,

Labour Wants to Use “PFI” – Please Be Careful!

As we’re into the election period in the UK, the Labour Party is promising capital investment (in roads for instance) but saying that much of the money will apparently come from the private sector. This has brought back memories of the previous “Private Finance Initiative”, which was actually invented by the conservatives under John Major in the early 1990s but was enthusiastically embraced by Labour after 1997 when Tony Blair won the election.

I was procurement director at the Department for Work and Pensions for two and a half years, 1995-7, serving when Labour came into power, and was involved in some large PFI projects, including new construction programmes and some IT initiatives. Then in the noughties, I was consulting in government and held a couple of interim commercial director posts where PFI or similar initiatives were relevant too, including the ID Card programme.

So speaking from the inside, I can say that there were a number of positive aspects to PFI, despite later criticism. Having a single entity responsible for the financing, construction and then maintenance of a new hospital for instance created a clarity of purpose and an interest in whole-life costs. However, there were some less positive aspects which Labour must avoid if it is to make a success of PFI Mark 2 (or Mark 3, or wherever we are up to now).

In the past, some dubious financial engineering was definitely encouraged to get projects through the business case process. The comparisons were generally made in terms of the basic cost of the building in the case of construction projects. So PFI projects were often compared using “cost per square metre” metric, as the ongoing PFI charges overt the contract period were often based on that as the charging “unit”. That figure included the cost of capital, the construction cost and probably the basic infrastructure maintenance. It would then be looked it against the “public sector comparator”, i.e. what it would cost the government to provide the same facilities.

I actually sat in meetings where the PFI adviser (more on that later) said to a supplier, “the public sector comparator is marginally lower than your figure – you need to improve that”. Now that sounds like good negotiation, but the twist was this. The contract usually included a whole list of ongoing activities where the buyer would be locked into using the PFI supplier. And these were rarely included in that value for money comparison. So suppliers were encouraged to make their money on these extras, often around ongoing supply of goods or services, and keep their base charges low to get through the business case process.

The other way of making the contract attractive for the provider was to make it longer. Hence ridiculous 60 year contract periods, with guaranteed price increases of course, which again circumvented the business case issue as the comparisons would rarely look that far into the future.

So this is why seemingly trivial services or one-off type activities ended up costing schools and hospitals a fortune.  “Another school had to pay £302 for a socket, five times the cost of the equipment it wanted to plug in”, as the Daily Telegraph said in one report. This wasn’t an accident or bad negotiation – this was because the payment mechanisms were constructed deliberately to make the basic occupation charges look lower, with the provider making their money from these ‘extras’.

That would improve the apparent business case; then later on the occupier gets hit with unexpectedly high charges. It represented a conspiracy really between all the parties to make these projects happen, and arguably was a failure of finance and procurement across many organisations while these deals were being done; or at least a failure to stand up to pressure from other quarters and point out loudly the problems that were being stored up for the future.  I will take some credit though – one of the (probably few) good things I did in my DSS job was refuse to allow catering, cleaning and security to be included in one large property PFI deal we did, because I was concerned about future lock in for decades. That probably saved millions.

The other very dodgy aspect of “old PFI” was the role of Partnerships UK (PUK) in all this.  From 2000 onwards, Treasury promoted the use of PUK’s services – at extortionate consulting rates – for advice to public sector clients on particularly the commercial and financial elements of PFI deals. If you didn’t pay your three grand a day for a PUK adviser, you wouldn’t get your project approved by Treasury, was the feeling.

Yet PUK was 49% government owned, and 51% owned by the banks! That was a clear conflict of interest there in terms of PUK’s enthusiasm for PFI deals which made huge profits for those same banks. And the politicians – and even some top civil servants – were probably looking forward to their nice non-exec roles with the same organisations once they retired.

So Labour needs to take care here if it wants to bring back PFI-type ideas. It needs considerable commercial and procurement expertise on the government side of the table – and it must make sure the people who are supposedly representing the taxpayer in those discussion really do have our interests at heart, and are not feathering their own nests.   

/0 Comments/by
,

Guildford Council “Fraud” – WTF?!

After writing last week about competence in UK local government, as if by magic, a case of alleged fraud in a council very close to my home popped into view the other day.

Now several of my local councils haven’t been doing very well in recent years in terms of looking after taxpayers money. The Tory council in Surrey Heath, where I live, now ousted by the LibDems, bought well over £100 million worth of commercial property in Camberley right at the top of the market, and is now sitting on a loss in asset value of £50 million or so. Woking council, a few miles to the east, has basically gone bust after property deals and investments that make Surrey Heath’s look minor.

And now Guildford, to the south-east, has published a report into what is an alleged fraud and is at best a prime example of Bad Buying in its housing department. Two employees have been suspended and five agency workers had their contracts terminated.

The report to the Council by Jeanette McGarry of SOLACE, (the society of local government CEOs), is good but focused more on the governance issues rather than the procurement events. That may be because the matter is with the police now and an arrest was made in March, so precise details of the core issues may be sub judice.

But basically, a contractor working on the council’s housing stock was paid far more than the original contract value (which is not disputed) and also there was a possibility (as the report says),

  1. That work may have been ordered when it wasn’t necessary;
  2. That work may have been ordered, invoiced and paid for when it was not completed at all or;
  3. Not to a satisfactory standard;
  4. That duplicate invoices may have been submitted and paid for the same work;
  5. That works may have been ordered and undertaken that were not the responsibility of the Council.

Back in 2022, the council agreed to spend £24.5 to update its housing stock. But there were no in-house surveyors and doesn’t appear to have been much in the way of internal procurement either, as “Several agency staff were appointed and were able to appoint housing repair and maintenance contractors”.

A three-year contract for £2.4 million was agreed for EICR (electrical installation condition reports) testing and inspection to Seville Developments Ltd, “under direct award” via a framework. This was apparently achieved under the Council’s procurement process and “was found to be compliant”. I’d like to know more about how a direct award of that size could be acceptable, and if there was no competition within the framework, but the report does not go into that.

But the council realised in 2023 that expenditure had reached £18.9 million with Seville, with no authorisation or action taken such as contract variation. At this time, “the Corporate Procurement Team was staffed solely by temporary officers and there is evidence that an officer identified the unauthorised expenditure and raised this with the Housing client but did not escalate the matter”.  

Whistleblowing concerns were raised in 2023, and the staff suspensions and terminations took place in September 23, and in March 24 “An arrest was made by the South East Regional Organised Crime Unit”.

If we look at the anti-fraud measures outlined in my Bad Buying book, we can see a number of flaws in the Guildford process. There will I suspect be questions around the lack of transparency in supplier selection. Then we have the issues on signing off work – was that power too concentrated? Perhaps the biggest question is how on earth invoices that exceeded the contract value by £16 million got signed off and paid – that entire budget control process at Guildford must have been absolutely pathetic.

But an interesting point which is not one I really covered in the book is this dependence on contractors and temporary staff. To have a procurement team that is entirely “temporary officers” brings obvious dangers. It is not that contractors are necessarily crooks, but they cannot have the knowledge of the organisation and the internal relationships that are vital when things go wrong or strange events occur.

I also don’t understand why if Guildford was so short of staff, they didn’t call on Orbis for help. Orbis is the shared service organisation, hosted by Surrey County Council, that runs procurement for Surrey, East Sussex, and Brighton councils, and does a pretty good job. Surely they could have assisted Guildford if the council there couldn’t find its own procurement staff?

Anyway, another case study for “Bad Buying 2”!

/0 Comments/by
, , ,

Avoiding Bad Buying in UK Local Councils

As the results come in from local elections in England, it is clear that basically the country just wants the Conservative Party to go, the sooner the better. I don’t think there is huge enthusiasm for anyone else but most of the public are just sick of the infighting, incompetence and idiocy of the ruling party in recent years.

However, will changing our local councils make things better? A very interesting article in The Times   looked at data provided by a new agency, the Office for Local Government (Oflog). Ministers set up Oflog last summer to provide “authoritative and accessible” performance data to support improvement in local government.

The data looks at the efficiency and effectiveness of local councils across 27 categories in five main areas: waste management, corporate and finance, adult social care, planning and roads. It revealed for example that some councils have recycling rates that are twice as good as others and that some authorities are failing to process half of planning applications on time, while others are not late on a single one. The figures also show the extent to which many councils are struggling with debts, with six local authorities already having declared themselves bankrupt since 2021. That is certainly in part becuase of lower funding from the centre of government, but competence (or lack of) seems to come into play too in most cases.

The Times accessed all the data to look at variations, which are huge and pretty inexplicable other than by sheer management competence. For example, in the year to September 2022, Hinckley & Bosworth borough council in the East Midlands completed less than half of household planning applications on time. But Tamworth borough council, just 30 miles away, was not late on any.  

The Times also came up with league tables to see if there was any political correlation with performance. Nottingham (Labour controlled) was the worst performing authority. Torridge district council, on the north Devon coast, came top of the table – it is run by independent councillors.

But the results actually supported a theory I’ve held for years, suggesting it is not that the Conservatives (Tories) are generically better or worse than Labour in terms of competence (with the Lib Dems in the picture too in a smaller way). Of the ten worst-performing councils, six are controlled by Labour. Of the ten best-performing councils, six are in coalition or are run by independents, while the Liberal Democrats and the Conservatives run two each.  Eight of the ten worst-performing county councils or rural unitary authorities are controlled by the Conservatives – while seven of the best-performing ten are in coalition or run by independents.

So what it does seem to show is that the worst-performing councils are almost always in areas, towns or cities where there has been a long-term dominant party, whether that is Labour or Tory. Conversely, the best-performing councils are generally more contested, so independents rule the roost, or no single party has a clear majority, or power has changed hands over recent years.

That stands to reason really. If there is a long-term dominant party, there is more scope for arrogance to creep into decision making, or fraud and corruption to spring up, and there is less scrutiny of decisions. “Bad buying”, whether it is just wasting money on frivolous or unnecessary spending, or more serious fraudulent or corrupt expenditure, is more likely where power is well entrenched. Take fraud for example. You are less likely to bribe a councillor, or to stand as a councillor yourself so you can influence planning decisions for nefarious purposes, if it is not clear who will be in charge after the next election.

Similarly, some of the arrogance we have seen in councils such as Woking, where the dominant Tory council invested hundreds of millions in unwise property deals, or in Nottingham, where the council (Labour in power since 1991, 50 of 55 councillors) thought it could run an energy firm better than the professionals, came about I’d suggest in part at least because the councillors thought they were unchallengeable and had complete power.  My own council, Surrey Heath, has also lost money – not as much as Woking though – on property deals put in place by a very arrogant Tory leadership. But last year for the first time ever the Lib Dems took power here.  

However, the correlation is far from perfect. Thurrock, where the council is now suing “businessman” Liam Kavanagh, who allegedly cheated the council out of over £100 million with dodgy solar farm investment schemes (hopefully the ex-finance head at the council will end up in court too), has actually had a few changes of council over the years.

But Liverpool is another example where single-party dominance led to a culture of corruption. Even after commissioners came in to run the City in 2021, the job description I saw for the Head of Procurement role still did not suggest a real appetite to put in place all the controls and governance you would want to see as a taxpayer!

Anyway, all this suggests that if your main interest as a voter is in the effective running of local services, rather than any deep political beliefs, you should aim to keep your local council and councillors on their toes by creating a competitive environment. How you can best do that will vary by area and even local electoral ward. But that seems the best strategy if you want your money to be used honestly and well.

/0 Comments/by