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Sheffield Container Park Failure – Classic Bad Buying

Sheffield Council has been dysfunctional for some time, and will always be remembered as the council that decided thousands of mature trees would be destroyed in order to make pavements safer, or something like that.

There has been considerable “churn” at both elected councillor and senior officer level in recent years too, which doesn’t help, and the council is now in an “no overall control” state in terms of political leadership. But the Sheffield Fargate container park failure is not really “political” – it appears to be simply an example of what was very bad buying and probably even worse project management.

The controversial complex which was supposed to include shops, bars and entertainment failed due to poor decision making and a lack of governance, an internal audit report has found. The container park was intended as a pop-up space for stalls and shops but was beset by delays and criticism.  The £500,000 project opened in October 2022, but closed just three months later after a host of issues and lack of interest from traders and locals.

The “Head of Service” appears to be the individual who should carry most of the blame here, being responsible for the project. They “did not have dedicated specialist skills, support and resource. The Council’s specialist project management teams were not fully or formally involved, but only called upon using an ‘ad-hoc’ approach”.  It is not clear why specialist project managers weren’t involved but one cause seems to have been a rush to “get it done” to take advantage of various time-limited post-covid grants.

But I have to say, procurement does not seem to have covered itself in glory either.  There was no formal procurement manual in place explaining the desired process to users, for a start. Then the function carried out research on other container parks to try and identify potential suppliers who might be interested in developing the Sheffield park. A list was provided to the project owner as a potential tender list.

“However, when the suppliers on this list were approached it was found that they were management companies for the container parks, not the initial developers. No response came from those who were approached”. So not the best piece of market and supplier research I’ve ever come across…

This left just one supplier in the running, a firm that was already speaking to the Head of Service. They duly won the contract without any competitive tendering.  Lack of competition is of course a fundamental driver and predictor of poor performance and bad buying. “Though procurement was signed off at the correct level, there was no evidence to demonstrate that it was robust or complete to result in an informed decision-making process”.  

Then there seems to have been a lack of control in terms of payments to this supplier. There was no implementation plan so milestones were unclear, and the main contractor was not monitored in a structured or regular manner through the installation process.   Some of the report is redacted so we don’t get to see everything but comments such as this don’t fill you with confidence.  “…more worryingly formal financial and contractor monitoring throughout the work was poor or non-existent, furthermore, no risk management was in place”.  Indeed, the auditors were unable to test whether everything procured and paid for was actually received, which is pretty shocking and a very basic failure.

Invoices appeared to have been paid without proper authorisation, and whilst there is no evidence of anything criminal here, the lack of competition and then controls does mean that the risk of fraud or corruption was not at all managed. The budget of some £300K ended up as an actual spend £500K and certainly, the Head of Service should never be allowed near a budget again. 

Anyway, there were problems with the installation including safety issues and only the ground floor could be opened – and that was ten months late, opening in October 2022 rather than the Jan/February plan. And just three months later, the development was closed.

So, various points to note and learn from here. Procurement must make sure budget holders know what the rules are. Procurement also needs to make sure they understand what they are buying when they conduct market and supplier research. Competition is always a Good Thing. Project management is a skill – use professionals. Controls on payments and clear deliverables for suppliers are fundamental and must not be neglected no matter how “urgent” the work is.   

Sorry to Sheffield taxpayers (including my sister…) but the only good news here is that this is yet another interesting case study for my Bad Buying module when I lecture at Skema Business School next year…

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US Government Takes Down Procurement Fraudster

This story from the Homeland Security Today website dates from a couple of months ago, but it is an interesting procurement fraud case, as it does not involve any internal participants – it is a purely supplier-based fraud. Whilst that is certainly far from unique, it is probably not as common as those driven by internal staff or through collusion between internal and external players.

In this case, Cory Collin Fitzgerald Sanders, age 39, of Hagerstown, Maryland, was sentenced to 45 months in federal prison, followed by three years of supervised release, for wire fraud, false claims, and making and using a false document in connection with his companies’ performance on federal contracts. He also had to pay around $200,000 in fines and restitution.

The offences related to his two telecoms firms between 2015 and 2020.  The charges were pretty wide ranging but generally related to contracts with federal agencies that required his firms, Sandtech or Cycorp Technologies, to provide new telecommunications equipment which was still under manufacturers’ warranty. 

He contracted to supply new equipment, but then actually provided second hand, or non-warranted equipment instead. He claimed to have accreditation from the OEMs (original manufacturers) that would protect his customers when in fact he didn’t. He also was not authorized to provide certain IT services to the federal government, but represented to government officials that he was. It sounds like he invoiced in a fraudulent manner too, getting the agencies to pay for “deficient or non-existent performance”.

“Mr. Sanders deserves to be held fully accountable for his actions to defraud the U.S. Government by routinely providing telecommunications equipment that did not meet contract specifications and submitting false documentation in an attempt to cover up his scheme,” said Special Agent in Charge Greg Gross. 

The US government does seem pretty hot on prosecuting dodgy suppliers, more so than I’ve seen generally in the UK, for instance. In this case, a prison sentence of 45 months again feels more severe than “white collar criminals” tend to get in the UK. That’s a good disincentive for others who might be tempted to commit fraud, of course.

So what can procurement people and others do to protect their organisations against this sort of fraud? There are a few potential risk mitigation steps.  Firstly, checking out the credentials of any new supplier (and their directors) is important. And take up references wherever possible. Maybe that would not have stopped Sanders – but it certainly makes it harder to create new firms for fraudulent purposes.

Another obvious point is that goods delivered, whatever they are, should be checked to make sure they align with what was contracted for. And don’t assume that any accreditations and certifications are genuine – documents and emails can be forged. It is better to go back to the source if you can  – you could go back down the supply chain and check with the OEM that a distributor really is properly accredited, for instance.

So the usual safeguards against procurement fraud come into play again – and you can get the full list of mitigating actions and plenty of good advice on avoiding fraud and corruption in the Bad Buying book of course!

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Babylon’s Burning… the Story of the Failed “AI” Health App

The Sunday Times has really got into its investigations recently, and after its excellent expose of the UK’s HS2 rail programme, last week it looked at another issue with a definite “Bad Buying” angle.

Babylon Health, set up in 2013, was going to revolutionise healthcare. Ali Parsa, the founder, is a serial entrepreneur whose previous venture, Circle Holdings, also had some issues (he stepped down from Circle before he set up Babylon). Circle ran Hinchingbrooke Hospital in England, the first fully outsourced hospital. Initially, it seemed to go well, and Parsa was a highly visible cheerleader for the operation, but after a couple of years, Circle pulled out leaving the NHS to pick up the pieces.

But with Babylon, Parsa seemed to have a real product that could benefit everybody. It was an AI powered diagnostic platform that could tell you what health problem you had after a short online consultation. The “app” scored better than doctors on medical tests, Parsa claimed, and could provide excellent diagnosis and care at a fraction of the current cost. For the permanently hard up health services in the UK and US, it seemed too good to be true – and of course it was. However, Parsa used political connections to win business, as the Times reported. Between 2015 and 2022, the company had 22 meetings with government ministers.

“Babylon’s deals with the NHS, which saw it receive at least £22 million over the past three years alone and helped it to woo investors, were in part due its links with the Conservative Party and the backing of Hancock, the health secretary from 2018 to 2021. The Tories received more than £250,000 in donations from individuals and companies with stakes in Babylon Healthcare, including Hancock, whose failed Tory leadership bid in 2019 received £10,000.”

However, the newspaper’s investigation found high-pressure sales techniques and some claims for the product that were simply false. For example, at the Royal College of Physicians in 2018, Parsa showed how Babylon’s AI used a phone’s camera to analyse the facial expression of a female patient to pick up subtle cues that a doctor might miss. This is how the Times describes it.

“This is a real consultation,” Parsa said on stage. “This is what we have built. None of this is a show.”

It was a show. The facial-analysis tool, a prop for a demo, never made it to market. The “patient” in the video was an executive assistant at Babylon… This sleight of hand was a small example of a culture fixated on form over substance, a trait common in Silicon Valley but dangerous in healthcare.” 

Indeed, the much vaunted AI was little more than a decision tree written in Excel based on doctors’ knowledge. Soon, sceptics began testing it and found that it could easily mistake a heart attack for a less serious panic attack, or an ingrowing toenail for gout. I remember various people on Twitter talking about how dangerous it was and calling out Babylon as a con.

But the firm managed to raise $1.2 billion from investors between 2013 and a stock market float in 2021, and at one point Babylon was valued at some $4.2 billion. But after that float, some badly judged deals started affecting the firm’s finances, just as more expert voices also pointed out the technical failings. For instance, the Royal Wolverhampton NHS Trust signed a ten-year deal for a digital-first GP service that would allow patients to use Babylon’s digital tools. But Babylon cancelled the contract in 2022, saying it just could not afford to invest in the service.

Finally in August this year, the firm collapsed into administration and the remnants were picked up by a couple of trade buyers. Parsa has pretty much disappeared, as has most of his own fortune.

It all reminds me a little of the Theranos scandal – the fake blood testing equipment launched by Elizbeth Holmes (who is now in a US jail). Babylon was not as fake as that, and Parsa is not accused of wrongdoing, but the principal of something that everyone wanted to work, but really was built on sand, is the same. And there is also FOMO – the “fear of missing out”. This is an extract from the Bad Buying book section on Theranos.

“Buying failure come into this because retailer Walgreen’s spent $140 million with Theranos over seven years, hosting around 40 blood-testing centres in their stores. They got very little benefit from that and recovered some $30 million after a lawsuit and settlement following the eventual disclosure of the issues.  Amazingly, as Bad Blood reports, Walgreens’s own laboratory consultant, Kevin Hunter, had seen early on that something wasn’t right with Theranos. But the executive in charge of the programme at Walgreen’s said that the firm should pursue the pilot because of the risk that CVS, their big competitor, would beat them to a Theranos deal.

Again, buyers wanted to believe that something was real, even in the face of mounting evidence that it wasn’t. This relates back to comments around believing the supplier … it is easy for a naïve or gullible buyer to be sucked into believing what the supplier wants them to believe.

Suppliers will take advantage of this tendency – whether it is the relatively innocent “yes, we can install this new IT system in six months” or the more dangerous “this equipment will find hidden bombs”.  And FOMO – the fear of missing out to the competition – is something else suppliers will use, and that can lead to bad decisions.  It’s not just physical goods either. The top consulting firm selling its latest “strategy toolkit” will mention that the potential client’s biggest rival is also very interested”.

One day, there is little doubt that a real AI-powered system will be really useful in the world of medical diagnoses. So maybe Parsa was just ahead of his time?  But that is two of his “innovative” businesses that have cost health services time and money without much benefit in return. So I’d be very careful next time he announces he has a great idea…

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