I got a phone call a couple of weeks ago from a BBC Northern Ireland producer, who wanted to interview me for a programme about procurement of PPE (personal protective equipment) during the pandemic first wave last year.

I did a few smilar media appearances last year on Zoom, so said “yes – when do you want to do it”?

“When can you come into London so we can film you?”, he asked.

So not Zoom, but real life! Which was how I came to be filmed in a Pall Mall hotel meeting room – just me and a charming cameraman, whose wife works in procurement, strangely enough.  The interviewer asked the questions remotely via Facetime on a phone perched on a tripod a few feet in front of me which was rather strange.  I spent 45 minutes on the interview and another 15 being filmed “reading papers”… all for about one minute of screen time! And why they have to show those close-ups where you can verify my need for a better skin-care regime, I really don’t know.

The end result was a very good Spotlight documentary, broadcast first in Northern Ireland but shown on the BBC News Channel several times this week. It is the story of how a confectionery firm in Antrim, Clandeboye Agencies, landed orders worth over £100 million for PPE, and the confusion over whether the products supplied were actually fit for purpose. Were they “gowns” or “aprons”? And what did that  mean for the safety of those using the equipment?  

The journalists also tracked down some of the stock that was never used in the NHS and found it could be bought now for a fraction of the price paid originally by the government. It’s well worth 25 minutes of your time, although if you have followed the PPE story there won’t be much to surprise you, I suspect, other than that public availability of stock at cut prices now.

I have written several articles previously about PPE, so I won’t go through all the issues again. I did explain on camera that huge price rises were not unexpected when demand suddenly went up ten-fold or more. But just to re-state the problems, these are the broad topics I would be looking at if I ever do write the Bad Buying Book of PPE!

  1. The NHS stockpile of PPE provided to be unsuitable for Covid, and was very badly managed in terms of stock control, expiry dates, easy accessibility… etc.
  2. The early forecasts for PPE demand proved to be way out, which led to major over-buying – which is why we ended up with containers sitting around for months, suppliers being paid to NOT deliver, stock sold off cheaply, etc.
  3. Whilst the situation was desperately urgent, more attention and effort should have gone into getting the specifications right before hundreds of millions of pounds was wasted on equipment that proved unfit for purpose.
  4. Proper due diligence took a while to set up, so some early contracts went to firms who should not really have been considered as suppliers.
  5. The “VIP route” should have been much more transparent, and firms with an existing track record of PPE supply should have gone to the top of the list for consideration rather than those recommended by an MP, senior  civil servant etc.
  6. Buyers should have insisted on getting a breakdown of costs to avoid profiteering by middlemen and agents.

Anyway, you can see the programme here on iPlayer for the next 11 months.

In the current issue of Private Eye magazine  – only on sale for another few days so hurry if you want to buy it – there is a special 8 page supplement titled “Profits of Doom”, covering the “bad buying” that went on in UK government around the pandemic, principally PPE (personal protective equipment), but also test kits and the track and trace programme.

Several procurement leaders get a mention, including Gareth Rhys Williams, Government’s Chief Commercial Officer, and Steve Oldfield and Ed James at the Department of Health.  I suspect there are others who actually had more to do with the PPE procurement waste but have escaped that attention …

If you have followed these stories in the media and on this website to some extent, much of the Private Eye report won’t be new to you.  But putting it all together does increase the sense of anger that most of us will feel about the vast sums of money extracted from the British taxpayer by certain firms and individuals, in return for very little effort. According to the magazine, one firm, Primer Design Ltd, went from a profit of £1.3m a year before Covid to making £178.2 million in the first Covid period.

Individuals did well too. Andrew Mills, who had been an adviser to government himself, made £32.4 million for doing very little as a middleman for Ayanda Capital, whose bosses also made tens of millions on PPE supply. Even the consulting firms raked in the cash working on various covid related tasks including the pretty useless track and trace programme, with Deloitte partners making record earnings of around £1 million each last year.

It is clear that cost really didn’t matter when the PPE shortage was at its worst last year, and to some extent that is understandable.  There is still some mystery about the demand forecasts that led to chronic over-ordering; that factor alone cost the taxpayer billions, but there has been little real insight into what went wrong there.

But why the procurement teams didn’t at least try and examine the margins made by the middlemen and agents, I don’t know. If the buyers had insisted on seeing a price breakdown, or set a maximum mark-up over factory gate prices, would Andrew Mills and others really have walked away from the deal?  They won the contracts in the first place because of their political connections that got them onto the “VIP route”, which gave priority to their supply proposals, so it is hard to see that they could have instantly taken their offer to another country.

Instead, they were allowed to make tens or hundreds of millions in profit by exploiting the naivety of the procurement operation, which seemed to focus almost entirely on just buying as much stuff as possible. Then we have the Randox contracts for test kits and analysis, where the picture is even murkier. Member of Parliament Owen Patterson was paid as an adviser by that diagnostics firm, and records of calls between him, the firm and health Minister Lord Bethell, have been “lost” apparently.  Randox was given £600 million worth of contracts without any tendering or competitive process. And it won a testing contract worth £133m, just days before government officials confirmed it did not actually have enough equipment to deliver the work, according to documents now released.

It would be good to think that some of those who profited from the pandemic and in effect took advantage of the taxpayer might lose friends because of their actions. But the culture in the financial world and “the city” is such that I suspect they will be celebrated as great examples of entrepreneurial spirit, exploiting a situation (and their connections) cleverly to make money.

Even if there wasn’t overt brown-paper-envelopes-type corruption here (or none that has been discovered yet, at least), sometimes it is just very easy to hate capitalism!

How do you go about incentivising suppliers within a contract to perform in the manner you REALLY want them to?

The complications tend to come in contracts for services, rather than goods. Where you can write a specification that clearly defines the item you are buying, then it is enough “incentivisation” usually to say “supply that precise thing and you will get paid”.

But if you are buying a service, particular a more complex service, such as consultancy, outsourced customer handling, software development, or even facilities management, then making sure the supplier acts in the way you really want them to can be challenging.

An example of this has been much discussed in recent weeks in the UK media.  Our GPs, the “family doctors” who are the first line of contact for most medical problems, moved most of their consultations online when the pandemic struck last year. Now they are being criticised for not getting back to in-person appointments quickly enough, and generally for making it difficult for patients to get appointments at all. But GPs are actually private contractors. Many people in the UK see them as part of the National Health Service, which they are operationally, but they actually work for the NHS under what is in effect a contract for services. They are suppliers.

In reality, there are a number of factors driving this appointments problem. This is a very stressful job, and the proportion of women working as GPs has grown dramatically in recent years. So for both their own health and for work-life balance reasons, more GPs are working part-time, so the capacity of the system is arguably not high enough. There is also a backlog of medical problems that weren’t sorted out during the worst of the pandemic, so there is more demand on the system than ever.

But certain newspapers, and the Minister for Health, Sajid Javid, have decided that there is capital to be made by blaming the doctors themselves for being “lazy”.  Aside from the issue of whether the buyer (Javid) should be having a go at a “key supplier” (the doctors) in public, there is much  discussion around how GPs are paid and incentivised. 

An article in the Daily Mail recently suggested that instead of being paid in the main based on how many people are on the GP’s “list”, they should be paid based on how many appointments they actually carry out.

It may be time to move from a bulk payment per patient to a per appointment funding structure, to encourage doctors to actually see patients as quickly as possible”.  That was the quote from Matthew Lesh, head of research at the Adam Smith Institute (the free-market-promoting thinktank),  who from his LinkedIn profile would seem to be a very bright young man. Yet it doesn’t take too long to see the incentivisation flaw in his argument.

A per-appointment system would encourage less scrupulous doctors to pack in as many appointments as possible. Currently most people only get ten minutes or so with the GP, but that could be squeezed further if some doctors were tempted by a direct increase in revenue from that approach. And for doctors with a conscience, who want to take the time necessary to get a diagnosis right, you are placing their ethics into direct conflict with their bank balance.

Now that’s not to say that the payment by list size is necessarily the best option., and there is no simple, magic solution here.  Arriving at an appropriate mechanism is challenging; for instance, the same size list of patients in socially and economically deprived Blackpool might generate a lot more work than the same in Wokingham. And of course throughput has to be balanced with the rigour of the doctor’s work. But we might imagine a set of KPIs (key performance indicators) which might be combined in some way to drive GP payments.

In any case, this all reinforces that getting incentivisation right is tricky. That applies whether we are talking about an outsourced customer service call centre, roads maintenance contracts (see examples of both of these services going wrong in the Bad Buying book) or getting our front-line doctors to contribute in the best possible way to the health of the nation. So beware simplistic solutions.

(Two posts in a row about blood – that’s a bit weird)!

Earlier this month, Elizabeth Holmes went on trial in San Jose, California, accused of six counts of fraud.  That relates to the blood-testing firm she founded and ran, Theranos, which was claimed to use unique technology to perform a range of tests with just a small sample of blood. The claims were later revealed to be largely nonsense and in some cases the results might even have proved misleading or dangerous to the user. When one of the Theranos laboratories was inspected in Newark, California, in November 2015, the inspectors concluded that “the deficient practices of the laboratory pose immediate jeopardy to patient health and safety.”

The cautionary tale has been turned into a best-selling, award-winning and definitive book, Bad Blood by John Carreyrou and is going to be the subject of a film with Jennifer Lawrence playing Holmes.  But in real life, it seems that her defence during the trial may claim she was under the influence of her older and more experienced business partner and one-time boyfriend, Ramesh Balwani.  They may also claim that she really did believe in the product and it was others within the firm who misled her about the actual way it worked (or didn’t).

Although some experts warned from the early days of Theranos that there were questions to be answered about the product, Theranos raised hundreds of millions in investment from famous people such as Henry Kissinger and Rupert Murdoch.  Perhaps they were dazzled by this confident, smart young blonde woman, who seemed to be particularly effective at persuading older men to stump up large investments!

But as well as the investment aspect to the story, there was also a Bad Buying link to the events. Here is how I described it in my book (“Bad Buying – How organizations waste billions through failure, fraud and f*ck-ups)”.

“Buying failure comes into this because the pharmacy chain Walgreens spent $140 million with Theranos over seven years, hosting around forty blood-testing centres in their stores. They got very little benefit from that and recovered some $30 million after a lawsuit and settlement following the eventual disclosure of the issues. Amazingly, as Bad Blood reports, Walgreens’s own laboratory consultant, Kevin Hunter, had seen early on that something wasn’t right with Theranos. But the executive in charge of the programme at Walgreens said that the firm should pursue the pilot because of the risk that CVS, their big competitor, would beat them to a Theranos deal.

Again, buyers wanted to believe that something was real, even in the face of mounting evidence that it wasn’t. This relates back to comments around believing the supplier– those earlier examples weren’t demonstrating fraudulent behaviour, but the principle is similar. It is easy for a naive or gullible buyer to be sucked into believing what the supplier wants them to believe.

Suppliers will take advantage of this tendency – whether it is the relatively innocent ‘Yes, we can install this new IT system in six months’ or the more dangerous ‘This equipment will find hidden bombs’. And FOMO – the fear of missing out to the competition – is something else suppliers will use, and that can lead to bad decisions. It’s not just physical goods, either. The top consulting firm selling its latest ‘strategy toolkit’ will mention that the potential client’s biggest rival is also very interested”.

So the message is – treat claims made by suppliers about their products with caution, maybe even with a touch of cynicism if they seem unique, outlandish or truly earth-shattering! And don’t let FOMO take you into the realms of Bad Buying.

Last year, Personal Protective Equipment (PPE) hit the headlines when shortages threatened the lives of health workers and patients in the early months of the pandemic. That demonstrated how a spend category that was traditionally seen as low risk and suitable for “leverage” type approaches to procurement could become highly strategic, critical and even politically sensitive.

We now have another example with a similar change in perception for what seems like a pretty standard item, a simple ”commodity” even.  GPs (“family doctors”) in the UK National Health Service have been told to stop performing most blood tests until mid-September. Hospitals have also been instructed to cut their number of tests by 25%, all due to a shortage of blood tubes (sometimes known as sample bottles).

NHS England wrote to doctors and hospital leaders, telling them that “the supply position remains constrained and is forecasted to become even more constrained over the coming weeks.  While it is anticipated that the position will improve from the middle of September, overall supply is likely to remain challenging for a significant period.”  That is thought to mean months rather than weeks.

The shortage has arisen apparently because Becton Dickinson (BD), the main supplier of blood collection tubes to the health service, just has not been able to keep up with demand.

This is obviously a hugely concerning issue. Blood tests help determine whether patients have particular conditions or illnesses, provide warning signs and monitor overall health. A reduction in capacity here will almost certainly cost lives. 

So what has caused this problem? There appears to have been an increase in demand, perhaps because of the pent-up health issues now being exposed as people go back to doctors surgeries after avoiding them for many months because of COVID. But the company also said it was facing issues transporting the tubes, for example, challenges at the UK border. That has been picked up by some as an example of post-Brexit supply chain issues around customs, tariffs and so on, issues that are affecting many businesses.

But with our Bad Buying perspective, might this also be a case where the procurement strategy is partly to blame for the problem?  Is BD the only supplier of this product?  That seems unlikely, but it is possible that the NHS has taken an aggregation and leverage approach to this item, as it did to many others, including PPE prior to the pandemic. Is BD a sole supplier because they offered a great deal for the whole NHS volume?

Maybe that is not the case, but you do wonder why other suppliers are not being mentioned, although the NHS has said new providers will come on stream soon. But it may be this is another example of over-aggregation creating unhealthy dependence on one supplier.  It doesn’t even always add to better prices, too. Here is a short extract from Bad Buying (the book) where I talk about the risks of supplier dependence and how it is created by poorly considered procurement approaches.

“Buyers aggressively aggregate their own spend, believing they’ll get better deals if they offer bigger contracts – until in some industries only the largest can meet your needs. Buyers might insist that suppliers must service every office or factory across the US, or Europe. Smaller firms and start-ups, which often offer real innovation, flexibility and service, are shut out of the market.

Buyers assume economies of scale, that ‘bigger is better ‘and bigger deals mean lower prices. But that is not necessarily true; the price curve may flatten after a certain volume, with further increases in volume not generating any further price reduction. There are even cases where you see dis-economies of scale– the buyer pays more as the they spend more…”

In this case, it would be fascinating to know just how the NHS has ended up with shortages of such a fundamental item. But in the meantime, just hope that you don’t need a blood test anytime soon!

One of the most annoying aspects of writing Bad Buying was reading dozens of fraud and corruption cases that came to court. Whilst the cases were often fascinating, the comments from the CFO or CEO of the organisation that suffered the fraud were always predictable. This is what I said in the book.

“But again and again, I see organisations failing to take basic precautions, and then once fraud is discovered, claiming that “this was a very sophisticated fraud”. In most cases, that remark is nonsense and is a fig-leaf for an embarrassed CFO or CEO who didn’t have basic fraud prevention measures in place.

Indeed, one way that fraud could be reduced globally is if CFOs in particular were told that their jobs are on the line. If a fraud takes place on their watch, that could have been prevented through simple actions, then they’ll be fired for incompetence. Implement this, and there will be a measurable drop in such cases very quickly”.

In recent weeks, a fraud committed by an IT manager in the UK’s National Health Service hit the headlines. Barry Stannard of Chelmsford in Essex, was “head of unified communications” for the Mid Essex Hospital Trust, which has since been merged into Mid and South Essex NHS Foundation Trust. He defrauded his employer of £806,229, which came out of the trust’s IT budget. He created two “fake companies” that he controlled, and then authorised payments against invoices from these firms – invoices he obviously produced himself.  He failed to declare any interest in these firms (obviously), no products or services invoiced were ever actually provided to the NHS, and he was sentenced to 5 years and 4 months’ imprisonment on June 30th.

At least the hospital did eventually spot this fraud. According to the Digital Health website, “Concerns first arose after the trust ran a data matching exercise on its payroll and accounts payable records, alongside Companies House records. After a comprehensive initial investigation by the Local Counter Fraud Specialist provider (RSM), the investigation was escalated to the NHS Counter Fraud Authority’s National Investigation Service”.

Stannard also charged VAT, which was never paid onwards to the tax authorities, so that was a further fraudulent element.  All of the hundreds of invoices submitted by his companies to the trust were individually for less than Stannard’s personal authorisation limit so he got away with it for some time.   

At least here nobody used the “sophisticated” word in describing the fraud, which is just as well because it wasn’t.  It was a pretty basic fraud and pretty basic best practice was not followed. That means there is a good case for sacking the CFO – and perhaps even the Procurement Head.  They certainly should answer these questions.

  • Why was there no proper “onboarding check” before a new supplier was first paid? Basic Companies House and Dun & Bradstreet checks would have shown a firm with Stannard as Director and presumably no other income.
  • Why was there no “separation of duties”? You should never have the same person able to choose a supplier, sign off the purchases, and approve the invoice (which includes confirmation of receipt of goods / services)?
  • Why did his boss not question the expenditure? Actually, it is not clear whether the budgets were his own or belonged to other managers (in which case why didn’t they query these costs for non-existent products)?

It all looks very negligent by the Trust and smacks of a poor attitude to spending taxpayers’ money, which unfortunately we’ve seen before in the case of public sector fraud of this nature.  So whatever your role, do think about whether such a fraud would be possible in your organisation.  If you wanted to extract money, how would you do it? Would you need an accomplice or could you do it yourself, as in this case.  If you do find gaps, then tell the CFO, CEO or equivalent. 

I reckon every organisation needs a few creative, cynical but trustworthy employees who can put themselves in the shoes of wrongdoers and have evil thoughts – for the greater good, of course!

There have been interesting developments in terms of procurement of PPE in several European countries.   Last month, the Times reported that magistrates in Italy had ordered the seizure of property worth more than €70 million (£60 million) including a yacht, a Harley-Davidson motorbike, watches and several apartments from eight middlemen.  They are accused of exploiting the desperate shortages of PPE last year at the height of the pandemic.

The allegation suggests that a group of businessmen earned commissions worth €72 million on the purchase of 800 million facemasks from China. Those masks cost the Italian government some €1.2 billion. The suspects are accused of “illicit influence trafficking, receipt of stolen property and money laundering”. There is some cronyism involved here too. One of the accused is Mario Benotti, 56, a journalist and general director of two technology companies, and someone who knew Domenico Arcuri, 57, the Covid commissioner.  But Benotti says that he intervened to help his country and because Arcuri asked him to.  He acknowledges getting €12 million but says he earned it.

It has to be said that a margin or commission of €72 million sounds a lot. But on a spend of over a billion, that is “only” 6%.  Is that really exploitation?  A BBC Panorama programme this week suggested that firms such as Ayanda Capital made significantly more than that supplying the UK with PPE – a margin of 15.8% according to Tim Horlick, the boss. But in any case, if 800 million masks cost €1.2,  that is €1.5 per mask, which shows just how crazy the market got last year.

In Germany, the scandal is deeper and more shocking. Several leading politicians have been forced to resign because of the money they made personally from the pandemic shortages. Earlier this month, two members of the parliament and of Angela Merkel’s ruling CDU party resigned this week because of the scandal.

It appears that Georg Nüßlein and Nikolas Löbel both personally profited from government contracts for face masks. Löbel is alleged to have received €250,000 in payments for brokering a deal between a Chinese supplier of masks and the German cities of Heidelberg and Mannheim. Nüßlein is accused of making €660,000 through a consultancy firm for lobbying the government on behalf of a supplier. Mark Hauptmann, from the eastern state of Thuringia, is the latest to go. He is stepping down due to his alleged links concerning medical supplies and Azerbaijan. It all seems somewhat opaque, but Hauptmann has admitted that Azerbaijan and other countries paid for adverts in a newspaper he publishes.

Coming back to the UK, we also don’t know if any of our politicians took their cut for promoting PPE suppliers onto the “VIP” path, which greatly enhanced the firms’ chances of winning contracts. We still don’t know how Ayanda Capital and others were chosen to be awarded contracts, or why each got the size of contract they did.  This week, the BBC Panorama programme looked at how some very odd firms won huge contracts or acted as facilitators, such as an upmarket dogfood business! It also exposed that details of some contracts awarded last spring and summer have still not been published.

But there only four possible options in terms of the process used in the UK to select suppliers.  

1. There was an actual selection process. I don’t mean the due diligence assurance which was carried out once a firm had been chosen – I mean the process for choosing which firm would get which volume. But if there was such a process, we still don’t know what it was.

2. It was random. All the names in a hat …

3. It was literally first come, first served. The first firms that got their offers in won the work, until all the volume needed was covered.

4. It was fundamentally corrupt.  

We still don’t know which of these is the most accurate explanation, and until we do, we can’t rule out the possibility of more scandal emerging in the UK, as we have seen in these other nations. This story isn’t dead yet.

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.

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.

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

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

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

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

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

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

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

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

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