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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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National Audit Office Won’t Sign Off UK Dept. of Health Accounts

The UK’s National Audit Office recently refused to sign-off the accounts of the Department of Health and Social Care (DHSC) for 2021-22.

“A lack of sufficient, appropriate audit evidence and significant shortcomings in financial control and governance” meant that NAO head Gareth Davies was unable to provide an audit opinion on the accounts of the UK Health Security Agency (UKHSA).  Even taking the “challenging context” into account, Davies called the UKHSA’s inability to produce auditable accounts “unacceptable”.

UKHSA replaced Public Health England in October 2021. That was a challenging time because of Covid, but even so, the financial management of the new organisation appears to have been chaotic.  

“UKHSA was unable to provide the NAO with sufficient evidence to support balances relating to £794m of stock, and £1.5bn of accruals from NHS Test and Trace, which were transferred from DHSC, or to support £254m of stockpiled goods transferred from its predecessor organisation, Public Health England (PHE). DHSC had not resolved issues with its management systems, financial controls and records, which the C&AG reflected in his report on DHSC’s 2020-21 accounts”.

Internal controls were lacking; there weren’t even effective bank reconciliations, something the smallest business would expect to have in place. “Shortcomings in the introduction of a new accounting system, combined with a reliance on temporary staff, meant that UKHSA was not able to provide the NAO with evidence to support key balances and transactions in the accounts”. So goodness knows what was happening in terms of errors or even fraud at that time.

Moving on to the wider Department, NAO “was unable to obtain the evidence needed to support £1.36bn of stock, due to issues related to inventory management”.

DHSC did not carry out end of year stock counts to check items including PPE (personal protective equipment) and Covid lateral flow tests, “as it was unable to access 5 billion items (which cost £2.9bn) that were stored in containers”. Whilst that might be excusable, or at least understandable, there was also a lack of adequate processes to check stock in warehouses, which is less so.

There was also a write-down of £6bn in terms of pandemic related purchases. £2.5bn of that is items already purchased but no longer usable, or where the market price is now way below what was paid. £3.5bn was a write-down on PPE, vaccines and medication which DHSC has committed to purchase, but no longer expects to use.

“Taken together with the £8.9bn written-down in its 2020-21 accounts, over the last two financial years, DHSC has now reported £14.9bn of write-down costs related to PPE and other items”. 

And if you are thinking, well, at least that’s it, there is more salt to rub into the wounds.

“DHSC estimates that ongoing storage and disposal costs for its excess and unusable PPE will be £319m. At the end of March 2022, the estimated monthly spending on storing PPE was £24m.”

So that’s £15 billion of taxpayer’s money gone. It has been in effect a huge transfer of wealth from the UK economy and citizens to a range of largely non-UK manufacturers and of course to a whole bunch of crooks, conmen, exploitative agents and middlemen, many with political connections, and the occasional genuine business person, all involved in the supply chain somewhere.  Every issue of Private Eye seems to have more examples – taken from the company accounts that are now emerging – of firms making huge margins, often 50% or more, on the PPE, tests and so on that were supplied during the pandemic.

We’ve discussed the reasons for this disaster many times over the last couple of years A failure to prepare and mis-management of the emergency PPE stocks; catastrophically bad demand planning which led to huge over-ordering;  incompetence in terms of drawing up specifications; a lack of even basic negotiation, cost analysis and supplier due diligence; political interference and nepotism; these drivers all feature. But as the NAO lays out the cold, hard numbers, we can say with confidence that when we construct the league table for the all-time costliest failures in UK public procurement, this is right at the top.

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Would You Employ These Men?

Assume you are a CPO recruiting for a senior procurement role.  The person will have some power in terms of choosing suppliers and negotiating contracts, although others will be involved too (because you understand the corruption and fraud risks around concentrating that sort of power in a single person).

You then discover that this individual recently paid a fine of several million pounds to the tax authorities because of a transaction from a few years ago. The tax authorities found that the individual had managed their affairs in a manner that crossed the line from “tax avoidance” into “tax evasion”, even if it was not deliberately criminal evasion.  But when you tackle the person about it, they explain it was simply “careless” and they had no intention of doing anything illegal.

I mean, they tell you, we’ve all done it. You just carelessly set up a new business but then register the shares in your father’s name, offshore of course, then set up a complex process so that you can still benefit personally from the value of those shares. And when they’re sold, you avoid capital gains tax. Just careless.  (You also discover he made a lot of money working for two oil companies that had an “interesting” history, including senior management fraud and corruption – although he wasn’t involved in that personally).

How do you feel as CPO? I would suggest this person would not be employed. There would be questions about their personal ethics and whether they could be trusted with the organisation’s money, let alone the reputational risk to the organisation and indeed to you if the CEO finds out who you are employing. 

Now let’s consider another case. Another senior procurement executive is about to award a contract to a single consultant to carry out a very sensitive strategic assignment at Board level. There are a handful of individuals – from different firms – in the running. Your executive makes the choice and the consultant starts work. You then discover that a few weeks before the appointment, your executive asked the chosen consultant if they could help him get a loan of £800,000. The consultant was indeed helpful, and linked your exec up with someone who could make that loan.

Where do we start with this? As the CPO, you might wonder first of all why your exec needs that loan – they’re paid a decent six figure salary, after all. That rings alarm bells. A gambling / drug habit to finance, maybe? Blackmail? Not good for someone in a responsible position handling the firm’s money.

But on the core issue, I think you would fire them, or at the very least put them on a final warning (if the internal policy is not strong enough to support a dismissal). It was totally inappropriate to ask a potential supplier for favours at any time, in particular when you are in the process of making a contract decision. Personally, I would not be able to trust this individual again, so sacking would be my preferred option.

You might have a little more sympathy with the consultant. They were put in a difficult position, and all they did was make a connection – it is not like they handed over cash. (However, you do feel a little awkward when you discover the consultant previously donated a lot of money to help restore your firm’s sports and social club …)

But you have to tell the supplier that the competitive process will need to be run again and unfortunately they will be excluded. They should have politely declined to help and really should have blown the whistle on the exec and come to you as the CPO with the story.

The case studies here are of course parallels to the stories of Nadim Zahawi, Conservative party chairman, and Boris Johnson, ex-Prime Minister, and his dealings with the Chairman of the BBC, who he appointed after asking him to help Johnson get a loan. To make matters worse, Zahawi was actually Chancellor (finance minister) at the time he was being fined. He was the ultimate boss of the tax authorities!

So we’ve got into a situation in the UK where the people who are running the country have ethical standards that we would not tolerate in a mid-level procurement manager. The feeling that the rules do not really apply to them, personal disregard for ethical behaviour (remember the long history of Johnson’s many children, deserted wives, and lovers having abortions), a lack of care about conflicts of interest – they are all character traits that would make us run a mile if we saw them in a potential recruit.

This is not just a rant against these individuals. The wider issue is that it sets a terrible example. Young – and not so young – business people, including those involved in procurement, look at the standards of behaviour and think “well, if that’s OK for our leaders, surely I can accept a trip to the Grand Prix from that IT firm who want our business”.  Or perhaps feel it’s OK to award a contract to a firm on the basis of a nod and a wink that there’ll be a nice job next year in that business on twice the salary.  

Once standards start slipping in an organisation or country, it’s tough to turn things around. My feeling at the moment is that the UK is rapidly sliding down the league table in terms of national corruption, ethics and standards of behaviour in public life. When we see this sort of thing going on in Nigeria, Turkmenistan or Myanmar, we shake our heads and say, “what a corrupt, backward country that is – look at the crooks and chancers they have in charge!” 

Well, here we are.

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Supercomputer – Not Very Super Procurement

We started the New Year with an expensive error made in UK government procurement. Atos, the large French technology firm, were paid £25 million after the firm complained about the decision to award Microsoft the £850 million contract for a new Meteorological Office super-computer. Most of the cash was paid by the government’s Department for Business Energy and Industrial Strategy with the Met Office itself stumping up the rest.The language is often the same when this sort of case drops into the public domain. No-one is to blame. “There was no admission of liability”, said the government here.

That begs the question of course – why pay £25 million if you didn’t do anything wrong? Clearly, the government’s legal advisers must have thought there was a very high probability that Atos would have won if the case had come in front of a judge, and might have been awarded substantially more in damages.

The best description of the dispute I found is on The Register website. A fairly technical and technological issue around the specification of the computer and the solution proposed by Atos led to the French firm receiving a score of 0/5 for several evaluation questions and their bid being declared in effect “non-compliant”.  Then, as the Register reported, “It was also alleged the government was “disproportionate” in ruling its bid non-compliant without seeking further clarification on the architectural equivalence of the Atos system”.

Eliminating a serious bidder on a complex specification issue is rarely a good idea in my experience. You need to be absolutely sure the bid really does not meet your spec, and I would certainly have wanted “further clarification” from Atos before I took the drastic step of kicking them out of the competition. Poor judgement at the very least on the buy-side. Or maybe somebody just didn’t want Atos to win and was looking for an excuse to disqualify them (yes, that does happen…) 

There was then an interesting debate on Twitter about the case too. Duncan Jones, the highly respected expert who led who led the procurement practice at research firm Forrester until he “retired” last year, was rather angry about this money ending up with Atos. If a company is on the wrong end of a bad piece of procurement by a private sector firm, the disappointed bidder doesn’t get recompensed, he said. So why should it be different in the public sector, with our money going straight into the profits of Atos (and others).

It is a fair point. But my argument is that you must have some way for bidders to highlight when there has been incompetent or even corrupt public sector procurement. And if they have lost millions because of that, why shouldn’t they be able to get something back? Otherwise I do think we would see more nepotism and even criminality in public procurement, with politicians, advisers and public officials acting in their own interests rather than those of the taxpayer. If the procurement rules did not have the “teeth “ provided by bidders’ right to challenge decisions, I think we would see lots of cases that would make the UK pandemic PPE procurement experience look like a model of probity and effectiveness!  

However, I think Duncan made a fair point about how much compensation should be payable in cases like this. Working out “loss of profit” is an inexact art, and many suppliers make very low margin on big government contracts. So £25 million does sound on the generous side; but as I say, the lawyers must have felt the amount could have been a lot more if the dispute has continued.

At the early stages of development of the new UK Procurement Bill, I seem to remember that there were some major changes proposed around supplier challenges, compensation and so on. Introducing the scope for a less legalistic dispute resolution process was one idea I liked (some countries have a “procurement ombudsman” which is an interesting idea), alongside less scope for big supplier pay-outs. The proposals seemed interesting, but I believe most of those have gone now from the draft legislation, and the Bill is not going to drastically change the current situation. 

Finally though, the point to remember is this. If an unhappy potential supplier ends up being paid lots of money, it is ALWAYS because there has been a failure in the procurement process. Don’t blame the supplier – look at what went wrong on the buyer side. In the case of this Met Office supercomputer, it may have been something rather complex around the specification. But it was still a failure, another case of Bad Buying, and one that has cost us £25 million.

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Gareth Davies, NAO Supremo, On Efficiency, Standards (and Procurement)

Last week, Gareth Davies, head of the UK’s National Audit Office, gave a speech to members of parliament and civil servants. He drew on the experience of NAO in carrying out dozens of reviews over the last three years to highlight “three big lessons for public spending in large scale emergencies”.  All three have implications for and are related to procurement in some sense.

“Firstly, the importance of maintaining basic standards of public accountability even in a crisis, and restoring normal controls as soon as possible. 

Secondly, the central role of good quality data in responding quickly and targeting resources accurately. 

And thirdly, the need for a new approach to improving the country’s resilience to large scale emergencies, which minimises the impact on current and future taxpayers”.

Under the first heading of basic standards, he accepts that there wasn’t time to carry out full and normal processes in areas such as PPE procurement or furlough loans. But there was then no excuse for government failure to apply the safeguards of transparency, for example in terms of large PPE contracts.

“It was therefore a concern to see significant delays to government publishing the details for some (often very large) contracts that had been awarded without competition. It is not an onerous task to publish this information promptly, and it is a vital one”.   

Timely accounting is also key, and he points out the worrying situation in local government where a third of councils at the end of September 2022 had still not published their accounts for the year ended March 2021! Given the waste of money / fraud /massive incompetence that is now coming to light in councils such as Thurrock, Croydon and Slough, timely accounting is “critical to protecting taxpayers and maintaining trust in public spending”.

Under the good quality data headline, he praises some aspects of the NHS App as a good example of the benefits that data can bring, but government has to do more, and progress has been too slow. There are three key issues that can help drive greater efficiency:

  • Data standards: essential for efficient use of data, held in a consistent way
  • Data quality: for accurate and reliable results and maintaining public confidence 
  • Data sharing: so that citizens don’t have to repeat themselves 

Finally, resilience – “how is government ensuring that our country is resilient enough to withstand costly crises, without placing an unaffordable burden on taxpayers? And what will good value for money look like in future pandemic planning?”

We need more flexible approaches, he says, but above all we need a more considered approach to risk. For instance, given climate change, there are major issues around water supply, but NAO found no convincing plans to stop the south of England running out of water by 2040! (That’s a worry for a vegetable grower like me even with 8 rainwater butts / bins dotted under various drainpipes and around the garden…)

“To be truly resilient, government must plan for scenarios that it previously dismissed as extreme, and revisit its assessments of how likely they are to happen. This is crucial if we are to achieve value for money, not just in the short term, but for future generations.” 

His final remarks on efficiency in government spending more generally focus mainly on evaluation and evidence. Basically, government spends money and has little idea of whether it does what it was supposed to (or achieves anything at all in some cases). Here’s a shocking fact. In 2019,  – “out of the government’s 108 most complex and strategically significant projects, only nine were evaluated robustly. Seventy-seven of them had no evaluation arrangements at all”.

There are other good points around efficiency. Understanding and managing demand for services is key; and we need more and better investment in digital services (with the caveat that projects are consistently over-optimistic about implementation in the public sector).  Davies wants more focus on the nuts and bolts of efficiency. “We have seen too many high-level ambitions fail to be translated into concrete plans, adequately resourced and tightly-managed. The skills and organisational discipline required for this are well understood, but they are not always valued and prioritised in government.” 

Indeed. I still wait to see the first appointment of a Permanent Secretary who has risen through roles in procurement, commercial, project management and delivery, rather than the traditional policy and private-office-heavy route. That would be a real indicator that government is taking these messages seriously!

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