When in Rome – watch out for potholes!

When I lecture on Bad Buying, as I do at the Skema business school in Lille, I ask the students to think about what sort of procurement related fraud or corruption is particularly difficult to protect against or detect – and why. Certainly right up there in the top three examples is the supply of goods or services that deliberately and maliciously don’t meet the quality level or specification agreed between supplier and buyer.

So the supplier substitutes an inferior product (or service, although more often this is seen with supply of goods) that costs less to provide, meaning the supplier makes additional profit margin and the buyer potentially suffers from the lower quality provided. It may not cause a major issue for the  buyer – but in some cases, it certainly does.

A case included in the Bad Buying book covered oil supply.  “In March 2015, a case going back to the 1990s finally came to the courts. Global trading giant Glencore was ordered to pay $40 million to OMV Petrom SA (a large oil company, headquartered in Romania), by a UK court, for shipping oil of a lower quality than it was supposed to be to the firm in the 1990s.

Bloomberg reported that Marc Rich & Co., which went on to become Glencore International AG, sold about 32 shipments to Romanian state firms from 1993 to 1996. But this was cheaper crude oil blends than the specification that had been promised. The seller falsified documents to support the fraud, which made it some $40.1 million, according to evidence in court. The fraud only came to light when a former trader from Glencore split the beans to Petex, the firm that had organised the oil importing process^”.

This case showed how difficult such frauds can be to detect, as the client here actually didn’t notice anything amiss.  One barrel or tanker of oil looks very much like another!  But a recent case demonstrated an interesting twist on this. The danger for the supplier is obviously that the client spots the deception. So how about bribing the buyer(s) to turn a blind eye to what is going on?

That appears to be what has happened in Rome. The Vatican celebrates a Jubilee next year – it will be the 1,700th anniversary of the Council of Nicaea (325 AD), and I’m sure we can all see just how important it is to celebrate that in 2025. So Rome is preparing for millions of visitors and is trying to tidy up its somewhat run-down and chaotic infrastructure. Residents have been complaining about potholes in the roads for some time, and even when they were ‘repaired’ somehow the problems seemed to re-occur very quickly.

The cause seems to be a group of allegedly crooked city officials and road workers, conspiring in league with a dodgy supplier who provided substandard asphalt for the road repairs, material that crumbled far too quickly. Raids on the Rome city hall recently searched for documents that police claim show the firm paid kickbacks to officials to win contracts worth 100 million euros.  

The firm also offered jobs to the children of officials, it is claimed, and the inferior quality material meant potholes reopened at the first sight of rain. There are other interesting procurement aspects too. As The Times reported, investigators ‘believe that the man behind the firm set up front companies to allow corrupt officials to pick a different winner to successive tenders to give the appearance of legality’. That’s clever, because of course the same firm winning this sort of contract over and over again would eventually arouse suspicion.

So how can we guard against this sort of behaviour? In terms of checking quality of supply, you would hope that a good procurement organisation would be doing some sort of quality checks on the actual material. And not just asking the supplier to send a sample, but going out and looking at what was actually being used and doing some ‘live’ product sampling. 

In terms of avoiding the bribery aspect, there are a number of risk management options here. Not keeping procurement people in the same job for too long to make it harder for them to develop corrupt relationships with suppliers is one. Making sure multiple people are involved with supplier selection decisions and indeed in ongoing supplier management is another.

However, even that might not be enough if you have an organisation that becomes corrupted endemically. We saw in the case of the Fat Leonard / US Navy scandal, when you get to the point where even those who are supposed to investigate whistleblower complaints have been bribed themselves by the supplier, corruption can expand and run unchecked for some considerable time. So investigators will want to look at just how many Roman officials were corrupt. Was it just one or two – or was this a case where the rot spread more widely?