One of the major case studies in my Bad Buying book is all about Fat Leonard, (Leonard Glenn Francis), the 300lb (136kg) Malaysian businessman who bribed large swathes of the US Navy in the Pacific. In return for giving his firm work providing various services to ships in port, he provided cash, extensive hospitality, lavish dinners and favourite prostitutes to American naval staff.

That included procurement professionals and officers right up to Admiral level, some of whom are now going to jail. Even when whistle-blowers tried to alert senior naval staff, they hit a problem – the folk who received their allegations were being paid by Leonard too! It was one of the most extensive examples of endemic procurement-related corruption ever seen in modern times. As the BBC reported:

Prosecutors say he overcharged the navy to the tune of $35m (£30m) and plied officers with cash, gourmet meals, cigars, rare liquor and sex parties in luxury hotels…. Dozens of US naval officers have also been implicated. Four have been convicted so far and at least 27 other contractors and officials have pleaded guilty to accepting bribes.

Last weekend I was preparing for the US National Procurement Institute conference next month in Atlanta. The NPI is government-sector focused, so Fat Leonard is one of my stories for the “Bad Buying” session I’m running.  I googled him just to check on a couple of facts. To my surprise, there were dozens of brand new news items about him. And that is because he had skipped bail and disappeared!

He admitted bribery and corruption back in 2015 and had been co-operating with prosecutors, helping to convict a range of naval staff in recent time.  His own sentencing was coming up soon, but he was allowed to be detained at home in San Diego because he had been in poor health, including suffering from kidney cancer.

But on 4 September, police went to his house after they detected “problems” with the GPS ankle bracelet that he was supposed to wear. The problem was that it had been cut off, and Leonard had disappeared.  “Upon arrival they noticed that nobody was home,” US Marshal spokesman Omar Castillo told reporters at the time, demonstrating incredible powers of detection.  Neighbours mentioned seeing removal vans at the house over recent weeks – you would think someone might have worked out something was going on?

Anyway, a global Interpol warrant has been out for his arrest since then, and yesterday (Wednesday 21st September), the 57-year-old was arrested at Simón Bolívar de Maiquetía airport near Caracas by Venezuelan authorities.  Interpol says he entered the country from Mexico via a stopover in Cuba. Quite the tour of central America… But now he is due to be extradited back to the US, where we might assume his sentence will be harsher because of his escape attempt.

Questions remain about how many more naval staff will end up in court, and the other question is who will play Leonard in the inevitable film of his escapades? Orson Wells or Marlon Brando in their later years would have been perfect. Maybe Antonio Banderas in a fat suit?

But to finish on a serious note, there are relevant learnings for any organisation when we look at the Fat Leonard case. The US Navy processes for awarding and monitoring the contracts in question were clearly flawed, and whistleblowing must be managed properly. As I said in Bad Buying case study:

If organizations don’t make it easy for honest people to expose what is going on, and have a failsafe route for concerns to be reported and acted upon, then there is a real danger that  corruption will become more and more embedded, as in this case. Other learnings around the buying process, monitoring of supplier pricing and billing are key; but whistle-blower protection is a relatively cheap and easy way of reducing the chance of shocking events like this.”

Today, the word “historic” is used in the context of a tasty sandwich, or a decent performance by the latest indie band.  But the last few days in the UK has without a doubt deserved that description. It has been probably the most historic week of my adult life anyway.

The political events themselves were significant, with a new Prime Minister chosen and taking up post, and the Conservative Party announcing a huge public spending increase, one that would once have been seen as an extreme “left wing” spending policy. But that was overshadowed by the death of Queen Elizabeth – not surprising given her age but shocking in that her final decline was so swift.

That has left many of us feeling more emotional than we might have expected, and of course our sincere condolences go to her family and friends. She over-performed (by some distance) in her job for 70 years, which is not something many can say.

But soon, the more prosaic but critical economic and social issues the UK faces are going to rise back to the top of the news pages. Can even more government borrowing fund additional spending to offset energy price rises, without subsequent tax rises?  Or can the government find significant “savings” to offset the spending?

In terms of savings, the signals during the recent contest to become Prime Minister were not promising. This was our new PM, Liz Truss: “As prime minister I will run a leaner, more efficient, more focused Whitehall that prioritises the things that really matter to people and is laser-focused on frontline services … There is too much bureaucracy and stale groupthink in Whitehall”.

So just the traditional vague remarks about bureaucracy, “reducing waste” and attacks on “Quangos”. The problem is that the largest “quangos” are organisations such as the DVLA and the Passport Service that provide services the public rely on. We’ve seen the negative reaction when their performance falls; it seems hard to believe that the government can slash the cost of these organisations without major impact on customers.  In another speech, Truss suggested a regional approach to civil service pay. It’s not a daft idea actually, but she withdrew it quickly under challenge, a sign that even many decent ideas run into opposition.

Another frequent and ill-judged suggestion is more centralisation of procurement. I would argue that all this has done over the years is led to more “framework” contracts being put in place by the collaborative procurement bodies. But those organisations have a fundamental conflict of interest between maximising their revenue, versus driving better overall value for the public purse.  Their frameworks are then misused in a manner that certainly does not lead to value – choosing suppliers without competition, for instance.

However, there are ways of saving money, although none of them are easy.  Introduce stringent controls on consulting spend and demand a focus on defined outcomes and competition to choose suppliers every time. Insource some services (children’s social care, for instance) that are failing both financially and performance-wise. Stop messing around with more collaborative procurement in the police service, bite the bullet and move from 43 “county” forces to 9 or 10 regional forces (every Chief Constable knows that the current system is crazy). Cancel HS2. Sort out the increasing unfairness (to private sector workers) of index-linked public sector pensions … and I’m sure there are “savings” in MOD procurement, but better people than me have failed to realise them. 

Indeed, nothing that might release significant benefits will be easy to do.  After over 30 years of efficiency reviews, external experts, CPOs recruited from top private sector firms and so on, there is little in the way of “low hanging fruit” these days.

So Prime Minister Truss and her team will have to think harder and act more radically if they really want to reduce the cost – and improve the effectiveness – of the public sector. I do wish them luck, as a taxpayer, but I’m not holding my breath.

Never mind Ukraine, the energy and cost of living crisis and the national political paralysis in the UK – a real crisis has hit the headlines. The shops are running out of Mars Bars!  I spent the first nine years of my post-Uni career at Mars in Slough. It was a great firm, and still is, I believe.  But it seems hard to accept the official company line that “high levels of demand” is the cause of these shortages.

Various press reports suggest that many supermarkets and wholesalers are out of Mars Bars, with some shortages reported for other products from Mars Confectionery such as Snickers and Twix.  (Personally, when I had a free choice every morning in the office, I chose Twix over Mars, and actually also preferred Revels, Topic, Maltesers and of course the finest  confectionery product ever invented – Plain Bounty).

Looking at this issue, it’s worth understanding some of the core principles of Mars and indeed the confectionery industry. Most purchases of Mars Bars are “impulse”. Now things have changed a bit over the last 30 years, with a much higher percentage of products bought from supermarkets rather than corner shops, newsagents and sweet shops (remember those?) But even supermarket multipacks are quite likely to be the sort of item that isn’t necessarily on the shopping list, but just gets picked up on impulse.

Other items are “demand” items – customers demand them and will go to another shop if they can’t find it in their usual place. Milk, tea bags, vegetables, maybe beer these days… So if you are selling an impulse item, “availability” is the whole basis of your sales strategy. Forrest Mars Senior (now deceased) was obsessed with getting Mars products on sale and prominently displayed in every possible location where a customer might feel a bit peckish, or fancy a treat. He will be turning in his grave at these stories of out-of-stock products in major retailers. So what has caused the problem?

I think we can rule out the demand factor, whatever the firm is saying. Confectionery sales are correlated with temperature in the sense that heat reduces demand quite significantly. We’ve had the hottest summer ever in the UK. So although it has cooled down a little in the last week or two, I just don’t buy the claim that somehow consumer demand has overwhelmed the Mars factory. So what else could it be?

Well, it could still be temperature related. Chocolate is very temperature-sensitive stuff, as you will know if you’ve ever left a Mars Bar in your car, handbag or jacket pocket on a hot day! Not pleasant…  It may be that the super-hot temperatures we have seen has somehow disrupted production. I seem to remember the Chocolate Room (yes, that is a real thing in the Mars factory) could overheat at times. Perhaps production was reduced in July because of the 40C temperatures and that is feeding through to the shops now? Or maybe finished stock got heat damaged?

Another possibility is supply chain issues – a lack of raw materials, or perhaps even packaging (I speak as the ex-Head of Packaging Buying in Slough). But I suspect that we would have seen more general industry issues if this were the case. Mars has always been one of the best firms in the sector in  terms of procurement, and has followed a more “partnership” approach than many competitors. That is in part because of “mutuality” – one of the famous Five Principles of Mars.

It means that everyone who interacts with the firm should benefit from it and whilst we occasionally joked about that when we were in tough supplier negotiations, basically it did matter. So I find it hard to believe that Mars would be finding the supply chain more difficult than Cadburys, Nestle or Hershey.  However, Hershey has also warned of shortages, so maybe there is something in this hypothesis.

The critical nature of raw materials also means that if there were shortages, I would expect Mars to pay more than most would to preserve supply. As well as the availability and impulse issue above, Mars would be terrified that a 200-Bars-a-year customer might try Cadbury’s Star Bar in the absence of their favourite and think “oh that’s nice”. OK, that’s unlikely as Star Bar is a disgusting “rework product” – maybe I’ll explain that another day. But you get the point.

Could it be staff sickness or shortages? I doubt it. The factory is highly automated now and Mars pays well above the norm so it seems unlikely. Equipment breakdown? Again, Mars is very smart, has top engineers – I just can’t imagine that. Perhaps a commercial dispute with the supermarkets is the issue, as we saw recently with Tesco versus Heinz and Mars Petcare (Whiskas etc).  Well, none of the retailers have said anything and the fact that the wholesale channel is also reporting difficulties seems to suggest this isn’t the case.

The only other possibility I can think of is some quality problem with a large batch of product. Whilst Mars QA and testing is second to none, it is always possible that a dodgy batch of skimmed milk or freeze-dried albumen powder got into the production process somehow. If it was only discovered some days or weeks later, maybe product had to be scrapped? It seems unlikely but it is possible.

Anyway, someone must know. Drop me a confidential note if you know more. In the meantime, Cadburys Caramel, Rowntree’s Toffee Crisp, and Kit Kat (preferably plain chocolate) are the substitutes of choice.  

Unfortunately, procurement as a function has failed.  Not everywhere, not in every organisation, but across some huge and important markets, we have failed.

Reports last week in the Evening Standard – and elsewhere – lead to that unfortunate conclusion.

“UK partners at accountancy and consulting firm PwC were paid an average of more than £1 million for the first time last year. The London-based giant said consulting revenues were up by a third reflecting “exceptional clients demands to challenges and opportunities on multiple fronts”.

Group profits grew 24% to £1.4 billion in the year to end June and profit per partner averaged £920,000, up 12%. This was topped up by an average of £105,000 per partner in the firm of a distribution from the sale proceeds of PwC’s global mobility and immigration arm …”

And there are almost a thousand partners in the UK; 944 to be precise earning this huge amount. But they’re not entrepreneurs. They have not built a business, they don’t run a business and most of them are looking after relatively small teams, not the thousands of people many CEOs manage. They might create some value for clients, but I don’t think you can compare their work to being CEO of even a fairly small business, or being a business owner and entrepreneur trying to build a successful enterprise. Yet somehow, they are extracting a million each, every year, from the economy.

Fiona Czerniawska and I wrote “Buying Professional Services – How to get value from  consultants and other professional services providers” back in 2010. It remains I believe pretty much the only book focused on that specific area of procurement. Our focus was consultancy, audit and legal services, and we tried to lay out how buyers could achieve better value in these tricky markets. Procurement has a relatively short history in these spend areas – 30 years ago there was little procurement involvement in these categories even in the largest organisations. So you would hope that the more recent involvement of the profession would have helped make these markets more competitive and we would see better value for users.

But year after year, we see audit scandals, unsatisfactory consulting work, and yet the earnings of partners seems to just go up and up.  Surely, if procurement had really got to grips with these spend categories, we wouldn’t be seeing this? It is even more startling in the legal world, with Freshfields partners hitting the £2 million mark this year.

Clearly, there must be market issues here as well as questions of competence.  In the audit area, the greater regulation of that profession, put in place with good intent to raise quality, has succeeded in also raising the barriers to entry. So it has been very difficult for smaller firms to challenge the big four.

In the consulting and legal world, there are more complex factors at work. I believe that many CEOs and CFOs are happy to pay high fees and see partners earning so much, because it helps them justify their own salaries.  The executive remuneration consultants ( another highly questionable branch of the professional services world) can say to a Board, “if a PWC partner earns a million, you better pay your CEO at least that”.

Another problem is that procurement often comes up against the user of professional services who doesn’t want to see competition and just wants their favourite law or consulting firm, probably engaged on a day rate basis so the user doesn’t have to think too hard about outcomes or deliverables.   But we all know how important competition is to moderate costs; too often we still don’t see that in this world. And ongoing “contract management” of assignments is often dreadful or non-existent. How much of a partners’ earnings can be traced back to “land and expand” strategies, for instance, or projects that run on and on beyond their supposed delivery dates?

The hollowing out of businesses (and public sector bodies) over the years in the cause of efficiency is another factor. Downsizing and outsourcing has left organisations unable to resource new projects or anything out of the ordinary – so the consultants get called in.  For instance, PWC partners must be delighted to hear that the UK Tory government wants to cut civil service numbers by 25% – that will mean yet more lucrative work for them!  Which will no doubt be based on a Crown Commercial Services framework contract with consulting firms that when put in place made little attempt to drive real competition or push the firms into offering better value. 

The growing complexity of the business world is another driver, and we can’t blame the providers for that. Whether it is leading-edge technology or international patent law, organisations face more and more complexity and it is not surprising that external expertise has become more critical to success.

But even given that caveat, it seems clear that we have failed to get to grips with professional services procurement.

How should you react if a supplier lets you down? If it is a minor issue, a quality failure perhaps, or a lightly late delivery, then you discuss the issue, what might be needed to avoid a repeat, and perhaps administer some sort of direct critique – “we’re very disappointed in you….”  You might take more severe action if minor problems become frequent of course.

But what if the supplier really lets you down? What if, shortly before they are due to deliver something – maybe raw materials, components, or some new tech equipment – they tell you they can’t. Or perhaps a lawyer who is collaborating with you on a big project says they can’t make that critical meeting on Friday – even though you’ve got the CEO and CFO both lined up to attend?

Then, when you ask why, they tell you that basically, they’ve had a better offer from another customer. Going back to my first procurement job at Mars, maybe a supplier of orange juice tells me that Rowntree’s have offered more so the shipment is going to them. “Your contract is at £1 a litre – they’re offering me £2 a litre”.  But, I say, we might have to close down the Starburst production line for a week! Tough, says the supplier, that’s business.

That is an approximate analogy to what has happened with Reading and Leeds music festivals. Jack Harlow and Italian rock band Maneskin, both near the top of the bill, pulled out of next week’s festival in recent days. (Harlow is a boring white US rapper – Pitchfork said his latest album was “among the most insipid, vacuous statements in recent pop history”. )

Their reason appears to be that both were offered live slots at the MTV VMAs (video music awards) in the US next weekend. Actually, I’m not sure MTV will have offered lots more money; it is probably an “exposure” factor that has made the artists and their managers decide to let down some 150,000 UK live music fans.

Going back to Mars, let’s consider how procurement would respond to this sort of action. It’s easy to say that you would never work with that supplier again, but that would come down to power and market situation (if they are my only approved supplier of orange juice, I have a problem). But if I had the opportunity to exclude that firm, possibly forever, I would certainly do so. They have betrayed my trust and that is not easily remedied.

I might also look at taking legal action. Can I sue for breach of contract, and claim damages – such as the cost of shutting down the production line, perhaps? It will depend on the contract, but generally “force majeure” incidents which allow contractual terms to be ignored are quite different from someone just overtly breaking the contract for commercial reasons. Note that Rage against the Machine pulled out of the festivals too recently – and they were a headliner – but one of the band is ill and their entire European tour has been cancelled. That is quite different from the VMA issue.

So I hope Harlow and Maneskin get backlisted by every festival in Europe from now on, and that promoters of any gigs with them understand they are not to be trusted and should look at having really punitive clauses in their contracts. I hope Reading and Leeds have also been compensated in some way – otherwise I don’t know why they wouldn’t take some sort of action against the acts. There’s also a reputational issue for the festivals here. If customers start thinking that you can’t trust the list of artists that are spread across the marketing material, why would I commit £250, months in advance, for a Reading ticket?

Anyway, not Bad Buying (unless Reading didn’t have a decent contract in place, of course); but certainly Bad Suppliers!

Having spent several years researching, writing and now promoting the Bad Buying book, I thought I’d heard pretty much everything in terms of public sector organisations finding ways of wasting taxpayers money through incompetent or corrupt procurement, investment and spending.

But there is always something new, and the case of Conservative-run Thurrock Council in Essex and their investments in bonds linked to solar power is unique and astonishing. You can read the full story here – it is great work by Gareth Davies of the Bureau of Investigative Journalism, supported on this story by the Daily Mail.

Thurrock has invested in solar farm businesses owned by an individual called Liam Kavanagh. Now I suspect most procurement professionals are inherently suspicious of people who haven’t been around for long, or whose businesses are only recently established, but who buy multiple fancy cars / fancy homes. In the case of Kavanagh, “his jetset lifestyle included the use of a private jet, a fleet of super-cars and a Hampshire farmhouse with a swimming pool, wine cellar, home cinema and steam and hot tub room”.

As the Mail reported; “Cash-strapped Thurrock Council in Essex borrowed £655million of public money – the equivalent of triple what it spends on services each year – to invest in 53 solar farms across the UK. It agreed a series of deals with globe-trotting businessman Liam Kavanagh, whose integrity was later questioned by a High Court judge over £5million his company banked in ‘commission’.”

And now there appears to be some £130 million of Thurrock’s money that has “disappeared”, with questions over even larger sums owed to the council. Kavanagh has liquidated companies that took money from Thurrock and has re-arranged his financial affairs, leaving the council with concerns over up to £200 million that it is owed. Incredibly, much of the investment was made by borrowing from other local authorities, who could be in trouble if Thurrock then default!

Davies reports this.  “In an interview at the time, Clark (Thurrock’s CFO) described a bizarre arrangement, involving dozens if not hundreds of short-term loans, many as short as a month in length, with the effect that the council was in a perpetual state of borrowing from one local authority to repay another. Piecing together data in obscure spreadsheets revealed Thurrock had borrowed from at least 150 other councils”.  Thurrock also borrowed some £350 million from a Treasury-run lending body.

Local authorities seem to be a hotbed for financial waste, incompetence and fraud. There are many questions still being asked about Croydon’s property “business” – that council went bust and Whitehall had to send in “commissioners” to run it. The same has happened in Slough – dodgy property investment there too.

Nottingham Council decided to get into the energy business and its “Robin Hood Energy” firm stole from the taxpayer to give to … well, tens of millions in losses disappeared anyway. Gloucester tried something similar and failed.  My own local council, Surrey Heath, invested some £120 million in buying commercial property just before the bottom dropped out of that market. The valuation is now more like £50 million.

So the problems cover councils run by Labour (Slough, Liverpool) and the Conservatives (Surrey Heath, Thurrock). It does often seem to be council officials who are the driving force behind reckless investments and spending, while the councillors are not informed or don’t have the intellect or power to intervene. In the case of Thurrock, Davies reported that officials kept elected councillors in the dark for months and have not given full access to the details (as well as blocking FOI requests and questions).

Whilst Davies has to be careful in his reporting – “While there is no suggestion that any rules were breached….” he says, we must wonder whether in some of these examples, corruption was involved, although it is hard to prove. Do external parties (suppliers, property developers etc.) say to their inside-the-council enabler “look, I can’t give you anything now, but in five years’ time when the heat has died down, there’s a million for you”.  

Anyway, if it is not corruption, then we are seeing far too many examples of gross incompetence from our councils. And it is costing taxpayers many, many millions.

You may have read about the recent UK hospital trust tender that hit the media because of its questions about diversity and transgender issues. It turned out that the questions should not have been included in the document; it was human error rather than anything else.

I recently got involved with another National Health Service tender – we’re talking about a “collaborative buying” framework here, potentially worth hundreds of millions.  A consulting firm I’ve worked with over the years asked me to look at the tender documents, because they could not work out how on earth the buyer could possibly differentiate between the various bidders. Basically, there were no evaluation questions that actually asked the bidders to explain their core technical capability!

I read it and agreed that is was a very odd document.  No selection outcome could possibly have stood up to legal challenge, for a start. Luckily, I knew a senior procurement person in the buying organisation, so I called and explained the issue. A few days later, the tender was pulled. Pure human error again.

I was reminded of these cases during an Oxford POGO session last week. (POGO is a very worthwhile knowledge sharing club – more details here). The topic was capability in public procurement, and there were a number of interesting speakers. But it was Steve Schooner, Professor of Government Procurement Law at the George Washington University Law School in Washington, USA, who brought up the issue of writing tender documents.

Too often that was seen as a pretty unimportant task, but he said (quite correctly) that is a key skill if you want to get the best potential suppliers, the best proposals and ultimately the best outcomes from your procurement and suppliers.

He also said that “no-one should be allowed to write a public sector tender document until they have sat supplier side and responded to a tender”!

I think that is a great idea and maybe should be a core training activity for developing public procurement professionals. Over the last decade or more, I’ve occasionally supported clients who were responding to (usually public sector) tenders. It has given me a lot of insight into what good procurement practice looks like – and more depressingly, what bad practice looks like. I’ve also worked buy-side of course and tried to help buyers to get it right! It is not always easy, but it is always important.

As well as the contribution of this stage in the process in terms of final outcomes, there is another factor to consider. The tender documents you issue are probably the most direct and often the most widely-read manifestation of your procurement function’s competence.  

You can claim to be a world-class team, you can win lots of awards, but if potential suppliers read your tender and think “what a load of old rubbish this is”, then more than anything that will be what informs their view of you. The same often applies with internal stakeholders. If there are non-procurement colleagues involved in a procurement process, and they see that the procurement professional doesn’t know how to produce good material, or (even worse) the stakeholder starts to get calls from frustrated potential suppliers, then this is very bad news for your internal reputation.

Going back to the beginning, I spoke to a senior person involved in the “controversial” case of the diversity questions. We’ve learnt two things, he said. Firstly, we need more and better training for all our staff who are involved in producing tender documents. And secondly, “we need better quality assurance before material goes out of the door”.

Often top procurement executives feel they are too busy to read tender documents, or that it is  a low-value task for someone of their seniority, skills and experience. Below their pay grade, as it were. But if that is your view, just remember – a lousy tender document has the potential to trash your team’s reputation more widely and faster than just about anything else.   

We wrote about the UK Ministry of Defence (MOD) Ajax armoured vehicle fiasco almost a year ago.  Now, the Public Accounts Committee (PAC), made up of politicians from all parties, has urged MOD to either fix or scrap the scheme by the end of 2022.

The programme has been running for 10 years and has failed to deliver a single usable vehicle. By December 2021, the Department had paid the supplier, General Dynamics, £3.2 billion, although Ministers now say there will be no more payment until problems are resolved. Noise and vibration problems proved to be a health hazard for soldiers during testing, and there were other performance issues too. The initial design had some 1,200 “capability requirements” and both buyer and supplier under-estimated the complexity of what they were trying to build. In their report published recently, the PAC said this.

The Department’s management of the programme was flawed from the outset as the programme was over-specified and the Department (MOD) and General Dynamics did not understand the scale of the technical challenge. We have seen similar failings again and again in the Department’s management of its equipment programmes. The Ajax programme also raises serious concerns about the Department’s processes and culture for testing whether new equipment is safe to use”.

The MOD still appears to have no idea when, if ever, the vehicles will go into service and will not commit to a target date. And assuming this does not end well in term of delivering adequate vehicles, we can expect a serious legal battle – unless the MOD just caves in and pays up, of course. As the PAC report says, “because of programme delays and missed milestones, the Department estimates that it owes General Dynamics £750 million for completed work, but has not paid anything since December 2020, and the parties remain in dispute”.

The PAC comments follow a report from the National Audit Office in March 2022 which went into more detail, and there were several points in that report that I found particularly shocking. For example:

The Army’s policy of regularly rotating posts means that the programme has had a high turnover of senior personnel, with five senior responsible owners (SROs) since November 2011, and four   programme directors and six project managers since September 2013. Defence Equipment & Support (DE&S) replaced the programme manager who had negotiated the reset immediately after the contract was updated in May 2019, affecting the programme’s corporate knowledge. It also replaced other senior programme personnel after the new director general was appointed in December 2019”.

That issue is largely within the control of the MOD, and the “revolving doors” staffing policy has been identified before as an issue; yet it still happens. And some senior roles were not even full-time before 2021! Then we have the Ajax Programme Office, responsible for running programme.

“The programme management office, which supports the SRO, has remained small for a programme of this scale and complexity. In 2016, six of the eight posts were vacant …  By April 2019, it had filled these vacancies to manage the contract renegotiation in 2018, but then reduced resources – at a time when the programme was missing milestones. In July 2020, the programme management office had dropped to four posts…”

What madness is this? A huge, critical and failing programme, and you reduce the programme management resources? Why? Would nobody take the jobs because they knew it was a doomed programme? Or did senior people want it to fail? Or did they think that a lack of resources might be a good excuse when the proverbial hit the fan?  Anyway, it is a shame the PAC didn’t pick up on this issue.

The NAO report identifies many other issues, from poor programme governance to specification issues, and really it is a textbook example of how not to run a major equipment procurement programme. It will certainly deserve its own chapter if and when “Bad Buying Part 2” emerges …

We are looking at increasing defence spending in the UK for obvious reasons following Russia’s invasion of Ukraine. That is fine; but as a taxpayer, I don’t want to see a penny more of my money going to MOD until I see a detailed and convincing plan laying out how the organisation will ensure it doesn’t waste more billions on equipment.  Ajax isn’t the first disaster of this nature; it just happens too often.

Quite a few stories of procurement and supply chain failure we hear (and quite a few of those included in my Bad Buying book) have at least an element of humour about them. KFC running out of chicken wasn’t very funny for the senior management there, and the customer who phoned the police to complain that he couldn’t get his fried chicken obviously took it seriously.  But for most of us, we probably had a chuckle. Government failings are annoying when it is taxpayers’ hard earned money being wasted; but it is rare to see a case of supply chain failure that actually has the potential to cost the lives of babies.

But that is the situation in the USA, where shortages of formula milk for infants is threatening the health or even the survival of very young children. But why is this happening, in one of the wealthiest, most technically advanced nations in the world, where capitalism has over the decades brought a high standard of living (in global terms) and abundant supply of almost everything and anything to its people?

It is a complicated situation, and I’m only giving an overview here. The shortages appear to be driven to a considerable extent by manufacturing plant shut-downs, driven in part by quality issues identified by the US Food and Drug Administration (FDA). FDA (food and drugs administration).  As Sky News reported, “Abbott Laboratories was forced to shut its site in Sturgis, Michigan and recall a number of its powdered formula products after four babies who had been given formula developed bacterial infections”.  No firm link has been proven but the Michigan factory has been closed for weeks.

Even when the factory re-opens, it will take 8 – 10 weeks to get product back on the shelves, the company says. And once shortages emerge, panic buying inevitably exacerbates the situation, and there may be a bit of a baby boom going on in the US too. The U.S. government also has pretty rigid trade policies, making most formula imported from Europe illegal to buy in the United States. Tariffs act as another deterrent.  Maybe that is genuinely for health reasons; or maybe it is at least in part a nice bit of protectionism to suit the manufacturers.

But from a procurement point of view, this market concentration and the inflexibility of government-funded schemes for lower income people have contributed to the problem. Two companies – Abbott and Reckitt Benckiser – dominate the industry with about 80% national market share.  Nestlé, which sells under its Gerber brand, controls another 10%.

Part of the reason for these firms’ success is that they are the only makers approved by the US government to provide baby formula through the Special Supplemental Nutrition Program for Women, Infants and Children, known as WIC, which supports low-income families. It appears that most States, who fund these schemes, have negotiated deals with just one provider.

The Guardian reports; “ Nearly half of baby formula in the US is bought under the Wic program, aimed at helping low-income women, infants and children. States give exclusive contract rights for this formula to one company under a bidding process. Abbott provides formula to about half of the babies receiving Wic benefits. When these products disappeared, families were left scrambling to find alternatives”.

This has driven what has proved to be an unhealthy level of market concentration, as it also seems that production is also pretty concentrated within firms in terms of the number of production plants. Now procurement can’t always control market dynamics; but could government as well as buyers (in retail chains for instance) have done more to encourage new suppliers and a more competitive market?

So the old principle of consolidation, aggregation and leverage that procurement has lived by for decades has been driving behaviour here. But once shortages kick-in, recipients of the WIC benefit have been unable to find the approved supplier’s product, leaving them in a desperate state – and an example of the unintended consequences of what must have seemed like a sensible procurement strategy. The U.S. House of Representatives has now passed bills to try and address the shortage. One would waive certain requirements that limit brands and quantities of formula recipients of the special supplemental nutrition for women, infants, and children can purchase, according to CBS News.

Again, supply chain and procurement risk and resilience has not been considered as it should have been here, with cost driving the decisions. We’ve seen over the years so many examples where procurement behaviour has driven dependence on a few suppliers – or even just one (there’s an interesting example featuring VW cars in the book, for instance). It rarely ends well. So next time someone says, “we should rationalise our supply base and dramatically reduce the number of suppliers”, do remember that strategy can have benefits, but also caries risks. Be aware of that and develop the strategy accordingly.

Back to the highly concerning baby milk story. I’m sure more will emerge, and if you want a fuller explanation, I can recommend Kelly Barner’s excellent podcast here, in which she goes into more detail in terms of what has been going on.

Most people see government buying as something rather dull and bureaucratic, but get it wrong and it can cost the taxpayer a fortune.  So everyone should be interested in the new Procurement Bill published last week, which will define the regulations for UK public procurement.  We will have more on that here when I’ve read it properly and also considered what people smarter than me think of it!

One of the key principles of the new regulations is to give buyers more flexibility and freedom. But I do have a fear that could lead to more corruption if it allows crooks (whether politicians or public servants) to run dodgy procurement processes to favour their preferred supplier. However, the new approach will I believe still require contracting authorities to consider basic issues such as “fairness”. That is where a lot of the biggest failures in the past have arisen – such as described in the following extract from the Bad Buying book, describing a particualr case that cost the taxpayer over £100 million because of obvious bias and unfairness in the procurement process.  

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The case involved a 2016 legal challenge by Energy Solutions Ltd., the incumbent supplier for a huge contract to clean up de-commissioned UK nuclear power stations. They lost the tender, run by contracting authority the Nuclear Decommissioning Authority (NDA) in 2014, to a Babcock Fluor consortium (CFP).  But there were a number of mistakes made during the procurement process.

One related to “pass / fail thresholds”; areas where the NDA defined up-front that failure to meet certain conditions would lead to instant disqualification for the bidder. However, once bids were scored, it became clear that one supplier had failed to meet the threshold. But instead of chucking them out of the competition, the NDA decided to let them stay. Now this may all seem a little technical, but it is clearly unfair; and public procurement regulations really don’t like unfair buying processes.

As the judge said in his statement, you cant change your mind about the rules once you get into the buying process.  After a bidder has failed to meet a defined threshold, you can’t ask “was that threshold Requirement really that important?”, arrive at the conclusion that it was not, and then use that conclusion to justify increasing the score to a higher one than the content merited (or to justify failing to disqualify that bidder)”.

To disguise the failure of that firm, the NDA team also adjusted original scores given to the bidders during the marking process. But they failed to provide any audit trail or justification for these changes, a fact that became obvious through the trial. The NDA announced that CFP had won – which promoted the legal challenge. There were other issues too, and the final outcome saw the judge finding in favour of Energy Solutions, and the NDA agreeing to pay the firm (and their consortium partners Bechtel) almost £100 million to settle the legal claim for their loss of profit on the contract.

It is impossible to know what went on behind the scenes in cases like this.  Was it sheer ignorance of the rules? Was someone very senior determined a particular supplier should or should not win the contract? With other failures in previous chapters, a lack of understanding or knowledge caused the problem, but I’m left somewhat baffled here.

Certainly, a number of basic buying principles seemed to be forgotten. Treating bidders fairly is a good principle, whether you work for a government body that must do that legally, or for a private firm. Keeping sensible documentation to explain your decision is vital. That’s so you can explain to bidders why they won, or didn’t, but it is also a basic precaution against corruption and fraud, one that all organisations should take. If no-one can explain logically why my firm won a particular contract, then maybe it was because of the bulging brown envelope I was seen handing over to the senior buyer”.