Psssttt! Wanna buy a cheap consultant? Top quality, only £20 a day. Or, tell you what, you can have some for a tenner if you like. Yeah. Just £10 a day!

The UK’s central government procurement arm, Crown Commercial Services, has various frameworks in place that enable users to select and engage from a list of management consulting firms.  So how was it that the rate card for the different levels of consultants on certain “lots” includes the bargain rate of £10 a day for a junior consultant from one of the world’s very biggest and most highly regarded strategic consulting firms? Or how about the same rate for a junior and only £30 a day for a senior consultant from one of the big four audit / consulting giants?

What’s going on here? Well, it is almost certainly related to how the firms “gamed” the evaluation process in order to win a place on the framework list of approved suppliers. CCS has had some unhappy experiences with consulting frameworks, including having to pull an entire exercise in 2017 when it became clear that the big firms weren’t going to make it onto the list!

Generally, when price is evaluated in the tender (along with quality and other service factors), the buyer asks for day rates for the different levels of consultant – perhaps junior, senior, manager, director, partner. Then there is some sort of adding up process, maybe weighted to reflect different likely use of the different levels, to arrive at an overall cost.

So let’s suppose your rates are something like this,

Junior                    £1000

Senior                   £1200

Manager              £1400

Director                £1800

Partner                 £2400

Let’s also suppose that the buyer is weighting each at 20% to arrive at a composite average rate – in our case here, that would be £1560 per day.

I might worry as a bidding firm that such a number could be on the high side. So how can I adjust that, without actually reducing my profit margins (and hitting my £600K a year partner’s salary)? Well, we are unlikely to be putting many Partner level people into these projects, particularly for government work. So we can take a bit of a hit on that rate. And as for juniors – well, let’s just work on the basis that when the Department for Internal Affairs comes looking for a proposal, we’ll say we haven’t got any available. Let’s face it, clients don’t really want the graduate trainees who can barely run a spreadsheet anyway.

But we might want to up the middle levels a bit to recover the lost margin on Partners, as that is where we really will be supplying people. So how about this?

Junior                    £0 (free!!)

Senior                   £1300

Manager              £1500

Director                £1800

Partner                 £2000

Our average rate now is £1320. That’s a 15% improvement in overall pricing and a lot more marks when it comes to the evaluation. And in reality, the likely revenues if anything might be a touch higher.

So why did CCS allow this to happen in this particular case? Well, it might have been difficult to stop – you can reject “unfeasibly low” bids under EU procurement regulations but the overall prices aren’t unfeasible. And of course CCS desperately wanted these firms on their list, so users will access the contract and CCS will make their margin, which funds the organisation.

Maybe all this doesn’t really matter, but it is worth remembering the lengths and the creativity that the partners in these firms will go to in order to protect their £500,000 – £1 million+ annual salaries. But do think carefully about your evaluation process if you want to avoid this sort of game-playing.

Finally, if you want to hear more interesting stories about buying professional services, positive and negative, I’m a keynote speaker at a (free) virtual conference on that topic organised by Matrix MM on Tuesday next week, 21st July. More details here!

The Guardian newspaper reported yesterday: “Ministers are considering renationalising the entire probation service in England and Wales, the Guardian understands, in the latest twist in a long-running saga to unwind Chris Grayling’s disastrous changes to the sector”.

You may not be surprised by that, or shocked to learn that the probation services outsourcing is a case study in my forthcoming book, Bad Buying – How Organisations Waste Billions Through Failures, Frauds and F**k-ups.

The analysis sits in a chapter that looks at failures caused by the buyer failing to understand a market or markets. Or, as in this case, having a foolish belief that entirely new markets can be created by sheer willpower – and throwing some government cash at the private sector, of course.

A bit of history first. The UK government decided in 2013 to outsource much of its probation services work, despite warnings from the well-respected Institute of Government that it would be “highly problematic”. The work included the management and rehabilitation of offenders, combining an element of punishment, such as monitoring the conditions of prisoners’ release, with the desire to reduce re-offending and help the offender make a useful contribution to society.

The UK Ministry of Justice, then under the command of minister Chris Grayling (who, you may also not be surprised to learn, crops up several times in my book), created 21 Community Rehabilitation Companies (CRCs) to manage offenders who posed low or medium risk. In February 2015, the CRCs were transferred to eight, mainly private sector, suppliers working under contracts that were to run to 2021-22.

But the implementation was rushed, there was little of the innovation that was promised from suppliers and 19 of the 21 companies ultimately involved failed to meet targets for reducing the frequency of re-offending. In July 2018, the Ministry announced it would terminate its contracts with CRCs 14 months early, in December 2020.

Suppliers didn’t do well either. The National Audit Office estimated cumulative losses of £294M for the firms if contracts continued to the end date, and Working Links, one of the providers, collapsed into administration in February 2019.  Finally, David Gaulke, by now the Minister in charge, announced in May 2019 that the contracts would not be offered to private firms.

Most probation services were in effect re-nationalised after one of the highest profile UK public sector buying failuresin recent years. At that point, some minor services such as the provision of unpaid work and accredited programmes were to be offered up to the private and voluntary sectors. But that now appears to have been abandoned too.

There were clearly many problems here, but fundamental is the issue of an entirely new “market” being created, without real understanding upfront of what the work involved, what capabilities would be needed by the winning firms, how the right commercial models would be constituted or how competition could be maintained and stimulated. 

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

The pandemic crisis broke just as I was signing off the proof copy for my new book, “Bad Buying – How organizations waste billions through failures, frauds and f*ck-ups“. I thought briefly about adding some pandemic-related stories, but quickly decided there wasn’t time to do it justice without delaying publication this autumn – which neither Penguin nor I wanted.

But I may well want to write something substantial about the procurement issues connected with the pandemic, because it is clear already that there are many. Not all of these by any means are “bad buying”, I would stress. I’m sure we will find that there is some great work going on, in the centre of government, in hospital trusts, in the NHS Supply Chain network, and indeed across many other organisations in local government, social care sector and so on. If I do write a book, I hope and expect that there will be as many stories of great procurement work and even heroism, as well as some failures and issues to report.

Certainly, there are enough stories emerging that will require further investigation. The mis-management of the “pandemic stockpile” of PPE (personal protective equipment) is one. Although this has had some media attention, it looks to me like a bigger failing than has really been exposed so far. How was so much of the stock allowed to get out of date, for a start? What about the “lost” items – a failure of stock control and information, or something more criminal?

PPE generally has had plenty of coverage in the media, and some of it has not been fair. Once the pandemic took hold, the global demand for PPE shot up to an extent that supply problems were inevitable. But there will be questions asked about whether the UK was agile, flexible and fast enough in its response – and no doubt other countries will ask the same thing. That will lead on to interesting debate about the whole structure and strategy for NHS procurement.

Then there is the UK’s “ventilator” challenge, in which various firms were asked to produce ventilators – with varying degrees of success. There was also the very odd decision to ask eBay to build a marketplace for PPE, which did not go well, when others such as Basware and Proband could have done it in hours based on existing capability.

That last point highlights a real frustration. There is just no transparency around how and why certain firms are being awarded contracts. Of course, we understand you can’t spend months running an “OJEU” compliant procurement process in the middle of the crisis. But it is not unreasonable for us to want to know something about how and why firms like Clipper, eBay, Palantir, Deloitte and others are being chosen, and the terms of the contracts they are working under.

If the silence continues, then we might start thinking that these decisions haven’t been taken for the right reasons. I doubt very much whether brown paper envelopes have exchanged hands, but there  are other forms of “corruption”.

I’d argue any supplier selection decision that is influenced by factors  other than objective business reasons is corrupt to some extent – that includes simple laziness (“I can’t be bothered to do the research or analysis so I’ll just give this random firm I’ve heard of the contract”), nepotism (“giving the contract to your mate”), or choosing a firm based on the fact that you rather fancy getting a job with them one day in the future.

That last idea was suggested to me as a reason for some of the tech decisions we’re seeing – “the techies in government all want to work for someone sexy like Google, Apple, or Amazon, so they find ways of working with them in their current jobs and hope to get noticed” was the suggestion.  Mind you, that doesn’t stack up with the route chosen on the tracking app…

I’ve always tended to go with the cock-up rather than the conspiracy theory when things go wrong in government. But we need some visibility around all this “emergency procurement”, or we might start thinking the worst.

The state-of-the-art, whizz-bang, latest technology printer that the Irish government bought in 2018 was going to produce wonderful documents at, one assumes, a competitive cost. The Komori equipment is highly rated, but there was only one problem for the government. 

When it arrived in Dublin, in December 2018, it simply didn’t fit into the building where it was supposed to be housed.  It had to be shipped off to a storage unit at Ballymount Industrial Estate, where it languished until September 2019 at a cost of €2,000 a month while building works were carried out – to “tear down walls and embed structural steel” to make room for the behemoth.  Now a report on the fiasco by Dail (the Irish parliament) clerk Peter Finnegan has revealed the cost of the episode, which seems to grow every time it is reviewed.

€230,000 (excluding VAT) was spent on “unanticipated renovations to the printing room” because the equipment just wouldn’t fit, because “ the requirements of the building and other regulations in relation to ‘head height’ were neither understood nor examined during the early critical stages of the project”. The cost of the printer itself and associated equipment reached €1,369,605.

There have also been reports that staff haven’t been happy about the new equipment, asking for further training and (rumours say) more money for operating it. The Register also reported that the “IT department is hesitant to grant access to the printer, making it difficult to print documents from official government computers”.

All in all, this is a great example of Bad Buying caused by failing to check in detail the specifications for what you’re buying and how that relates to the environment around what you’re buying.  And remember, even in the case of complex equipment, it is not just the technical specifications that matter – mundane issues such as size can cause just as many problems as some obscure technological flaw or failure!

The public inquiry into the tragic Grenfell Tower fire in London, which killed 72 residents in June 2017,  has heard that procurement rules were circumvented to avoid an open tendering process. Bruce Sounes, who was the lead architect on the Tower refurbishment, told the inquiry that the Kensington and Chelsea Tenant Management Organisation (KCTMO) asked the architect, Studio E, to defer some of their fees so that the cost looked like it was under the EU procurement threshold that requires a competitive process.

He told the inquiry: “I understood that this limit was the maximum contract value permissible under EU procurement regulations, above which KCTMO would have to follow a compliant procurement process in selecting consultants”. So 50% of the fees were deferred to keep the among billed below £174K.

That would have taken more time, and it was also likely that the favoured supplier, Studio E, would not have won the bid as it had little relevant experience, having not “been involved in high-rise residential, heating renewal nor the overcladding of occupied buildings.”

This artificial manipulation of contract value is almost certainly illegal under EU and UK regulations.  Buyers are not allowed to “artificially disaggregate” contracts to avoid the thresholds, for instance by breaking up a large requirement into multiple smaller ones purely to get around the rules. Deferring fees is somewhat different but arguably is an even more blatant method for avoiding the formal process.

It is a myth however that a contract value under the EU threshold means you don’t need to worry about competition. Whilst you don’t need to jump through all the hoops, buyers are still bound by principles of transparency, openness and fairness, and should show that they have used appropriate competitive processes given the size and risk of the contract. Clearly, that didn’t happen here. But just because a contract is “only” worth £170K, it doesn’t mean you can just give it to a supplier without competition.

The other puzzle here is exactly why KCTMO were so keen on Studio E winning the work. Richard Millett QC, counsel to the inquiry, said that after the firm had designed the neighbouring Kensington Aldridge academy, selecting them was “cheap, convenient, quick, even though Grenfell Tower was a completely different kind of project with different challenges”.  So, there is no hint of corruption there, although it was at best a poor decision, and an illegal one, as we’ve said.

Whilst we can’t say that the Grenfell disaster happened purely because of this open and shut case of bad buying, it is at the very least an indication of the tragic consequences that can result from poor supplier selection decisions. It is also a lesson that avoiding procurement regulations sometimes seems an easy way out; but it can have major consequences.