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New Public Procurement Rules – Government Takes Suggestions Onboard

In early December the UK Government Cabinet Office published its response to its consultation on proposed new UK public procurement regulations. I was hoping to see what the real experts (Arrowsmith, Telles, Sanchez-Graells etc) thought of the response before going into print, but let’s give it a shot anyway! 

These new regulations in the UK will supersede the previous EU Regs, and will define the way that over £300 billion a year is spent by public sector organisations. The rules may seem unimportant to the average citizen, but getting value for money from this huge spend (£6,000 per year for every adult in the country), and avoiding fraud and corruption are fundamental issues – they have a direct impact on how much tax we all pay, for a start!

The first point to make about the Government’s response is that those who participated in the consultation exercise weren’t wasting their time.  We’ve seen past consultations in different areas of policy where the government seemed to be just ticking the box (“we’ve consulted”) and showed no real desire to change initial proposals or listen to advice. But in this case, credit to the Cabinet Office procurement policy folk – and their political masters – for taking on board many of the most significant points raised by respondents.

That includes for instance retaining the “light touch” regime (with some improvements) for certain procurements, an approach that was seen as helpful by many local authorities and health bodies. Whilst the specific Utilities Regulations will still go, that sector will be able to continue with some of the special “flexibilities” buyers there find useful – the original proposal would have abolished those.

The central governance of the new regime has been watered down after many who commented (including me) expressed concern about an over-powerful new Cabinet Office unit sitting in judgement over buyers, with the ability to intervene or effectively even take over a procurement function that stepped out of line. The new proposals pull back from that, looking instead to build on current powers, although there will be “a duty for contracting authorities to implement recommendations to address non-compliance of procurement law, where breaches have been identified”, which seems reasonable.

The proposal to cap damages where buyers break the rules and get sued by bidders has been dropped – to me, that seemed to be largely addressing a non-existent problem in any case. But the government is still looking at “other measures aimed at resolving disputes faster which would reduce the need to pay compensatory damages to losing bidders after contracts have been signed”.

Transparency is a key issue. The proposals certainly should help in some areas – for instance, by increasing disclosure when contracts are extended or varied.  Following consultation, “we intend to ensure the transparency requirements are proportionate to the procurements being carried out and are simple to implement”. That is hard to argue with, and of course focusing on the most significant contracts is understandable.

But I do still worry that the barriers provided by exemptions from Freedom of Information rules could make it difficult for spend to be properly scrutinized. The reluctance of politicians recently to tell us what went on across a whole range of pandemic-related contracts shows why this is so important. We can’t let UK public procurement slip into the morass of cronyism and corruption that many countries around the world experience, and the last two years have shown we are not immune to that threat.  

Perhaps the biggest question about the proposed changes is around the basic strategy of freeing up contracting authorities from highly structured processes, Instead, buyers will have more scope to design their own processes, within certain broad parameters around fairness and (to some extent) transparency. But that might increase the burden on suppliers if they have to cope with many different approaches and processes when they want to bid for government work, rather than just a handful of set procedures.

However, I don’t think in practice that politicians would have accepted a UK regime that was largely unchanged. “We need to show that we can do things better than the EU” would have been the (not unreasonable) objective behind the new rules. So that additional freedom was always likely to be part of the package – whether it “reduces bureaucracy” or increases it (from the supplier perspective) remains to be seen.

Similarly, we will have to see whether that freedom leads to more commercial approaches to procurement, better use of negotiation and ultimately better value for the taxpayer. Or will it mean  more corrupt procurement, with the flexibility used to give contracts to friends, relatives, cronies, attractive blond American IT experts and random pub landlords? 

That uncertainty means we won’t know for several years whether the new regulations are a success or not. And that leads to a final question – how will we know?  What are the critical success measures, the results, outputs or outcomes that would lead us to say, “yes, the new procurement regulations really have made a difference”?   I’ll leave that question for another day.

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Covid Contracts – Hunting for PPE

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

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

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

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

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

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

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

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

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

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Private Eye Identifies Covid Profiteering and Procurement Naivety

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

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

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

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

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

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

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

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

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

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Incentivising Suppliers Properly Isn’t Easy – Doctor’s Appointments Provide a Great Example!

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

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

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

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

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

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

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

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

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

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

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

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Theranos and FOMO as a Cause of Bad Buying

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

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

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

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

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

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

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

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

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

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Blood Tubes – Is This the Latest NHS Bad Buying Case Study?

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

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

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

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

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

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

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

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

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

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

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

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Don’t Assume You Can Always Find a Good Supplier Out There!

I met an old friend – and consummate procurement professional – this week for the first time in several years. He is working in a very important and sensitive area of government, and this article is in his honour!

It is an extract from Bad Buying –  How Organisations Waste Billions Through Failures Frauds, and Fu*k-ups, where I discuss an approach we’ve seen quite regularly in the public sector. Sometimes private sector firms make the same mistake, but often I have to say it is politicians who make the assumption that there will always be a supplier out there who can successfully deliver the services (or goods) they require. Unfortunately, that is not always true…

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“In the government sector, many failures can be tracked back to an assumption that there will always be a range of credible suppliers who can execute the contract, whatever the organisation looks to buy. But that may simply not be true. If the buyers’ requirement is unique, as government work can often be, a market may need to be created from scratch. Even if there is some capability already, a sudden increase in demand, from a major government programme for instance, will put pressure on the market and it may take considerable time to reach a viable state.

The UK government decided in 2013 to outsource much of its probation services work, despite warnings from experts that it would be “highly problematic”. The work included the management and rehabilitation of offenders, combining an element of punishment, such as monitoring the conditions of prisoners’ release, with the desire to reduce re-offending and help the offender make a useful contribution to society. The Ministry of Justice, then under the command of minister Chris Grayling, created 21 Community Rehabilitation Companies (CRCs) to manage offenders who posed low or medium risk, and in February 2015, the CRCs were transferred to eight, mainly private sector, suppliers working under contracts that were to run to 2021-22.

However, a National Audit Office (NAO) report from March 2019 reported that implementation was rushed, there was little of the innovation that was promised from suppliers and, while the number of offenders has reduced, 19 of the 21 companies ultimately involved failed to meet targets for reducing the frequency of re-offending. Probation services have clearly not been transformed, and in July 2018, the Ministry announced it would terminate its contracts with CRCs 14 months early, in December 2020.

Suppliers didn’t do well either. The NAO report estimated cumulative losses of £294 for the firms if contracts continued to the end date, and Working Links, one of the providers, collapsed into administration in February 2019 because of its probation contracts.  Finally, David Gaulke, by now the Minister in charge, announced in May 2019 that the contracts would not be offered to private firms – probation services was in effect re-nationalised after one of the highest profile UK buying failuresin recent years.

There were clearly many problems here, but fundamental is the issue of an entirely new “market” being created, without real understanding upfront of what the work involved, what capabilities would be needed by the winning firms, how the right commercial models would be constituted or how competition could be maintained and stimulated.  The organisations that won CRC contracts ranged from those with experience in vaguely associated areas (Sodexho was a catering firm originally) to new partnerships such as Purple Futures, which involved Interserve, an outsourcing firm which eventually entered administration in early 2019 after financial problems, along with charities such as Shelter.

“If you build it, he will come”, the tagline from the legendary film Field of Dreams, seems to be how some governments think when it comes to creating markets. And generally, some entities will emerge from the undergrowth, bidding to carry out pretty much whatever government asks them to  – drawn by the potential rewards, of course. But this does not create vibrant, sustainable, successful markets in itself”.

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Procurement Fraud in the NHS – Could It Happen In Your Organisation?

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

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

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

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

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

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

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

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

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

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

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Children’s Social Care – A Broken Market

Sometimes Bad Buying stories are amusing, or we can learn from events without feeling too emotionally involved. But reports last week about the procurement and management of children’s care services brought just rage and sadness.

These are children who don’t have parents to look after them, or have been placed in care. Many have behavioural issues, or addiction problems.  So keeping them safe and providing an environment where they can learn and thrive is far from easy, and perhaps that is why public sector bodies (local councils) have over the years increasingly outsourced provision of residential facilities and care. The work goes to private sector firms, ranging from very small (individual foster parents at the extreme) to larger firms, including those funded or owned by private equity.

The Times reported problems both with the performance of some firms plus what looks like a rip-off in terms of the prices charged. The average cost per week is now £4,130 per child, and there is evidence that through the pandemic, new “get rich quick” firms have come into the scene, providing poor care and facilities but taking advantage of the lack of physical inspections by the regulators.

The Times highlighted cases reported by Ofsted (the regulator):  

  • Children were able to steal knives from one home and take them to school.
  • Staff dropped a young person off at the home of a drug dealer despite being warned by police to avoid the area; at another run by the same company a child was discovered riding a bike on a motorway hard shoulder.
  • A young person at a third home was found weaving through traffic and high on drugs. On another occasion inadequately trained staff locked themselves in a car when a resident became violent. One of the three people who set up the home was a scaffolder prosecuted for having an eight-inch knife behind the sun visor of his van.

A government review of children’s social care services is underway, and an interim report was also issued last week. The review is being chaired by Josh MacAlister, the founder of Frontline, a charity that has developed a scheme for fast-tracking bright graduates into children’s social work – similar to the Teach First scheme in the education world. I have worked with Frontline a number of times, and MacAlister is one of the most impressive people I have ever met. If anyone can address these seemingly intractable issues, it is him.

However, I did smile at his comment last week (made in a conference speech) when he appealed for large firms to moderate their prices and margins.

“I would implore those of you who are owners of private children’s homes, particularly large groups, to act with responsibility to bring down costs and reduce profit-making and to be responsive to the needs of children. It is better that plans to make this happen are started now”.

Asking firms with private equity behind them to reduce profits is like asking a spider to stop making webs or a fish to stop swimming.  Josh, it’s what they do. I think we can confidently predict that his appeal will have no effect at all.

In his speech, MacAlister also cited figures published in 2020 by the National Centre for Excellence in Residential Child Care (NCERCC) and Revolution Consulting, which identified a 40% rise in independent children’s home prices from 2013-19. The 20 biggest independent children’s social care providers were making combined annual profits of £265m, at a margin of 17.2%. However, the private sector argues it provides care that is as good as that provided by councils directly, at a lower cost.

Coming back to Bad Buying though, this strikes me as both market failure and a failure of procurement strategy. When we look at which services can most sensibly be outsourced, we should consider factors such as:

  • Are the services strategically critical for our organisation?
  • Is there a healthy, dynamic market out there to buy from, open to new entrants?
  • Could we move our business between suppliers or back in-house if we needed too?
  • Will there be a reasonable power balance between us and our suppliers, enabling us to exert  some negotiation leverage?

If we carried out this analysis on these services, I’d argue that this is basically not a suitable spend category to outsource. It is very sensitive, it is difficult to switch suppliers, with limited supply in some parts of the country. Once a child is being cared for, the provider has the upper hand in negotiations, as changing suppliers is difficult.  

I don’t know whether there has ever been a national procurement strategy here, or whether every council has developed its own. I suspect the current situation has just evolved, and now we have the taxpayer spending £500,000 a year per child in some cases, and not even being sure the service is up to scratch.

There is also a market study into children’s social care provision underway, led by the Competition and Markets Authority (CMA). Maybe that – as well as the MacAlister review – will lead to a new approach to the procurement issues around children’s care. This really does need some serious thought and a national strategy. That doesn’t necessarily mean big national contracts, I would add, but it does need considering strategically, rather than dozens of individual councils trying to do their best individually.

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The Post Office and Fujitsu Horizon Case Shows Bad Buying at Its Worst

Many of the Bad Buying stories featured here or in my book have an element of levity to them. Some are decidedly humorous even. But sometimes there is a case where it is impossible to feel anything other than horror, anger and amazement at the behaviour of the parties involved.

The case of the Post Office, their postmasters and the Fujitsu Horizon IT system is a case in point. Last month,  39 people had their criminal convictions quashed in the High Court, the latest in a series of legal cases which have finally ended up clearing these individuals and exposing the appalling actions of Fujitsu and the Post Office.

Without going through all the details, the Horizon system appeared to show discrepancies in the finances of Post Office branches. That was blamed on the people running those branches – they were accused of stealing money or at best mismanaging post office funds. Many of those accused dipped into their own pockets to make up the supposed shortfalls. Eventually, the Post Office prosecuted hundreds of post office managers for theft – many went to prison. Some were ostracised by friends and neighbours; at least one committed suicide.

And all the way through this the Post Office and Fujitsu insisted that the Horizon system could not be wrong.  But eventually, after investigations and court actions, it became clear that the system was flawed and could well make the errors that led to the numbers not adding up. Even then the Post Office keep fighting for years, putting the postmasters through more pain.

There is a chapter in my book which is all about “believing the supplier”, and how Bad Buying can result from exactly that. That seems to have been one problem here. The Post Office initially at least believed Fujitsu when the supplier said the system was foolproof. No doubt there were careers and sales bonuses on the line for senior Fujitsu staff. Then when the integrity of the technology was called into doubt, we saw greed, fear, arrogance and stupidity from Post Office management, who refused to admit they might have been wrong. Instead, they continued to harass and prosecute innocent people, failing to take responsibility until the very end. 

So Bad Buying on the Post Office side, a poor product from Fujitsu and morally bankrupt behaviour from many of those involved on both sides of the supplier/buyer relationship. Fujitsu witnesses were also made to look stupid in court as they defended their system. Indeed, as Computer Weekly reported, after a 2019 hearing, “The Director of Public Prosecutions (DPP) has referred information to the police relating to a High Court Judge’s concerns about the accuracy of evidence given by Fujitsu staff in criminal trials”.

The least the firm – along with the Post Office itself – can do now is offer a large sum of money to compensate those affected. (Fujitsu has continued to win huge government contracts, by the way). There may be charges of “malicious prosecutions” to be brought against Post Office executives too.

Well done to Alan Bates, the postmaster who initially took on the Post Office,  Computer Weekly and Tony Collins, the first to pursue the technology aspect of the story, and to Private Eye magazine which regularly investigated and reported on the whole affair over the years. It’s a lot more than simply bad buying and the story of another dodgy IT system of course – and it all adds up to one of the most distressing stories about corporate behaviour that I’ve heard in a long time.

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