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Government Procurement Cards – Wasteful or Wonderful?

The focus in the UK public sector is now firmly on cuts, saving money and trying desperately to stay within the chancellor’s ‘financial envelope”.   There have been some signs of a structured approach that could save money in the procurement space, such as this story in The Times about more spend governance in the Home Office.

“An audit of costs, ordered by Yvette Cooper, the home secretary, has found evidence of “excessive spending” on awaydays, public opinion research and contracts handed out by the department to external suppliers. As a result, ministers have demanded personal sign-off of all large expenses in the department and have put some future spending plans on hold”.

The other initiatives that hit the news last week was the freezing of all government ‘Procurement (or purchasing) Cards’. Spend on the Cards has more than quadrupled over the last four years, apparently. As the BBC reported:

“Thousands of taxpayer-funded credit cards will be cancelled under plans to crack down on “wasteful” spending, the government has announced… the government said spending on the cards had quadrupled in the past four years without enough scrutiny.

The Cabinet Office will order departments to freeze almost all of the around 20,000 cards in circulation this week, with a strict new application process aiming to cut the number by 50% …

More than £675m was spent on the cards by central departments and core agencies last year, up from £155m in 2020/21”.

Now any procurement professional reading this knows that ‘procurement cards’ are in reality ‘payment cards’. In themselves, they do not define or dictate a particular procurement route. You might buy by making just one phone call, or run a 6-month long tendering process, and in both cases, ultimately pay with a Card.

So the key aspect (to avoid Bad Buying) is that the decision to make a purchase with a Card must be legitimate and controlled, as in the case of any other purchase. The difficulty is establishing just from the headlines whether this has been the case here. Examples quoted included “£1,200 on luxury coffee pods by one team in two months and more than £1,800 on a “value for money” course”.

At first glance, some of the expenditure does sound dodgy, but really we need to know what the process for approval, sign-off and audit was before we can talk about fraud or incompetence here. And sometimes there are innocent explanations for what sounds odd at first. This is from my Bad Buying book.

“Some years ago, I talked to a logistics manager based in the UK Ministry of Defence’s Head Office. He told me he had not long returned from Afghanistan, where he was working as a logistician in a big military camp there …

We talked about the need for buying processes to be flexible and for buyers and logistics people to be able to react quickly in military situations. The use of the Purchasing Card came up, and he explained there had been a bit of an internal furore when finance had looked at expenditure on the card in use at the Camp. One invoice related to expenditure on a range of golf equipment. That looked very strange, possibly fraudulent.

But it wasn’t. He explained that opportunities for rest and relaxation were limited for the troops in Afghanistan. Not many friendly bars, you couldn’t just go off for a run through the hills or take a trip to the beach. So, someone had the bright idea of buying some golf equipment and rigging up practice nets. Even non-golfers were getting into it, with more expert players offering lessons. The golf kit showed up on the Card bill, and looked odd, but most people would agree it actually was an appropriate and intelligent use of public money.

As a corporate executive, and on behalf of the firm, I’ve bought retirement presents, flowers for staff to celebrate a wedding or birth, strange items to be used on corporate away-days, booze, and many items that would have looked odd on that card bill. But all were justified and for the organisation’s benefit, not mine. Another case saw a government body chastised for spending money at a horseracing venue. But that was explained as the fees for a legitimate business meeting, booked in the hospitality suite on a day when no racing was taking place. Today, horse tracks and football grounds often have good meeting facilities, and can be cheaper than equivalent hotels, so again this might well have been good buying rather than fraud or failure”.

So don’t jump to conclusions when you see headlines about use of Cards. Having said that, it seems sensible and reasonable for the government to be taking a hard look at this. Looking back, we can now see there was precious little management of the civil service going on in the later years of the chaotic Tory government, so a bit more control and scrutiny now is no bad thing.   

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Zelensky, Trump and Negotiation

The shocking events last week in the White House, when the leader of the free world and his sidekick bullied the leader of an invaded country, supposedly an ally, will live in the memory for a long time. I’m not going to comment much here on the wider issues, or Trump and Vance. But just as Trump’s apparent capitulation recently to Russia in terms of negotiating position provided interesting lessons on negotiation strategies and approaches, so we can look at how Zelensky handled last week’s disastrous session and see if there is anything for procurement professionals and others who negotiate professionally to learn.  

This was a negotiation in which one party, Ukraine, represented by Zelensky, wanted something from the other party, the USA. But although Zelensky was treated with disrespect, he did make some errors himself.

  • Going into the Oval Office alone to face two opponents immediately put him at a disadvantage. It Is not just the psychology of being outnumbered; two negotiators can apply different strategies, whether that is the traditional  ‘good cop, bad cop’ approach or something more straightforward and brutal as we saw with Vance. Zelensky should have had someone up there with him – how about Vitali Klitschko, mayor of Kyiv and ex world boxing champion? That would have changed the dynamics significantly.
  • The first press question sounded idiotic but was clearly planned and designed to undermine Zelensky, asking why he wasn’t wearing a suit. This is where perhaps the disadvantage of working in a second language also comes into play. Sometimes if you are being attacked in a negotiation, particularly if it is not actually around a serious point, turning it around to humour can be effective. There was an obvious answer here – ‘Well, actually, I borrowed this outfit from Elon Musk’! That would have raised a laugh and actually put Trump on the back foot.
  • There has been much debate about who was to blame for the escalation of the discussion into hostility after 30 minutes or so of reasonable discussion. Some blame Zelensky, others Vance, who certainly was taking an aggressive role. Zelensky was clearly irritated that he wasn’t getting what he wanted out of Trump – security guarantees against future Putin aggression if a cease fire was agreed. But he was and is in the weaker position in this negotiation. It is rarely sensible for the weaker participant to raise the heat in a negotiation – if you don’t hold the power, then staying calm, even under provocation, and sticking with a structured approach is generally sensible.
  • Zelensky may not have had much option, but trying to conduct serious negotiations and draw out concessions from Trump in the full glare of the cameras was unlikely to work. All the serious discussion should have been held in private, then a short and pleasant photo-opportunity could take place once the real work was completed. I think Zelensky did perhaps think that the public nature of the meeting might help him ‘bounce’ Trump into giving him what he wanted, but of course it just went the other way.
  • As we’ve said before, there is no sign that Trump is a brilliant negotiator. In fact, he is pretty easy to understand. You have two tools to use against him – power and his own narcissism and ego, his desire to be seen as a genius and sit at the centre of everything. Keir Starmer played this quite well in his discussions, I thought, with the invitation from the King and so on. I totally understand why Zelensky struggled to ‘pay tribute’ to Trump, but a good negotiator can swallow a bit of personal pride to get better results. A few more compliments and a little more grovelling might have helped, however distasteful for Zelensky (and for us as observers).

A quick agreement and the Nobel Peace Prize were clearly Trump’s aims in terms of Ukraine. Now that is proving difficult, I suspect he will lose interest and move on to who knows what – invading Greenland maybe? But he has to blame someone for his Ukraine failure, so the narrative is about Zelensky being difficult.

As Trump said, the meeting was ‘great television’. He seems to see his life as a reality TV show, so there has to be action, and he has to look like the star all the time. Maybe nothing Zelensky could have done would have made any difference, maybe Trump had already written the script. But whilst we can have huge admiration and sympathy for Zelensky (and I certainly do), he arguably still did not play his negotiation cards as well as he might have.

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The Things We Do for Love…

Procurement related fraud is often committed against organisations by outsiders, as in the case of invoice misdirection, for instance. Other fraud can be highly sophisticated, involving multiple people inside and outside the organisation. But insiders working alone are frequent perpetrators too, and approving invoices from a fake supplier that is actually owned by the member of staff involved is perhaps the most common purely internal procurement fraud. Or the crime can be even more straightforward – as in the case of simply buying stuff with the organisation’s money, then stealing it, usually to resell.

There are many examples of these basic frauds in my Bad Buying book, and it is interesting to note the drivers for this sort of criminal action.  Getting into debt, often gambling related, is one common driver. Pure greed and the desire for the finer things in life – nice cars, big houses and so on – is a pretty generic motivation. There was the senior manager for instance who defrauded the UK health service in order to fund her stud farm and buy high quality horse semen! But often the driver is love and / or sex, and we see someone who is trying to impress a partner or potential partner, and that was the reason behind a recent British Army fraud.

Jed Charlot was jailed for three years recently after stealing half a million pounds worth of supplies from the Army in order to fund gifts such as a Louis Vuitton handbag and holidays for his mistress. He stole items such as printers and toner cartridges to sell on eBay after he told her he was rich, rather than an Army quartermaster probably earning £35K a year, working for the Royal Electrical and Mechanical Engineers (REME) in Wiltshire.

As a quartermaster sergeant in charge of stores, he used his MOD account from 2021 to order items, then sold them on. He placed 676 orders over a year and stole £498K worth of products, making £349K income from the sales. He was caught in 2022 when a civilian colleague was preparing for an operation in Germany and realised there was a shortage of printers.  She checked and found that the defendant’s unit had spent far in excess of the budget, and thought, ‘that seems odd…’ Well done to her!

Charlot claimed initially that his MOD account had been hacked but that excuse didn’t stand up for long. It is a sad story really. Charlot was ‘genuinely remorseful’, he had reacted badly to pressures in his life (his lawyer said) and his previous conduct in the Army and Police before that was exemplary. But theft it theft.

The large number of orders was presumably his way of avoiding more scrutiny. I suspect there was a sign-off threshold, maybe at £1000, where someone else would have needed to authorise the order. So keep it below that level and there is less chance of detection. Maybe someone should have checked the budget sooner, but at least it was spotted after a year or so. Another NHS case in my book which was similar saw a women stealing increasingly large quantities of supplies such as printer cartridges from a health organisation for about 5 years before anyone noticed!

So how do we mitigate the risks of such actions? Regular checks on orders, even relatively low value, should be implemented. That might be random rather than 100% for really low value transactions, but staff should know that they might be examined. Scrutiny of budgets and a close look at any areas of overspend is key – the lack of that oversight in the NHS example was shocking. Maybe better use of data, perhaps even using AI, could help to detect unusual spend patterns by comparing the purchases of different people or cost centres.  

But sadly, there will always be someone who is tempted by easy money, particularly if their judgement is clouded by l’amour.   

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Huge MOD Contract with Rolls Royce – Good Buying or Bad Buying?


The UK Ministry of Defence (MOD) recently announced a significant contract with Rolls-Royce, aimed at ensuring the continued operational readiness and effectiveness of the country’s nuclear submarine fleet. The eight-year Unity contract brings together all elements of research and technology, design, manufacture and in-service support of the nuclear reactors that power the Royal Navy’s fleet of submarines.

The Government’s press release contains a fair amount of hype as you might expect – this contract is not quite as ground-breaking as it at first sounds. It looks like it ‘tidies up’ a number of contracts with the firm, preserving 4000 existing jobs and there may / should be another 1000 by the end of the contract. The contract is worth some £9 billion and there are ‘savings’ claimed of £400 million over 8 years, although clearly we won’t know for some years whether those are real. And of course the process leading to the contract started way before the new Labour government came into power last summer. However, this is an important contract, with some interesting procurement issues thrown up along the way for us to discuss.

At a strategic level, the Unity contract is designed to ensure that the UK’s submarine fleet remains at the cutting edge of naval defence capabilities. (My late father in law was one of the key designers of Britain’s nuclear subs back in the 1960s, by the way). Given the critical role that submarines play in national security, including deterrence and intelligence-gathering functions, it is vital that these vessels are kept in optimal condition. The contract encompasses a wide range of maintenance activities, from routine inspections to major overhauls, enhancing flexibility, the operational availability and longevity of the vessels. Rolls Royce are of course already a key service provider and an established leader in this field – as well as one of relatively few leading edge UK-based defence champions.

Positives for the MOD

So the Unity contract presents several significant advantages for the Ministry of Defence.

1. Enhanced Operational Readiness

One of the primary benefits of the contract should be the enhancement of the operational readiness of the submarine fleet. The contract’s comprehensive scope means that all aspects of submarine maintenance are covered, minimizing the risk of operational downtime.

2. Cost Efficiency

By entering into a long-term contract with Rolls-Royce, the firm should be able to plan and manage resource better, which should translate to cost benefits for MOD. Long-term agreements often result in better pricing and more predictable budgeting, as opposed to ad-hoc maintenance arrangements. Additionally, the contract allows for economies of scale, with Rolls-Royce able to streamline processes and reduce costs over the duration of the agreement. In theory, anyway.

3. Expertise and Technological Advancements

Rolls-Royce’s extensive experience and expertise in submarine systems provide a reliable foundation for the contract. The firm is at the forefront of technological innovation in the defence sector. Through this contract, the MOD should ensure access to competent ongoing service performance AND new cutting-edge technologies and methodologies.

Potential Risks

While the Unity contract offers benefits, there are always risks with any long-term single-supplier-type contract.

  • Dependency on a Single Supplier  – One of the primary risks in all contracts like this where the supply market is limited is the dependency on a single supplier for such critical services. Should Rolls-Royce encounter operational or financial difficulties, the MOD could face significant challenges in ensuring the continuity of submarine maintenance.
  • Supplier complacency  – once any supplier is in possession of a long term contract, they can become complacent. (I know someone who worked in the RR submarine division quite recently, and based on their experience it was not exactly a beacon of dynamic, innovative and diligent work practices).
  • Cost Overruns – Long-term contracts can often result in cost overruns and budget-busting additional work, particularly if the scope of work evolves or unforeseen issues arise (almost inevitable in the case of defence).
  • Technological Obsolescence – The rapid pace of technological advancement in the sector means that there is always a risk of current systems becoming obsolete.
  • Geopolitical Factors  – These can also impact the execution of the contract. Changes in international relations, trade policies, or military priorities could influence the availability of resources or the strategic focus of submarine maintenance efforts.

Conclusion

While Rolls-Royce is known for its innovation, and frankly there probably wasn’t much alternative here, MOD will need to:

  • remain vigilant and ensure that the contracted maintenance work incorporates the latest technologies and best practices;
  • closely monitor expenditures and ensure that the work remains within budget, and that change processes are fair but do not lead to major additional costs for the taxpayer;
  • have contingency plans and alternative suppliers in place as far as possible. MOD must also  remain adaptable and responsive to external influences; and
  • manage the contract and the supplier in a positive, structured, close but not oppressive manner.  

The benefits of the contract, including enhanced operational readiness, cost efficiency, access to technological advancements, and reliable expertise, seem substantial. However, it is equally important for the MOD to be mindful of potential risks such as dependency on a single supplier, cost overruns, technological obsolescence, and geopolitical factors. Good luck!

 

















































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Beware the Fake CFO!

I have mixed feelings about Ove Arup. One the one hand, they are an engineering company with a strong track record, great achievements, and one of my best friends worked for them for many years. On the other hand, they wrote me a nasty letter threatening legal action after I mentioned their role in the London ‘Garden Bridge’ scandal which involved some VERY dodgy procurement by Transport for London (still have the lawyer’s letter in my files somewhere…) 

That scandal was driven by Boris Johnson and Joanna Lumley, two individuals who suffer from poor judgment.  At least Lumley is not driven by arrogance, but her public persona gives her more power then she deserves – her ‘support’ for the Gurkhas for instance did not increase global happiness, I’d argue. Anyway, that’s for another day and another website.    

Going back to Ove Arup, I tried to resist feelings of schadenfreude when I read that the firm has been conned out of more than £25 million last year. Their recently published annual report confirms that the firm (as The Times reported) “revealed in May that it had been the victim of fraud in Hong Kong, with criminals using “fake voice, signatures and images” to convince a member of staff to deposit money into several accounts’. Project delivery was unaffected, however.

This is being positioned as a ‘cyber-attack’ I guess because that is very contemporary and it sounds like the firm is relatively blameless but really this is a classic invoice misdirection fraud, just enhanced by the use of deepfake technology.  A cyber attack uses technology to gain access to a company’s internal systems and data. It does not sound like this is the case here. This is presumably the classic fraud play which consists of a message to a mid-level finance executive saying, ‘hi, this is your CFO, please send £25 million to this bank account because we’re working on a top secret acquisition project’.

I am not claiming that this is the case here (I don’t want another lawyer’s letter, please) but sometimes this sort of fraud is enabled by someone on the inside, who can claim they were misled but in truth is part of the fraud-committing gang. What it always means is that the firm has been sloppy in terms of its process, systems and training.

So all suppliers and bank accounts (or any other organisations to whom money is going to be paid) should be authenticated and validated before any money is paid to them. Any alleged changes in bank details from an existing supplier must be verified by a phone call to a known individual on an established phone number.  (Also, if you’re doing a private transaction through a lawyer e.g. buying a house, and you get an email saying ‘we’ve changed our bank account’ the day before you are due to make the payment, PHONE THEIR OFFICE).

Significant payments should have multiple authorisations. In his case it may have been several payments rather than one £25M hit, but even so, this is serious money, so you must have multiple involvement and sign-off to guard against the lone internal fraudulent collaborator. All staff in roles where they have access to the firm’s money in any way must been trained in the right approaches. processes and policies. 

At least this isn’t quite as bad a case as the Essilor Luxottica (huge ophthalmic lens firm) Thailand invoice fraud, where the firm lost up to 190M euros, basically their entire annual turnover in that country. That really was one of the most breathtaking examples of process incompetence I have ever seen in a major company.

So if you work in procurement or finance, do make sure your processes for paying suppliers (or other organisations, or even unknown bank accounts that are supposedly linked to your own organisation) is watertight. In particular, any one-offs, emergency payments and similar must go through a really strong checking and verification process. Just because someone who looks and sounds like your CFO sends you a WhatsApp message telling you that it is vital you help the firm NOW by authorising a payment, you should not rush off and send them loads of cash.

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UK Public Procurement – Six Months In, How Is Labour Doing?

The election of Donald Trump in the US was one of the biggest global news stories of 2024, but our election back in July was significant for the UK, as voters rejected the Conservative government which had been in charge for some 14 years. The feeling that it was ‘time for a change’ was overwhelming, and the last few years felt chaotic with infighting and clear incompetence in evidence from the ruling party.

However, six months into the new Labour government, initial public enthusiasm has already worn thin given tax rises, stories about Ministers receiving gifts and entertainment and some dubious policy decisions.  But how is Labour doing in terms of public procurement?

In truth, it is too early to say. The implementation of the new Procurement Act was postponed from October to February 2025, and we are waiting for the ‘National procurement policy statement’ which in theory will set out the overarching priorities for public procurement.

But the early indications have not been too promising. Labour came to power promising better governance and a fight against corruption, but have done very little. The much-vaunted ‘Covid Corruption Commissioner’ has turned out to be a part-time appointment for 12 months, with limited resources behind him, and a wider brief than expected.

Other areas of potential corruption have not been tackled. The way money has been spent and some very dubious public procurement up on Teesside, which Private Eye has been going on about for years, really needs proper investigation, but there has been nothing at all from Labour. (The mayor, Ben Houchen, is a Tory, although maybe Prime Minister Starmer thinks Houchen could defect at some point – that is the only reason I can see for not taking a look at his activities).

The furore over tickets for events and gifts of clothing to politicians demonstrated a lack of awareness of how this would be perceived, and some very silly comments from Labour supporters saying, ‘oh well, everyone in the private sector behaves like that’. That received swift rebuttal from many of us pointing out that firms we worked for had pretty strict policies on such matters, and no, I’d never had a pair of glasses bought for me by a supplier!

Then we have the spending review announced in December with  goal to find “efficiency savings within government spending of 5%”, which looks like an unchallenging re-tread of previous approaches.  But hang on a minute, “departments will be asked to reach this figure over the three-year review period, and will be able to reallocate money saved within their budgets”.  So not really savings at all then, just moving the money around to give the impression of activity!

 It also demonstrated a general lack of understanding of procurement (and business generally) amongst Ministers. Not one member of the Cabinet has any real business background, sadly. The Treasury said that external experts would be brought in to help the review, to “include former senior management of Lloyd’s Banking Group, Barclays Bank and the Co-operative Group”.

Having been a procurement director in the financial services sector, I know that banks have not exactly been the best-run businesses from a procurement and general efficiency point of view. Far better to have looked to sectors such as automotive, pharma, or consumer goods to get some more advanced ideas.

A naivety about commercial matters was evident elsewhere too. To Labour’s credit, they set out plans in November to prevent companies that run children’s homes from making excess profits, as many appear to do whilst also providing sub-standard services.  But the mechanisms proposed are naïve.  The BBC reported that “will require major care home providers to share their finances with the government, so it can challenge what it describes as profiteering. This will also include a “backstop” law that would place a limit on those profits, which the government can put into effect if the companies do not do so voluntarily”.

But this only applies to large providers who account for about a quarter of the market. And the lack of commercial understanding comes through in the suggestion that the answer is to ask those firms nicely to charge fair prices, and take action if they are ‘profiteering’ (whatever that means).

Of course, any of us who have been in procurement for a few years can immediately think of half a dozen ways in which a supplier can disguise or manipulate profit figures. Just pay the directors more for instance… or use inter-company loans … or set up subsidiaries to move money around… 

This lack of commercial experience and capability at the political level is a problem for Labour. It also suggests that the appointment of a successor to Gareth Rhys Williams as government’s Chief Commercial Officer is even more important than it might have been. Of course, one person can’t be expected to fix everything, but I suspect the new GCCO will need to spend a lot of time educating Ministers and explaining how the world of commercial and procurement matters really works.

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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?

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Musk to address US government spending – what fun awaits!

In the legendary Philip Green review of 2010, the new UK Prime Minister David Cameron asked the retail entrepreneur to take a look at government procurement. Some years later, the rumour spread that Cameron actually wanted the Philip Green who was CEO of United Utilities (and later chairman of Carillion when it went under) to carry out the work – but his staff asked the wrong Philip Green!

Anyway, the TopShop leader looked at government procurement and came up with stunning recommendations – data was poor, buyers paid different prices and government should centralise more. All the usual stuff. He also invited some senior civil servants to his private suite at a 5-star hotel in order to complain to them that some government staff were spending £100 a night on hotel rooms in London…

The other rumour was that his final report was so unprofessional, another bunch of civil servants had to rush off and convert it into something presentable at the last minute before his presentation to Cameron. You can still see it now here, and it is pretty shoddy work. This sort of thing: “We found the following variations in price for laptops: Highest price: £2,000 Lowest price: £353 Differential: 82%.”

So might they have been different laptops, I wonder?  There was no mention of specifications here.  His solution was “government should buy direct from a multinational manufacturer’. Well, yes, that should do it.  And London hotel costs varied from £77 a night to £117.  Shocking!  He suggested mandating video conferencing.

To be fair, Crown Commercial Services and others in government procurement have got better at looking at markets and choosing the best procurement option and of course Green was correct to point out some failings.

But all this came to mind on reading that Elon Musk has been appointed to lead a new ‘Department of Government Efficiency’ in the US.  This will be the immovable object of US government procurement process and regulation against the unstoppable force of Elon Musk’s ego and self-regard. It has the potential to be hilarious (if you’re not too close to it, anyway).

Trump said in a statement that Musk and co-leader Vivek Ramaswamy (another entrepreneur and previous Presidential candidate who has some VERY odd views) “will pave the way for my Administration to dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies.”  The new body won’t be a government agency but will ‘create an entrepreneurial approach to government never seen before’. Their appointment is only until July 2026, which is also interesting, as it means everyone knows they only have to resist the duo for 18 months and they will be gone …

How will this play out for Musk and his mate? To begin with, lots of people are no doubt pouring over the detail of every contract he has ever signed with government, in SpaceX or elsewhere, looking for ‘inefficiencies’.  They will find that ‘waste and fraud’ exists but is much harder to root out than they think.

In the procurement space, then they will come up against all the usual barriers to saving money quickly, including long-term contracts that can’t just be re-negotiated, the need to run lengthy competitive processes or get sued by annoyed potential suppliers, lack of skills and resource in government procurement… and if he brings in external support to help (the Department has no staff currently), he’ll get castigated for ‘wasting money’ on consultants.  

So for instance he could reduce the ‘bureaucracy’ of procurement by getting rid of all the rules and processes around supporting smaller or minority-owned firms. But the biggest group that benefits from that in the US is probably military veterans, so presumably that wouldn’t go down well with Trump supporters.

He could cut through the regulations and give buyers more discretion, or even allow more non-competitive procurement processes. But for every supplier that benefits from a direct-award type contract, there are usually several who don’t like it. Watch out for a boom in legal challenges if this is a route he takes.

He might genuinely save money by simply stopping spend in certain areas. No new laptops or  consultancy contracts for the next 12 months, that sort of thing. That works, until another Trump favourite complains to the President that they can’t implement their new policies because they can’t engage McKinsey to help. Or buy a laptop.

Anyway, maybe I’ll be surprised and the two of them will turn out to be thoughtful, innovative and effective reformers of US government spending / acquisition / procurement. It’s going to be ‘fun’ watching from afar, anyway.

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HOW MUCH for a soap dispenser??

Stories about apparently grotesque over-payment by public bodies for mundane items is always good for a headline or two. We saw that back in the days of the Private Finance Initiative (PFI) in the UK, with reports that schools or hospitals were having to pay hundreds of pounds to get their maintenance provider to carry out minor tasks. During the National Audit Office’s 2011 investigation into PFI it was revealed one school paid £333 to have a lightbulb changed.  That was often down to very badly constructed contracts, with suppliers expecting to make most of their money from ongoing service charges of that nature rather than from the initial financing and construction. 

In the USA, it often seemed to be military spend where costs were dis-proportionate; the famous ‘$435 hammer’ back in the 1980s, for instance. Now there is another example hitting the media this week. A new report from the Defense Department inspector general accuses aerospace and military giant Boeing of massive overcharging.  The contract with the US Air Force allows Boeing to buy the required spare parts for the C‑17 military transport aircraft, and the Air Force reimburses Boeing for those purchases, according to the report. About 220 C-17s are used by the Air Force, Air National Guard and the Air Force Reserve Command. 

But overcharging accusations covered around a dozen spare parts (which does not seem many, to be honest). The much-quoted example was soap dispensers used in the bathrooms of C-17 military aircraft, where the overcharge was estimated at 7,943%. So the dispensers were charged at some 80 times the price of similar commercially available products.

“The Air Force needs to establish and implement more effective internal controls to help prevent overpaying for spare parts for the remainder of this contract, which continues through 2031,” said Defense Department Inspector General Robert Storch in a statement. 

Boeing has issued a holding response, saying they are reviewing the report, “which appears to be based on an inapt comparison of the prices paid for parts that meet aircraft and contract specifications and designs versus basic commercial items that would not be qualified or approved for use on the C-17″.

This is often the truth behind these stories. The specification for special ‘military’ items turns out to be significantly different to the apparent equivalents we might pick up in Walmart or on Amazon. However, that often means that it is a different type of Bad Buying that is taking place. It may not be a rip-off by the supplier, combined with poor scrutiny and contract management by the buyer. It may actually point to a poor specification.

So why exactly would a basic commercial soap dispenser not be fine for a cargo plane? Its not as if they fly at the speed of sound or anything.  In fact, do you really need a dispenser that needs to be cleaned, refilled and so on, at all? Why not a simple bar of soap?  The military and indeed some other public bodies do have a history of over-specifying, sometimes without realising just how much that can add to the costs.

It’s worth remembering that an industry-standard specification, or something that is readily available, perhaps even an item sold to consumer buyers, is almost always a lot better value than something we design and specify ourselves. If the most fundamental way of saving money is just  by saying “don’t buy it”, the next best and most basic route is to say, “buy something simple”.

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Manipulating the specification for procurement fraud

One of the more creative ways of committing procurement-related fraud is by the manipulation of specifications. It requires a little more skill than simply bribing a decision maker to choose your firm  or over-invoicing a client and hoping no-one notices, but it can be very effective.  The basic approach is that during the process to select a supplier or suppliers, a key person or people in the buying organisation make sure the specification favours strongly one particular supplier that they want to win the contract.

It is by definition a fraud that requires internal involvement, although often the supplier that wins the contract will be aware of it. Indeed, usually the supplier will be paying some sort of bribe or ‘thankyou’ to their internal accomplice(s). But sometimes, the supplier who benefits is not aware of what is going on, and sometimes the internal protagonist might not even get anything personally out of it. They may even feel they are doing the right thing for the organisation – “I know that Smith and Co are the best firm to do this consulting work, so I just want to make sure nothing goes wrong in the procurement process and they do win it”.

But I would argue this is still corruption if the specification is maniplated away from what would be the ‘best’ for the buying organistion, even if that is ‘just’ corruption of the process rather than corruption for personal gain. Bidding firms often spot this. They will read a specification and think “that has been written to favour our main competitor”.  Often they don’t bid on that basis, and the level of competition is reduced.  There have been many allegations of this practice in the defence sector for example over the years, and this is from the Bad Buying book.

‘One case where corruption was allegedly involved is the long-running saga of the Indian government helicopter contract with AgustaWestland, worth some $466 million. India terminated the contract after accusations that the firm – owned by Finmeccanica of Italy – bribed officials. The Indian government said in 2014 they “terminated with immediate effect the agreement that was signed with AgustaWestland International Ltd (AWIL) on 8 February 2010 for the supply of 12 VVIP/VIP helicopters on grounds of breach of the pre-contract integrity pact and the agreement by AWIL.”

The allegations surrounded manipulation of the specifications, with suggestions that the company had used middle-men to bribe Indian officials to win the 2010 contract. The allegation was that a defence ministry specification insisting its new helicopters should be capable of flying at 6,000 metres altitude was cut to benefit AgustaWestland’.

Actually one of the worst examples I saw of this was when a consultant was repeatedly used by local authorities to help develop the specification for a particular fairly specialist service – he often worked on the procurement as well. Oddly enough, his specifications always seemed to favour one particular supplier, the same one that the consultant regularly worked for in the periods between his work on the buy-side! All the other suppliers knew this and generally didn’t bother bidding if they saw he was involved with the procurement.

Another interesting example popped up recently. The State of Oklahoma in the USA decided to give all its schoolkids a copy of the Bible. But rather oddly, the specification included the requirement that the bible must also include certain US historical documents, such as the Constitution and the Declaration of Independence. Funnily enough, the only version of the Bible that has these additions is what is known as the “God bless the USA bible”, produced with the endorsement of Donald Trump for which he gets a cut of the revenue. It’s a luxury item, bound in leather and sells for the ridiculous amount of $60. A standard bible can be acquired for a fraction of that.

Critics alleged that Oklahoma leaders are keen Trump supporters and deliberately manipulated the specification. However, whether or not that was true, there was good news this week. The state amended its request for 55,000 school Bibles, so other versions can be state approved. The request was altered, removing some of those onerous requirements, a victory for “good buying”!  

So remember how important a good and fair specification is, and if you want a strong competition, try and make sure it isn’t too obviously tilted in favour of one bidder. Unless you want it to be, of course …

(Footnote – you might expect me as a Humanist to be against forcing kids to read the Bible. But actually, I cannot think of anything more likely to make young people feel negative about religion and maybe help them make up their own minds about their beliefs and how they want to live their lives!)

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