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US Government Takes Down Procurement Fraudster

This story from the Homeland Security Today website dates from a couple of months ago, but it is an interesting procurement fraud case, as it does not involve any internal participants – it is a purely supplier-based fraud. Whilst that is certainly far from unique, it is probably not as common as those driven by internal staff or through collusion between internal and external players.

In this case, Cory Collin Fitzgerald Sanders, age 39, of Hagerstown, Maryland, was sentenced to 45 months in federal prison, followed by three years of supervised release, for wire fraud, false claims, and making and using a false document in connection with his companies’ performance on federal contracts. He also had to pay around $200,000 in fines and restitution.

The offences related to his two telecoms firms between 2015 and 2020.  The charges were pretty wide ranging but generally related to contracts with federal agencies that required his firms, Sandtech or Cycorp Technologies, to provide new telecommunications equipment which was still under manufacturers’ warranty. 

He contracted to supply new equipment, but then actually provided second hand, or non-warranted equipment instead. He claimed to have accreditation from the OEMs (original manufacturers) that would protect his customers when in fact he didn’t. He also was not authorized to provide certain IT services to the federal government, but represented to government officials that he was. It sounds like he invoiced in a fraudulent manner too, getting the agencies to pay for “deficient or non-existent performance”.

“Mr. Sanders deserves to be held fully accountable for his actions to defraud the U.S. Government by routinely providing telecommunications equipment that did not meet contract specifications and submitting false documentation in an attempt to cover up his scheme,” said Special Agent in Charge Greg Gross. 

The US government does seem pretty hot on prosecuting dodgy suppliers, more so than I’ve seen generally in the UK, for instance. In this case, a prison sentence of 45 months again feels more severe than “white collar criminals” tend to get in the UK. That’s a good disincentive for others who might be tempted to commit fraud, of course.

So what can procurement people and others do to protect their organisations against this sort of fraud? There are a few potential risk mitigation steps.  Firstly, checking out the credentials of any new supplier (and their directors) is important. And take up references wherever possible. Maybe that would not have stopped Sanders – but it certainly makes it harder to create new firms for fraudulent purposes.

Another obvious point is that goods delivered, whatever they are, should be checked to make sure they align with what was contracted for. And don’t assume that any accreditations and certifications are genuine – documents and emails can be forged. It is better to go back to the source if you can  – you could go back down the supply chain and check with the OEM that a distributor really is properly accredited, for instance.

So the usual safeguards against procurement fraud come into play again – and you can get the full list of mitigating actions and plenty of good advice on avoiding fraud and corruption in the Bad Buying book of course!

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Babylon’s Burning… the Story of the Failed “AI” Health App

The Sunday Times has really got into its investigations recently, and after its excellent expose of the UK’s HS2 rail programme, last week it looked at another issue with a definite “Bad Buying” angle.

Babylon Health, set up in 2013, was going to revolutionise healthcare. Ali Parsa, the founder, is a serial entrepreneur whose previous venture, Circle Holdings, also had some issues (he stepped down from Circle before he set up Babylon). Circle ran Hinchingbrooke Hospital in England, the first fully outsourced hospital. Initially, it seemed to go well, and Parsa was a highly visible cheerleader for the operation, but after a couple of years, Circle pulled out leaving the NHS to pick up the pieces.

But with Babylon, Parsa seemed to have a real product that could benefit everybody. It was an AI powered diagnostic platform that could tell you what health problem you had after a short online consultation. The “app” scored better than doctors on medical tests, Parsa claimed, and could provide excellent diagnosis and care at a fraction of the current cost. For the permanently hard up health services in the UK and US, it seemed too good to be true – and of course it was. However, Parsa used political connections to win business, as the Times reported. Between 2015 and 2022, the company had 22 meetings with government ministers.

“Babylon’s deals with the NHS, which saw it receive at least £22 million over the past three years alone and helped it to woo investors, were in part due its links with the Conservative Party and the backing of Hancock, the health secretary from 2018 to 2021. The Tories received more than £250,000 in donations from individuals and companies with stakes in Babylon Healthcare, including Hancock, whose failed Tory leadership bid in 2019 received £10,000.”

However, the newspaper’s investigation found high-pressure sales techniques and some claims for the product that were simply false. For example, at the Royal College of Physicians in 2018, Parsa showed how Babylon’s AI used a phone’s camera to analyse the facial expression of a female patient to pick up subtle cues that a doctor might miss. This is how the Times describes it.

“This is a real consultation,” Parsa said on stage. “This is what we have built. None of this is a show.”

It was a show. The facial-analysis tool, a prop for a demo, never made it to market. The “patient” in the video was an executive assistant at Babylon… This sleight of hand was a small example of a culture fixated on form over substance, a trait common in Silicon Valley but dangerous in healthcare.” 

Indeed, the much vaunted AI was little more than a decision tree written in Excel based on doctors’ knowledge. Soon, sceptics began testing it and found that it could easily mistake a heart attack for a less serious panic attack, or an ingrowing toenail for gout. I remember various people on Twitter talking about how dangerous it was and calling out Babylon as a con.

But the firm managed to raise $1.2 billion from investors between 2013 and a stock market float in 2021, and at one point Babylon was valued at some $4.2 billion. But after that float, some badly judged deals started affecting the firm’s finances, just as more expert voices also pointed out the technical failings. For instance, the Royal Wolverhampton NHS Trust signed a ten-year deal for a digital-first GP service that would allow patients to use Babylon’s digital tools. But Babylon cancelled the contract in 2022, saying it just could not afford to invest in the service.

Finally in August this year, the firm collapsed into administration and the remnants were picked up by a couple of trade buyers. Parsa has pretty much disappeared, as has most of his own fortune.

It all reminds me a little of the Theranos scandal – the fake blood testing equipment launched by Elizbeth Holmes (who is now in a US jail). Babylon was not as fake as that, and Parsa is not accused of wrongdoing, but the principal of something that everyone wanted to work, but really was built on sand, is the same. And there is also FOMO – the “fear of missing out”. This is an extract from the Bad Buying book section on Theranos.

“Buying failure come into this because retailer Walgreen’s spent $140 million with Theranos over seven years, hosting around 40 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 Walgreen’s 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 … it is easy for a naïve 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”.

One day, there is little doubt that a real AI-powered system will be really useful in the world of medical diagnoses. So maybe Parsa was just ahead of his time?  But that is two of his “innovative” businesses that have cost health services time and money without much benefit in return. So I’d be very careful next time he announces he has a great idea…

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Yet Again, a “Sophisticated” Fraud Hits the NHS

The UK’s National Health Service has for years been a “good” source of Bad Buying fraud and corruption stories.  There are several reasons for that. Firstly, it is huge organisation, employing some 1.3 million people. Secondly, it actually has a pretty good counter-fraud unit, and when fraudsters are discovered, they are often prosecuted, so the news becomes public domain, whereas private sector firms often hush up embarrassing cases. But it has to be said – the cases I’ve seen over the years often also suggest that too many NHS organisations have very weak policies and processes around procurement and payments.

The latest case reported in the media recently saw Thomas Elrick, 56, jailed for 3 years and 8 months.  He was assistant managing director for planned and unscheduled care at Harrow Clinical Commissioning Group (CCG) where he had the authority to approve invoices up to £50,000. That organisation is a purchaser rather than a direct provider of healthcare – so it buys services from providers on behalf of the local citizens. 

Elrick created a company, Tree of Andre Therapy Services Limited, using the name of his husband (who knew nothing about it) as the owner, and invoiced the Trust for services that were never provided. Between August 2018 and December 2020 he authorised payments totalling £564,484. To cover his tracks, he also sent an email from the account of his dead wife which claimed to show details of patients the firm had “treated”.

Elrick spent over £100,000 on holidays to Dubai, Hong Kong, the Maldives, Singapore and Switzerland, and also spent just under half a million on shopping, with Amazon, Apple and David Lloyd gyms. But eventually a smart colleague decided to look up the Care Quality Commission accreditation for this firm and found of course that it did not have one, and then the connection to Elrick was found.

There is an interesting angle here in terms of his response. In a statement after he was sentenced, Elrick said “I wish I could turn back the clock but I know that I cannot and I sincerely apologise…  I am not a bad person. I believe that I am fundamentally a good person who made bad decisions, for which I take sole responsibility.” 

Self-delusion is an amazing thing, isn’t it?  I stole half a million from the NHS but I am “fundamentally a good person”.  The mind of a fraudster is often interesting, I suspect.   

But we have to ask how on earth this fraud was possible?  In my Bad Buying book, I give seven key anti-fraud precautions every organisation should follow and this case study and organisation broke several of them. There was no check on the onboarding of a substantial new supplier, which had no trading record, no CCG listing and a conflict of interest in the ownership (although that might not have been easily spotted). There was no check apparently that services paid for were actually received; and of course most fundamentally one person could conduct the whole pseudo-procurement process and authorise payment of large invoices without anyone else being involved or approving the spend. “Separation of duties” and all that.

This was not a sophisticated fraud. It was enabled by an incredibly weak process that was wide open for exploitation by anyone with a modicum of intelligence (and a lack of morals).  Personally, I would fire the CFO and the Procurement Director at the Trust for allowing this money to be stolen so easily.  But this is the case in so many organisations and so often – basic precautions against fraud are simply not put in place. Is it ignorance, laziness, or maybe a management team that wants to leave the door open just in case they want to do something dodgy themselves? Who knows.

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UK Government Spend With Smaller Firms Declines

Without fanfare or comment, in the middle of the holiday season, the UK government recently published the data for spend with SMEs (small and medium enterprises) for 2021/22.  This covers central departments, and some associated bodies, although the definition of what is in and what is out is not always clear. The data is given as direct spend – money that goes straight to the small firms – and indirect, the spend that goes via larger firms that then use SMEs in their supply chain.

It is not unusual for it to take over a year from the end of the period in question before data is published. That is in part because it does take a while to gather the data, but I suspect the publication might have happened sooner if there had been a positive story to tell.

But the headline number was that SME percentage spend declined in 2021/22 compared to 2020/21.  The total was down from 26.9% to 26.5%, and the direct spend was down from 14.2% to 12.3%. That does not look good against the government target of 33% of spend.

Indirect spend was up by 1.4% but that was not enough to compensate for the drop in direct spend.  It looks like the main reason for the overall decline was a big drop in the Department of Health and Social Care (DHSC) SME spend year on year. I suspect that is the “PPE effect” – as we know, there was lots of PPE bought in 2020 and 2021 from smaller firms. They were often crooks, chancers and friends of ministers, but they were SMEs, nonetheless.

Until the pandemic, the DHSC spend was relatively small compared to MOD and Transport – the two “traditional” big spenders.  Most health spend was out in the Trusts so not captured in this data. But the huge amount of “central “ buying, on PPE but also track and trace and other projects, pushed up the significance of DHSC in the overall numbers.

In 2019/20, DHSC spend was just £3.1 billion against MOD’s £21.1 billion. But the figure shot up to £13.3B in 20/21 (MOD was £19.5B) and was still £11.5B in 21/22.  In 20/21, 23.3% of the DHSC total was direct SME spend, so that made the year look better, but by 21/22 that dropped to 14.2%, pulling down the whole percentage.

I’m going into some detail there because it does demonstrate how ridiculous looking at the overall number actually is. When one factor – PPE – in one Department can skew the whole data set, it is pretty useless. But let’s go back in time and look at how this target emerged.  

Supporting smaller firms was one of the first “social value” type issues government embraced. I worked in the Office of Government Commerce (part of Treasury, the UK finance ministry) as a consultant back in 2009 on the implementation of the 2008 Glover report – “Accelerating the SME economic engine: through transparent, simple and strategic procurement”.  (That link took some finding!)

But Sally Collier (OGC’s Policy director) and I didn’t really like the idea of targets for spend with SMEs for various reasons. One was the difficulty of setting sensible targets, which really needed to vary by department to be meaningful. We were interested in departments and buyers simply doing the right things, and therefore also worried that targets would mean effort going into the data, not the real action. But our advice was ignored and after the 2010 election a 25% target was set. 

It quickly emerged that 25% was unachievable. The Ministry of Defence and the Highways Agency (Transport) accounted for almost half of central government procurement spend and there was no way an SME was going to build a warship or the M25 motorway.  So the target was changed to an “aspiration”, a classic Francis Maude fudge, and then indirect spend was included to make it easier to hit the target.

But many of the first-tier suppliers to government have no idea really how much they spend with SMEs, so the data is pretty dodgy. Then the 25% target – which had never been achieved – was stupidly changed in 2015 to 33%, purely because the Cameron government wanted to say something positive for the “small business” lobby in their election manifesto.  And 33% is unachievable too, as we’ve seen, even including indirect spend.

The other issue is whether supporting SMEs is the right target today. We have become much more sophisticated in the 15 years since Glover and now most large private firms are interested in supporting diverse suppliers, not simply small firms.

So why not shift the focus to using government procurement to support charities and social enterprises, minority owned firms, innovative businesses, firms in deprived areas or those that employ lots of disabled people?  You don’t see Unilever or other admired private sector businesses defining some prospective suppliers as special just because they are small. Indeed, many SMEs are small because they want to be, or because they just aren’t very good.

But there has been good work in government over the years in terms of helping SMEs. For example, even back in 2009, MOD led some impressive initiatives to promote SMEs through their supply chain. But really, this element of public procurement policy is crying out for a refresh, a more nuanced set of objectives and – if we must have targets – something that is realistic and motivating, not a painful data collection exercise that is bound to end in failure.  

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Always Check Those Invoices!

The US Government Department of Justice recently issued a news release.  

“Booz Allen Hamilton Holding Corporation has agreed to pay the United States $377,453,150 to resolve allegations that it violated the False Claims Act by improperly billing commercial and international costs to its government contracts. Booz Allen, which is headquartered in McLean, Virginia, provides a range of management, consulting, and engineering services to the Government, as well as commercial and international customers”.

I do love the precision of the final $150 on that number! Couldn’t they have rounded it slightly?

The accusation was that between 2011 and 2021, the consulting firm charged costs to its government contracts and subcontracts that should instead have been billed to its commercial and international contracts. That particularly applied to some indirect costs. So the government was allegedly paying for activities and services that had nothing to do with the work the firm was actually doing for government organisations.

Now allocating overheads can be a tricky issue, as many of us know. And Booz Allen issued a statement, as you might expect.

“Booz Allen has always believed it acted lawfully and responsibly. It decided to settle this civil inquiry for pragmatic business reasons to avoid the delay, uncertainty, and expense of protracted litigation. The company did not want to engage in what likely would have been a years-long court fight with its largest client, the U.S. government, on an immensely complex matter. The company fully cooperated with the government and is pleased to move forward.”

So there is no admitting liability or guilt here. I can understand why the firm does not want a long, expensive fight – on the other hand, if you were 100% sure of your position, many firms would choose to take it further rather than handing over quite such a large amount of cash.

The most amazing element of this story is this. The investigation was sparked by a whistleblower, a former Booz Allen employee, Sarah Feinberg, who tipped off the authorities about the alleged misconduct from 2011 to 2021. And now she will receive no less than $69,828,832 as a thanks (it’s that precision again…)  

$69.8 million!  Good grief, I’m going to have a good think now about every firm I’ve ever worked for and whether they might have done anything “naughty” in their dealings with the US government …  

The moral of thee story is simple. Check your billing from professional service firms. I once took on a senior interim commercial/procurement role in government with an organisation that had around 100 consultants from one firm working on its major programme. That was £500K A WEEK we were paying this firm (it better be nameless…)  

I took a look at the invoices – incredibly there was no contract manager for this contract – and found that amongst other things, we were being billed for the senior partner’s assistant. The partner was only working about a day a week on our project, but we appeared to be paying a grand a day, every day, for his PA. We were also billed for the whole day for the whole team when I knew they had stopped work at lunchtime for their office Christmas Party! “An unfortunate error” I was told.  I saved £50K with one phone call there…

Of course, if you can structure any professional services assignment on a fixed price basis, most of these issues are avoided. That approach is usually – although not always – better for the buyer and actually arguably for the provider too. That is another question in this Booz Allen example. Why was so much government work being done on what sounds like a pretty loose “time and materials” basis?

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PPE Dumped – An Unhappy Reminder

There was an unhappy reminder of the pandemic and the PPE Bad Buying saga recently when several hundred pallets of PPE (mainly aprons, it seems) were discovered apparently dumped in Calmore, near Testwood Lakes Nature Reserve in the New Forest (near to Southampton). No-one knows how it got there…

Some of the material involved was identified as coming from a supplier caller Full Support Group (FSG). Now there is an interesting story about that firm. It was relatively late in the PPE saga when it became public that it was in fact the largest single supplier of PPE in the UK into the health system, with estimates that close to £2 billion had gone to FSG to buy huge quantities of PPE.  It was not immediately apparent though because the firm was already a major supplier to the NHS pre-Covid, so the pandemic purchases were made using existing framework contracts, which did not show up on registers of new contracts.  (That’s a weakness of the transparency rules by the way, but let’s save that for another day).

I had some personal communications with the founder and CEO of the firm, ex-nurse Sarah Stoute, and I’m still not really clear whether FSG and its leaders are amongst the heroes of the pandemic or the villains. In terms of heroes, the owners took huge risks when they saw the pandemic starting, and committed to buy PPE mainly from China at their own risk in late 2019 and early 2020 as prices started rising. That could have literally bankrupted the firm if the market had moved the wrong way but those stocks helped the NHS get through the crisis – and of course prices went up and up, benefiting the firm’s bottom line.  

The owners also tried to advise the NHS and the PPE buyers about the suitability or otherwise of some of the new sources of PPE that started coming on board. Now that might be seen as self-serving – “buy from us rather than these unsuitable new suppliers”. But Stoute was proved right on some occasions where (as we now know) the government bought PPE that was unsuitable or didn’t meet specifications – or was bought from firms that turned out to be run by crooks, basically.

The counter argument basically runs that the owners made huge profits as shortages grew and bought themselves a Caribbean villa for £30 million, an equestrian centre and a country mansion in the south of England for £6 million.  As I say, they took substantial risks, but maybe buying villas wasn’t the most tactful thing to do quite so quickly. I think I might have waited a couple of years at least!

But back to this dumping of stock. Clearly that was nothing to do with FSG or with the NHS or individual NHS trusts. However, we do know that the NHS some time ago appointed firms to help with disposal of unwanted PPE, most of which was sitting in shipping containers around the country (some was still being held by suppliers to).

So the most likely explanation is that someone was contracted to dispose of PPE, they probably then passed on the task to another firm, and maybe another one again, util it ended up with a bunch of criminals who offered a cheap price for disposal then simply dumped it.

Sara Stoute has also said that the reason this stock is surplus is that it wasn’t stored correctly – their lawyer said, “the PPE became unusable because of the way it was stored after delivery, not due to wrongdoing on their part”. If that is true, that is another indictment around the whole story of mismanagement we’ve seen unfortunately from the beginning of this saga.  As well as the money (and time) wasted, the disposal issue highlights the “wasted” carbon emissions embedded in the product and now the pollution and waste disposal risks and costs around it.  Not a happy tale, all in all.

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Disqualifying Suppliers from Government Contracts

It feels like the new UK Procurement Bill has been moving through Parliament for years – it is only a year in fact, although before that there was an extended period of consultation.

One of the themes of the Bill is that it should be easier for the contracting authority (CA) to “bar” or disqualify suppliers from bidding altogether. That has been possible for many years if the supplier or one of its directors had committed certain criminal acts, but the new legislation includes exclusion for poor performance for the first time.  There is also exclusion for “improper behaviour” which has led to a supplier gaining an unfair advantage in the competitive process.

However, the authority will also have some flexibility. The new rules mean that the existence of a mandatory or discretionary exclusion ground is not enough in itself to throw the bidder out of the process.  The CA has to first decide if the circumstances giving rise to the exclusion are likely to happen again. That’s quite a difficult and potentially controversial assessment to ask the buyer to make, in my view. There is also going to be a centrally-managed list of firms that have been barred.

It will be interesting to see whether there will really be any significant change of behaviour in this area. In truth, CAs are very cautious about barring firms, fearing I suspect legal challenge and endless argument getting in the way of running the actual procurement process. I’m not sure that will change.

An interesting example of this unwillingness was reported recently on the Nation Cymru website. Campaigners have accused a National Health Service Trust of ignoring anti-fraud regulations by allowing two firms that have been convicted of bid-rigging to form part of a consortium to build a new cancer centre in South Wales. The Acorn Consortium is the preferred bidder for constructing the new Velindre Hospital in Cardiff. That project has faced strong opposition on environmental and medical grounds, and it is those against the construction who have raised this issue.

Nation Cymru has described how two of the consortium members – the Kajima group and Sacyr – have been found guilty of fraud offences in Japan and Spain respectively. As the website reported,

“Kajima was sentenced for bid-rigging in March 2021, with one of its executives receiving a suspended prison sentence and the company itself being fined 250 million yen (around £1.53m) for its role in the scandal, which involved a number of firms colluding with each other on the construction of a railway line to maximise their profits. Sacyr received a penalty of €16.7m in July 2022 for its part in creating a cartel aimed at aligning bids for government contracts”.

When asked why this had not led to exclusion, a Velindre University NHS Trust spokesperson responded: “The robust procurement process has been undertaken in line with procurement law, UK and Welsh government policy and all required due diligence has been undertaken.” 

I’m not sure that’s a good enough explanation really. When the spokesperson was asked to explain in more detail why “regulation 57” (which covers this sort of thing) did not apply or was over-ruled here,  they “did not offer an explanation”.  I do think they should say more.

But conceptually it’s a tricky one. With my buyer’s hat on, do I really want to kick out what presumably is my best bidder because two possibly quite minor consortium members did something bad hundreds or thousands of miles away? On the other hand, we do have regulations for a purpose. 

In terms of the justification, having had a quick read of “regulation 57” (it’s some time since I studied “the regs”), I suspect the answer lies in the famous “self-cleaning” clause. That says, “Any economic operator that is in one of the situations referred to in paragraph (1) or (8) may provide evidence to the effect that measures taken by the economic operator are sufficient to demonstrate its reliability despite the existence of a relevant ground for exclusion”.

So basically, if a supplier can show that it has taken lots of steps to make sure it will never, ever get involved in bid-rigging again, or any of the other reasons for mandatory OR discretionary exclusion, and the buyer is naïve enough – sorry, I mean if the buyer analyses those declarations and decides they are valid, then the supplier is back in the game.

You can see the logic in this, but it is a bit of a “get out of jail” card really. It’s also another reason why in practice, we so rarely see suppliers barred. It will be interesting to see whether anything changes once the new Bill has been implemented – but I have my doubts. Barring is potentially just so fraught with hassle and risk.

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What’s Gone Wrong with CIPS Systems? Part 2 – Advice to Help Avoid Similar Issues!

In part 1 of this discussion, we talked about the issues CIPS (the Chartered Institute of Procurement and Supply) has faced in implementing its new systems. Moving away from the CIPS specifics now, here are some lessons related to this field, based on both personal experience and wider research.

  1. Nothing wrong with Oracle software, but small clients (and CIPS are small in the greater scheme of things for a firm like Oracle) sometimes struggle to get the attention that a Unilever, Barclays or Toyota might receive as customers of any software giant. In many sectors, including procurement software (which is not what CIPS has bought, I should say), I’ve always felt there is a lot to be said for smaller organisations choosing smaller suppliers.  
  2. Optimism bias is often an issue too. Suppliers are almost always likely to tell you that “yes, our product can do this” and “yes, it can be up and running in six months, no problem”. They might not be lying – but they omit to mention the conditionality. “Yes our product can do this as long as the data is in this format…” Or “yes, six months is feasible – as long as a, b, c, and d all apply…”  
  3. My understanding is that CIPS went for the “big bang” approach with the Oracle software. An alternative might have been to look at different aspects of the requirement – the student and exam booking element, core membership management, conferences and events, etc – and perhaps gone for a staged approach, with a more “best of breed with good inter-operability” approach to the software products chosen too. Whilst this might have looked somewhat more expensive and less rapid in theory, incremental approaches do tend to de-risk programmes like this.  
  4. The US example in Bad Buying mentioned in part 1 was undoubtedly made more complex by the involvement of several parties. I do understand why Oracle “don’t do implementation”, but immediately you have potential for dilution of responsibility when another party or parties are involved. Most senior buy-side people tell me they would always prefer “one backside to kick”, if you pardon the language. It’s not always possible, but having real clarity about who is responsible and accountable for what on the vendor side is vital. That’s true not just in technology, I should say, but in many other areas including construction, outsourcing projects, etc.  
  5. The Enigen statement (see part 1) is interesting in its mention of “evolving and additional requirements”. The very first chapter of Bad Buying is all about getting the specifications right. It’s the first chapter because it is the most fundamental cause of failure – if you get the spec wrong, nothing else matters. For complex technology projects, and that includes something like the Army’s disastrous Ajax armoured car programme as well as digital tech, changing specifications once work is underway will almost always cause problems. In terms of a software project, a client that starts saying, “oh, could we have that functionality as well please, sorry, forgot to mention it earlier…” is asking for trouble. Suppliers like to say “yes” of course, but not only can it lead to delays, it muddies the water in terms of accountability.  
  6. Software implementation that involves a systems transition – rather than a totally new system / functionality – is often difficult because problems with (for instance) transferring data don’t always come to light until you’re well into the project. It is easy to say that thorough due diligence before choosing a supplier or starting the programme is the answer, and of course that is important. But sometimes issues do emerge from the woodwork (or from the silicon, we should say) only once you are actually pressing that “go live” button!  is It is often a sensible move to look at cleansing data, perhaps using a real specialist in this area, as part of the pre-contract award market engagement process and planning.  
  7. On the client side, effective programme management is absolutely key. One would hope CIPS recognised that, but there might be questions now about factors such as the programme manager, governance, reporting, stakeholder and risk management. Now you can have a brilliant programme manager and still end up with a failed programme, but I’d hope the CIPS Board would be insisting on a detailed review of what has happened (if they haven’t done that already).  
  8. Expanding on that point, clients MUST understand they are reputationally, contractually and commercially on the hook for leading the implementation. You can’t just hand this off to software providers, SIs (systems integrators) or consultants. Programmes must have the right level of senior people involved and fully engaged from programme inception, and involved in governance of the project throughout. A lack of appropriate senior input is the root cause of many implementation disasters – leaders must ensure early decisions are made and do not get missed. Small issues can fester into multi-million pound disputes  requiring un-picking, and causing cost, delays and disruption.  

In November 2021, CIPS net assets (excluding the defined benefit pension fund notional surplus) were about £6 million. The accounts up to November 2022 should be out in the next couple of months – it will be interesting to see if the systems issues have visibly affected the financial position. For the sake of next year’s membership fee inflation, I hope not!

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What’s Gone Wrong With CIPS Systems?

Anyone who has been around in business for a few years knows that there is nothing more nerve-wracking, tense and challenging then implementing a new technology solution in a mission-critical area for the business.  When I was researching my Bad Buying book, I found enough case studies on that topic to have pretty much filled the book with that alone.  

I did include a few examples, from different sectors and countries, from an Australian government payroll system disaster to the US drugs firm FoxMeyer, who went bankrupt after major problems with a project that included two software providers plus a systems integrator.

But despite the challenges, digitisation is essential. A recent article quoted Malcom Harrison, CEO of the esteemed Chartered Institute of Procurement and Supply, as saying this. “Whatever your corporate goal might be, a digital platform is critical to making more informed decisions”.

Unfortunately, CIPS itself has run into difficulties related to its own set of new digital platforms which it has been implementing over the last year or so, including its website, customer and membership systems. In an email to CIPS members recently, CEO Malcolm Harrison apologised for the inconvenience members and students have experienced over recent months in using the platforms.  I had seen some comments which were critical of the new platform around social media, and even a comment sent to the Spend Matters website. Several mentioned exam booking as a particularly problematical area. But clearly the problems are wider than that.

In the email, Harrison explained that CIPS chose tech giant Oracle as the software provider, after a thorough procurement process.  But Oracle don’t do implementation themselves – which is true of many major software providers. (Company valuations are generally higher for pure-play software firms than for combined software / services businesses). Instead, an Oracle approved systems integration partner, Enigen, has worked on that task. 

In the email, a joint statement from CIPS and Oracle said this:  CIPS, Oracle and Enigen are committed to modernizing the CIPS member and customer experience. Oracle has stepped in to ensure the project delivers on its full potential.”

The cynical might wonder how Oracle will “ensure” that delivery, given they don’t do implementation, and some might feel there is an implication there that Enigen are at fault, that Oracle having to “step in” to sort things out.  

A spokesperson for Enigen gave us this short statement: “This has been a complex project with many evolving and additional requirements. We are working collaboratively with CIPS and Oracle to create an exceptional digital experience for their members.”

We will come back to that statement in part 2 of this commentary – it is interesting to see that mention of “evolving and additional requirements”. That will no doubt set off alarm bells with readers who have experience of large software programmes! And of course, if Oracle has now “stepped in” to sort out the problems, it does beg the question as to why this level of integrated involvement from the firm was not already planned and present in the implementation programme.

I don’t want to be too critical here. To be honest, I managed to get through my lengthy procurement leadership career avoiding responsibility for many significant systems programmes. That was partly deliberate and partly luck (thanks to RBS for buying NatWest just as we were starting the mega-SAP programme … which RBS canned, incidentally). This is intrinsically difficult work – when I talked to a good friend of mine, one of the best complex programme managers I have ever met, he simply said, “it can happen to the best of us”.

But these events are not a great advert for the procurement profession, or for the firms involved, so hopefully the issues can be resolved quickly. I would also hope that CIPS will be open with members as to what has gone wrong. That could represent a learning opportunity that might help thousands of other CIPS members and their organisations, and CIPS has plenty of opportunities to feature this programme and all the experience gathered from it through its own channels. In that spirit, in Part 2 we will suggest some general good practice points (not necessarily linked to the CIPS case) when it comes to major systems implementation programmes.  

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NHS Insourcing Contracts – Conflict of Interest alert..

Imagine you are a Head of Procurement. Workload is growing and you are suffering from staff shortages. Your team can’t keep up. So you go to your boss with a proposition. You and a handful of the team are prepared to work a few evenings in order to catch up with the work. But the firm will pay your own limited company, Procurement Excellence Ltd, on an outsourced service basis. Maybe £100K’s worth or work should help get up to date.

It would be interesting to see the reaction of the firm, but I suspect the Head of Procurement might not be in their post for long after that. However, a parallel situation in the UK’s health service has led to hospitals contracting with their own medical staff in exactly that manner. And that cannot be acceptable.

A report in the Observer over the weekend revealed that UK NHS health Trusts are paying businesses owned by their own doctors to perform services, often using the Trust’s own facilities.

“At Manchester University NHS Foundation Trust, three top surgeons including a clinical lead and a former clinical director are the owners of Fortify Clinic , a company offering “end to end” services to tackle waiting lists. The firm was paid £1.3m by the trust for work in 2022.”

In another case, a Sheffield firm owned by three consultants (doctors) was sold to a private health provider for £13 million after winning a number of these “insourcing” contracts. Trusts are facing long patient waiting lists and declining standards of care and public health in the UK following Covid. Strikes by nurses and ambulance staff don’t help either. So these private firms carry out operations “out of hours”, in the evenings and weekends, often using the Trusts’ own facilities and sometimes even some of their own staff. But the firms are paid as external suppliers.

One driver of this is the pension situation for high-earning individuals, including many doctors. The “lifetime cap” on pension pots means that a doctor might face a crazy marginal tax rate if they earn “too much” and their pension contributions breach the limit. But if the money flows into a business, it can be managed in a more tax-efficient manner, presumably.

Although the pension situation is pretty stupid, it does apply to everyone, not just doctors. The government should address it – but doing do just for medics would rightly bring cries of “unfair” from others in a similar situation. But the tax position is no excuse for hospitals agreeing to this approach, which is fraught with problems.

The conflicts of interest are obvious and significant. Trusts are awarding contracts – without competitive process, I suspect – to their own “friends”.  The decision-making “buyers” are almost certainly close to those benefitting from the contracts. There are also conflicts for the medics involved. There may be less incentive for instance to work harder, more efficiently or rapidly if you know you will get a substantial contract and more income if the backlog of work grows rather than shrinks. And are the hospitals charging these firms for the use of their facilities? They should be, otherwise external private healthcare providers could cry “foul” for unfair procurement.

I worked in a factory one holiday when I was a student, making insulation for pipes (I’m pretty sure it was asbestos, but that is another story…) Work pretty much stopped after lunch on many Friday afternoons, just to make sure there was overtime for those who wanted it on Saturday. I’m not suggesting a surgeon would do the same quite as overtly, but even if they resist the temptation, a conflict of interest has been created.

It is also just another step towards the privatisation of the NHS. What is interesting is that this is not being driven by some secret political strategy. It is being driven by incompetent political management, resulting by staff within the NHS taking action in their own interest (and sometimes that of the patient too) that is leading to a de facto two-tier health service. It has already happened in dental services; now we are seeing it more widely, as more and more people who can afford it “go private”.

If you see a consultant (doctor), and they tell you that the waiting list within the NHS is 6 months, but they could do it for you privately next week, in the same hospital, using the same excellent facilities, for a few thousand pounds, what do you say? But if the doctor’s firm is making large amounts of money out of this, can they really offer unbiased advice – “Doctor, will my condition get worse if I wait six months for NHS treatment”? What are they going to say?

Finally, are procurement teams involved with this at all?  I’d like to think some might have pointed out the st issues. If not, perhaps they should start now.

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