just expose hilarious dodgy stories with Schadenfreude but offers insightful and practical advice on how to avoid career limiting mistakes’ Bernhard Raschke, Partner and Head of EMEA Supply Chain Centre of Excellence, Korn Ferry

‘Purchasing plays such an important role in business success, but is also one of the least understood activities. Using case studies from around the globe, Bad Buying has illuminated how and why organisations can get it wrong when it comes to spending money with suppliers. This is a timely, informative and highly entertaining read!’ Nandini Basuthakur, CEO, Procurement Leaders

‘Covid-19 restrictions have put the spotlight on global supply chains and the difficulties caused when everybody wants to buy the same thing at the same time. Peter’s book highlights where buying can go catastrophically wrong and how to avoid these pitfalls. Had this been published pre-Covid, some of the recent c*ck-ups and waste might have been avoided. It’s a must read for the public and private sector alike’ Lt-Gen. Sir Andrew Gregory, Controller, SSAFA

‘A must read for Boards, CEOs and Governments. The case studies remind us all that there is ‘no such thing as a free lunch’ and ‘if it’s too good to be true it usually is’. Buyer beware, and never underestimate you stakeholder or your suppliers. Instead, build relationships and trust’ Lucy Harding, Partner and Global Head of Practice, Odgers Berndtson

‘In turns informative, shocking and amusing, Bad Buying explores the career-limiting catastrophes to avoid and sets out a vision for better buying, not only stewarding finances responsibly but also supporting the firm’s purpose and place in the community’ Stuart Brocklehurst, CEO, Applegate Marketplace Ltd

‘Bad Buying has a rich set of examples of both corrupt practices and unintentional but costly and wasteful mistakes made by business professionals. With trillions spent by organisations buying goods and services, every executive who is involved in or oversees those processes needs to make this a must read’ Raj Sharma, Founder and CEO, Public Spend Forum

‘A great effort to dig the challenges out of the back office of procurement and bring to the fore the opportunities for improvement… If you want to improve your chances of not being done by Bad Buying, there’s no better place than this book to see what the risks are and begin to understand how to avoid them’ Charles Findlay, Director, State of Flux

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Tomorrow is Bad Buying Publication Day – But It’s About “Good Buying” too!

It’s tomorrow!  Just over 18 months since I started writing Bad Buying – How Organisations Waste Billions Through Failures, Frauds, and F*ck-ups, it will hit the shops and virtual shops tomorrow.

And right on time, a new example of what might be Bad Buying with serious public consequences has hit the headlines, with pharmaceutical firm Roche telling the UK National Health Service that it can’t supply kits for Covid and other testing purposes.  

This is apparently because of a problem Roche has experienced with a new warehouse, but that is rather vague. Has the firm lost physical stock in the transfer? Has some sort of automated equipment broken down? Or is it systems issue, as it so often the case these days?  In any case, it would be surprising if Roche didn’t have a supplier of some sort to share the blame. Then there is the question of why the NHS appears to be so reliant on one supplier for such crucial items, but we’ll come back to all that another day.

Back to the book. After chapters describing failures and frauds, with dozens of case studies to illustrate the points, the final chapter provides “ten principles for good buying”.  As the book is aimed at a wide range of managers and professionals, not just procurement experts, those of you who proudly wear the MCIPS badge may find some of these a little obvious.

For instance, For everything you buy, consider how that item or spend category contributes towards strategic goals, and conduct buying appropriately.

Well of course. But how many CEOs, CFOs or indeed budget holding managers generally really understand that?  (One of my wilder thoughts is that procurement leaders might buy a copy of the book for each of their senior internal stakeholders… well, you can live in hope!)  The need for good data is another reasonably “obvious” principle.

But there are couple of principles that may be more thought-provoking, even for the procurement world. And the final one is perhaps the most important of all  – Everyone who plays a role in the buying process must be appropriately knowledgeable and skilled to get the most out of your suppliers.  

As I say, “From the technologist who specifies the new IT system to the accounts clerk who checks invoice payments, from the CEO who gives consulting contracts to her friends to the regional manager who fails to manage a difficult services supplier in his region, a large organisation will have thousands of staff involved in what I’ve called the buying process.  Indeed, every time someone in your organisation talks to someone in a supplier organisation, the conversation is potentially part of the negotiation process – and sometimes, it can be a critical part”. 

I think having a good procurement function has even given some organisations a false sense of security, with CEO’s thinking, “we must be OK, our procurement director has won awards and her team is involved in most of what we buy”. But even the best procurement function won’t save you from disaster if others have no idea what they are doing, which is why the book is aimed at that wider audience, whilst I hope still having enough serious content to appeal to the professionals!   

So, if you haven’t ordered yet, check out the links here. (In fact, one friend tells me his book arrived yesterday). There is also a podcast now (“Peter Smith’s Bad Buying podcast”) and the first two episodes, around 15-20 minutes each, are available on most podcast platforms.

There is even a Bad Buying playlist on Spotify (all my section titles in the book are also song titles …) It is a “diverse” playlist, as my daughter described it, but I’ll take that as a compliment!  You can make your own judgment on that.

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Two Days to Bad Buying … How Vulnerable is Your Organisation to Fraud?

It is now just two days to publication of Bad Buying. So today, let’s focus again on the second section of the book, all about fraud and corruption. Whilst I really enjoyed writing and researching this section, it was also somewhat annoying and frustrating. That’s because so many of the cases featured could have been stopped, avoided or at least made a lot more difficult if certain basic processes and policies had been in place.

How was Fat Leonard allowed to corrupt so much of the US Navy, to the point where hundreds of officers (up to Admiral level) have ended up in court? Even when his firm did not legitimately win contracts for servicing ships in south-east Asia, the ship commanders used his firm anyway.

So why was no-one checking up on contract compliance  when the firms who should have got the business didn’t? Why did no-one look at spend analysis and ask questions about just how much money and share of business was going to Fat Lenard’s firm?  And how do you end up with a situation where several whistle-blowers raised the issue, but so many people were corrupt (including some recipients of whistleblowing information) that it still carried on for years?

Or for something a little less exotic, consider the legendary Sainsbury’s potato fraud. The UK supermarket group was defrauded for years by collusion between the buyer and a key vegetable supplier. The buyer agreed to pay over the odds for all the potatoes bought from that firm and in turn took kickbacks and had expensive meals and trips with the sales director. But why did no-one spot that Sainsburys were paying more than the should? Why was there no regular open and competitive process to source potatoes? Why was the decision making resting apparently in one man’s hands?

So I’ve laid out seven key anti-fraud principles in the book, and I’d seriously recommended that everyone should consider how their own organisation scores on these. Some seem obvious until you actually look at how many organisations really adhere to the principle.  For example, it is vital that all entities to which money is paid must be verified and authorised.

We need to make sure the order and the payment isn’t going to a fake or dummy company, perhaps even one controlled by the order placer (the internal fraudster) or their associates (when there is internal / external collusion).  That “supplier” may still supply the goods and services required, or something approximating to them, with the fraud being the quality or quantity of what is provided. Or they may supply nothing, relying on no-one other than the fraudster realising that nothing has actually been received. Or perhaps the time-lag before the discrepancy is noticed is enough for the fraudster to safely disappear, before anyone asks where those 5000 laptops that have been paid for have got to.  

So we must check that the entity we’re paying money to is genuine. Is it a registered company with a trading history? Does it have a track record? Who are the Directors? You really need to understand who your suppliers are, and identify any that aren’t genuine.  

That’s enough on fraud for now, and tomorrow I’ll look at the final chapter in the book where I lay out some thoughts on how you can drive “good buying”.  The book isn’t all case studies of failure – there is advice too, because the aim is to educate and inform, as well as to entertain and to shock people a little!    

So you might still get delivery of the book on publication day (Thursday) if you order now – check out the links here. (In fact, one friend tells me his book arrived yesterday). There is also a podcast now (“Peter Smith’s Bad Buying podcast”) and the first two episodes, around 15-20 minutes each, are available on most podcast platforms.

There is even a Bad Buying playlist on Spotify (all my section titles in the book are also song titles …) It is a “diverse” playlist, as my daughter described it, but I’ll take that as a compliment!  You can make your own judgment on that.

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Peter Smith’s Bad Buying Podcast Episode 2 – Incentivising Suppliers and Ventilators in the Spotlight

In this episode, Peter looks at why lack of competence, capability and information often drives bad buying decisions. He talks about how to incentivise suppliers and what can go wrong if you create perverse incentives. In part 2, he discusses the new National Audit Office report on UK government procurement of medical ventilators during the pandemic.  A great success – or hundreds of millions wasted? 

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Three Days to Bad Buying … Fraud and Corruption, From Small-scale to Huge and International

It is now just three days to publication of Bad Buying. So today, let’s move on to the second section of the book, all about fraud and corruption.

This was really enjoyable to write to be honest, even though we should be horrified at some of the stories. It was fascinating to see how frauds range from the mundane and often quite sad in terms of why the perpetraotrs do it ad the consequences, to those that have national or even international implications at the highest level.

One very ancient type of fraud is the cartel, although it is interesting to note that cartels weren’t always seen as a bad thing – and indeed, even today, we have OPEC, the oil cartel. But the medieval guilds were set up in part to operate as cartels and restrict the entrance of new suppliers into a market. But in modern times, we’ve seen illegal cartels in all sorts of areas, from international marine hose supplies (no, I’d never heard of marine hoses either), to construction firms in the UK public sector market, to brewers in India.

Many frauds relay on the buyer being able to ”fix” the supplier selection. In fact, that is a necessary condition in order to extract money though mechanism such as inflating invoices, over-billing or under-delivering. If a buyer and a supplier are going to collude – as they did in the case of a famous Sainsbury’s potato fraud – first of all, the buyer has to make sure that the supplier is chosen or wins the competitive process.

There are some rather ingenious examples of how this has been done. For instance, in the UK health service, a property manager manipulated the way that cost quotes were provided by suppliers to favour a relative’s decorating firm.  Bidders were asked to quote for different jobs, but work that actually was rarely needed was given a high weighting in the evaluation, and his relative bid low on those jobs, to score lots of points. But the jobs that actually would be frequently required were given a low weighting in the evaluation so his relative could bid high on those and still win the tender, knowing that he would then make significant money on that work. Very clever!  

That story points out one of the basic mitigations you can take to guard against fraud. Don’t leave any key parts of the process to a single individual, whether that is designing the evaluation process, marking the bids, negotiating prices… you can’t rule out collusion, but many of the examples I’ve seen are driven by just one personal internally. Putting a barrier in their way by taking away ability to act individually makes fraud much more difficult.

If that NHS example is small-scale, but interesting, at the other extreme we have the Petrobas / Odebrecht scandal in Latin America. At first that looked like a simple case of a large construction supplier paying bribes to win work from the Brazilian government-owned oil firm, Petrobas.  But as investigations went deeper, they exposed a vast network of corruption, with buyers paying over the odds to fund not just individual bribes but political donations too – and those political parties then appointing their stooges into positions in Petrobas where they could demand and get even more bribes!  Later, the related scandal spread to Peru, Mexico and further, leading to arrests and even the suicide of a leading politician accused of corruption.

That’s where the idea that a few more people knowing what’s going on breaks down. If corruption really becomes endemic in an organisation, it can be very hard to eliminate. Luckily, that doesn’t happen too often …

Anyway, there is still time (just) to order and get delivery on of the book on publication day – check out the links here. There is also a Bad Buying podcast now (“Peter Smith’s Bad Buying podcast”) and the first two episodes are available on most podcast platforms. There is even a Bad Buying playlist on Spotify (all my section titles in the book are also song titles …) It is a “diverse” playlist, as my daughter described it, but I’ll take that as a compliment!  You can make your own judgment on that.

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Four Days to Bad Buying Launch – Incentivising Suppliers and Sheer Stupidity

OK, I misspoke yesterday when I said it was six days until publication of Bad Buying – it was five. So today, not surprisingly, it is 4 days to go, and we’ll look at a few more of the chapters – the full contents list is here, at the end of yesterday’s post.

One of the most enjoyable and interesting sections in the book to research relates to supplier incentivisation and why it can so often go wrong.  Take a simple example, one I saw in my own work. If you outsource back-office financial management, including accounts payable, you might agree to pay the outsourced service provider per invoice that they process.

But then if one of your key suppliers comes up with a smart idea to reduce the number of invoices, and they ask the firm doing the processing to adapt to a new process, they may well say “no”, because it will reduce their income. You really should be incentivising that supplier to help reduce invoice numbers – but that’s surprisingly tricky to do contractually.

And how do you incentivise construction firms? That’s been a long running challenge for buyers. Agree a fixed price, and you risk the supplier cutting corners on quality of work or materials; agree to pay on a “time and materials” basis and the project may never finish. That’s led to all sorts of interesting contract variants, such as the “NEC3 Engineering and Construction Contract option C (target contract with activity schedule)” which was used with considerable success on the London 2012 Olympic constucion programme.

Away from traditional procurement, there are fascinating cases such as the Colombian government, who in trying to get farmers to switch away from growing coca, actually introduced an “incentive” that made them grow more of that crop! 

There is more on that in the book, and another chapter picks up those cases that I couldn’t neatly categorise as having an underlying cause based on lack of capability or knowledge. So I called it “stupidity” although sometimes “arrogance” might be a better term actually. Yes, political stories do feature here, as too many politicians think they know best (even if the professionals are telling them something isn’t going to work) or want to build a monument to their own vanity.

The EU does get a mention here, with their programme to build airports in places that quite frankly nobody wanted to fly into.  Kastoria in Greece cost €7.7 million to build and generated revenues of €176,000 in seven years… then of course we have the somewhat crazy UK Brexit-related ferry contract with the company that didn’t own any boats. Another big success for ex-Minister Chris Grayling there.

But it is not just the public sector that suffers from this madness at times. Carlos Ghosn, the ex-Nissan and Renault chairman, is on the run from Japanese prosecutors in the Lebanon now. But whatever happens next, hiring Versailles for a party costing €635,000, supposedly to celebrate a business alliance but holding it on his own 50th birthday, and (allegedly, I should quickly add) inviting mainly family and friends, hardly smacked of humility and a deep concern for shareholder funds. 

There are also cases in this section that might tip over into the fraud and corruption section. I get into the murky world of defence contract “offsets”, and if you don’t know about this mechanism, it is another fascinating aspect of our procurement and buying world. With offsets, the supplier agrees to spend a portion of the contract value in the country of the buying organisation. So, for example, if India buys fighter jets from France, they might insist that the supplier spends 20% of the contract value with Indian firms. Unfortunately, that leads too often to decisions that are just wasteful and inefficient, or outright fraudulent – offsets are a very handy way of concealing bribes to the politicians or defence officials who placed the contract.

So I hope this has given you a further flavour of the book. There is still time to order and get delivery on publication day – check out the links here. There is also a Bad Buying podcast now (“Peter Smith’s Bad Buying podcast”) and the first two episodes are available on most podcast platforms. There is also a Bad Buying playlist on Spotify (all my section titles are also song titles …) It is a “diverse” playlist, as my daughter described it, but I’ll take that as a compliment!  You can make your own judgment on that.

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