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Is Labour getting to grips with public procurement?

It is nine months now since the Labour Party was elected to power in the UK. Most of the country – including me – were happy to see the end of the incompetent Conservative government, and although I voted LibDem, I was pleased to see a change at least.

I had high hopes that Labour would take a serious look at government procurement, cost management and allied to that, fraud and corruption in the public sector. But in these areas, there has been little really to get excited or enthusiastic about. Yvette Cooper announced that the Home Office was taking some sensible steps, and we had the freeze on ‘purchasing cards’ in response to what seemed to be some lack of control on expenditure. But we haven’t seen much of a co-ordinated and structured drive to reduce costs, despite the looming economic crisis for the government and the country.

To be fair, there has been plenty to keep the government occupied. Ukraine and the seismic Trump upheaval, as well as ongoing pressures from immigration, the NHS and more has clearly led to an incredibly difficult agenda. But the lack of any real focus on tight management of costs is disappointing, and indeed government borrowing hit record levels last month, well above the expectation.

Some of us got excited by the creation of an ‘Office for Value for Money’. But that looks now like a performative move, creating an organisation without much power or pace. It has a part time chair, contracted just for one year, supported by “a multidisciplinary team of up to 20 civil servants based in HM Treasury”. That ‘up to’ is always a give-away. Members of Parliament on the Treasury Committee have already suggested it is under-resourced, duplicates the work of others and is unlikely to provide value itself.

It’s first recommendation was that Treasury should introduce “a rolling programme of VfM (value for money) thematic reviews in the years between spending reviews, with the first set of reviews to take place in 2026”.  Well that really gets the blood racing, doesn’t it? Perhaps that is a sensible ‘machinery of government’ initiative but it isn’t going to help address the UK’s £151.9 billion 2024/25 deficit (which means the government borrowed £3000 for every adult in the country last year, a scary thought).  

Another disappointment came with the appointment of the ‘covid corruption czar’ – renamed the Covid Counter-Fraud Commissioner.  Tom Hayhoe was appointed in December on a one year contract for three days a week.  (I can only assume they wanted him and knew he could only do three days a week so advertised the job like that). Again, he will have a ‘small team in the Treasury’.  So what have they delivered so far? I can’t find evidence of anything.

Another indicator of a lack of real focus on procurement spend is that in the first six months of the Labour government, spend on consultants was the highest since 2020, during the pandemic, according to data firm Tussell. About £838 million in consulting contracts were awarded in the latter half of 2024, compared to approximately £620 million over the second half of 2023 and £480 million in 2022. And recent tenders issued by the government’s central buying organisation, Crown Commercial Services, seem to focus more on CCS revenues and profit (‘let’s make sure all the big firms get a place on our frameworks’) rather than trying to improve value for the taxpayer.

The revolving door between top officials and suppliers continues too. “Sir Alex Chisholm, who was the second most senior civil servant in the country, has become a senior adviser at Boston Consulting Group (BCG).” The committee that monitors these moves, ACOBA, continues to be a waste of space. At least Rachel Reeves, the Chancellor, has finally realised that accepting free tickets for gigs is not a good look for someone in her position. But then the Prime Minister didn’t initially seem to see anything wrong with gifts of clothes from donors.

Generally the whole climate around spending public money does not really seem to have changed since the Tories were in power. I hoped for a new era of probity, reform where it is needed, tight financial management, focus on procurement, and a crackdown on corruption. Unfortunately, I’m not seeing it so far.

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Government Procurement Cards – Wasteful or Wonderful?

The focus in the UK public sector is now firmly on cuts, saving money and trying desperately to stay within the chancellor’s ‘financial envelope”.   There have been some signs of a structured approach that could save money in the procurement space, such as this story in The Times about more spend governance in the Home Office.

“An audit of costs, ordered by Yvette Cooper, the home secretary, has found evidence of “excessive spending” on awaydays, public opinion research and contracts handed out by the department to external suppliers. As a result, ministers have demanded personal sign-off of all large expenses in the department and have put some future spending plans on hold”.

The other initiatives that hit the news last week was the freezing of all government ‘Procurement (or purchasing) Cards’. Spend on the Cards has more than quadrupled over the last four years, apparently. As the BBC reported:

“Thousands of taxpayer-funded credit cards will be cancelled under plans to crack down on “wasteful” spending, the government has announced… the government said spending on the cards had quadrupled in the past four years without enough scrutiny.

The Cabinet Office will order departments to freeze almost all of the around 20,000 cards in circulation this week, with a strict new application process aiming to cut the number by 50% …

More than £675m was spent on the cards by central departments and core agencies last year, up from £155m in 2020/21”.

Now any procurement professional reading this knows that ‘procurement cards’ are in reality ‘payment cards’. In themselves, they do not define or dictate a particular procurement route. You might buy by making just one phone call, or run a 6-month long tendering process, and in both cases, ultimately pay with a Card.

So the key aspect (to avoid Bad Buying) is that the decision to make a purchase with a Card must be legitimate and controlled, as in the case of any other purchase. The difficulty is establishing just from the headlines whether this has been the case here. Examples quoted included “£1,200 on luxury coffee pods by one team in two months and more than £1,800 on a “value for money” course”.

At first glance, some of the expenditure does sound dodgy, but really we need to know what the process for approval, sign-off and audit was before we can talk about fraud or incompetence here. And sometimes there are innocent explanations for what sounds odd at first. This is from my Bad Buying book.

“Some years ago, I talked to a logistics manager based in the UK Ministry of Defence’s Head Office. He told me he had not long returned from Afghanistan, where he was working as a logistician in a big military camp there …

We talked about the need for buying processes to be flexible and for buyers and logistics people to be able to react quickly in military situations. The use of the Purchasing Card came up, and he explained there had been a bit of an internal furore when finance had looked at expenditure on the card in use at the Camp. One invoice related to expenditure on a range of golf equipment. That looked very strange, possibly fraudulent.

But it wasn’t. He explained that opportunities for rest and relaxation were limited for the troops in Afghanistan. Not many friendly bars, you couldn’t just go off for a run through the hills or take a trip to the beach. So, someone had the bright idea of buying some golf equipment and rigging up practice nets. Even non-golfers were getting into it, with more expert players offering lessons. The golf kit showed up on the Card bill, and looked odd, but most people would agree it actually was an appropriate and intelligent use of public money.

As a corporate executive, and on behalf of the firm, I’ve bought retirement presents, flowers for staff to celebrate a wedding or birth, strange items to be used on corporate away-days, booze, and many items that would have looked odd on that card bill. But all were justified and for the organisation’s benefit, not mine. Another case saw a government body chastised for spending money at a horseracing venue. But that was explained as the fees for a legitimate business meeting, booked in the hospitality suite on a day when no racing was taking place. Today, horse tracks and football grounds often have good meeting facilities, and can be cheaper than equivalent hotels, so again this might well have been good buying rather than fraud or failure”.

So don’t jump to conclusions when you see headlines about use of Cards. Having said that, it seems sensible and reasonable for the government to be taking a hard look at this. Looking back, we can now see there was precious little management of the civil service going on in the later years of the chaotic Tory government, so a bit more control and scrutiny now is no bad thing.   

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The Things We Do for Love…

Procurement related fraud is often committed against organisations by outsiders, as in the case of invoice misdirection, for instance. Other fraud can be highly sophisticated, involving multiple people inside and outside the organisation. But insiders working alone are frequent perpetrators too, and approving invoices from a fake supplier that is actually owned by the member of staff involved is perhaps the most common purely internal procurement fraud. Or the crime can be even more straightforward – as in the case of simply buying stuff with the organisation’s money, then stealing it, usually to resell.

There are many examples of these basic frauds in my Bad Buying book, and it is interesting to note the drivers for this sort of criminal action.  Getting into debt, often gambling related, is one common driver. Pure greed and the desire for the finer things in life – nice cars, big houses and so on – is a pretty generic motivation. There was the senior manager for instance who defrauded the UK health service in order to fund her stud farm and buy high quality horse semen! But often the driver is love and / or sex, and we see someone who is trying to impress a partner or potential partner, and that was the reason behind a recent British Army fraud.

Jed Charlot was jailed for three years recently after stealing half a million pounds worth of supplies from the Army in order to fund gifts such as a Louis Vuitton handbag and holidays for his mistress. He stole items such as printers and toner cartridges to sell on eBay after he told her he was rich, rather than an Army quartermaster probably earning £35K a year, working for the Royal Electrical and Mechanical Engineers (REME) in Wiltshire.

As a quartermaster sergeant in charge of stores, he used his MOD account from 2021 to order items, then sold them on. He placed 676 orders over a year and stole £498K worth of products, making £349K income from the sales. He was caught in 2022 when a civilian colleague was preparing for an operation in Germany and realised there was a shortage of printers.  She checked and found that the defendant’s unit had spent far in excess of the budget, and thought, ‘that seems odd…’ Well done to her!

Charlot claimed initially that his MOD account had been hacked but that excuse didn’t stand up for long. It is a sad story really. Charlot was ‘genuinely remorseful’, he had reacted badly to pressures in his life (his lawyer said) and his previous conduct in the Army and Police before that was exemplary. But theft it theft.

The large number of orders was presumably his way of avoiding more scrutiny. I suspect there was a sign-off threshold, maybe at £1000, where someone else would have needed to authorise the order. So keep it below that level and there is less chance of detection. Maybe someone should have checked the budget sooner, but at least it was spotted after a year or so. Another NHS case in my book which was similar saw a women stealing increasingly large quantities of supplies such as printer cartridges from a health organisation for about 5 years before anyone noticed!

So how do we mitigate the risks of such actions? Regular checks on orders, even relatively low value, should be implemented. That might be random rather than 100% for really low value transactions, but staff should know that they might be examined. Scrutiny of budgets and a close look at any areas of overspend is key – the lack of that oversight in the NHS example was shocking. Maybe better use of data, perhaps even using AI, could help to detect unusual spend patterns by comparing the purchases of different people or cost centres.  

But sadly, there will always be someone who is tempted by easy money, particularly if their judgement is clouded by l’amour.   

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Beware the Fake CFO!

I have mixed feelings about Ove Arup. One the one hand, they are an engineering company with a strong track record, great achievements, and one of my best friends worked for them for many years. On the other hand, they wrote me a nasty letter threatening legal action after I mentioned their role in the London ‘Garden Bridge’ scandal which involved some VERY dodgy procurement by Transport for London (still have the lawyer’s letter in my files somewhere…) 

That scandal was driven by Boris Johnson and Joanna Lumley, two individuals who suffer from poor judgment.  At least Lumley is not driven by arrogance, but her public persona gives her more power then she deserves – her ‘support’ for the Gurkhas for instance did not increase global happiness, I’d argue. Anyway, that’s for another day and another website.    

Going back to Ove Arup, I tried to resist feelings of schadenfreude when I read that the firm has been conned out of more than £25 million last year. Their recently published annual report confirms that the firm (as The Times reported) “revealed in May that it had been the victim of fraud in Hong Kong, with criminals using “fake voice, signatures and images” to convince a member of staff to deposit money into several accounts’. Project delivery was unaffected, however.

This is being positioned as a ‘cyber-attack’ I guess because that is very contemporary and it sounds like the firm is relatively blameless but really this is a classic invoice misdirection fraud, just enhanced by the use of deepfake technology.  A cyber attack uses technology to gain access to a company’s internal systems and data. It does not sound like this is the case here. This is presumably the classic fraud play which consists of a message to a mid-level finance executive saying, ‘hi, this is your CFO, please send £25 million to this bank account because we’re working on a top secret acquisition project’.

I am not claiming that this is the case here (I don’t want another lawyer’s letter, please) but sometimes this sort of fraud is enabled by someone on the inside, who can claim they were misled but in truth is part of the fraud-committing gang. What it always means is that the firm has been sloppy in terms of its process, systems and training.

So all suppliers and bank accounts (or any other organisations to whom money is going to be paid) should be authenticated and validated before any money is paid to them. Any alleged changes in bank details from an existing supplier must be verified by a phone call to a known individual on an established phone number.  (Also, if you’re doing a private transaction through a lawyer e.g. buying a house, and you get an email saying ‘we’ve changed our bank account’ the day before you are due to make the payment, PHONE THEIR OFFICE).

Significant payments should have multiple authorisations. In his case it may have been several payments rather than one £25M hit, but even so, this is serious money, so you must have multiple involvement and sign-off to guard against the lone internal fraudulent collaborator. All staff in roles where they have access to the firm’s money in any way must been trained in the right approaches. processes and policies. 

At least this isn’t quite as bad a case as the Essilor Luxottica (huge ophthalmic lens firm) Thailand invoice fraud, where the firm lost up to 190M euros, basically their entire annual turnover in that country. That really was one of the most breathtaking examples of process incompetence I have ever seen in a major company.

So if you work in procurement or finance, do make sure your processes for paying suppliers (or other organisations, or even unknown bank accounts that are supposedly linked to your own organisation) is watertight. In particular, any one-offs, emergency payments and similar must go through a really strong checking and verification process. Just because someone who looks and sounds like your CFO sends you a WhatsApp message telling you that it is vital you help the firm NOW by authorising a payment, you should not rush off and send them loads of cash.

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When in Rome – watch out for potholes!

When I lecture on Bad Buying, as I do at the Skema business school in Lille, I ask the students to think about what sort of procurement related fraud or corruption is particularly difficult to protect against or detect – and why. Certainly right up there in the top three examples is the supply of goods or services that deliberately and maliciously don’t meet the quality level or specification agreed between supplier and buyer.

So the supplier substitutes an inferior product (or service, although more often this is seen with supply of goods) that costs less to provide, meaning the supplier makes additional profit margin and the buyer potentially suffers from the lower quality provided. It may not cause a major issue for the  buyer – but in some cases, it certainly does.

A case included in the Bad Buying book covered oil supply.  “In March 2015, a case going back to the 1990s finally came to the courts. Global trading giant Glencore was ordered to pay $40 million to OMV Petrom SA (a large oil company, headquartered in Romania), by a UK court, for shipping oil of a lower quality than it was supposed to be to the firm in the 1990s.

Bloomberg reported that Marc Rich & Co., which went on to become Glencore International AG, sold about 32 shipments to Romanian state firms from 1993 to 1996. But this was cheaper crude oil blends than the specification that had been promised. The seller falsified documents to support the fraud, which made it some $40.1 million, according to evidence in court. The fraud only came to light when a former trader from Glencore split the beans to Petex, the firm that had organised the oil importing process”.

This case showed how difficult such frauds can be to detect, as the client here actually didn’t notice anything amiss.  One barrel or tanker of oil looks very much like another!  But a recent case demonstrated an interesting twist on this. The danger for the supplier is obviously that the client spots the deception. So how about bribing the buyer(s) to turn a blind eye to what is going on?

That appears to be what has happened in Rome. The Vatican celebrates a Jubilee next year – it will be the 1,700th anniversary of the Council of Nicaea (325 AD), and I’m sure we can all see just how important it is to celebrate that in 2025. So Rome is preparing for millions of visitors and is trying to tidy up its somewhat run-down and chaotic infrastructure. Residents have been complaining about potholes in the roads for some time, and even when they were ‘repaired’ somehow the problems seemed to re-occur very quickly.

The cause seems to be a group of allegedly crooked city officials and road workers, conspiring in league with a dodgy supplier who provided substandard asphalt for the road repairs, material that crumbled far too quickly. Raids on the Rome city hall recently searched for documents that police claim show the firm paid kickbacks to officials to win contracts worth 100 million euros.  

The firm also offered jobs to the children of officials, it is claimed, and the inferior quality material meant potholes reopened at the first sight of rain. There are other interesting procurement aspects too. As The Times reported, investigators ‘believe that the man behind the firm set up front companies to allow corrupt officials to pick a different winner to successive tenders to give the appearance of legality’. That’s clever, because of course the same firm winning this sort of contract over and over again would eventually arouse suspicion.

So how can we guard against this sort of behaviour? In terms of checking quality of supply, you would hope that a good procurement organisation would be doing some sort of quality checks on the actual material. And not just asking the supplier to send a sample, but going out and looking at what was actually being used and doing some ‘live’ product sampling. 

In terms of avoiding the bribery aspect, there are a number of risk management options here. Not keeping procurement people in the same job for too long to make it harder for them to develop corrupt relationships with suppliers is one. Making sure multiple people are involved with supplier selection decisions and indeed in ongoing supplier management is another.

However, even that might not be enough if you have an organisation that becomes corrupted endemically. We saw in the case of the Fat Leonard / US Navy scandal, when you get to the point where even those who are supposed to investigate whistleblower complaints have been bribed themselves by the supplier, corruption can expand and run unchecked for some considerable time. So investigators will want to look at just how many Roman officials were corrupt. Was it just one or two – or was this a case where the rot spread more widely?

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Musk to address US government spending – what fun awaits!

In the legendary Philip Green review of 2010, the new UK Prime Minister David Cameron asked the retail entrepreneur to take a look at government procurement. Some years later, the rumour spread that Cameron actually wanted the Philip Green who was CEO of United Utilities (and later chairman of Carillion when it went under) to carry out the work – but his staff asked the wrong Philip Green!

Anyway, the TopShop leader looked at government procurement and came up with stunning recommendations – data was poor, buyers paid different prices and government should centralise more. All the usual stuff. He also invited some senior civil servants to his private suite at a 5-star hotel in order to complain to them that some government staff were spending £100 a night on hotel rooms in London…

The other rumour was that his final report was so unprofessional, another bunch of civil servants had to rush off and convert it into something presentable at the last minute before his presentation to Cameron. You can still see it now here, and it is pretty shoddy work. This sort of thing: “We found the following variations in price for laptops: Highest price: £2,000 Lowest price: £353 Differential: 82%.”

So might they have been different laptops, I wonder?  There was no mention of specifications here.  His solution was “government should buy direct from a multinational manufacturer’. Well, yes, that should do it.  And London hotel costs varied from £77 a night to £117.  Shocking!  He suggested mandating video conferencing.

To be fair, Crown Commercial Services and others in government procurement have got better at looking at markets and choosing the best procurement option and of course Green was correct to point out some failings.

But all this came to mind on reading that Elon Musk has been appointed to lead a new ‘Department of Government Efficiency’ in the US.  This will be the immovable object of US government procurement process and regulation against the unstoppable force of Elon Musk’s ego and self-regard. It has the potential to be hilarious (if you’re not too close to it, anyway).

Trump said in a statement that Musk and co-leader Vivek Ramaswamy (another entrepreneur and previous Presidential candidate who has some VERY odd views) “will pave the way for my Administration to dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies.”  The new body won’t be a government agency but will ‘create an entrepreneurial approach to government never seen before’. Their appointment is only until July 2026, which is also interesting, as it means everyone knows they only have to resist the duo for 18 months and they will be gone …

How will this play out for Musk and his mate? To begin with, lots of people are no doubt pouring over the detail of every contract he has ever signed with government, in SpaceX or elsewhere, looking for ‘inefficiencies’.  They will find that ‘waste and fraud’ exists but is much harder to root out than they think.

In the procurement space, then they will come up against all the usual barriers to saving money quickly, including long-term contracts that can’t just be re-negotiated, the need to run lengthy competitive processes or get sued by annoyed potential suppliers, lack of skills and resource in government procurement… and if he brings in external support to help (the Department has no staff currently), he’ll get castigated for ‘wasting money’ on consultants.  

So for instance he could reduce the ‘bureaucracy’ of procurement by getting rid of all the rules and processes around supporting smaller or minority-owned firms. But the biggest group that benefits from that in the US is probably military veterans, so presumably that wouldn’t go down well with Trump supporters.

He could cut through the regulations and give buyers more discretion, or even allow more non-competitive procurement processes. But for every supplier that benefits from a direct-award type contract, there are usually several who don’t like it. Watch out for a boom in legal challenges if this is a route he takes.

He might genuinely save money by simply stopping spend in certain areas. No new laptops or  consultancy contracts for the next 12 months, that sort of thing. That works, until another Trump favourite complains to the President that they can’t implement their new policies because they can’t engage McKinsey to help. Or buy a laptop.

Anyway, maybe I’ll be surprised and the two of them will turn out to be thoughtful, innovative and effective reformers of US government spending / acquisition / procurement. It’s going to be ‘fun’ watching from afar, anyway.

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HOW MUCH for a soap dispenser??

Stories about apparently grotesque over-payment by public bodies for mundane items is always good for a headline or two. We saw that back in the days of the Private Finance Initiative (PFI) in the UK, with reports that schools or hospitals were having to pay hundreds of pounds to get their maintenance provider to carry out minor tasks. During the National Audit Office’s 2011 investigation into PFI it was revealed one school paid £333 to have a lightbulb changed.  That was often down to very badly constructed contracts, with suppliers expecting to make most of their money from ongoing service charges of that nature rather than from the initial financing and construction. 

In the USA, it often seemed to be military spend where costs were dis-proportionate; the famous ‘$435 hammer’ back in the 1980s, for instance. Now there is another example hitting the media this week. A new report from the Defense Department inspector general accuses aerospace and military giant Boeing of massive overcharging.  The contract with the US Air Force allows Boeing to buy the required spare parts for the C‑17 military transport aircraft, and the Air Force reimburses Boeing for those purchases, according to the report. About 220 C-17s are used by the Air Force, Air National Guard and the Air Force Reserve Command. 

But overcharging accusations covered around a dozen spare parts (which does not seem many, to be honest). The much-quoted example was soap dispensers used in the bathrooms of C-17 military aircraft, where the overcharge was estimated at 7,943%. So the dispensers were charged at some 80 times the price of similar commercially available products.

“The Air Force needs to establish and implement more effective internal controls to help prevent overpaying for spare parts for the remainder of this contract, which continues through 2031,” said Defense Department Inspector General Robert Storch in a statement. 

Boeing has issued a holding response, saying they are reviewing the report, “which appears to be based on an inapt comparison of the prices paid for parts that meet aircraft and contract specifications and designs versus basic commercial items that would not be qualified or approved for use on the C-17″.

This is often the truth behind these stories. The specification for special ‘military’ items turns out to be significantly different to the apparent equivalents we might pick up in Walmart or on Amazon. However, that often means that it is a different type of Bad Buying that is taking place. It may not be a rip-off by the supplier, combined with poor scrutiny and contract management by the buyer. It may actually point to a poor specification.

So why exactly would a basic commercial soap dispenser not be fine for a cargo plane? Its not as if they fly at the speed of sound or anything.  In fact, do you really need a dispenser that needs to be cleaned, refilled and so on, at all? Why not a simple bar of soap?  The military and indeed some other public bodies do have a history of over-specifying, sometimes without realising just how much that can add to the costs.

It’s worth remembering that an industry-standard specification, or something that is readily available, perhaps even an item sold to consumer buyers, is almost always a lot better value than something we design and specify ourselves. If the most fundamental way of saving money is just  by saying “don’t buy it”, the next best and most basic route is to say, “buy something simple”.

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Manipulating the specification for procurement fraud

One of the more creative ways of committing procurement-related fraud is by the manipulation of specifications. It requires a little more skill than simply bribing a decision maker to choose your firm  or over-invoicing a client and hoping no-one notices, but it can be very effective.  The basic approach is that during the process to select a supplier or suppliers, a key person or people in the buying organisation make sure the specification favours strongly one particular supplier that they want to win the contract.

It is by definition a fraud that requires internal involvement, although often the supplier that wins the contract will be aware of it. Indeed, usually the supplier will be paying some sort of bribe or ‘thankyou’ to their internal accomplice(s). But sometimes, the supplier who benefits is not aware of what is going on, and sometimes the internal protagonist might not even get anything personally out of it. They may even feel they are doing the right thing for the organisation – “I know that Smith and Co are the best firm to do this consulting work, so I just want to make sure nothing goes wrong in the procurement process and they do win it”.

But I would argue this is still corruption if the specification is maniplated away from what would be the ‘best’ for the buying organistion, even if that is ‘just’ corruption of the process rather than corruption for personal gain. Bidding firms often spot this. They will read a specification and think “that has been written to favour our main competitor”.  Often they don’t bid on that basis, and the level of competition is reduced.  There have been many allegations of this practice in the defence sector for example over the years, and this is from the Bad Buying book.

‘One case where corruption was allegedly involved is the long-running saga of the Indian government helicopter contract with AgustaWestland, worth some $466 million. India terminated the contract after accusations that the firm – owned by Finmeccanica of Italy – bribed officials. The Indian government said in 2014 they “terminated with immediate effect the agreement that was signed with AgustaWestland International Ltd (AWIL) on 8 February 2010 for the supply of 12 VVIP/VIP helicopters on grounds of breach of the pre-contract integrity pact and the agreement by AWIL.”

The allegations surrounded manipulation of the specifications, with suggestions that the company had used middle-men to bribe Indian officials to win the 2010 contract. The allegation was that a defence ministry specification insisting its new helicopters should be capable of flying at 6,000 metres altitude was cut to benefit AgustaWestland’.

Actually one of the worst examples I saw of this was when a consultant was repeatedly used by local authorities to help develop the specification for a particular fairly specialist service – he often worked on the procurement as well. Oddly enough, his specifications always seemed to favour one particular supplier, the same one that the consultant regularly worked for in the periods between his work on the buy-side! All the other suppliers knew this and generally didn’t bother bidding if they saw he was involved with the procurement.

Another interesting example popped up recently. The State of Oklahoma in the USA decided to give all its schoolkids a copy of the Bible. But rather oddly, the specification included the requirement that the bible must also include certain US historical documents, such as the Constitution and the Declaration of Independence. Funnily enough, the only version of the Bible that has these additions is what is known as the “God bless the USA bible”, produced with the endorsement of Donald Trump for which he gets a cut of the revenue. It’s a luxury item, bound in leather and sells for the ridiculous amount of $60. A standard bible can be acquired for a fraction of that.

Critics alleged that Oklahoma leaders are keen Trump supporters and deliberately manipulated the specification. However, whether or not that was true, there was good news this week. The state amended its request for 55,000 school Bibles, so other versions can be state approved. The request was altered, removing some of those onerous requirements, a victory for “good buying”!  

So remember how important a good and fair specification is, and if you want a strong competition, try and make sure it isn’t too obviously tilted in favour of one bidder. Unless you want it to be, of course …

(Footnote – you might expect me as a Humanist to be against forcing kids to read the Bible. But actually, I cannot think of anything more likely to make young people feel negative about religion and maybe help them make up their own minds about their beliefs and how they want to live their lives!)

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Can politics learn from the ethics of procurement?

The headlines in the UK have been dominated in recent days about whether it is acceptable for politicians to receive gifts and hospitality from political donors. The new Labour government has come under fire for taking money to buy clothing as well as accepting tickets to Taylor Swift concerts and football matches. Looking at it from a procurement perspective, I’ve spotted three major fallacies in how Ministers have defended their actions.

Fallacy 1 – “Well it’s within the rules”. 

The obvious answer here is that “well, the rules are wrong.”  And once your party is in charge, or if you are the new CPO / head of procurement function, you have an opportunity to change the rules. So Labour people accepted these gifts when they were the opposition and no-one noticed too much. But wouldn’t it have been great if the Prime Minister had announced a major “clean up politics” initiative in his first weeks in power? You’re in charge now people, you can make the rules based on what is ethically right.

Fallacy 2 – “It’s OK as long as I declare it”.

No, it is not.

I discovered this issue when I joined the civil service way back in the 1990s. I was told by my team that there was a register of gifts and hospitality, and that made everything OK. As long as things were registered, it was all fine.

The counter to that is pretty obvious. If I registered a two-week holiday in the Seychelles paid for by a current supplier, or my category manager accepted a gift of a Rolex from a firm that is going to bid on the forthcoming major tender, is that OK? Of course not. The other problem with the “register” concept is that it often is an “after the event” process. In other words, I’ve already been to the Seychelles and my category manager is already proudly showing off his new watch before anything is public or able to be approved.

So that was the immediate change I was able to make in my civil service role. Staff would need to ask permission before accepting anything – if their boss or I said “yes”, then it could be recorded in the register. But you ask permission before you do or accept anything. Incidentally, I do believe that sometimes corporate hospitality can be justified as a way of building relationships at a senior level, maybe with a key strategic supplier,. If Bill Gates was in the UK and invited my software category manager to join him for a lunch, I’d absolutely say yes.  Or if I’d travelled to Brittany to inspect a new dairy and talk to the owners (as I did at Mars, at our corporate expense), then I’m not going to refuse a quick steak frites lunch in the local café!

Fallacy 3 – “I am incorruptible, so it doesn’t matter what I accept”. 

You will hear this a lot, usually from senior people, particularly if you try and tighten up an ethics policy. They are respected and respectable people, they are affluent, and of course they would not give a supplier a contract merely because they were entertained at the Cup Final or got a Harrods hamper at Christmas.

There are a number of problems with this. Firstly, it is exactly what a genuinely corrupt person would say if challenged. If I was actually giving a supplier contracts unfairly, or facilitating them being paid a higher price than the market dictates, and receiving bribes in return, then that is how I would respond if challenged.

Secondly, even if you don’t feel consciously that you now owe the supplier something, and you haven’t been asked for anything in return, you are now obligated. That is a basic aspect of human psychology, proven in experiments.

“Since gifts represent our desire to build or cement a relationship, they also require some form of reciprocation. Contemporary sociologist Dimitri Mortelmans argues that gift giving creates a “debt-balance”, so to prevent ill feelings gifts must be repaid creating a cycle of gift giving”.

It is why gift-giving is a key element in many communities, probably going back to pre-historic times. You exchange gifts with the neighbouring tribe, you are less likely to kill each other. That’s the positive side; but in a business context, it means I feel somewhat obliged to you when it comes to marking that latest tender.

So do Lord Ali and other gift-givers want something in return from Labour? Possibly not – perhaps they just like the people and the Party. But if they do want something, it is clear that there will be powerful people now who feel some obligation because of gifts. That is just human nature. I would be less nervous actually if all gifts were given to the Party, which can then decide whether the PM’s spectacles or Bridget Phillipson’s party is a good use of funds. But the personal nature of these gifts feels risky.

I also wonder whether one problem is that few people work in “proper” companies before they get into politics. If Labour had a few more ex Martians or Marks and Spencers veterans on board, they might be more sensitive to these issues.

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Grenfell Tower Inquiry Phase 2 Report – Just Terrible

I’ve generally stayed away from writing about the Grenfell fire tragedy. It just seemed too serious and horrible an issue to be talking about “bad buying” and technical procurement issues. What the victims went through is just unimaginable.

The Phase 2 report from the Inquiry was released recently and it is quite rightly highly critical of quite a range of people and organisations. Companies in the sector that provided materials used in the building; the architects and designers; the local authority and housing managers; central government civil servants; then-Minister Eric Pickles; the London fire brigade… they all bear some responsibility for what happened. Wider failures in building regulations and fire safety also contributed.

CIPS (the Chartered Institute of Procurement and Supply) contributed strongly to the Inquiry, initially chairing the Procurement Working Group as part of the Hackitt Review of building regulation and fire safety (leading to the Building a Safer Future report).  What became clear, CIPS says, is “there were many examples of poor commercial practices in the years leading up to the fire, focusing on price and margin at the expense of safety.”

I often hear complaints that public procurement is “all about price and nothing else”. I always push back on that and say that in my experience, price or even total cost is always an evaluation factor, but the vast majority of procurement exercises also consider other non-cost factors, which have serious weighting in the evaluation model. But it is probably fair to say that some parts of the construction procurement world have not exactly been at the leading edge of good practice thinking.

That seemed evident from the report, where too many decisions were made simply to save money rather than through a proper consideration of all the true “value for money” factors. And if a value for money model doesn’t include looking at the chances of killing people, then it should. This is from the Phase 2 executive summary report. (TMO is the “tenant management organisation” that was responsible for Grenfell).

“Although Rydon’s tender was judged to be the most competitive, it still exceeded the TMO’s budget. As a result, although the TMO had received advice from its lawyers that it would be improper to do so, it entered into discussions with Rydon before the procurement process had been completed leading to an agreement that, if Rydon were awarded the contract, it would reduce its price to an acceptable level”.

Illegal, bad practice, and of course led to Rydon, the principal contractor on the tower refurb, being focused very firmly on cost minimisation.

It was also shocking to see that the firms involved, including those that had basically lied about the products they were supplying, or had hidden test results, continued to win public sector work after Grenfell.

The Guardian reported that “about £250m in public deals have been made in the past five years with corporations involved in the high-rise’s refurbishment, according to searches of public contracts by the outsourcing data firm Tussell for the Guardian. They include companies currently or formerly owned by Saint-Gobain, which made the combustible Celotex insulation used on the tower, and Rydon, the main contractor for the works”.

Now the new UK (excluding Scotland) Procurement Act includes what are in theory stronger provisions to allow firms to be barred from public procurement competitions. The Prime Minister told Parliament that he wanted to ban the firms involved here. “This government will write to all companies found by the inquiry to have been part of these horrific failings as the first step to stopping them being awarded government contracts,” Starmer pledged.

That doesn’t seem as strong as you might expect, but no doubt there will be process that must be followed if we want to avoid legal challenge from those suppliers. I’ve been somewhat cynical about the chances of the new “debarment regime” in the Act really being effective, but I sincerely hope I’m wrong and these firms are kicked out of public business for a very long time.

It is difficult for individuals within large organisations to speak up sometimes. We can all get caught up in the corporate “groupthink” and perhaps misplaced loyalty.  (Look at all the people in the Post Office who knew the Horizon system was dodgy and that postmasters were being treated appallingly, but said nothing).  Grenfell shows how terrible the consequences of that sort of behaviour can be. So if your firm is expecting you to lie or deceive others about the chances of your product killing people, then perhaps you really should say something.

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