, ,

NAO Pandemic Procurement Report Sticks the (Well-Judged) Boot In

This week saw the publication of the UK National Audit Office’s second report concerning government procurement during the pandemic. The first, all about ventilators, raised some interesting issues (which I discussed on a Podcast here) but was not overly critical of the procurement process.

This new report is very different. It’s a strong but fair report, with plenty of detail and insight, and impressive given the pressure NAO must have been under itself (in terms of staff, politics, and time). In measured and factual tones, it exposes some very questionable practices, processes and actions taken this year, principally but not exclusively in terms of buying PPE (personal protective equipment).  It does not get deeply into PPE performance – there’s another report on the way shortly looking at that in more detail, apparently.

We wrote here about the VIP route for PPE, whereby firms with connections could get fast-tracked as potential suppliers, and the NAO report highlights just how beneficial that was for those firms who accessed that channel. They had a 10% chance of winning contracts, some (like the Ayanda Capital deal) for £100 million or more. Your chances if you weren’t on it were less than 1%.

I understand why there was a desire to look at more credible offers first, but the way it was done simply meant that it was literally a case of “who you knew”, not what you had done historically or were offering now.  That was clearly unfair and broke the fundamental principles of fairness and equal treatment that underpin public procurement.

Urgency was the reason why normal processes could not be followed, and I do understand that, but there were ways in which proposals could have been assessed without this blatant favouritism (and before anyone says, “so how would you have done it”, I have an answer for that – maybe a future article. Or Cabinet Office can pay me for a few days consulting and I’ll tell them. I’m a lot cheaper than McKinsey or Deloitte).

The failure to track where the 500 referrals came from in many cases (only half were noted) and apparent lack of awareness or concern about conflicts of interest also leave a bad taste here.  Indeed, a lack of documentation to support decisions is a theme running thought the NAO report.

Then, even after the NAO report, it is still not clear how the suppliers were chosen or the size of the contract determined. So there was a decent enough general process documented in the report for evaluating the suppliers and their offer in terms of credibility, but that doesn’t explain why Ayanda was given a £250 million contract while another firm might have been awarded a £1 million deal. Was it simply that they bought whatever the supplier offered once they got through the process? Was it first come, first served in some sense until the requirement was met – but that still begs the question, how did firms get to the front of the queue?

And remember, there were many credible suppliers complaining at the time that their offers of PPE weren’t even being considered. Did they fail simply because they didn’t know the right people? Did the team actually work through all the offers, or just focus on the VIP offers until they had ordered enough stock?

Given these issues, that lack of documentation around why suppliers were chosen for contracts is disappointing and unforgivable really, given the lack of competition and the size of many contracts. It broke the government’s own March 2020 Cabinet Office guidance as well, which said that buyers should keep good records of how and why suppliers were chosen.

We might speculate as to why it happened – incompetence? Arrogance? Lack of time to keep notes (with 450 people in the team, including highly paid consultants, that doesn’t feel like a good excuse)? Or corruption of some sort? The suspicion of bribery of officials remains, given this report. There must have been people who had the power to move suppliers to the front of that queue and we have no evidence of safeguards in place to ensure that wasn’t done for the wrong reasons.  

The lack of clarity on the “due diligence” process is also worrying – it wasn’t in place at all initially by the sound of it and then seems questionable, given some suppliers seem to have got through despite very dubious backgrounds. The stories in the press this week about jewellery manufacturers with “consultants “ in Spain being paid £20 million, or a young woman somehow winning a contract for almost a million pounds with no relevant experience whatsoever don’t fill us with confidence that due diligence was very effective.

Another issue was the buying of masks with the wrong specification. That appears to have been  a ”human error”, incompetence if we’re being unkind, somewhat excused by the time pressures. It has proved to be a very expensive mistake though – with the caveat that perhaps the masks can be found a useful purpose somewhere.

The report doesn’t really cover whether the prices paid were reasonable, so perhaps that will crop up in the next report. The margins being made by traders, middlemen, agents and spivs generally still haven’t been disclosed either, although the stories emerging such as the jewellery firm example seem to suggest some people made an absolute killing.

All in all, and even given the time pressures, this was not public sector procurement’s finest hour, I’m genuinely sorry to say.  In part 2, well look at some non-PPE contracts that NAO examined in the same report, and I’m afraid there is even more concerning Bad Buying to discuss there!

/1 Comment/by
, ,

Advertising Spend Can Be Bad or Brilliant Buying – Consider Kevin the Carrot!

(Picture courtesy of my phone and a very old carrot from the back of the fridge)

Let’s have a rest today from pandemic related buying failures, (potential) frauds and so on, and look at something more heart-warming.

Advertising is a fascinating field when it comes to bad – or good – buying. That’s because of the multiplier effect. It is one of those spend categories where the impact of the spend can be out of all proportion to the amount of money actually paid out. That can be either a positive or negative impact, it is important to say.

So if I am buying cleaning services, or packaging, or raw materials, then as long as there isn’t a major fraud (contaminated material, perhaps) probably the worst that can happen is we “lose” the value of the expenditure.  The packaging doesn’t work on our production line, or the cleaning service is hopeless. Even then, I may well be able to recover something from the supplier. But if I spend a million on a brilliant advertising campaign, that spend could generate tens or even hundreds of millions of “brand value” in terms of future sales and profit. And if I make a lousy buying decision, we might lose similarly large amounts of value.  

There’s a great seasonal example right now with supermarket group Aldi and their “Kevin the Carrot” campaign, which first was aired in 2016, five Christmases ago.  I don’t know how much Aldi paid for the creative genius behind Kevin, but it was money very well spent. Aldi now receive millions of pounds worth of free advertising as the media highlights the adventures of Kevin without the firm paying a penny for much of the coverage.

There is even a range of Kevin-related soft toys, and demand is so great that “to help reduce crowds in the current climate, this year Aldi has introduced a digital queuing software that’s also used by music festival Glastonbury”, according to Wales Online’s coverage of Kevin!

But we might imagine the first meeting when the agency pitched this to the Aldi marketeers… “ a talking carrot? Are you sure? I mean, carrots aren’t even very Christmassy really”? 

“Yeah, but a cute talking turkey might not work…”

Anyway, marketing and advertising can go the other way too. Remember the backlash in 2017 when the Pepsi ad with Kendall Jenner seemed to suggest that public demonstrations would all turn into happy, cheerful love-ins if Kendall just shared some Pepsi around the police and the protesters? That was withdrawn and although Pepsi got free publicity too, just like Aldi, it wasn’t quite as positive.

There’s an older example in my Bad Buying book, with the case of Schlitz Beer. It’s a multi-part story really, because the firm’s problems started with a sequence of recipe changes to the beer, which didn’t go well in terms of customer reaction. With sales falling rapidly, a new advertising campaign was the answer.

Unfortunately, the creative contribution was the opposite of the inspired talking carrot, as Schlitz used a boxer who got upset when someone offered him a beer that wasn’t Schlitz. His anger at this proposal was not very appealing however, and it went down in history as the “drink Schlitz or I’ll kill you” campaign!  The firm was eventually bought at a knock-down price by a competitor, as sales continued to slide.

That was an example of advertising spend having that negative multiplier I described earlier and I’m sure we can all think of ads that made us feel less rather than more inclined to buy a product. But in the meantime, enjoy Kevin, and I’ll see you in the queue for the Giant Kevin the Carrot Plush Toy! (too late, sold out already…)

/0 Comments/by
,

Why “VIP Routes” for PPE Suppliers Is a Slippery Slope

In our latest Bad Buying podcast, I interviewed Les Mosco who was Commercial Director at the Ministry of Defence for 7 years in the “noughties”, as well as being a CIPS President and holding top procurement jobs across the banking, oil and gas, and rail industries.

We talked about procurement in the pandemic, and touched on whether a “Tory councillor from Stroud” would really get preferential treatment when it came to offering to supply PPE. We both doubted whether his position would carry much weight at the centre of government, and Les said that in his time in MOD he found politicians and senior colleagues were pretty careful to declare conflicts of interest and the like.

However, the latest information from the Good Law project, who have taken legal action against the government to find out more about some of the “odd” looking contracts that have been awarded, does suggest that there may have been special treatment for some firms.

A flow chart they obtained shows the way the government’s PPE sourcing team handled the thousands of offers for help that came in from all sorts of firms and individuals. The noteworthy element is a box on the chart that says, “Refer China, Donation, VIP or Make cases to correct contact”.  There is also a note saying, “Support provided from high profile contacts, require a rapid response and managing through the process. Therefore are managed through the High Priority Appraisals Team”.

There is no definition as yet of exactly how a “VIP” was defined. There is no clear evidence that being a donor to the ruling Tories or knowing a Minister / special adviser meant you were a VIP.  But that of course is the suspicion, in the absence of any more clarity about the process.  Or it may be that the VIP designation was just intended to make sure important people were handled carefully. They may not have been given any priority in terms of winning business, but perhaps it was just to make sure they did at least get a reply to their offer quickly. Let’s face it, if the Queen had offered to knit a few masks, you would have wanted to reply pretty quickly to her email!

However, the concerns remain that it may have been more than this. Were VIPs helped through the system, and were their offers to supply moved to the top of the priority list? It is also interesting to note that the Daily Mail, a supposedly loyal Tory newspaper, gave this story major coverage.  And we still haven’t had the answer to the key question. Exactly how did the PPE buyers choose the firms to supply PPE – in some cases, awarding contracts worth over £100 million to firms with no track record in that supply area.  

Now some will say that doesn’t matter anyway which firms won, as long as they did actually come up with the goods. But it does matter. Not only would unfair selection processes and queue-jumping for VIPs break the fundamental principles and regulations of public procurement (UK, not just EU), but the whole concept of privileged access is also a root casue for and enabler of wider corruption in organisations or even countries.  You may think that the UK couldn’t go down the route that many other countries have unfortunately followed, but we have to be vigilant. If it becomes who you know, rather than what you can do, we are ona slippery slope in terms of public procurement.

Anyway, do take a listen to the interview with Les – he also offers some great advice to procurement professionals about how we should behave when facing tricky situations. And I’ll be talking more about the “slippery slope to corruption” in my next podcast, out later this week.   

/0 Comments/by
, ,

Should the UK Government Be Transferring More Risk To Track and Trace Suppliers?

In episode 4 of my podcast, which you can now access from this website (see links below) I talk about fraud and corruption in buying, topics that feature heavily in the Bad Buying book. But I also get into the controversy over the UK government’s contracts with firms such as Serco and Sitel. These relate to the Covid “test and trace” process, which has not been a huge success in terms of its ability to identify contacts of people diagnosed with the virus or in persuading those folk to self-isolate.

The controversy has come first of all from the fact that private firms were awarded contracts to run the process without any competitive process, which raises issues of both favouritism and concerns about value for money. Competition is a key driver in terms of achieving value in public contracts, and without it, there are concerns that firms will make excess profits from the taxpayer funded work.

Whilst local government and NHS staff do some of this tracing work, many experts feel that they should have been asked to do more, and where comparisons can be made, the public sector seems to be out-performing the private. But the latest debate was triggered by questions to the health minister, Helen Whately, around how the private sector firms are being managed.

A conservative MP, David Davis, asked “What performance targets are in place for commercial providers of track and trace functions; what penalties can be imposed for failure to meet those targets; and what penalties have already been imposed for failure to meet those targets?”

Whately answered: “Contractual penalties are often unenforceable under English law, so they were not included in test-and-trace contracts with Serco or Sitel. Sitel and Serco are approved suppliers on the Crown Commercial Service contact centre framework and the contracts have standard performance and quality assurance processes in place. Some information on key performance indicators and service levels has been redacted from these published contracts as it is considered to be commercially sensitive.”

That has led to much discussion in the media around whether Whately was telling the truth. In the podcast, I conclude that this was a classic politicians answer – not a lie, but not giving the full picture either.

“Damages” as a type of contractual penalty can be unenforceable, the general rule being that they can’t be disproportionate to the value and nature of the contract. I can’t ask my builder for £1 million in damages if they don’t complete a small repair to my kitchen by the end of the month, even if we contractually agreed that timescale.

But there are certainly other ways of using “penalties”, in the sense of actions that will hurt the supplier if they don’t perform. Three clear options are:

  • Liquidated damages, agreed up-front (I might get £1,000 from my builder if we agreed that was a reasonable amount to compensate me for their failure to meet the timescale).
  • Service credits – a reduction in the  supplier’s subsequent invoices based on missed targets in this period.
  • Performance related contractual payments (“payment by results”) – putting it simply, the builder ain’t getting paid till the work is done!

I talk about all three in more detail on the podcast, but any (or all) could have been used in the tracing contract. Service credits are frequently used in government outsourced service contracts;  and in terms of performance-related payment, it would not have been unreasonable to have some element of the fee related to the number of people successfully traced by the firms, for instance. Perhaps that is in place; but surely Whately would have mentioned any performance mechanism if she could have?

Now, government procurement professionals aren’t stupid. I’m sure they would have considered these issues, and would have wanted to include performance clauses. But my suspicion is that the firms just refused to accept any serious performance penalties, and because of the urgency (and lack of competition), government backed off. You can have some sympathy actually for the firms – they may have argued that external factors that they don’t control would affect their performance, such as the robustness of the data they are provided with in order to do the tracking.

So it would not have been fair to transfer all the risk to them in terms of penalties. However, in an ideal world, we would always want the supplier to have appropriate incentives to perform well, and it is not clear those are really in place here.

/0 Comments/by
, ,

Boohoo Report on Leicester Sweatshops – Lack of Governance and Supplier Management

We should give Boohoo credit for commissioning an independent report from a top legal expert, Alison Levitt QC, to look into the Leicester “sweat shop” scandal.  Earlier this year, the Sunday Times exposed multiple factories that were paying staff well under the statutory minimum wage as well as raising issues around workers’ health and safety during the pandemic. Boohoo was perhaps the highest profile of the retailers that sold  garments made in these factories.

But the report makes uncomfortable reading for the Boohoo board and investors. The very first paragraph is striking. “One of the aspects that I have observed is a tendency by the Boohoo board to treat every piece of negative publicity about the Leicester garment industry as though it was the first time they had ever heard it.”

But the firm knew about issues months (at least) before the story broke.  One auditor told the Board that the conditions in one factory were amongst the worst they had seen in the UK. Levitt says that there was no intenional exploitation by the firm, but rather that “governance” and processes were weak. Fundamentally, Boohoo felt no responsibility for the conditions in their suppliers’ factories. It was also unimpressive to see John Lyttle, the CEO, didn’t mention a trip he had made to “appalling ”factories when he was interviewed by Levitt. That only came out when she talked to others, which made Lyttle look somewhat devious or maybe just very forgetful …  

There is an interesting philosophical dilemma here of course. When I was a CPO in large organisations, I would have objected if you told me I had to take responsibility for every worker in every one of the thousands of firms and facilities that supplied NatWest or the Department of Social Security. So there is a question of scale and dependence here. But we have seen how the leading firms in the procurement with purpose movement (read our “Procurement with Purpose” interview with Unilever here, for instance) do step up when it comes to their major suppliers. They also look to intervene positively when important supply chains contain major sustainability-type risks and issues, whether they are environmental or social.

So suppliers of the clothes that are the main engine of Boohoo’s business should be defined as pretty strategic and worthy of more diligent supplier management from the firm than we saw in these cases. Boohoo has now accepted the review’s recommendations in full and apologised for failing to “match up to the high expectations we set for ourselves”.  The CEO also said the company would be a “leader for positive change in the city”, and promised to go further and faster to improve our governance, oversight and compliance.”

What about the business impact of all this on Boohoo? Well, the initial scandal certainly did have a negative impact, as the share price crashed by some 50%. But it is interesting to see that it is now back almost where it started, within 5% of so of pre-scandal level.  Does that suggest the group that is the main customer base for the firm – young females – has a short memory? Or do they think Boohoo has apologised and will take action, so everything is OK?   

Some of those customers are undoubtedly very committed to serious campaigning on purpose-related issues, from climate change to diversity. But (and sorry to sound like an old cynic here), it seems like many are happy to jump on a Twitter or Instagram controversy about transgender rights or veganism and express an instant virtue-signalling opinion, rather than do something more demanding and difficult – such as changing their buying behaviour and checking out the provenance of the clothes they buy.

/0 Comments/by
, , ,

UK Government Spends Millions with Consulting Firms – Did Buyers Know What They Were Doing?

UK government procurement related to the pandemic continues to be a source of some concern and confusion. More consulting contracts were published on the Contracts Finder website last week, showing the vast sums of money that are finding their way into the pockets of the partners at major consulting firms.

Deloitte were awarded two further consultancy contracts, via a call off from a Framework Agreement, worth a total of £8.7 million for:  “Buy Support for Ventilators – ICU equipment & consumables, ventilator sourcing, hard to source products” (£6.7m) and  “Support programme delivery including the identification and procurement of PPE” (£2.2m).

Two other unusual consultancy contracts were awarded to Boston Consulting Group to support the chaotic Test & Trace programme. That represented £4,992,059 for “strategic support” and £4,996,056 for “digital support” (very precise values!)

We don’t know whether there was any competitive process – for those of you who aren’t public procurement experts, you are not allowed to simply choose a “random” or favoured supplier from a “Framework” in most cases without running a competition between firms who are listed on it. Did that happen here? I have my doubts but we don’t know. There have also been comments from within the NHS suggesting that no-one quite knows what Deloitte actually did in terms of ventilator procurement. But hey, it was only £6.7 million.

But there was some good news as well. Gareth Davies, who heads up the UK National Audit Office, was interviewed by the Guardian and amongst other points, he confirmed that a report into government procurement processes during the coronavirus pandemic would be published later this year.

“We’re looking at the procurement process, a lot of public comments and concern about the transparency of some of the procurement contracts around PPE and other areas. We’re doing a detailed piece of work,” he said.

So here are a few of the questions NAO might like to ask the buyers of those consultancy services if they choose to examine that area in particular.

  • Did you understand what it was you really wanted to buy?
  • Did you consider the market in an appropriate manner, and use competition to arrive at the best fit / best value supplier to meet your needs?  
  • Do you understand the difference between the three basic reasons or needs behind buying consulting services – specialist knowledge & skills, intellectual horsepower, or execution / implementation capability?   
  • Did you think about the different commercial mechanisms and models – fixed price, time and materials, target pricing and all the variations? Are you clear you chose the most appropriate for your contract?
  • Do you understand the economics of consulting firms and therefore did you use that to negotiate confidently on daily rates (or fixed price)?
  • If you didn’t use competition, how did you arrive at a fair price for the work?
  • Did you make the deliverables, outputs or outcomes that you were expecting very clear?
  • Did you define the contract management process and the interim reporting that you wanted to see from the firm, and then follow through with professional contract management practice?

Let’s hope those responsible for spending money with these firms avoided Bad Buying and can answer these questions confidently and robustly.

/0 Comments/by
, , ,

Track and Trace – Serco Won’t Tell Us Who Is Doing The Work

Private Eye always has some interesting stories, and its coverage of the pandemic has been exemplary  – its medical writer has given some of the best advice and most balanced analysis I’ve seen anywhere.

But one article in the current edition shocked me. The magazine has been trying to find out more about the “track and trace contract”, awarded to Serco. Private Eye has had Serco in its sights since the tagging scandal some years ago, and coincidentally, four ex G4S managers are currently standing trial for fraud in connection with that same scandal.

So the magazine has been interested in how the firm is managing this new contract, which obviously is critical to how Covid is being handled in the UK. There have certainly been questions about how effective the service is proving, with reports that less than half the contacts are successfully traced, and tracing staff complaining of having nothing to do for days on end.

However, it appears that the vast majority of the actual people who are doing the work (such as it is) aren’t employed by Serco, but by sub-contractors. The firm is subcontracting operations to 29 other companies, and 85% (9,000 of a total of 10,500) of staff are apparently not employed directly by Serco. 

But when Private Eye asked which firms were acting in that role, the Department for Health and Social Care (DHSC – the department that “owns” this contract), refused to tell them. So under Freedom of Information rules, the magazine got hold of various documents. They showed that when the Labour Party’s Helen Hayes had asked the same question, the Department didn’t know the answer – and had to ask Serco!

Even more amazingly, it appears that Serco wouldn’t tell the Department the answer. The company’s response (that Private Eye saw) referred to a “panel of 29 subcontractors” and said that  those firms selected are either from a Crown Commercial Services framework or are “known providers”.

It is disturbing is that DHSC didn’t have this information at its fingertips when the question was first asked, and even more so if the supplier doesn’t actually have to disclose who they are using.  This is obviously an absolutely key contract, worth an awful lot of money and critical to the nation’s handling of the Covid crisis. How could you put this in place and not insist on knowing who your prime contractor was using as key sub-contractors? That sounds like a very weak contract and very poor contract management.

I know contracts have been let in haste, for understandable reasons in some cases at least. But there is no excuse for not having a grip on the key aspects of  how major suppliers are delivering the services. Understanding the supply chain must be part of that, and this failure is certainly a contender for Bad Buying – The Sequel!

/0 Comments/by
, ,

HS2 Construction Starts – The Money Pit Gets Deeper

Construction of the HS2 high-speed railway network in England started formally last week. Some will be cheering – not me. At a time when working patterns have been changed because of Covid, perhaps for ever, and everyone is getting used to Zoom, Teams and the like, it seems crazy to be building new rail capacity so businesspeople can go to meetings. Other possibilities such as autonomous road vehicles make also make this very much a 20th century option.

HS2 is basically a job creation scheme, but an incredibly expensive one. The projected cost was initially £1-36 billion, but we’re now looking at £106 billion, incredibly.  The National Audit Office (NAO) report in January said this in summary. “In not fully and openly recognising the programme’s risks from the outset, the Department and HS2 Ltd have not adequately managed the risks to value for money”.

Does anyone really think that those “risks to value for money” will be achieved through the rest of the programme? Look at Crossrail, where the project is now three and a half years (at least) behind schedule, and the cost has risen to at least £19 Billion, some £5 billion over budget.

The business case for HS2 was always highly questionable. It relied on ascribing a value to the extra 20 minutes or so the passengers would have because of their somewhat faster journey from London to Birmingham. It assumed that the journey time was “wasted” from a benefit point of view, which is clearly not true (have they never heard of smartphones or laptops?), and also assumed that passengers wouldn’t use the extra 20 minutes by staying in bed a little longer!

This is an example of a vanity-driven Bad Buying project, and there are others described in my new book, Bad Buying – How organizations waste billions through failures, frauds and f*ck-ups,  published by Penguin on October 8th (you can pre-order it here). Politicians love to spend money in a way that they feel will provide them a “legacy”, assuming that posterity will thank them for their initiative and forget the huge waste of taxpayers’ money once a few years go by.

Another problem with huge programmes of this nature is the lack of anyone in a controlling position who has a vested interest in really managing costs. The engineering and construction firms are probably smart enough to avoid signing up to onerous fixed price deals, so they would like the construction to go on for ever. Likewise the well paid HS2 staff, including thousands of “contingent labour” workers (including procurement people) no doubt earning a very good day rate. The longer the better for them.

We might assume that the politicians have an interest in managing costs, but the problem here is both the relative timescales and the asymmetry of information. Even the Transport Minister has no idea whether they are being spun a line by the experts who are closely involved in the programme. And most Ministers last less than 3 years in post so they know that they probably won’t be around themselves to carry the can – and later Ministers can blame their predecessor! So who really represents the interests of the poor old taxpayer in this? NAO perhaps, but their reports, although excellent, tend to be put together well after the event.

The only positive I can see is that if I do write a sequel to Bad Buying, I’m sure HS2 will give me some good stories. But I’m not sure that offsets the likely spending of £5,000 for EVERY family in the UK, to build what may well become a major white elephant.

/0 Comments/by
, , ,

Care Homes in the UK and Beyond – Bad Buying by Omission

One of the first disasters of the current Covid crisis in the UK was the transfer of thousands of people out of hospitals into nursing and care homes, without checks as to whether they had the virus. That put the focus again on the social care sector, and although most of the staff in homes have conducted themselves with great dedication and bravery since then, many issues remain.

I wrote an article on the topic some 5 years ago – here is an excerpt.

What market presents the biggest single challenge in public sector procurement? It has to be Social Care. A spend category worth some £20 billion a year in terms of local authority third-party spend. A category almost totally outsourced now, where funding is being cut by local authorities as their grants from central government are slashed. That is causing a reduction in supply, which in turn is driving severe problems for the NHS as record numbers of ”bed-blockers” are stuck in hospitals because of the lack of a social care-supported  alternative at home. A market where major providers have gone bust and more are teetering on the brink, with the vultures of private equity waiting in the wings.

Since then , we’ve seen more major providers going bust, and yes, the private equity firms have moved into the sector. Many homes rip off their privately paying residents, charging them far more than they charge those funded by councils who use their negotiating power to beat down prices. Meanwhile, too many staff are badly paid, staff turnover is high, and the quality of care is variable.

But these issues are not restricted to just the UK. In the Observer yesterday, Will Hutton wrote about the private equity sector in general and the care home issue in particular. He described the tragic death in a home in Spain of an 84 year old man, Zoilo Patiño, whose body was found in a locked room 24 hours after he died.

“The subsequent investigation into the management company – DomusVi, which had been contracted to operate the home – showed it had been stripped down to a “fast-food version” of healthcare by years of cuts: there was only one care worker for every 10 residents, with not even the PPE to help cope with a dead body”.

But DomusVi, Spain’s largest care home operator, is actually owned by ICG, a British private equity company. As is usually the way with private equity, the company was refinanced and is loaded up with debt – that leverage being one key way in which private equity makes its money. Stripping out costs, or “increasing efficiency” if we’re being kind, is another route often followed. For instance, Hutton claims that Care UK, backed by Bridgepoint private equity, has reduced staff numbers by a third while doubling the number of beds provided in the homes it operates.

Social care services, including care and nursing home provision, are bought by dozens of local authorities around the UK.  Many do a good job in a difficult situation, but this is a spend category that really cries out for some serious national thinking and strategy. We need to ask whether this is a suitable sector for private equity investment; whether there should be more scrutiny of the financial state of providers; what minimum standards might be imposed; and perhaps how to encourage more local, third sector and diverse suppliers into the market – as well as sorting out the funding of care, which is an issue that goes well beyond procurement.  

But the UK central government has never shown any appetite for this sort of involvement on the procurement front. This is in effect, national “Bad Buying” by omission. Whilst over the years, huge amounts of effort, skill and money have been spent putting together strategies and collaborative approaches to buying stationery (!), energy, cars or laptops, OGC, CCS, YPO and all the other collaborative bodies have shied away from social care, as have the strategists in Cabinet Office, the Department for Local Government (whatever it is called this week) or Treasury. 

Perhaps the promise of a new approach to social care funding will provoke some serious action on the procurement and market side as well. We can only hope so.

/0 Comments/by
, , ,

Fraud, Charities and Steve Bannon – Where’s the Money Going?

The arrest of Steve Bannon, President’s Trump ex-adviser, hit the headlines this week. Along with several other men, he is accused of siphoning off funds that were given to a charity which sought private donations to support the building of the Trump-promoted wall (fence, barrier, whatever) between Mexico and the USA.

Without getting into the mentality of the donors who would give their hard-earned cash for that cause, the case does point out the difficulties of knowing exactly where you money is going when you had it over to any charity.  There have been many examples over the years of charities that do genuinely support good causes, but appear to be just as interested in spending money on fancy offices and big salaries for executives.

Even an organisation as reputable as the Australian Red Cross ran into controversy recently when it had to defend its decision to spend up to 10% of bushfire relief donations on administration costs. That doesn’t seem too unreasonable to me, but in the past, it had promised to put 100% of all money raised directly to a cause.

Then there are the actual fraudulent “charities” that act as a front for criminal activities. For instance, four men were found guilty recently of fraud in the UK when they expropriated over £500K of donated money rather than using it for genuine purposes.  Collectors in camouflage trousers and “Save Our Soldiers” shirts rattled collection tins and conned people at railway stations into thinking they were giving to support disabled troops. But the  money went to fund the lifestyles of David Papagavriel, Terence Kelly,  Ian Ellis and Peter Ellis. That’s the reason I never put money in collecting tins if I don’t know the charity, by the way, even if it looks like a great cause.

The third type of charity-related fraud comes when a charity itself is the victim. Every organisation that sees large amounts of money flowing through it can be a target for what I define as “procurement related fraud”, and charities are no exception. There are some interesting examples of this in my new book, Bad Buying – How organisations waste billions through failures, frauds and f*ck-ups (to be published by Penguin Business on October 8th).

The fraud may originate from outside the organisation, but often there are insiders involved, or in some cases it can be a purely internal affair. For example, one story in my book covers the exploits of the CEO of an education charity, Philip Bujak. He was sentenced to six years in jail in 2018 at Southwark Crown Court in London for swindling some £180,000 out of his organisation. Using a company credit card, false invoices to Fake “suppliers” and other routes he got the charity to fund his honeymoon, and family events at hotels. One bill for a “charity conference” was really his mother’s 80th birthday party, and he was also keen on buying and restoring paintings.

So don’t think that everyone who works within a charity is automatically a good person. There can be the odd bad apple, which means that charities (like every other organisation) need to take strong anti-fraud measures to protect against internal or external villains. I haven’t got the space here to go through all those suggested steps, but my book goes into that in more detail, with seven key principles to avoid buying-related fraud and corruption listed and explained.  And we will come back to those here at a later date as well.

Meanwhile we will watch the Bannon case with interest …

/0 Comments/by