, , ,

Incentivising Suppliers Properly Isn’t Easy – Doctor’s Appointments Provide a Great Example!

How do you go about incentivising suppliers within a contract to perform in the manner you REALLY want them to?

The complications tend to come in contracts for services, rather than goods. Where you can write a specification that clearly defines the item you are buying, then it is enough “incentivisation” usually to say “supply that precise thing and you will get paid”.

But if you are buying a service, particular a more complex service, such as consultancy, outsourced customer handling, software development, or even facilities management, then making sure the supplier acts in the way you really want them to can be challenging.

An example of this has been much discussed in recent weeks in the UK media.  Our GPs, the “family doctors” who are the first line of contact for most medical problems, moved most of their consultations online when the pandemic struck last year. Now they are being criticised for not getting back to in-person appointments quickly enough, and generally for making it difficult for patients to get appointments at all. But GPs are actually private contractors. Many people in the UK see them as part of the National Health Service, which they are operationally, but they actually work for the NHS under what is in effect a contract for services. They are suppliers.

In reality, there are a number of factors driving this appointments problem. This is a very stressful job, and the proportion of women working as GPs has grown dramatically in recent years. So for both their own health and for work-life balance reasons, more GPs are working part-time, so the capacity of the system is arguably not high enough. There is also a backlog of medical problems that weren’t sorted out during the worst of the pandemic, so there is more demand on the system than ever.

But certain newspapers, and the Minister for Health, Sajid Javid, have decided that there is capital to be made by blaming the doctors themselves for being “lazy”.  Aside from the issue of whether the buyer (Javid) should be having a go at a “key supplier” (the doctors) in public, there is much  discussion around how GPs are paid and incentivised. 

An article in the Daily Mail recently suggested that instead of being paid in the main based on how many people are on the GP’s “list”, they should be paid based on how many appointments they actually carry out.

“It may be time to move from a bulk payment per patient to a per appointment funding structure, to encourage doctors to actually see patients as quickly as possible”.  That was the quote from Matthew Lesh, head of research at the Adam Smith Institute (the free-market-promoting thinktank),  who from his LinkedIn profile would seem to be a very bright young man. Yet it doesn’t take too long to see the incentivisation flaw in his argument.

A per-appointment system would encourage less scrupulous doctors to pack in as many appointments as possible. Currently most people only get ten minutes or so with the GP, but that could be squeezed further if some doctors were tempted by a direct increase in revenue from that approach. And for doctors with a conscience, who want to take the time necessary to get a diagnosis right, you are placing their ethics into direct conflict with their bank balance.

Now that’s not to say that the payment by list size is necessarily the best option., and there is no simple, magic solution here.  Arriving at an appropriate mechanism is challenging; for instance, the same size list of patients in socially and economically deprived Blackpool might generate a lot more work than the same in Wokingham. And of course throughput has to be balanced with the rigour of the doctor’s work. But we might imagine a set of KPIs (key performance indicators) which might be combined in some way to drive GP payments.

In any case, this all reinforces that getting incentivisation right is tricky. That applies whether we are talking about an outsourced customer service call centre, roads maintenance contracts (see examples of both of these services going wrong in the Bad Buying book) or getting our front-line doctors to contribute in the best possible way to the health of the nation. So beware simplistic solutions.

/0 Comments/by
,

Covid Tests Failure – More Questions About Pandemic Procurement

Another UK pandemic-related supplier appointed in haste without competition (and perhaps without proper due diligence) appears to have failed in performance terms.

Immensa Health Clinic is being investigated scrutiny after the UK Health Security Agency (UKHSA) found at least 43,000 people may have been given a “false negative” Covid test result.  That has serious consequences – if those people carried on working and mixing with others, when they were actually suffering with Covid, they may have passed on the virus to others.

That has led to operations at the firm’s privately run laboratory in Wolverhampton being suspended.  The NHS test and trace operation said about 400,000 samples had been processed by that lab, most of which will have been negative results, but around 43,000 people, mainly in the south of England, may have been given incorrect negative PCR test results between 8 September and 12 October. It doesn’t appear to be the kits but rather the analysis at fault – a people problem rather than an equipment issue, by the sound of it.

Immensa was only founded in May 2020 by Andrea Riposati, a former management consultant and owner of a DNA testing company. He is also the founder of Dante Labs, which is under investigation in the UK by the Competition and Markets Authority over its PCR travel tests.  But within three months of Immensa’s birth, it won a £119m PCR testing contract awarded by the Department of Health (DHSC).  That was awarded without being put out to tender, like so many contracts we have seen though the pandemic, some genuinely urgent and others less so.

Back in January this year, the Sun on Sunday newspaper found that workers at the Wolverhampton lab appeared to be sleeping, fighting, playing football and drinking whilst “working”.  (Pretty much like life in the civil service, really). The government said then it would speak to Immensa as it took “evidence of misconduct extremely seriously”.  Despite this, Immensa won another contract for £50 million in July.

We haven’t seen any suggestion of corruption, officials or politicians on the make, or Immensa doing anything dodgy. But again, there will be reasonable questions asked about lack of competition, lack of robust contract management, and why even after the warning signs, further work was given to the firm.

Which brings me on to the recent report, Coronavirus: Lessons learned to date, from the UK parliament’s Health and Social Care Committee and the Science and Technology Committee, and elected members from all parties.  The report is rightly very positive about the vaccine procurement programme.

The procurement model deployed by the Vaccine Taskforce of making decisions at risk, outside conventional procurement procedures, proved highly effective. Lessons from this success should be applied to other areas of Government procurement.

I’m in agreement with looking at useful lessons learnt, but we can’t be naïve about this. This quote about the way vaccines were bought also comes from the report.

Dominic Cummings said: “Patrick Vallance and his team were saying that the actual expected return on this was so high that even if it does turn out to be wasted billions, it is still a good gamble in the end.”

This is absolutely true, and highlights the key issue of risk and reward.  The fact is, there are very few other purchases by government where the balance is similar to the vaccine example. Getting vaccines faster certainly saved thousands of lives and (possibly) billions of pounds in government expenditure.  But taking risks in procurement of other goods or services just does not have the same potential.  Who would seriously place orders for five different armoured vehicles, IT systems or management consultancy firms just in the hope that one or two of them worked out well?

There may well be learnings around how the vaccine team was run, but talk of getting rid of procurement process, rules and so on is unwise and will lead to waste and, unfortunately, to more fraud and corruption. More transparency would help alleviate some of those risks (see my paper for Reform here), but I suspect some of those in favour of radical procurement change are thinking more of the millions they, their chums and associates can extract from the public purse.    

/0 Comments/by
, ,

Are You a “Typical” Procurement Fraudster?

I presented last week as part of an event run by CIPFA –  the Chartered Institute of Public Finance and Accountancy. As you can imagine, their live events are notorious for wild behaviour and partying, but this was online, luckily for me. (OK, just my little public sector accountancy joke there…) Anyway, I talked about Bad Buying, particularly in the public sector context and with a focus on corruption and fraud which I thought would most interest accountants.

One of the other speakers, Mohamed Hans, a lawyer and public procurement adviser, talked about the “typical” profile of a corporate fraudster. Most work within the organisation, and apparently, he – and more often than not it is a “he” – is most likely to be middle aged, with quite a few years of service, well-respected internally, and in a management position.

I guess that all makes sense. You need to have some authority generally to commit fraud – in the procurement space, it really helps if you are a budget holder or can sign off expenditure in some way. If you have been around a while in the organisation, you are more likely to understand the systems and processes, and how to get around them to commit your fraud. All of that points to someone of a certain age, seniority and length of service.

That fits with my personal experience. Probably the closest I came to a major case was when a senior procurement executive who had a “dotted” reporting line to me was prosecuted for a fraud where he appeared to be in league with some very unpleasant “Russian gangsters”, according to the police. My firm was not aware of the fraud but the police spotted odd transactions at the gangster end of things, which it emerged came from our villain signing invoices for non-existent furniture purchases, with the payments going to the gangsters. He was in his forties, in a senior role, and had been with the firm for at least a decade, so he fit that archetype perfectly!

Other cases in my Bad Buying book include a mid-level executive for Toys ‘R ‘ Us at Maidenhead in England. He was a  “typical middle-aged accountant to colleagues, living in a semi-detached house near Reading and driving an old Vauxhall car. But actually he lived a double life and was stealing millions from the firm, spending money on sports cars, prostitutes and even an estate in Nigeria for his secret mistresses! He was ordered to repay £3.6 million when he was finally caught, as well as being jailed in 2010 for seven years. (His jail term will increase if he doesn’t pay the money back.)

His fraud was simple. He created a fictitious toy manufacturer, a ‘supplier’ to the firm, and then made regular payments of £300,000 a month over more than two years to that account, which of course he controlled. When this was reported in the press, one reader’s comment was amusing: ‘so he spent £2.4 million on call girls and sports cars – and wasted the rest’!  But it’s not really funny; this was shareholders’ money, and sympathy is due to his wife and family, who knew nothing about it and did not benefit in any way”.

Just to show it isn’t only men, the (female) interim director of operations at Ealing Hospital NHS Trust stole more than £200K back in 2008 to pay for (among other things) horse semen, needed for her stud-farm business. She fraudulently signed off payments, which went into her own bank accounts rather than to genuine suppliers. The judge said that she was, ‘a woman of very great ability and up to this point of very high character. The difficulty and sadness of cases such as this is only people of high ability could get themselves in a position where they can defraud people and the NHS of the amount of money you took.’

However, in most cases, fraud can be prevented quite simply. The most basic advice includes that no single person should be able to “create” a new supplier, and onboarding checks must be made. Then again, no one individual should be able to authorise a payment (e.g. by signing off an invoice) to any supplier, without some sort of check from another person.  It is not unknown for two or more people to collude in frauds, but in my experience establishing that sort of basic control reduces the probability of fraud by a significant factor. Carrying out a fraud alone is one thing; asking another person to collude with you brings another level of risk for the fraudster.

And don’t assume someone couldn’t possibly be a fraudster because they are respected, have worked in the organisation for years, are senior, go to church, are kind to animals …. Criminals come in all sorts of shapes, sizes and disguises!

/0 Comments/by