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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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CIPS Annual Report – a Mixed Bag

The Chartered Institute of Procurement and Supply (CIPS) annual report is out now for the year ending October 2023. I’m not sure exactly when it was published but it always takes a few months to emerge.

The report suggests it was another mixed year for the world’s leading procurement institute. Revenue was up 13% year on year, which is pretty impressive, driven largely by business from corporates in the UK and Middle East. The CIPS Corporate Award programme continues to bring in revenue as firms invest in professional development and capability, which is good news.

However, membership was down 4.5% which is less good news for what is supposedly a “membership organisation”.  That was mainly down to a drop in student numbers, with MCIPS-level numbers pretty static. Exam entries were also short of budget although recovered in the second half – that may be in part because of the well-publicised problems with the new system, which amongst other things, made exam booking tricky at times. And new student numbers were at their highest for ten years, so maybe the decline in student membership is just a “blip”.

Total income was £34.2 million, up 13% on the previous year but below budget. That led to an operating loss of around £400K, although the accounts are not easy to interpret given so many figures for pension valuations and adjustments, loans, and other one-off accounting issues. But the cash position actually improved, with group cash position standing at £5.2 million at year end. To be honest, I struggled to really understand how this increase came about given the loss in the year.   

Generally, CIPS still has the perennial problem that many students want to get their qualification but then don’t want to pay £200+ a year for ongoing membership. Whilst CIPS rightly says you can’t put MCIPS after your name if you are not a current member, I suspect many who pass the exams, and many employers, look at that qualification as more important than the ongoing membership. There are many other ways to demonstrate your continuous professional development these days that don’t cost a fortune.

It is also fascinating to see how CIPS continues to become much less of a UK-centred organisation. Australasia seems to have stabilised after some issues there.  CIPS MENA is not set up as a certified company, but by all accounts is doing very well in many middle-eastern countries, in terms of numbers and revenues, and the recent promotion of regional boss Sam Achampong to run half the world 80% of the world for CIPS indicates one reason why that has been the case in recent years.

Yet some problems continue in other regions. The US is an ongoing disaster really, losing money for CIPS year after year despite ambitious intentions. As Eddie and the Hot Rods once said, maybe it is time for CIPS to Get Out of Denver…

Looking at the numbers in detail, an analyst might worry about control of staff costs. There has been a 16% increase year on year in total cost, with staff numbers up only 4%, implying an almost 12% cost per person increase, well ahead of inflation. However, there is a major distortion.

Malcolm Harrison, the then-CEO, left rather suddenly in March 2023, yet the highest paid member of staff, presumably him, was in the £250-300K bracket for 2022-23 salary.  (Last year he was in the £200-250K bracket). That suggests he received in effect a full year’s package despite leaving just 5 months into the financial year. So his pay-off accounts for quite a chunk of that apparent staff cost hike, although the Trustees need to keep an eye on senior staff costs – there were 16 people earning over £100K in 2023, against 11 in 2022.

The new IT platform seems to have settled down somewhat now, so if that crisis is almost over, I’d suggest CIPS needs to focus on its membership proposition and numbers as the key strategic challenge, which raises some fundamental issues again about the whole nature of the Institute.  

It’s clear that getting rid of the President post has worked well in increasing the standing of the Institute (he said sarcastically…) although I do hear that the relatively new Membership Committee is doing some good work.  High profile individuals such as Sam Achampong and Savita Mace (membership committee) do a lot to keep CIPS in the public eye, but I feel that many of the Trustees (Board members) still need to do more to promote CIPS and the profession now the Presidential focal point has gone.  

But that is by no means the only reason why MCIPS numbers are in slow decline, even as P&SCM increases its importance globally. CIPS really needs to understand how to change that situation to improve its long-term prospects, or accept that it is now in effect a consulting, education and training business rather than one with a membership focus.

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Big consulting firms fail to “Transform”

A recent report suggested that the majority of clients of the big three strategy consulting firms are unhappy with the performance of the large consulting firms. An article in The Times said this.

“Senior executives who hired the big three strategic consulting firms McKinsey, Boston Consulting Group and Bain often say they are no help, according to a study commissioned by a rival firm.

A survey of 702 executive staff and project managers found that of those who worked with the three biggest consultancies in corporate transformation projects, 84 per cent felt they “were no help at all”.”

The survey was sponsored by digital consultancy Emergn. I’ve never heard of them but they are something of a (much smaller) competitor to the big firms so we might ask about their independence here. But I suspect there will be some nodding heads amongst those reading this with experience of working on “transformation” programmes with any of the big consulting firms.

There is something of a crisis in the industry too, with the number of people employed in Britain’s consulting industry falling last year for the first time since the Covid year of 2020, according to a report by the Management Consultancies Association. Overall headcount dropped by 3 per cent to about 50,000.  This year McKinsey has apparently offered to pay some UK staff to leave the firm following a round of 1,400 job cuts in 2023.

In terms of the firms’ capability and performance, I remember a research firm I spoke to in my Spend Matters days whose business was based on collecting detailed data from staff in client firms via surveys in order to assess consulting firm performance. They were hesitant about telling me too much, but there were findings that I thought were very interesting. Basically, they did not find that the “top” strategy firms such as McKinsey were overall any “better” than the Deloitte / KPMG tier of firms or indeed the more specialist firms. But what was even more startling was the difference in performance within the large firms.

In other words, there were some practices or specialisms in McKinsey, or KPMG etc, that were excellent and got strongly positive feedback from clients. But there were others that were much, much worse. That’s perhaps not surprising when you think carefully. Within a firm, there will be some areas where the firm has developed very strong, market leading IP and knowledge – others where it has not. And perhaps even more importantly, some practices or groups will be led by a partner who is personally inspirational, a great manager, attracts the brightest young consultants and is good to work with for clients.

But on the other side of the office, there may be a partner seeing out their time before retirement, not really interested in new thinking, and known as not a good boss internally. Yet of course when you ask for a proposal from the firm, none of that variation will necessarily come through!

That also supports something I’ve always recommended. For most pieces of consulting work, I would strongly suggest you at least consider a specialist firm rather than just asking generalists to bid.  If you include a pure procurement, or customer service, or retail acquisition specialist, someone truly expert in your requirement area, then you know that they are strong where you want support.  By all means ask McKinsey or KPMG to bid as well, but it is sometimes harder to know if they are real experts in the field, or that their staff are genuinely expert – and great to work with.

So I would always look to throw a specialist firm or two into the mix. And the importance of really understanding what you are looking for in your consultant was something Fiona Czerniawska and I emphasised strongly in our 2010 book, Buying Professional Services. Sadly, it is not readily available today – perhaps we need to do a new edition!

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Prioritisation Matters – A Story about my Phone

I’ve been intending to tell this story for a couple of months now, but prevarication is a terrible thing, as we will see.

I owned – well, I still do – a Huawei mobile phone that I got on a monthly contract with Vodafone in (I think) 2017, although it may have been a little earlier. In October 2021 I fell off my bicycle (embarrassing, 200 yards from home, going up a slightly higher than I expected kerb). I fell onto my phone which was in my pocket, the rear casing got badly cracked, so I “repaired” it with Sellotape. I had the intention to replace the phone from then onwards, but it did work, and I replaced the tape every few months.

Finally I went into the Vodafone shop in Camberley in May. My first visit, it turned out I had to change something on my account before they could do anything for me – that was a bit of a process. So I went back a couple of weeks later and I’m sorry to say the two women working in the shop laughed at me! Twice!

They had met me once before so maybe they felt more comfortable having a good laugh when they saw the state of my phone. Apparently the Sellotape was funny, can’t see why myself…  But then the woman who was helping me laughed again when she opened my account on her system and saw the charges.  It was perhaps more of a gasp than a laugh. “You’re paying how much a month?” she exclaimed.

Well of course I had been suffering from the “inflation plus 79.3%” or whatever it is standard contract for 7 or 8 years, and I didn’t really even look at the monthly direct debit to be honest.  I hate to admit it,  but it was about £40 a month for an ancient, knackered phone and really not very much data at all!

There was some more chuckling when she did the transfer of data to the new phone, which took ages  – “your old phone was pretty much on its last legs”, she said.

The Vodafone staff were great actually, I went for the buy my own phone option then a monthly contract and they saved me £50 on the phone by suggesting something surprising, which I won’t repeat here in case it gets them into trouble. So I have ended up with a total cost of ownership that has probably reduced by 50% and gives me much a better contract, hardware and capability.

So, apart from giving you the chance to have a laugh at me, supposedly a serious and experienced procurement professional, why am I telling you this? It just struck me that putting things like this off is always very easy. There always seemed something more urgent or important to do rather than take an hour or two to go and sort out my phone. I was procrastinating for over two years. Or there was an excuse. “I won’t replace it just before Reading Festival in case I lose it / gets damaged” etc.

And we do tend to do the same in our working lives. We know we should review that contract, or look for a new supplier because our current one isn’t really performing, or check out the latest market forecasts and see if we should go “long” on that commodity. But something more urgent comes up. Our internal customer wants to see us NOW.  The CFO wants a report on how to save 10% on everything by Christmas. If I don’t go online at 10am I won’t get my Taylor Swift tickets…

But the cost of delaying all mounts up. In my case, it’s not just the fact that I probably overpaid by the best part of a thousand pounds over the last few years, it is also that I missed the functionality I could have had with a new phone. So prioritisation, which must be accompanied by good general planning, is an undervalued skill in my opinion. I’ve worked with people who were brilliant in almost every way, but could not prioritise.  If this is you, it is important, do work on it.

Clearly, I’m not perfect (!), but also have a think about whether you’re missing some possibly quick and easy wins, in work or in life generally, just because you “never get round to it”.

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A Walk Through HS2

It is a while since I wrote about the UK’s infinite rail transport money pit, also known as HS2. When I first started criticising it years ago, based on my view that the business case was a con (having seen many dodgy public sector business cases over the years and even having helped write a few), I got some comments on Twitter and LinkedIn saying it would all be a great success and I was being ridiculous when I predicted it would cost over £100 billion. I did think it might get completed for that much, I should say.

Anyway, a couple of weeks ago, two retired CPOs and I went for a 10 mile stroll in the Chilterns in a persistent drizzle. But I saw a badger close up for the first time in 40 years!  I also saw rather a lot of the HS2 works as our route crossed that swathe of land twice. The second time, we had to divert a few hundred yards and use a road bridge going over the works.

But as we approached the first crossing, our path was diverted for a few hundred yards, and then we were directed to a gatepost with high wire all around it. This was the HS2 works, all fenced off of course. At the gate, we were greeted by a chap in high-vis gear.  He nodded and said something into his walkie-talkie. We saw another chap a couple of hundred yards away, at the top of a slope, who presumably checked that no high-speed bulldozers were heading our way over the hill.

Hi-Vis 2 then gave Hi-Vis 1 permission to let us cross. We walked about 100 years across the site, mainly across rough gravel roadway, to another gate manned by Hi-Vis 3. He opened his gate and ushered us into a passage way about 2 metres wide with 3 metre high wire fencing each side. We followed this for another couple of hundred yards, before meeting Hi-Vis 4, who opened another gate which led into more wire-edged walkway.  We asked him how many people he’d seen that morning. “Just you three,” he said. It was noon by now.

So four people employed as far as we could see just to help walkers get across 100 yards of construction site.  Were those posts manned 24 hours a day, we wondered? If each guy is paid lets say £30K a year, the construction firm no doubt charges the tax payer at least twice that. So on a single shift, that’s a quarter of a million a year. If there is 24 hour cover, we’re talking a million a year.

Surely there must be better options. A simple crossing with some warning lights maybe?  Or just one person as an escort? I know it is a cliché but this felt like “health and safety gone mad”.  When we look at the relative costs of capital investment sin the UK, we wonder why it costs us so much more than other European countries, let alone China, India and so on.

Well, this sort of approach partly explains things. And I come back to one of my original fears about HS2. Who actually had a vested interest in getting the best possible value for money? Not the civil servants in Whitehall and the executives running the HS2 company,  who get promoted and bigger salaries if they “control” a bigger budget. Not the hordes of consultants and advisers to HS2, whose fees look more reasonable if the construction firms charge more. And certainly not the first-tier suppliers themselves.

In the greater HS2 scheme of things, four poor guys standing around doing absolutely nothing for hours, days, weeks on end (mind-numbingly boring work, by the way) just doesn’t matter. And that sums up some of the problems with the whole scheme.

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PPE and the UK taxpayer get burnt (again)

The BBC ran a story this week about the UK’s spend on PPE during the pandemic. I was contacted by the journalist, Jon Ironmonger, and did a video interview at the BBC, although I believe it has only appeared (a short excerpt anyway) on a BBC East programme, which I haven’t seen! The report centred on Full Support Healthcare, who are based in Wellingborough in that region.

But there were articles on the main BBC website, quoting my remarks. The journalist actually wanted me to be balanced and give an “expert” perspective on what happened with PPE procurement.  I tried to explain the problems when demand for anything suddenly rockets, but I was critical of a number of aspects of the programme, all of which I have written about over the years since 2020.

One continuing mystery is why the initial forecast of demand turned out to be so far out – about twice what in retrospect would have been reasonable. That was what triggered the “panic buying” in May 2020, so arguably it was the single biggest cause of the subsequent disastrous waste of money (over £10 billion).  The forecast led to some incorrect specifications being issued in haste, use of very strange suppliers (not all of whom were properly vetted, despite the re-writing of history that some politicians have attempted), the lack of anything much in the way of cost / price analysis or negotiation with suppliers, and the infamous “VIP Lane” for suppliers with a contact in government.  

The latest article from Ironmonger focuses on the stock management aspect. It appears that some £1.4 billion of aprons, masks and googles just from Full Support have been incinerated, recycled or written off. A general rule of thumb is that around twice as much PPE was contracted for as was needed, as it turned out. So given the total bought from that firm was £1.8 billion, it is not clear why such a high percentage of their product has been wasted.

The Department of Health and Social Care disputes that loss number, saying some money has been recouped by recycling, but the Department basically refused to engage with Ironmonger while he pursued this story, ignoring his requests, and has failed to provide clear evidence of what has happened to stock or financial details.

Full Support was an established supplier of PPE before the pandemic, unlike many of the cowboys who got in on the game once panic set in. Sarah Stoute of the firm told the BBC the shipping containers that transported her company’s PPE were unloaded “various times up to 207 days post-arrival”. She said the masks were “perishable goods and required to be kept cool and dry” and “not intended to be stored for a prolonged period in a shipping container, yard or field”.

The port of Felixstowe became jammed with PPE containers in November 2020, and they were moved to various airfields, other ports and available land. After some stock was sold off to other dodgy people for disposal, it was found dumped on a site in a New Forest.

Here is is one of the many articles I have written on this topic. This one gives a good summary of what I still feel are the key issues or questions around what happened. It’s right that we remember the desperate situation that faced us back in early 2020, and both users and buyers of PPE were in a particular crisis situation. But I still wonder if we have really learnt lessons from what certainly wasn’t one of UK public procurement’s finest hours.

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Labour Wants to Use “PFI” – Please Be Careful!

As we’re into the election period in the UK, the Labour Party is promising capital investment (in roads for instance) but saying that much of the money will apparently come from the private sector. This has brought back memories of the previous “Private Finance Initiative”, which was actually invented by the conservatives under John Major in the early 1990s but was enthusiastically embraced by Labour after 1997 when Tony Blair won the election.

I was procurement director at the Department for Work and Pensions for two and a half years, 1995-7, serving when Labour came into power, and was involved in some large PFI projects, including new construction programmes and some IT initiatives. Then in the noughties, I was consulting in government and held a couple of interim commercial director posts where PFI or similar initiatives were relevant too, including the ID Card programme.

So speaking from the inside, I can say that there were a number of positive aspects to PFI, despite later criticism. Having a single entity responsible for the financing, construction and then maintenance of a new hospital for instance created a clarity of purpose and an interest in whole-life costs. However, there were some less positive aspects which Labour must avoid if it is to make a success of PFI Mark 2 (or Mark 3, or wherever we are up to now).

In the past, some dubious financial engineering was definitely encouraged to get projects through the business case process. The comparisons were generally made in terms of the basic cost of the building in the case of construction projects. So PFI projects were often compared using “cost per square metre” metric, as the ongoing PFI charges overt the contract period were often based on that as the charging “unit”. That figure included the cost of capital, the construction cost and probably the basic infrastructure maintenance. It would then be looked it against the “public sector comparator”, i.e. what it would cost the government to provide the same facilities.

I actually sat in meetings where the PFI adviser (more on that later) said to a supplier, “the public sector comparator is marginally lower than your figure – you need to improve that”. Now that sounds like good negotiation, but the twist was this. The contract usually included a whole list of ongoing activities where the buyer would be locked into using the PFI supplier. And these were rarely included in that value for money comparison. So suppliers were encouraged to make their money on these extras, often around ongoing supply of goods or services, and keep their base charges low to get through the business case process.

The other way of making the contract attractive for the provider was to make it longer. Hence ridiculous 60 year contract periods, with guaranteed price increases of course, which again circumvented the business case issue as the comparisons would rarely look that far into the future.

So this is why seemingly trivial services or one-off type activities ended up costing schools and hospitals a fortune.  “Another school had to pay £302 for a socket, five times the cost of the equipment it wanted to plug in”, as the Daily Telegraph said in one report. This wasn’t an accident or bad negotiation – this was because the payment mechanisms were constructed deliberately to make the basic occupation charges look lower, with the provider making their money from these ‘extras’.

That would improve the apparent business case; then later on the occupier gets hit with unexpectedly high charges. It represented a conspiracy really between all the parties to make these projects happen, and arguably was a failure of finance and procurement across many organisations while these deals were being done; or at least a failure to stand up to pressure from other quarters and point out loudly the problems that were being stored up for the future.  I will take some credit though – one of the (probably few) good things I did in my DSS job was refuse to allow catering, cleaning and security to be included in one large property PFI deal we did, because I was concerned about future lock in for decades. That probably saved millions.

The other very dodgy aspect of “old PFI” was the role of Partnerships UK (PUK) in all this.  From 2000 onwards, Treasury promoted the use of PUK’s services – at extortionate consulting rates – for advice to public sector clients on particularly the commercial and financial elements of PFI deals. If you didn’t pay your three grand a day for a PUK adviser, you wouldn’t get your project approved by Treasury, was the feeling.

Yet PUK was 49% government owned, and 51% owned by the banks! That was a clear conflict of interest there in terms of PUK’s enthusiasm for PFI deals which made huge profits for those same banks. And the politicians – and even some top civil servants – were probably looking forward to their nice non-exec roles with the same organisations once they retired.

So Labour needs to take care here if it wants to bring back PFI-type ideas. It needs considerable commercial and procurement expertise on the government side of the table – and it must make sure the people who are supposedly representing the taxpayer in those discussion really do have our interests at heart, and are not feathering their own nests.   

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Guildford Council “Fraud” – WTF?!

After writing last week about competence in UK local government, as if by magic, a case of alleged fraud in a council very close to my home popped into view the other day.

Now several of my local councils haven’t been doing very well in recent years in terms of looking after taxpayers money. The Tory council in Surrey Heath, where I live, now ousted by the LibDems, bought well over £100 million worth of commercial property in Camberley right at the top of the market, and is now sitting on a loss in asset value of £50 million or so. Woking council, a few miles to the east, has basically gone bust after property deals and investments that make Surrey Heath’s look minor.

And now Guildford, to the south-east, has published a report into what is an alleged fraud and is at best a prime example of Bad Buying in its housing department. Two employees have been suspended and five agency workers had their contracts terminated.

The report to the Council by Jeanette McGarry of SOLACE, (the society of local government CEOs), is good but focused more on the governance issues rather than the procurement events. That may be because the matter is with the police now and an arrest was made in March, so precise details of the core issues may be sub judice.

But basically, a contractor working on the council’s housing stock was paid far more than the original contract value (which is not disputed) and also there was a possibility (as the report says),

  1. That work may have been ordered when it wasn’t necessary;
  2. That work may have been ordered, invoiced and paid for when it was not completed at all or;
  3. Not to a satisfactory standard;
  4. That duplicate invoices may have been submitted and paid for the same work;
  5. That works may have been ordered and undertaken that were not the responsibility of the Council.

Back in 2022, the council agreed to spend £24.5 to update its housing stock. But there were no in-house surveyors and doesn’t appear to have been much in the way of internal procurement either, as “Several agency staff were appointed and were able to appoint housing repair and maintenance contractors”.

A three-year contract for £2.4 million was agreed for EICR (electrical installation condition reports) testing and inspection to Seville Developments Ltd, “under direct award” via a framework. This was apparently achieved under the Council’s procurement process and “was found to be compliant”. I’d like to know more about how a direct award of that size could be acceptable, and if there was no competition within the framework, but the report does not go into that.

But the council realised in 2023 that expenditure had reached £18.9 million with Seville, with no authorisation or action taken such as contract variation. At this time, “the Corporate Procurement Team was staffed solely by temporary officers and there is evidence that an officer identified the unauthorised expenditure and raised this with the Housing client but did not escalate the matter”.  

Whistleblowing concerns were raised in 2023, and the staff suspensions and terminations took place in September 23, and in March 24 “An arrest was made by the South East Regional Organised Crime Unit”.

If we look at the anti-fraud measures outlined in my Bad Buying book, we can see a number of flaws in the Guildford process. There will I suspect be questions around the lack of transparency in supplier selection. Then we have the issues on signing off work – was that power too concentrated? Perhaps the biggest question is how on earth invoices that exceeded the contract value by £16 million got signed off and paid – that entire budget control process at Guildford must have been absolutely pathetic.

But an interesting point which is not one I really covered in the book is this dependence on contractors and temporary staff. To have a procurement team that is entirely “temporary officers” brings obvious dangers. It is not that contractors are necessarily crooks, but they cannot have the knowledge of the organisation and the internal relationships that are vital when things go wrong or strange events occur.

I also don’t understand why if Guildford was so short of staff, they didn’t call on Orbis for help. Orbis is the shared service organisation, hosted by Surrey County Council, that runs procurement for Surrey, East Sussex, and Brighton councils, and does a pretty good job. Surely they could have assisted Guildford if the council there couldn’t find its own procurement staff?

Anyway, another case study for “Bad Buying 2”!

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