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Be Careful with Social Value!

Bad buying takes many forms, and there is a risk we might see a new driver for poor procurement emerging in the coming months and years. The problems are avoidable, but we need to be aware of the risks.

Social value has become a very hot topic in the public sector in many countries. Recently, I wrote two articles (here and here) on the topic for our Procurement with Purpose website.  That is my other major interest at the moment, alongside “Bad Buying”, and we might consider those aspects two sides of the procurement coin. Procurement with purpose is all about how (if we are smart) the money organisations spend with suppliers can contribute to environmental, social and economic improvements that go beyond the specific contract. That is exactly the same as “social value” in the public sector.

So we are now seeing public contracting authorities incorporating social value factors with quite significant weightings in the evaluation process. Indeed, this is not just relevant to the public sector. Vodafone announced recently that they were going to use similar factors in their supplier selection models. Choosing a supplier is then not just about price, service and quality, but can also incorporate a range of other factors, from emissions, to employment of disadvantaged people, to support for local sub-contractors.

That’s fine, and we applaud the concept. But one fear is that we could see firms being selected based more on their social value offering than on their actual ability to do the job.

Scotland has led the way in many senses in terms of applying social value, and we interviewed one of the key leaders in that effort, Julie Welsh, for the Procurement with Purpose website a while back. But there is another side to the story. The Ferguson Shipyards case is an example of a firm that was supported with public contracts, in part with a view to supporting Scottish business and employment. Unfortunately, it appears that the shipyard may have been incapable of building the two ferries for which the government contracted, and costs to the taxpayer will run to over £100 million more than planned.

Reports suggested that the bid “was the highest quality bid received, in other words the highest specification, but also the highest price” of all the six yards competing for the job.  It seems likely that a high mark for social value contributed to the shipyard being the top score on “quality” and winning the bid – yet in fact, it failed to actually do the work, as well as being the most expensive bid. Without knowing the full story here, it does illustrate the need to maintain proper procurement processes and a commercially sensible approach. Suppliers must not win work on social value alone. 

That means social value weightings must be proportionate, and not outweigh what is the core goal in all public (and indeed private) sector procurement – finding the best supplier to meet our needs and provide the best overall value. Incorporating social factors in that “value” is fine, but it should not  come before the supplier’s capability to do the work properly and cost effectively.

Another key issue is how we can ensure that the social value offered is meaningful.  It should not become skewed by politics, or relate to factors that are immaterial to the contract or the needs of the buying organisation. It should also be capable of some sort of tracking and measurement to ensure the supplier does deliver on their promises; a focus on social value makes the need for effective contract management stronger than ever.   

There is also a risk that fraud and corruption could emerge as social value becomes more important in terms of winning contracts. I won’t go into that here, but it is discussed in my articles on the Procurement with Purpose website.

So all in all, incorporating social value or procurement with purpose factors into supplier selection  has the potential to be good news. On the other hand, if it isn’t handled with care, it could actually drive more “bad buying”. Our advice therefore is to implement with care and thought.

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Should Badly-Treated Suppliers Receive Millions? Green Paper Wrestles with a Tricky Issue

Just before the end of 2020, the UK government issued a Green Paper on the future of public procurement regulations post Brexit. I know, it sounds dull, but before you stop reading, this matters to every taxpayer and citizen in the UK. The government spends some £300 Billion of our money every year with suppliers, so getting that right has a huge impact in terms of value for money, the economy, as well as the services provided to UK citizens.

One of the themes in the Paper is around proposed changes to the way that unhappy bidders can complain about and challenge procurement decisions.  Without going into all the gory details here, pretty much everyone involved would agree that the current process is slow, cumbersome, and often leaves the bidders feeling unhappy. It can be a real problem for the buyer, even if they haven’t done anything wrong.

So this is an area where change is needed. But has the Green Paper got it right?

One controversial proposal is to cap the damages that a bidder can receive to one and half times the bidding costs plus legal fees, except in some exceptional circumstances. Critics of that idea say it will greatly reduce the incentive for a supplier to challenge, even when there has been bad or unfair procurement.

I have very mixed feelings on this issue, and there are some tricky balances here. In my Bad Buying book, I tell the story of a disastrous Nuclear Decommissioning Agency (NDA)  contract.

“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 … 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”.

You can’t change your mind about the rules once you get into the buying process.  As the judge said, 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 one bidding 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 judge found that the procurement did break the rules – an unsurprising outcome because it was one of the most blatantly unfair, incompetent tender evaluation processes I have ever seen.  The NDA agreed  to pay the firm (and their consortium partners Bechtel) around £100 million to settle the legal claim for their loss of profit on the contract. And an inquiry into the fiasco still hasn’t appeared, unfortunately.

Now that doesn’t really seem like a fair solution for the UK taxpayer, however bad the procurement process was. £100 million is a lot of money! But equally, firms should have the right to recover something – and probably more than 1.5 times bid costs – if they miss out on a contract because of incompetent, unfair or illegal procurement.

The failure to publish the report into the NDA affair is another common problem. In another case, Virgin Health received a settlement rumoured to be in the millions because of a botched procurement run by six clinical commissioning groups (CCGs) in Surrey, Surrey County Council (my home county) and NHS England. But the settlement and case details were subject to a non-disclosure agreement, so we never found out what happened, and that means other contracting authorities cannot learn from the expensive mistake.

So that was “Millions out of the health service and into the pockets of billionaire Richard Branson” – at least that is how some saw it, although Virgin defended their action.  Again, I would support the right of firms to challenge and get some reward if they are truly victims. But more thought probably needs to go into the Green Paper recommendations, and I would also make it compulsory for both parties to disclose full details of the challenge publicly. No more of these Bad Buying cover-ups please.

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Free School Lunch Boxes – What Went Wrong?

So what do we make of the UK schools lunch food box scandal? It all started with a mother posting a picture on social media of what she said were the contents of a food box that replaced her child’s usual free school lunch.

The contents weren’t very appetising, nor did they come close to being two-weeks’ worth of lunches. There was talk of this box replacing £30 worth of vouchers, another not very flattering comparison.

But there has been some confusion since then. The box was actually only a week’s worth of food, according to the supplier. Some suggested that certain pictures flying around social media didn’t include everything that was in the box. However, Chartwells, the supplier of the box and part of the giant Compass food service group did apologise and say that the box hadn’t met the required high standards, and committed to refunding the costs. The firm is clearly trying to recover from the bad publicity and is now including some additional breakfast provisions in the box, free of charge and the government has given an additional allowance of £3.50 per week per child.

It does also seem that the box was charged at £10.50, not £30, which is very different in terms of the value to the taxpayer and the recipient, and that includes food, packing and distribution. And whilst my initial thinking was that the specification must have been far too loose, or non-existent, it appears that the guidance for what should be provided is quite detailed and looks very appropriate. This is from the guidance prepared by LACA (the Lead Association for Caterers in Education), Public Health England and the Department for Education:

Food parcels should contain a balance of items from the different food groups, to reflect a healthy balanced diet for a child, as depicted by the Eatwell Guide and in line with the School Food Standards. Each parcel should provide: 

  • A variety of different types of fruit and vegetables, to provide at least one portion of fruit and one portion of vegetables each day. These can be fresh or tinned but it’s best to source versions tinned in water or fruit juice, with no added salt or sugar.
  • Some protein foods (such as beans, pulses, fish, eggs, meat and other non-dairy proteins), to provide a portion of food from this group every day. Meat and fish should be cooked (e.g. cooked ham or chicken slices) or tinned (e.g. tuna, salmon). Consider alternating between different protein foods to provide variety.
  • Some dairy and/or dairy alternatives (such as milk, cheese, yoghurt), to provide a portion of food from this group every day.

So let’s go back to first principles and consider whether we have seen “Bad Buying” here. The specification issue is a good place to start. Was this product specified properly? It looks like the answer might be “yes”, if we consider those guidelines. They give some leeway but are pretty clear.  

Then we can look at competition. A theme running through my book – and good procurement in general – is the power of competition as a lever for driving value and supplier performance.  Now it isn’t clear whether Chartwells won this business through a competitive process. I suspect there may be a framework with a number of providers approved to supply food boxes, as it appears that individual schools are the actual “buyers” here.  

We would hope there was some competitive process behind that – but the food boxes provided to people who were locked down last year were supplied by firms under emergency contract regulations which did not require competition, according to Spend Network and the Good Law project. Was it the same with the school boxes?

There is then the question of establishing value for money, which comes back to both the specification and the competitive process. But even if there wasn’t competition , it should have been possible to establish a “fair” price for the boxes, including the food itself, packing, handling and distribution.  I can’t say that £10.50 was a fair price – but it doesn’t feel too far out if it had covered five meals to the standard required in the guidelines.

The final and critical point comes down to supplier performance and therefore contract and supplier management. The furore all started with the pictures of substandard boxes hitting the media. Chartwell’s have mentioned supply issues; but the fact is, they should not have delivered boxes that did not meet the standards. Or, if there really was no alternative because of shortages or other supply issues, they should have explained that to their customers.

If there was a widespread and  deliberate policy of delivering less value than the specification required, then of course that would be a different issue altogether. But if this was more of a one-off, the schools involved should have been told that the product was not up to standard and that some reparation or mitigating steps would be taken quickly. That would probably have headed off the public exposure.

So this looks like a failure of supplier performance, possibly fairly isolated rather than endemic, which arguably showed some issues with contract management too. If someone on the buy-side knew of the issues, they should have done something about it, and if they didn’t know, there was something wrong with the relationship between Chartwells and the “contract manager”, whoever that was.  But I’m less sure that it was a failure in the core procurement process in this case.

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The Proctopus Christmas Party and Awards – Including Bad Buying Failure of the Year!

Earlier this month the first Proctopus Christmas Party and Awards evening took place in the glittering surroundings of … Zoom.  Proctopus is an informal group, largely LinkedIn based, that has grown through this year to provide networking, career support and general community for around a thousand procurement professionals, many of them interims and “solopreneurs”.

Great credit is due to Dave Jones, Keith McCabe, James Meads and Graham Copeland, the main instigators of Proctopus, who have developed something really quite impressive and heart-warming in its goal to improve life for many who have found this year a bit of a struggle!  Anyway, I sponsored a prize for “ worst example of Bad Buying” at the event – the evening raised a couple of thousand pounds for good causes – and we had a live vote between three contenders:

  • UK government PPE procurement
  • “Other” UK government pandemic contracts
  • Forced Labour in Chinese garment manufacturing

All good cheerful stuff! It was a very close poll, but the “other” pandemic contracts won. I guess the audience of procurement folk really weren’t impressed with the scale and number of contracts awarded by the UK government without any real competition or process, covering communications and PR, consultancy, testing kits, track and trace process management … the list goes on.

Just to continue the theme of poor management practices, it has been impossible to follow the enquiry into the Grenfell Fire disaster without feeling strong emotions. Sympathy for the people who lost their lives, their loved ones, their homes, but also anger – fury, in fact – and disbelief at the behaviour of firms and individuals who supplied the flammable cladding that caused the fire to become so tragic.

There certainly was some “Bad Buying” within this process too. The Kensington and Chelsea council and housing management organisation have not covered themselves in glory, and that includes procurement practices that clearly did not work well given the end result.

But there were supplier firms such as Celotex, Kingspan and Arconic, some of which blatantly lied, cheated, fiddled test results, and threatened those who raised issues. Frankly, it would have been hard for the best procurement professional to navigate themselves through the cesspool of appalling behaviour from too many individuals on the supply side. The building and construction regulators and authorities also failed in their responsibilities, it should be said.

And now there are also thousands of people – perhaps millions –  around the country stuck in flats they can’t sell because of fears about cladding. In some cases, they are paying huge amounts of money for work to be done or for “fire wardens” to sit around all day just in case a fire breaks out and their building’s cladding kills them.  No-one is taking responsibility for sorting this out, but you would have thought somebody was liable here. I also find it infuriating that our government can find £100 billion for a high-speed railway of doubtful value but can’t spend a tiny fraction of that to solve this problem (or indeed to fix Hammersmith Bridge – but that’s another story).

Anyway, that’s not a very festive story for what will probably be my last article of 2020. Whilst it has been very satisfying to see my book published in 2020, and many thanks to all who have bought it, that’s about all there has been in my personal positive column for the year.  So let’s hope there is more “Good Buying” in 2021, and that generally it is a happier year for all of us.

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UK National Audit Office Looks at PPE Again – Just Why Did We Buy So Much?

The second UK National Audit Office report on pandemic procurement was issued recently. Titled “The supply of personal protective equipment (PPE) during the COVID-19 pandemic” it focuses entirely on PPE. It has received less media coverage than its predecessor, which looked at wider procurement issues, although it too had a lot of PPE-related content.

That reduced attention was probably because it lacks some of the obviously newsworthy headlines the first reported generated, around contract awards to firms such as Ayanda Capital and Pestfix, who have been in the news for a while, and discussions of potential conflict of interest at Ministerial level. But that’s a shame, because there are some very interesting findings in the more recent report too, although it still leaves a couple of key questions outstanding.

The report gives more visibility of the process as the pandemic struck in the spring. It clarifies some of the failures we saw around the existing pandemic stockpile, which was a combination of sheer incompetence and a more forgivable lack of preparedness for this type of virus.  Once it became clear that the normal NHS channels, such as Supply Chain on the procurement side and Unipart for delivery couldn’t cope, we saw Lord Deighton getting involved, bringing in people he knew (including HR support through another questionable contract).  We know Clipper won a huge distribution contract, also without any competition, although they seem to have done a pretty good job all in all.

The Parallel Supply Chain buying operation was set up in late March, with one team looking at extending UK manufacturing and another sourcing PPE globally. McKinsey supported the Department in putting together a demand model to predict how much PPE was going to be needed. The teams then went off and agreed contracts with some of the thousands of suppliers who had expressed interest – some of whom came though the “VIP route”, already exposed previously.

That takes us into our three big outstanding issue though.

  1. We still don’t understand the process by which suppliers were selected from those that put themselves forwards. Why did Ayanda Capital win a contract for £250 million? Why not £50 million? Or indeed £500 million? Why did 47 suppliers win contracts, with value ranging from less than a million to the hundreds of millions – was there an overall strategy of some sort, or was it literally the buyers accepting the first offers that were made that got through the approval process?  We know that process was flawed early on by the lack of real due diligence, but we’ll park that for the moment. But the process used for selecting suppliers and determining quantities per contract is still opaque.
  •  Why has the demand model turned out to be just so inaccurate? We are now in a situation where, as NAO says, if the recent rate of use of PPE continues, then the 32 billion items that had been ordered by the Parallel Supply Chain by 31 July could last around five years (with variations across the different types of PPE). The Parallel Supply Chain’s initial estimate of the PPE that would be required nationally anticipated an enormous increase compared with pre-pandemic use, but actual use has been lower than this (although still far higher than pre-pandemic use). What went wrong?
  • There is still some doubt over how much PPE is unusable or at least does not meet original specification. From the report – “The Department (of Health and Social Care) told us that it had identified 195 million items which were potentially unsuitable, which was equivalent to around 1% of the items it had received to date. However, it has not provided us with sufficient information to be able to verify these figures because, it told us, this would compromise its ability to resell the PPE”.   In other words, NAO can’t be sure the Department isn’t fibbing.

Coming back to the demand issue, did the model assume that the absolute peak of PPE usage in March / April would continue forever, and that there would be no reduction in cases as we went into lockdown? Was it the move away from putting patients on ventilators, as clinicians learnt more about optimal treatment pathways?  Were contingencies built on top of contingencies? I understand that the model did initially include the devolved countries (Scotland, Wales, N Ireland) who then went their own way on PPE, but that factor isn’t enough to explain the huge quantities ordered. It’s a shame the NAO report didn’t dig onto this issue a little more deeply, I feel.

By the time that the PPE team was “professionalising” through the summer and bringing in more people with real public procurement experience, I’m told that it wasn’t really a buying job any longer. The vast majority of the contracts were placed in May and June. Through the autumn, teams have been focused more on how to manage this huge over-ordering situation. That’s one of the reasons why UK ports are struggling – they are clogged up with billions of items of PPE, ordered earlier but for winter delivery.

My prediction is that soon, there will be stories of suppliers being paid off – they’ll get the majority of the contract value paid but be told not be bother supplying what is not yet delivered.  There is also a very serious problem here, as a range of new UK- based manufacturers were encouraged to move into this market. But if there is 5 years’ worth of stock (or committed orders) already, who needs more from these possibly expensive UK manufacturers?

I do have sympathy with the people involved here. Predicting demand in the peak of the pandemic must have been a difficult task, that is undeniable. But how did smart civil servants and McKinsey consultants (charging a fortune, no doubt) get it so wrong?  That demand model has cost the taxpayer billions. We have bought far too much stock, and even if it does get used eventually, it was bought at the top of the market, at prices several times the norm in many cases.

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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!

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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…)

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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.   

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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.

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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.

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