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Thurrock Council Comes Up with a New Type of Bad Buying

Having spent several years researching, writing and now promoting the Bad Buying book, I thought I’d heard pretty much everything in terms of public sector organisations finding ways of wasting taxpayers money through incompetent or corrupt procurement, investment and spending.

But there is always something new, and the case of Conservative-run Thurrock Council in Essex and their investments in bonds linked to solar power is unique and astonishing. You can read the full story here – it is great work by Gareth Davies of the Bureau of Investigative Journalism, supported on this story by the Daily Mail.

Thurrock has invested in solar farm businesses owned by an individual called Liam Kavanagh. Now I suspect most procurement professionals are inherently suspicious of people who haven’t been around for long, or whose businesses are only recently established, but who buy multiple fancy cars / fancy homes. In the case of Kavanagh, “his jetset lifestyle included the use of a private jet, a fleet of super-cars and a Hampshire farmhouse with a swimming pool, wine cellar, home cinema and steam and hot tub room”.

As the Mail reported; “Cash-strapped Thurrock Council in Essex borrowed £655million of public money – the equivalent of triple what it spends on services each year – to invest in 53 solar farms across the UK. It agreed a series of deals with globe-trotting businessman Liam Kavanagh, whose integrity was later questioned by a High Court judge over £5million his company banked in ‘commission’.”

And now there appears to be some £130 million of Thurrock’s money that has “disappeared”, with questions over even larger sums owed to the council. Kavanagh has liquidated companies that took money from Thurrock and has re-arranged his financial affairs, leaving the council with concerns over up to £200 million that it is owed. Incredibly, much of the investment was made by borrowing from other local authorities, who could be in trouble if Thurrock then default!

Davies reports this.  “In an interview at the time, Clark (Thurrock’s CFO) described a bizarre arrangement, involving dozens if not hundreds of short-term loans, many as short as a month in length, with the effect that the council was in a perpetual state of borrowing from one local authority to repay another. Piecing together data in obscure spreadsheets revealed Thurrock had borrowed from at least 150 other councils”.  Thurrock also borrowed some £350 million from a Treasury-run lending body.

Local authorities seem to be a hotbed for financial waste, incompetence and fraud. There are many questions still being asked about Croydon’s property “business” – that council went bust and Whitehall had to send in “commissioners” to run it. The same has happened in Slough – dodgy property investment there too.

Nottingham Council decided to get into the energy business and its “Robin Hood Energy” firm stole from the taxpayer to give to … well, tens of millions in losses disappeared anyway. Gloucester tried something similar and failed.  My own local council, Surrey Heath, invested some £120 million in buying commercial property just before the bottom dropped out of that market. The valuation is now more like £50 million.

So the problems cover councils run by Labour (Slough, Liverpool) and the Conservatives (Surrey Heath, Thurrock). It does often seem to be council officials who are the driving force behind reckless investments and spending, while the councillors are not informed or don’t have the intellect or power to intervene. In the case of Thurrock, Davies reported that officials kept elected councillors in the dark for months and have not given full access to the details (as well as blocking FOI requests and questions).

Whilst Davies has to be careful in his reporting – “While there is no suggestion that any rules were breached….” he says, we must wonder whether in some of these examples, corruption was involved, although it is hard to prove. Do external parties (suppliers, property developers etc.) say to their inside-the-council enabler “look, I can’t give you anything now, but in five years’ time when the heat has died down, there’s a million for you”.  

Anyway, if it is not corruption, then we are seeing far too many examples of gross incompetence from our councils. And it is costing taxpayers many, many millions.

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Good Tender Documents – More Important Than You Might Think

You may have read about the recent UK hospital trust tender that hit the media because of its questions about diversity and transgender issues. It turned out that the questions should not have been included in the document; it was human error rather than anything else.

I recently got involved with another National Health Service tender – we’re talking about a “collaborative buying” framework here, potentially worth hundreds of millions.  A consulting firm I’ve worked with over the years asked me to look at the tender documents, because they could not work out how on earth the buyer could possibly differentiate between the various bidders. Basically, there were no evaluation questions that actually asked the bidders to explain their core technical capability!

I read it and agreed that is was a very odd document.  No selection outcome could possibly have stood up to legal challenge, for a start. Luckily, I knew a senior procurement person in the buying organisation, so I called and explained the issue. A few days later, the tender was pulled. Pure human error again.

I was reminded of these cases during an Oxford POGO session last week. (POGO is a very worthwhile knowledge sharing club – more details here). The topic was capability in public procurement, and there were a number of interesting speakers. But it was Steve Schooner, Professor of Government Procurement Law at the George Washington University Law School in Washington, USA, who brought up the issue of writing tender documents.

Too often that was seen as a pretty unimportant task, but he said (quite correctly) that is a key skill if you want to get the best potential suppliers, the best proposals and ultimately the best outcomes from your procurement and suppliers.

He also said that “no-one should be allowed to write a public sector tender document until they have sat supplier side and responded to a tender”!

I think that is a great idea and maybe should be a core training activity for developing public procurement professionals. Over the last decade or more, I’ve occasionally supported clients who were responding to (usually public sector) tenders. It has given me a lot of insight into what good procurement practice looks like – and more depressingly, what bad practice looks like. I’ve also worked buy-side of course and tried to help buyers to get it right! It is not always easy, but it is always important.

As well as the contribution of this stage in the process in terms of final outcomes, there is another factor to consider. The tender documents you issue are probably the most direct and often the most widely-read manifestation of your procurement function’s competence.  

You can claim to be a world-class team, you can win lots of awards, but if potential suppliers read your tender and think “what a load of old rubbish this is”, then more than anything that will be what informs their view of you. The same often applies with internal stakeholders. If there are non-procurement colleagues involved in a procurement process, and they see that the procurement professional doesn’t know how to produce good material, or (even worse) the stakeholder starts to get calls from frustrated potential suppliers, then this is very bad news for your internal reputation.

Going back to the beginning, I spoke to a senior person involved in the “controversial” case of the diversity questions. We’ve learnt two things, he said. Firstly, we need more and better training for all our staff who are involved in producing tender documents. And secondly, “we need better quality assurance before material goes out of the door”.

Often top procurement executives feel they are too busy to read tender documents, or that it is  a low-value task for someone of their seniority, skills and experience. Below their pay grade, as it were. But if that is your view, just remember – a lousy tender document has the potential to trash your team’s reputation more widely and faster than just about anything else.   

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Transformative or Tedious? The New UK Procurement Bill

The new UK public procurement legislation has been laid out in a Bill now which is being discussed and revised in the House of Lords. Leaving aside political comments, most independent experts, particularly the procurement academics and lawyers, see it as being somewhere in the range between “mildly disappointing” and “mildly positive”.  (Read an excellent assessment from Professor Sanchez-Graells here and a useful set of proposals for improvement from the UK Anti-corruption Coalition here).

I suspect that is inevitable. Public procurement aims to meet several different objectives, but sadly these are not all congruent – we can’t have it all. Public procurement has to balance:

  • Achieving fundamental value for money in what is being purchased – getting the right blend of quality and cost that enables the taxpayer to feel their money is being spent carefully and sensibly to generate the desired policy outcomes.
  • Minimising the chances of fraud or corruption by making such actions difficult or easily detected.
  • Encouraging innovative, dynamic, competitive markets – not just to help achieve future value for money in public spend, but because that will help the wider economy too.
  • Contributing towards wider UK government and societal objectives – economic, social, environmental or, as we now see, more overtly “political” in nature. (Using public procurement to support the government’s “levelling up” agenda for example is the type of political objective we’ve never really seen before in public procurement). 
  • Doing all of this in manner that keeps the transactional cost for both buyer and supplier to acceptable levels.

The problem is that these objectives can be conflicting. Simplify processes and deregulate, and you may reduce transactional cost and stimulate markets, but it will inevitably increase the chance of fraud and corruption. Focus more on the “social value” benefits, and if you are not careful, you will jeopardise basic value for money. And so on.

So it is impossible to keep everyone happy with regulations, and this is why it is difficult to assess the long-term effects of the new Bill. It will be at least two years before we see how the different objectives are being met or not met.

Perhaps the element that has most potential for transformation, but is also a major area of uncertainty, is the freedom for contracting authorities (CAs) to design new procurement processes. Will we see innovative and effective new ideas emerging, including innovative use of technology? Or will CAs quickly default to the “recommended” standard options that Cabinet Office are going to provide?

No doubt we’ll be writing further about this topic as the Bill proceeds into law, and there are some key areas where I’m not clear yet about the likely implications. The proposals on the role of technology, and the whole transparency area both have some positive aspects, for instance, but the devil is in the detail. However, here are a few predictions to be going on with.  

  1. The Cabinet Office standard processes will look pretty similar to the previous EU procedures, but with a bit more “negotiation” added in. But there will be so many caveats and warnings about (e.g.) equal treatment for suppliers that CAs will only use negotiation very cautiously…
  2. … unless they are running a corrupt procurement, where somebody in a powerful position wants a particular supplier to win. But of course that NEVER happens in the UK(!!)  I’m afraid we will see increasing corruption in public procurement, not just because of the greater freedoms, but because moral and ethical standards in the country are eroding from the top down.  
  3. Some lawyers are getting excited about the new rules on exclusion (mainly because of their complexity) that enable buyers to ban firms from bidding. But they will prove to be largely theoretical and decorative. I can’t imagine many hard-pressed procurement directors looking at the really complicated regulations for exclusions and saying anything other than “OK, let’s forget about this”.  (See Pedro Telles on this).
  4. Within a year or two, we will see suppliers complaining that the new rules don’t seem to have simplified public procurement.  I’m not criticising the Cabinet Office policy folk here – I’m just not sure it is possible to really simplify matters whilst trying to meet all those different goals. And no, I don’t have amazing transformative ideas myself, to be honest.
  5. Many older / less flexible public procurement professionals will retire or move out of the sector. “I’ve done things this way for 10/20/30 years, I just can’t be bothered with the hassle of learning all this new stuff now”.  I’m already hearing of that issue, and we will see a staffing crisis in public procurement (unless we go into a major recession that releases private sector professionals!)
  6. Given points 1 and 5, we will see more and more use of frameworks let by collaborative buying organisations, (Crown Commercial Services, YPO, NHSSC etc).  Unfortunately this is probably not good news for supply chain resilience in general, or for local, smaller or innovative suppliers. However, the “new” central procurement unit won’t have much impact.

Finally, there are metrics that will prove whether these predictions come to pass. If they do, we will see more single tender procurement exercises (only one bidder or a “direct award”).  We’ll see further growth of the buying aggregators. There will be a very low number of exclusions.

If I am wrong, we will see happy suppliers, more bidders per contract, fewer single supplier tenders, growth in contracts to local, smaller suppliers, social enterprises and so on. There will be fewer Private Eye-type scandal and corruption stories, and a decent number of dodgy suppliers excluded … So I hope I am just being a grumpy old pessimist! 

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Fairness in Procurement

Most people see government buying as something rather dull and bureaucratic, but get it wrong and it can cost the taxpayer a fortune.  So everyone should be interested in the new Procurement Bill published last week, which will define the regulations for UK public procurement.  We will have more on that here when I’ve read it properly and also considered what people smarter than me think of it!

One of the key principles of the new regulations is to give buyers more flexibility and freedom. But I do have a fear that could lead to more corruption if it allows crooks (whether politicians or public servants) to run dodgy procurement processes to favour their preferred supplier. However, the new approach will I believe still require contracting authorities to consider basic issues such as “fairness”. That is where a lot of the biggest failures in the past have arisen – such as described in the following extract from the Bad Buying book, describing a particualr case that cost the taxpayer over £100 million because of obvious bias and unfairness in the procurement process.  

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“The case involved a 2016 legal challenge by Energy Solutions Ltd., the incumbent supplier for a huge contract to clean up de-commissioned UK nuclear power stations. They lost the tender, run by contracting authority the Nuclear Decommissioning Authority (NDA) in 2014, to a Babcock Fluor consortium (CFP).  But there were a number of mistakes made during the procurement process.

One related to “pass / fail thresholds”; areas where the NDA defined up-front that failure to meet certain conditions would lead to instant disqualification for the bidder. However, once bids were scored, it became clear that one supplier had failed to meet the threshold. But instead of chucking them out of the competition, the NDA decided to let them stay. Now this may all seem a little technical, but it is clearly unfair; and public procurement regulations really don’t like unfair buying processes.

As the judge said in his statement, you cant change your mind about the rules once you get into the buying process.  After a bidder has failed to meet a defined threshold, you can’t ask “was that threshold Requirement really that important?”, arrive at the conclusion that it was not, and then use that conclusion to justify increasing the score to a higher one than the content merited (or to justify failing to disqualify that bidder)”.

To disguise the failure of that firm, the NDA team also adjusted original scores given to the bidders during the marking process. But they failed to provide any audit trail or justification for these changes, a fact that became obvious through the trial. The NDA announced that CFP had won – which promoted the legal challenge. There were other issues too, and the final outcome saw the judge finding in favour of Energy Solutions, and the NDA agreeing to pay the firm (and their consortium partners Bechtel) almost £100 million to settle the legal claim for their loss of profit on the contract.

It is impossible to know what went on behind the scenes in cases like this.  Was it sheer ignorance of the rules? Was someone very senior determined a particular supplier should or should not win the contract? With other failures in previous chapters, a lack of understanding or knowledge caused the problem, but I’m left somewhat baffled here.

Certainly, a number of basic buying principles seemed to be forgotten. Treating bidders fairly is a good principle, whether you work for a government body that must do that legally, or for a private firm. Keeping sensible documentation to explain your decision is vital. That’s so you can explain to bidders why they won, or didn’t, but it is also a basic precaution against corruption and fraud, one that all organisations should take. If no-one can explain logically why my firm won a particular contract, then maybe it was because of the bulging brown envelope I was seen handing over to the senior buyer”.

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Fraud at Coca-Cola Enterprises- a “Basic” Example

There was major “Bad Buying” fraud case in the media last week. Perhaps the most surprising element of the story was that the offences were discovered in 2013, and related to some years before that, yet the case only came to court in 2022. Did it take than long to gather evidence? Is the Crown Prosecution Service really working on that sort of timescale? It’s a concerning issue in itself.

But back to the case and I’m afraid it was a “classic” fraud, a pretty basic case of an internal decision maker colluding with suppliers in return for payment. At Southwark Crown Court, Noel Corry, a former electrical and automation manager at Coca-Cola Enterprises Ltd (CCE), pleaded guilty to five counts of corruption and was sentenced to 20 months in prison, suspended for 21 months, plus 200 hours of unpaid work.

He accepted cash bribes, free tickets to events as well as sponsorship for his local football club, Droylsden FC near Manchester. A total of £1.5m was paid by Boulting Group Limited (now trading as WABGS Limited), Tritec Systems Limited, and Electron Systems Limited. The firms that paid the bribes were also fined – the first time the Met has prosecuted firms for failing to prevent bribery. That sets an interesting and good precedent. WABGS Limited was fined £500,000 – between 2007-13 the company benefited from contracts with CCE worth over £13m. Tritec Systems and Electron Systems were each fined £70,000 plus costs. Individuals at those firms also received suspended sentences.

Part of Corry’s job  was choosing suppliers to carry out work. Over some years, he favoured certain firms in return for cash payments. He could spend up to £50K without others getting involved, so I assume he made lots of small payments or contract awards to these firms.  “The court previously heard how Corry was given bribes through payments for “bogus” contracts for Coca-Cola, in which work was never carried out, or had Coca-Cola pay more than the actual amount charged for real work and was sent the difference”, as the Shropshire Star reported.

But in 2011, the firm changed the policy and the professional procurement team started getting more involved and a more structured process was implemented (hooray!)  They started getting suspicious as some firms changed their bids late in the process, and suspected that someone on the inside was tipping off firms about competing bids. That led to discovery of evidence which eventually led to prosecution. (Tip – if you’re committing fraud, don’t have a spreadsheet on your laptop called “Slush”)!

It’s all rather sad in some sense – of course it is good that he was caught, but his wife divorced him and their son has mental health issues now, according to the reports. And Corry eventually repaid £1.7 million to CCE.  So if you are ever tempted, just remember that it probably will ruin your life.

What are the lessons here for organisations? Well, I gave 7 key anti-fraud principles in the Bad Buying book, and several are relevant to this case – proper supplier selection processes, for example. But perhaps the most pertinent is this principle (taken from the book).

“Opportunities for collusion between suppliers, and between suppliers and buyers, must be minimized – Many frauds rely on collusion between buyer (or budget holder) and seller, so reducing the opportunity of this reduces the chances of fraud. Organizations should ensure there is always more than one person involved with any major purchase and in signing- off work with suppliers. Moving staff regularly is another option, so there is less time for the relationship, and perhaps the fraudulent plans, to mature. Some organizations have a policy that no one in a decision-making buying role will  stay for more than three years in that same job role, for this very reason.

It is not just professional buyers (procurement staff) to whom this applies. Indeed, it can be stakeholders such as budget holders or service users who by the nature of what is being bought find themselves getting too close to suppliers. I once discovered that my firm’s major IT equipment supplier was sponsoring our internal IT budget holder’s expensive car- racing hobby!

It may be very innocent, but when a marketing or IT manager makes it clear they don’t want professional procurement or finance colleagues involved in ‘their’ relationship with a key supplier, that can be a warning sign that it isn’t totally innocent. Organizations should look at discouraging closeness that goes beyond the need to work well with a supplier to get a job done. This should influence the organization’s policy on hospitality, gifts and entertainment, which should be clear and should err on the side of caution”.

So well done to CCE for eventually discovering this, but a better policy would have perhaps made it less likely in the first place. And if you work for a large organisation that allows budget holders to spend thousands without anyone else being involved, I can pretty much guarantee that one or more of your colleagues is committing exactly this type of fraud at this very moment.

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Will My Supplier Deliver? Lotteries, Camelot and Challenges

In part 1 here I discussed the reports that Camelot, the current operator of the UK National Lottery, is going to challenge the government’s decision to award the contract for management of the Lottery to a different firm, Allwyn, headed by a Czech tycoon. That decision follows a lengthy and no doubt exhaustive “procurement” process.

There are suggestions that Allwyn have offered to make more money for charitable causes than Camelot included in their proposal. According to reports, that amount is not contractually  guaranteed, but may have played a major role in the selection decision.  Which leads us into the question of confidence – how do we know that supplier really will deliver what they promised?

There was a great comment on LinkedIn related to the part 1 article. The writer told of a major NHS procurement where a US supplier came in with a knockout bid, which led to other potential suppliers simply pulling out. Then, literally on the day the new service was due to go live, “At the eleventh hour the supplier had withdrawn, admitting that they couldn’t deliver the brief and make the savings claimed”.

There is a huge difference between what suppliers (some suppliers at least) will claim they can do and what they actually can deliver. There are no magic answers to this, but in my book “Bad Buying” I suggest thinking about “analyse, reference, test”.

Analyse means looking into the firm, the product or service that you’re going to buy, doing your research on the supplier and on whatever you are buying. The amount and depth of research needs to be proportionate to how much you’re spending and how critical what you’re buying is.

Reference means asking other customers of your potential supplier or users of the product or service you are buying about their experience. It’s an obvious step, yet it is amazing how many organisations don’t bother with this step. I was asked for input on a legal case in 2018 where an incumbent supplier challenged the decision by a large government body to award a contract to several other firms, meaning that the incumbent was going to lose all its business. This was a really sensitive service; if it went wrong, you might well see reports on newspaper front pages.

Yet when the incumbent firm asked questions about how the procurement decision was made, it became clear that the government organisation had done virtually nothing to check out what other suppliers were claiming in their bids. They had not researched the track record of the firms; they had not taken up references from other customers; they did not even seem to have checked whether the directors of bidding firms had criminal records! The buyer was simply believing the bidders and hoping for the best. The competition was eventually re-started as I assume the lawyers told the contracting authority they were going to lose in court.

Test means using techniques such as pilot programmes or small-scale rollouts that enable you to get a sense of the supplier and their capability, without immediately betting the farm on a particular approach. In a large organisation, you could run a geographical experiment with a new supplier or product. Give it a try in an area, region, an office or a factory, rather than moving immediately to handing over your entire business. Or you might initially use a supplier on a relatively unimportant piece of work.

In the case of the lottery, I assume that Allwyn’s references have been thoroughly checked out. Perhaps most critical – if this comes to court – will be how the projections of the money to be made for charity have been developed and verified. I’m sure the buyer would be expected to analyse Allwyn’s assumptions and proposals very carefully to assess the level of confidence in their figures. If they did not, that could spell trouble.

The final point to make here is that one report quoted Camelot as saying the evaluation had not been carried out as described in the tender. Now if that is the case, the lottery folk are in real trouble.

In terms of public sector tender evaluation, not doing what you told the bidders you would do is in most cases enough for a challenge to succeed.

You simply can’t introduce new factors once bids have been received evaluation; or even use factors that aren’t explicit. Don’t make assumptions. You can’t mark down a bidder for not providing a detailed quality plan if your question simply said, “tell me how you will deliver this work”. If the quality plan matters, tell them to provide it.

Enough of my ranting about evaluation processes (a favourite topic of mine, and we haven’t even got onto evaluating and scoring “price”). We will await the next stage of the Camelot story with interest.

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Camelot Challenges UK Lottery Decision – Highlights Key Issue of “Confidence”

Over the weekend, we saw reports that Camelot, the current operator of the UK National Lottery, is going to challenge the government’s decision to award the contract for management of the Lottery to a different firm, Allwyn, headed by a Czech tycoon. That decision follows a lengthy and no doubt exhaustive “procurement” process. This is from The Times (behind the paywall unfortunately).

The Czech bid, led by Sir Keith Mills, the man behind the London 2012 Olympics, and the former J Sainsbury boss Justin King, was deemed to have had an inferior business plan but managed to pip Camelot at the post by promising to deliver a much higher sum for good causes. There are suggestions that Allwyn’s bid was based on a forecast that it would raise £38 billion over the ten-year licence, which starts in 2024. This is believed to be a much higher figure than the forecast included by Camelot … Bidders were asked to supply a detailed forecast of how much they expected to raise, but with no obligation to achieve it or any form of penalty for failing to do so.

So this may come down to an issue that sits behind one of the common causes of “Bad Buying”.  In my book of that title it has its own chapter – “Believing the Supplier”.

That can relate to suppliers actually lying or deliberately misleading the buyer. It’s the tech firm that says they can develop and install the new software for you in six months, when they know its going to be more like 18.  Or the consulting firm that tells you they have lots of experience running M&A studies in Spain, when in fact they have one junior analyst in the London office who has a girlfriend in Madrid.

But more often it is suppliers whose intentions are good, but make promises and offers that they can’t really deliver on. They really do believe that software will be ready in six months; but they don’t actually have the experience or expertise to make it happen.

This leads to a particular issue in public sector procurement. Because that relies on formal tendering processes (for larger contracts anyway), we see a real difficulty for buyers in assessing two different aspects of the proposals received. They have to evaluate the apparent value of the solution proposed, which is what the legal procurement framework focuses on. But they should also assess the credibility of the proposal – the confidence the buyer can have in its actual delivery.

You might remember the “scandal” back in 2008 when the UK’s Qualifications and Curriculum Authority (QCA), which managed the school ‘national curriculum’ and associated testing process, terminated a contract it had put in place with ETS Europe to deliver tests for schoolchildren.  ETS failed to meet agreed timescales and the whole thing was a bit of a shambles.

The case illustrated a central challenge in many buying situations – how the buyer can assess whether proposals can actually be delivered by a potential supplier, even if they sound credible. It is relatively easy to write a convincing proposal to carry out services-type work or even to deliver certain physical items. I might tell you in beautifully written prose that my firm can supply you with the finest cocoa beans, or handle your outsourced pension administration absolutely brilliantly. Or even build a nuclear submarine … But how do you know I can actually do it? Here is an extract from Bad Buying that explains what went wrong with ETS, following an independent review into the case. 

“The Sutherland Review found that in many ways the procurement (buying) process in this case wasn’t run badly– the authors called it ‘sound’. ETS won with the lowest price, but also scored better than the alternative bidder on non-cost factors. The ‘Gateway reviews’ undertaken by the Office of Government Commerce were in general positive, too. However, the contract and the supplier clearly failed to deliver what was required. Why was that?

Issues were identified by the report around governance, the contract- management approach, some legal issues in the contract and specifications. But the report suggests that the weakness in the selection process came from two key factors. First, the QCA and the consultants running the process did not fully check out the history of previous contracts delivered by ETS. That might have picked up warning signals, as there had been issues with contracts in the United States. Basic financial health checks were done, but not an extensive reputational and performance due diligence.

Second, the buying process did not check that the assumptions about capacity made by ETS in their bid were realistic and accurate. The firm should have been challenged more strongly on its staffing plans. There were also concerns about the ‘end-to-end’ solution proposed and whether the firm really understood how different elements needed to fit together. Those issues appear to have been at the heart of subsequent problems.”

So it is this “confidence in the supplier’s ability to deliver” that has to be assessed somehow, and whether the supplier’s assumptions and plans are “realistic and accurate”. It is not just their conformance to the specification, the elegance of their proposed solution, or indeed the apparent financial benefits they might be offering.  

Going back to where we started, it is this issue that may come to the fore in the UK National Lottery case, assuming the decision is challenged. More on that in part 2.

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Efficiency Savings – UK Government Looks for a Few Billion

It’s usually  a sign of desperation in terms of the public finances (in the UK anyway)  when politicians suddenly start talking about “efficiency savings”. It’s even more serious when they start building them into future forecasts of public expenditure before identifying where the “savings” might actually come from.  

There is nothing wrong with looking for savings from procurement or internal efficiencies, an any good manager should be doing so continuously. But if you really wanted to run such a proper programme across the UK government, you would need to plan and think carefully about how you structure and resource that, which areas you will focus on and so on.  I was involved in the Gershon efficiency programme way back in the mid-noughties and whilst it probably did not deliver everything it wanted to, it was a serious attempt to address difficult issues such as cross-departmental collaboration and a structured category management approach to central government buying.

Last week, Rishi Sunak, the Chancellor, announced a new efficiency drive. “The drive will be spearheaded by a new Chancellor-chaired “Efficiency and Value for Money Committee” that will cut £5.5 billion worth of waste – with savings used to fund vital public services”.

Set up a committee – I’ve always found that’s a great way of making savings! But when you look closely at the announcement, it seems to apply mainly to the NHS and the arm’s length bodies (“Quangos”).  They “will be expected to save at least £800m from their budgets”.  The Arm’s Length Body Review will see savings supposedly come from “better use of property, reduced reliance on consultants, increased digitisation and greater use of shared services, as well as the use of benchmarking to drive efficiencies”.

What has the last government been doing all these years to leave these savings on the table?!  It’s a good job the Conservatives are now in power to sort it out!  Hang on a minute – they’ve been in office for over a decade now. It’s taken quite a while to realise that issues such as “reliance on consultants” are costing the taxpayer a fortune.  

Meanwhile, the “£4.75 billion worth of savings agreed with the Department of Health and Social Care will come into effect financial year 2022/23.”  So together that gives us £5.5 billion in “savings”, which more than covers the £5.5 billion target previously mentioned. So are central departments not covered by this? It’s not clear.  We may come back to where exactly these huge health savings are going to come from.

The other element of the announcement is this. “The Treasury will also launch a new Innovation Challenge to crowdsource ideas from civil servants on how government can reduce waste and improve public services, with winners selected this Summer and best ideas becoming Government policy…. A 2015 Innovation Challenge received 22,000 responses with 16 measures implemented”.

I predict there will be many ideas from civil servants, and the most common will be “stop Ministers coming up with stupid f***ng policy ideas that will never work and cost a fortune”.

Consider great historical examples such as NPfIT in the NHS, ID Cards, privatisation of probation, FireControl, Universal Credit, most PFI programmes, the aircraft carrier programmes … etc.  Maybe it would also help if we didn’t give PPE contracts to friends of friends and then waste billions because of over-buying and not checking the specification.

But back to the new “efficiency programme”. We’ll know quickly if it really means anything when we see if and how it is to be resourced, and how often this committee is going to meet. The methodology of measuring “savings” is also key. I’m sure the DHSC will find a way of showing Treasury that it made the “savings”, yet somehow it managed to overspend its budget at the same time… and yes, I am deeply cynical about all this!

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CMA Report on Social Care for Children Highlights Market and Procurement Issues

Life goes on despite the temptation to doomscroll Twitter and Facebook all day for the latest news on Russian atrocities.  But there hasn’t really been much else to cheer, and some news that should have generated more attention in normal times passed almost unremarked.

The Competition and Markets Authority (CMA) published a report last week on the provision of children’s social care (fostering and children’s homes) to UK local councils.  The CMA looks at issues from an economic point of view rather than as procurement experts, but their worrying findings in this case clearly indicate some major procurement (and market) issues.

The final report “found there is a shortage of appropriate places in children’s homes and with foster carers, meaning that some children are not getting the right care from their placement. Some children are also being placed too far away from where they previously lived or in placements that require them to be separated from their siblings. This shortage also means that high prices are often being paid by local authorities, who are responsible for placing children in appropriate settings, with these costs picked up by taxpayers”.

The CMA also commented on the risk of providers going bust – and yet in some parts of the market, providers are making what we might call “excess profits”, with margins of 20%.

“For the children’s homes providers in our cross-GB data set we have seen steady operating profit margins averaging 22.6% from 2016-20, with average prices increasing from £2,977 to £3,830 per week over the period, an average annual increase of 3.5%, after accounting for inflation”.

As an example of the sort of supplier that plays in this market (accepting of course that not all are of this nature), the Guardian recently featured a report about Robert McGuinness, who was paid £1.5m by two local authorities between 2015 and 2020. He owned a “community interest company” (CIC) which provided vocational training to children from 14-16, excluded from mainstream schools.

“The owner of a children’s home in Bolton shut down for “serious and widespread failures” spent thousands intended for educating marginalised children on drinking, foreign trips and his pub business, the Guardian can reveal”.

He siphoned money out of the CIC through a “director’s loan”  to invest in another of his businesses (running a bar).  The bar has since gone bankrupt and the liquidator says “there is currently no prospect” of the CIC settling the £100,000 loan repaid.  He also drives a Lamborghini – just the sort of public-spirited person you’d want to see running sensitive social services for youngsters.

The market failure evident in this sector has a number of causes. One ironically arises from the attempts to regulate the market. Even though that is well-meaning and certainly necessary to some extent, it creates more barriers to entry. Well-functioning markets see new entrants coming in and competing all the time, and also firms can exit the market relatively easily. Buyers can also switch suppliers easily in well-functioning markets; not the case here given the nature of the services.   

There are other barriers to entry in this case, such as the need for capital investment.  Over the past 20 years or so, the amount of public sector provision of such services has disappeared, replaced by private provision. One reason has been the need for investment in council-owned facilities. Rather than finding the money for that, as central government grants to local government have declined, councils have increasingly closed down their own facilities such as children’s homes and care homes  and bought those services from private providers.

That has weakened competition further. Then we can see a failure of procurement and contract management too. Do buyers know what margins are being made by their providers?  And how well are providers managed? I suspect because the users of the service are kids, there isn’t a lot of connection between the providers, the users and the commissioners (and budget holders) for the services.  Councils have seen headcount reduced in areas such as contract management too as income was squeezed.  The report on the gov.uk website agrees that something needs to be done.

“The CMA’s analysis finds that the main reason for this is the fragmented system by which services are commissioned, which means that local authorities are not able to leverage their role as the purchasers of placements or to plan properly for the future”.

To address these issues, the CMA recommends that the UK Government, Scottish and Welsh Governments, “create or develop national and regional organisations that could support local authorities with their responsibilities in this sector. These would improve commissioning by carrying out and publishing national and regional analysis and providing local authorities and collective bodies with guidance and by supporting them to meet more placement needs in their local area”.

I am no lover of aggregation of spend and centralisation of public sector procurement.  But this does seem like an area where a national “category strategy” and some serious procurement talent needs to be brought to bear.  

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NHS Digital Breaks the Rules, Shows Naivety

The vexed question of conflict of interest in public sector procurement came up the other day with reports that a senior executive in the National Health Service digital team had been doing rather well out of that organisation.

The HSJ reported that NHS Digital (NHSD) paid over £3 million to a small technology firm, Axiologik, one of whose owners was working as a Board-level interim director in the organisation.

“The money was paid to Yorkshire-based tech support company Axiologik, whose co-founder and director Ben Davison also served as NHS Digital’s executive director of product delivery – for which he received annual pay of £260,000, working as a contractor, in 2020-21.”

A number of issues arise from the HSJ investigation. Firstly, it appears that no other candidates were considered for the position when Davison was appointed. That seems odd, to say the least.

Then nine months after his appointment, Axiologik was appointed to provide programme management support for the Covid booking service, followed by more work (according to HSJ)  “to lead NHSD’s “tech and data workstream” which involved “portfolio level executive leadership across citizen-facing digital services” run by NHSD such as the NHS App, NHS.uk website and 111 Online”.

In the current year, turnover of the firm is set to grow from £6.5 million to £15m, not surprisingly. NHSD say that they put measures in place to avoid conflicts of interest – Davison had no involvement in the procurement process, or delegated authority for contracting or spend approvals. But as a top-level interim executive, how could he hold a supplier to account in any meaningful way if he was also a director of that supplying firm?  

Another issue arose because Davison was paid in the £260,000 – £265,000 band in 2020-21 according to the NHSD accounts, making him the highest paid person in the NHS.  But there is more. The Treasury then got involved because his appointment broke the rules on getting approval for contractors who work for more than six months!  (The engagement of two other NHSX contractors also broke the rules). That led to Treasury withholding £645,000 of allocated funding to NHSD because they have been such naughty boys and girls.

But perhaps the most important question is this. Was Axiologik appointed after a competitive process?  The HSJ does not make that clear – presumably because they do not know – although they report that the firm was appointed from the government’s G-Cloud framework.

There are many frameworks used in the public sector covering a wide range of goods and services. They enable users to bypass much of the formal “legal” public procurement process and can be very useful when used properly, retaining the ability to achieve value for money but simplifying the process. The Cabinet Office’s Crown Commercial Services (CCS), which runs G-Cloud, is the biggest manager and promoter of such contracts.

But too often, frameworks are being used today to award contracts without any real competitive process, leading to potential shortcomings in terms of value or even corruption.  In most cases, for example, users should (legally) run some sort of competitive process between at least some of the firms on any given framework to select the supplier that can provide best value. But in practice, users at times just pick their favourite and justify it on spurious grounds that “they are clearly the best…”

Some framework managers don’t really have an interest in whether the process is run properly either. They make their money as a percentage of the spend through their frameworks paid by the supplier, so CCS for instance is targeted on increasing its “sales”. If they put controls on usage, or police this issue of further competition too strongly, then users might just switch to another framework and CCS loses income. Indeed, the funding of CCS and other major framework managers leads to a range of perverse incentives in terms of ultimate taxpayer value – something I’ve been saying for many years.

Anyway, to be fair, we don’t know whether Axiologik was engaged without a competitive process, so maybe all this is irrelevant here. But in any case, someone at NHSD was very naïve about conflict of interest issues, and very ignorant when it comes to Treasury rules on interims. So definitely a contender for the next volume of Bad Buying!

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