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PPE Dumped – An Unhappy Reminder

There was an unhappy reminder of the pandemic and the PPE Bad Buying saga recently when several hundred pallets of PPE (mainly aprons, it seems) were discovered apparently dumped in Calmore, near Testwood Lakes Nature Reserve in the New Forest (near to Southampton). No-one knows how it got there…

Some of the material involved was identified as coming from a supplier caller Full Support Group (FSG). Now there is an interesting story about that firm. It was relatively late in the PPE saga when it became public that it was in fact the largest single supplier of PPE in the UK into the health system, with estimates that close to £2 billion had gone to FSG to buy huge quantities of PPE.  It was not immediately apparent though because the firm was already a major supplier to the NHS pre-Covid, so the pandemic purchases were made using existing framework contracts, which did not show up on registers of new contracts.  (That’s a weakness of the transparency rules by the way, but let’s save that for another day).

I had some personal communications with the founder and CEO of the firm, ex-nurse Sarah Stoute, and I’m still not really clear whether FSG and its leaders are amongst the heroes of the pandemic or the villains. In terms of heroes, the owners took huge risks when they saw the pandemic starting, and committed to buy PPE mainly from China at their own risk in late 2019 and early 2020 as prices started rising. That could have literally bankrupted the firm if the market had moved the wrong way but those stocks helped the NHS get through the crisis – and of course prices went up and up, benefiting the firm’s bottom line.  

The owners also tried to advise the NHS and the PPE buyers about the suitability or otherwise of some of the new sources of PPE that started coming on board. Now that might be seen as self-serving – “buy from us rather than these unsuitable new suppliers”. But Stoute was proved right on some occasions where (as we now know) the government bought PPE that was unsuitable or didn’t meet specifications – or was bought from firms that turned out to be run by crooks, basically.

The counter argument basically runs that the owners made huge profits as shortages grew and bought themselves a Caribbean villa for £30 million, an equestrian centre and a country mansion in the south of England for £6 million.  As I say, they took substantial risks, but maybe buying villas wasn’t the most tactful thing to do quite so quickly. I think I might have waited a couple of years at least!

But back to this dumping of stock. Clearly that was nothing to do with FSG or with the NHS or individual NHS trusts. However, we do know that the NHS some time ago appointed firms to help with disposal of unwanted PPE, most of which was sitting in shipping containers around the country (some was still being held by suppliers to).

So the most likely explanation is that someone was contracted to dispose of PPE, they probably then passed on the task to another firm, and maybe another one again, util it ended up with a bunch of criminals who offered a cheap price for disposal then simply dumped it.

Sara Stoute has also said that the reason this stock is surplus is that it wasn’t stored correctly – their lawyer said, “the PPE became unusable because of the way it was stored after delivery, not due to wrongdoing on their part”. If that is true, that is another indictment around the whole story of mismanagement we’ve seen unfortunately from the beginning of this saga.  As well as the money (and time) wasted, the disposal issue highlights the “wasted” carbon emissions embedded in the product and now the pollution and waste disposal risks and costs around it.  Not a happy tale, all in all.

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Waste in Woking – Taxpayers will Pick up the Bill

The trivialisation and celebritisation of British politics continues apace.  The headlines are dominated by why Nadine Dorries didn’t get her peerage (and why Charlotte Owens did – anybody got any ideas)? It is all about personalities and in particular our own Trump wannebee, Boris Johnson, the man who had damaged the UK more than anyone I can think of since 1945.

Meanwhile, stories that should be causing debate, analysis, and angry mobs with flaming torches marching in the streets, get limited coverage and little real analysis other than by a few dedicated journalists. For instance, we’ve mentioned before the billions wasted by a number of local authorities (councils) in the UK, including Thurrock, Liverpool, Slough, Croydon, and my own council, Surrey Heath.

But Woking – only 10 miles from my home – might turn out to be as big a scandal as any. The “bad buying” in this case is firmly in the property sector, as the Tory-led council “invested” in major developments both in their own town and more widely. Apparently, the idea was to make Woking the “Singapore of Surrey”, an idea so far-fetched you have to wonder what the council executives and elected representatives were smoking. (as the Guardian asked!)  The council is now bankrupt, and I would be furious if I lived 10 miles down the road.  

Woking has core revenues of around £16 million a year, and debts of around £1.8 BILLION currently. That debt to income ratio is the biggest we’ve seen so far in failed councils.  It is likely that something around £600 million, maybe more, will need to be written off in terms of current asset valuations. A review into how this happened found that within the overall figure, the council borrowed £160m for purposes outside regulations and had “sub-optimal record keeping.”  A huge amount was borrowed from the central government controlled Public Works Loans Body (PWLB) and total debts may end up at over £2 billion. A Section 114 notice has halted all spending on non-essential services.

As the Guardian said: “In Woking’s case, the 114 notice shows the council had advanced the colossal sum of £1.3bn – money borrowed from the PWLB – to joint venture companies, notably Victoria Square Woking Ltd, in which the council held a 48% stake and a Northern Irish developer, Moyallen Holdings, held the majority. Then the value of the assets fell”.

There are also questions about why Woking partnered with Moyallen, a relatively small property company, for the Victoria Square development. That venture still operates, but the Bank of Ireland placed four of Moyallen’s other operating units into administration – including two entities used to control the Peacocks Centre at Woking.  The council’s former chief executive was allowed to operate far too independently, it seems. An “acquisition opportunity fund” allowed him to spend up to £3m on regeneration projects without formally approval from the council or executive, and that led to purchases including farmland for £1.5m, and £2.3m on two pubs, one of which burnt down!

Primary responsibility must fall with characters who have all moved on now – previous Tory Leader of the Council, David Bittleston, Chief Executive Terry Morgan, and Finance Director Leigh Clarke.  It would be good to see those three in court charged with malfeasance in public office. However, all the councillors who failed to raise the alarm also share some blame. One councillor tried to sound the alarm about the dealings but was shouted down in council meetings.

But other stakeholders who deserve a lot more criticism than they are getting are those in central government. The majority of the loans came from the PWLB – a central government body within the Treasury that lends money to local councils. Concerned observers had contacted Treasury and the Department responsible for local government – currently called the Department for Levelling Up, Housing, and Communities (DLUHC) – about Woking but were ignored. In 2017, the Times  “raised the alarm about reckless council spending” but were told by central government that “ that there were “strong checks and balances” in place to protect taxpayers’ cash”. 

Well that was clearly total nonsense, so Treasury and DLUHC must share some of the blame for this fiasco. Partly because of that, government will have to bail out the council. There is no way local taxpayers can cover the debt (without bankrupting them personally) so this will effectively end up as a wider taxpayer debt write-off.

In recent years, we’ve seen both Labour and Tory councils getting into trouble around bad investments, bad buying and criminality at times too. This is about personal and systemic failures, not really party politics, although central government has failed to monitor the gross incompetence of these councils.  So given the outlook for the next general election, and if Labour are serious about giving more power to local councils, we really need some new parallel measures put in place. We have to make sure more power does not simply lead to more huge failures, with more crooks and incompetents wasting or stealing huge amounts of our money.  

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Huge Ship, Tiny Error, Major Problem

Picture: LPhot Alex Ceolin, UK MOD© Crown copyright 2019

You may know the expression “don’t spoil the ship for a ha’pworth of tar*”, but we have a case now where the ship most certainly has been spoiled – or at least put out of service for some considerable time – because of a tiny error in manufacturing. The impact of this has also led to a tricky contract management situation.

In August 2022, the British aircraft carrier Prince of Wales broke down just one day after departing its Portsmouth base for training exercises off the US coast. That was hugely embarrassing for the Navy given the ship had cost some £3.1 billion and this wasn’t the first problem since initial launch in 2019. This time, the issue was traced to a starboard propeller shaft fault and an installation error. Responding to a recent parliamentary question, Ben Wallace, the UK Defence Minister, said that based on “initial reports” the shaft was misaligned by 0.8 – 1 millimetre. That is a tiny mistake, but apparently caused a huge problem.

As well as the operational issues this caused, the question of who should pay for the error is also complex. Construction and delivery of the warship was carried out by a consortium of three firms under the banner of the now defunct Aircraft Carrier Alliance. BAE Systems, Babcock and Thales were all involved, which makes it complex to assess liability. Will the Ministry of Defence (MOD) end up paying or will they be able to pin the responsibility onto one or more of the firms?

A report on the “Breaking Defence” website said that the MOD “declined to comment on why the repair bill liability decision has not been made yet, nor when a decision is likely to be made”.  But MOD did say that repairs were likely to cost some £25 million, and that an investigation was looking at how to ensure the failure was not repeated. Well yes, one would hope that the same won’t happen again!

John Healey, the Labour Party’s shadow defence secretary pointed out that since the ship entered service in December 2019, it had spent 411 days in dock for repairs, compared to just 267 days at sea. A previous deployment also ended in embarrassment and a quick return to base in Portsmouth after an internal flood left the engine room and electrical cabinets submerged for 24 hours. The current repairs were supposed to be completed at the Rosyth dockyard in Scotland by February, but at time of writing (May 2023) still seem to be going on.

We could draw analogies here between our (literal) flagship and the wider state of the UK. Still pretending to be a significant global power, but incapable of actually doing anything to live up to that fantasy and all that sort of thing. But keeping to the facts, in a more mundane fashion it does highlight the importance of absolute clarity in the contract whenever you are buying from a consortium of any kind – and that doesn’t just apply in the military world of course.

Don’t assume a consortium will act as one entity if something goes wrong. It’s just as likely that each party will fight to protect their own position, which can leave the buyer in a difficult position, as we may be seeing here. So a strong and clearly written contract, including a definition of what will happen if there are issues after the formal consortium is dissolved, is essential.

And you can see why the UK Treasury (finance ministry) is not too keen on increasing the MOD’s budget for spending on more equipment, even given the present Russian threat. Cases like this (as well as high-profile failures such as the Ajax armoured vehicles) all add to a lack of confidence that such money would be spent well.

* A bit of research suggests that the expression was originally about sheep rather than ships! I didn’t know that…

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TSB Systems and Contracting Failure- CIO Fined

In my Bad Buying book, I wrote about the IT disaster that affected millions of TSB bank customers back in 2018. Here is the story from the book.

“In 2015 Sabatell acquired TSB, a UK-based retail bank, formally part of the Lloyds TSB Group. TSB at some point needed to move onto its own IT platform, rather than continuing to use the Lloyds  group systems, as they were now competitors to their former parent company. But the move, in April 2018, turned into a disaster.

Account holders couldn’t use mobile or Internet banking, and some reported seeing accounts details from other account holders. Customers struggled for weeks to make mortgage and business payments, as the new TSB systems failed to function properly. The issue was serious enough to be raised in the British Parliament, and in September 2018 TSB’s CEO, Paul Pester, resigned.

In March 2019 The Sunday Times reported that an investigation into the affair put much of the blame onto the IT firm that handled the transition.13 However, the twist was that this firm was SABIS – which is part of the Sabatell Group itself. So although it has a separate identity, this was in effect the internal IT function of the group that owned TSB.

Reports suggested a range of technical and programme management issues around the deployment of new software, rather than problems with the underlying infrastructure. But whatever the cause, the whole episode cost TSB £330 million,14 and there is a  ‘provisional agreement’ (according to the firm’s annual report) for SABIS to pay TSB £153 million. In November 2019 an independent report from law firm Slaughter and May concluded that the issues arose because ‘the new platform was not ready to support TSB’s full customer base’ and, second, ‘SABIS was not ready to operate the new platform’.

Questions have to be asked about the choice of ‘supplier’ here. Was SABIS the right choice to carry out this challenging task? It certainly doesn’t appear so, in retrospect. Did TSB have a choice, or was the firm told by top Sabatell management that it had to use SABIS? Would a firm with a wider and broader experience of banking systems than SABIS have done better? And why didn’t TSB accept the offer of help from Lloyds, which was made as soon as news of the problems broke?”

Now, five years later, there is an interesting postscript. Carlos Abarca, who was the TSB chief information officer, has been fined £81,620 by the Prudential Regulation Authority (PRA), the body that provides oversight of the UK banking system. In their 35 page report, they explain how Abarca’s failure caused a debacle that might have threatened financial stability more widely.

He apparently ignored early signs that the migration was not going well before the big switchover. He “did not ensure that TSB formally reassessed Sabis’s ability and capacity to deliver the migration on an ongoing basis”. Sabis told Abarca that they were migration ready and that subcontractors had given written confirmation that their infrastructure was fit for purpose. but the Authority felt this was not enough because the statements were caveated with comments about outstanding tasks. Abarca also did not obtain a written updated confirmation of readiness from Sabis when he told his own Board everything was ready for the transition.

The PRA said, “Mr Abarca’s failings undermined TSB’s operational resilience and contributed to the significant disruption TSB experienced to the provision of critical functions and potentially impacting on financial stability”.

This might be the first time a senior executive has been fined and disgraced for a failure in contract and project management. Now clearly in most industries, there is no equivalent of the PRA to  carry out this sort of investigation and take such action if someone screws up in a similar manner. But if you are in the financial services industry in the UK, it is a warning. If you are responsible in some way for operations, and that includes some procurement and contract management activities, then you must be very careful and must conduct your work with considerable diligence. And make sure you cover your back carefully at every point if a supplier tells you, “yes, everything is fine, don’t worry”!

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Local Government Elections – Can We Stop Corruption and Incompetence?

We have local council elections in England on Thursday this week (May 4th). According to the opinion polls, the Conservatives may lose one thousand seats to Labour and (in areas like Surrey where we live), the Lib Dems.  Of course, as a mere procurement author and commentator, I wouldn’t dream of suggesting how you should vote. I mean, if you think we have seen growing prosperity in recent years, improving public services, clear rivers and lakes, a great train service, a ruling cadre that deeply cares about the people… you should vote accordingly.

Personally, I would like to see more councils where there is no single party in control, or at least where the control does and can change over the years. Where the same party rules for decades on end, complacency can set in, or elected councillors can even start behaving in an unethical or criminal manner.

We’ve seen some extreme cases of this in recent years. It is not just one political party behind these disasters either – it was Labour led councils that failed in places including Slough, Liverpool and Croydon, and the Tories in Thurrock, Woking and Northamptonshire. But they have all presided over financial disasters, with gross incompetence always a factor and accompanying fraud in some cases. 

Certainly one common thread is the secrecy, lack of openness and transparency that we see in the behaviour of the councils. My own local council, Surrey Heath, is not quite a disaster on the scale of some of these others, but the Tory council made an extremely misjudged investment in commercial property in Camberley town centre, buying right at the peak of the market. In terms of asset value, that has cost the local taxpayer over £50 million and counting. But the deals were stitched up by a very small cabal of councillors and executives – not even all the Tories in council knew what was going on. Hopefully, the Lib Dems will win here this week, then at least we might get to see the full accounts and the full story behind what went on.

In the case of Thurrock, it was brilliant work by journalist Gareth Davies that exposed the huge and very “strange” investments that may end up costing the taxpayer £500 million in real cash losses. Again, there was no transparency and councillors refused to disclose information for year, even after Freedom of Information requests. (I will be astonished if no-one ends up in court over this case).

Many of the cases involve “bad buying” in a conventional procurement sense too. That was certainly true in Croydon, where construction and refurbishment contracts were part of the story – that is another case where we don’t know yet if the driver was fraud, incompetence or both.  In other examples, it is dodgy investments (which is “buying” of a sort, I suppose), and we also see ridiculously extravagant payoffs to top executives too.

At the end of 2022, Labour published their plan for greater devolution of power. If Labour win the next election, the government will devolve more budget and control to local councils and mayors. I’m all for that in theory, but given what we have seen in the last few years, it also makes me nervous.  If Keir Starmer really wants to do that, he must put in place some checks and balances to make sure we don’t just see more Croydons and Thurrocks, but with even bigger sums of money.

Transparency needs to be addressed, public scrutiny should be made easier, and there should be a strengthened audit regime for councils. But the problem with audit is it is after the event when the money is already gone! So maybe there should be some sort of pre-expenditure check for projects, investments or contracts over a certain amount?  Perhaps a reincarnated Audit Commission could fulfil that role? Anyway, just throwing more money and power at some of the incompetent and /or crooked muppets we have seen around local government in recent years does not seem sensible.

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Committee Takes Aim at MOD Procurement

The UK government’s Public Accounts Committee (PAC) which keeps a beady eye on government spend trained its attention on the Ministry of Defence last week. And PAC, made up of members of parliament from different political parties, was not impressed with what it saw. The PAC gets most of its ammunition from National Audit Office reports and investigations. It can then call “witnesses” to question in person. Sir Geoffrey Clifton-Brown, Deputy Chair of the Public Accounts Committee said this as the committee’s report was published.

“If the MoD does not act swiftly to address the fragility of its supply chain, replenish its stocks, and modernise its capabilities, the UK may struggle to maintain its essential contribution to NATO. The 2022-2032 Equipment Plan is already somewhat out of date. It doesn’t reflect the lessons emerging from Ukraine, more than a year in. And every year it’s the same problems – multi-billion-pound procurement problems. Equipment arrives in service many years late and significantly over-budget, and some of it just isn’t arriving at all. The MoD still does not have or seem to be able to attract the skills it needs to deliver the Plan”.

The MOD does not have a great track record when it comes to major capital spend for equipment in particular. The latest disaster (which we’ve covered here previously) is the £5 billion Ajax armoured car programme. Delivery of vehicles from the supplier, US manufacturer General Dynamics, is years late, there have been problems with soldiers suffering from hearing problems after using the test vehicles, and the MOD is in a commercial dispute with the supplier.

As usual, many people are keen to offer simple-sounding solutions. Clifton-Brown speaking on Sky News said that MOD should bring in more private sector procurement people. But many of the (huge) current procurement team in MOD do have private sector backgrounds, and frankly buying MOD kit is not really very similar to anything the private sector does. Indeed, high profile and extremely smart private sector folk such as Bernard Gray have tried to fix defence acquisition and largely failed. The problems are far deeper and more intractable than a bit of a capability shortfall.

To be clear, a lack of skills in procurement is an issue (but probably even more true for contract management and project management capability), but there are other harder-to-fix problems in terms of MOD acquisition, such as these.

  • A conspiracy between MOD, Treasury and the supply side to consistently under-estimate the cost of new equipment at business case stage in order to get it approved.
  • Competition between the services (Army, Air Force, Navy) which means bidding for new investment is competitive rather than collaborative – this plays into the previous point about misleading plans and budgets.
  • Cosy relationships between industry and MOD staff, bordering on the corrupt at times, with a “revolving door” which often makes MOD people cautious about “upsetting” firms that might one day be their own employer.
  • The desire to keep changing specifications post contracts – driven by the rapidity of technological advances and also the desire of MOD senior leaders to have “the latest kit”.
  • Perpetual uncertainty about the highest level strategies around maintaining the UK’s manufacturing and maintenance capability, and setting that against the concept of buying the best value for money kit off the shelf from whoever makes it.
  • Unwillingness of the best staff to go and work on what are perceived to be failing programmes.

These issues should be addressed, but its not all going to be sorted out by recruiting a few more decent procurement professionals from Unilever or Toyota.

Then we also saw stories last week about another MOD dispute with a supplier. Babcock is building a new low-cost (in theory) frigate, which will not only be used by the British navy but will be sold to other countries. However, MOD and Babcock are now arguing about the commercial details of the contract for 5 Type 31 general purpose vessels. Babcock has warned investors it could lose up to £100 million on the contract and there is an argument as to who picks up the bill for the escalating costs. It appears to be related to inflation increasing far more than expected, putting pressure on the supplier as the cost of steel and other items rises.

So the question seems to be this. Who in the contract agreed to take “inflation risk”?  Now I would have expected this to be laid out very clearly – if it was not, then that was both Bad Buying and Bad Selling! Or just bad contracting. Then the problem may have arisen if Babcock foolishly agreed to take that risk, not thinking that we might see inflation at 10%+.  MOD would be perfectly within their rights to tell the firm to just get on with it, but perhaps there is something more nuanced in the contract, as the parties are now apparently going to a dispute resolution process. We’ll watch with interest to see what comes out of that.  

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What’s Wrong with the Auditing Market?

The consultancy group PwC was hit recently with a £7.5m fine over a string of errors while auditing the engineering company Babcock’s accounts, including creating a false record of documents for a sensitive government contract.

In one case, there was no evidence that PwC’s audit team had actually bothered to review a 30-year-contract worth up to £3bn, and in another, the team (none of whom spoke French) had failed to check a €640m (£570m) contract written entirely in French.  There was no evidence PwC tried to translate the documents to confirm the terms of the deal.  PwC’s auditors were also found to have “created a false record” of the audit evidence they had actually gathered in relation to a sensitive government contract.

Yet profit per partner for PWC last year was £920K  Are audit partners in the big firms really worth best part of a million a year? They are not entrepreneurs who have built a business, or indeed CEOs running a major organisation. And it’s not just PWC – KPMG was fined £14.4 million last year for its failings in the audit of Carillion, the construction firm that went bust in 2017. Second-tier firm Grant Thornton messed up over the Patisserie Valerie audit, after the firm collapsed because of alleged internal fraud in 2019.

Meanwhile in the US, Ernst & Young LLP (EY) EY got a massive $100 million fine from the Securities and Exchange Commission (SEC) and agreed to various measures to address ethical issues. The firm was charged for “cheating by its audit professionals on exams required to obtain and maintain Certified Public Accountant (CPA) licenses, and for withholding evidence of this misconduct from the SEC’s Enforcement Division during the Division’s investigation of the matter.”

What is wrong with auditors?  You would think in a well-functioning market, firms that behaved like this would fail and be replaced by better players.   But this is an oligopoly, and the barriers to entry are huge, and perhaps insurmountable. Ironically, the more rules and governance imposed by governments on auditors, then the harder it is for new market entrants to break in – we haven’t seen a significant new player really during my entire working life. The “switching costs” are high for clients too, and the big firms build very close relationships with senior corporate executives which helps to reduce the chance of competition.

The end result is that clients are paying too much, and often not getting good work in return. Although professional procurement involvement in buying these services has increased somewhat in recent years, frankly that does not seem to have had much impact. 

Close to home for me, the Surrey Heath Council accounts for 2019/20 are still in draft form and have not been signed off by the auditor, BDO.  In an election leaflet pushed through our door the other day, the ruling Conservatives say this – “FACT: Our accounts are ready but our auditors BDO continue to miss deadlines (including for Lib Dem councils). We are working hard to find new auditors and increase transparency”.

At least the draft accounts report is available for public inspection, which reveals that the author does not know how to use apostrophes  (“the Council has managed to deliver substantial saving’s on interest payable …)

But if this delay is down to the auditors, surely this is gross incompetence and mismanagement from BDO?  Is this not worthy of a wider barring of the firm from public sector work?  Or (I know this is hard to believe), might a political party be publishing misleading information? I honestly don’t know the answer to that question – but seriously, if auditors are incapable of getting a council’s accounts signed off three years after the end of the year in question, then they shouldn’t be doing this sort of work at all.

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Remember the Procurement Basics!

Not a Wetherspoons to be honest – the picture shows my favourite pub in the world, the Strugglers Inn in Lincoln

No matter how much we like to talk about sustainability, complex strategies and supplier relationship management, procurement has some basic elements that cannot and must not be forgotten.  A couple of recent cases act as a good reminder of that.

The first is a dispute between Wetherspoons, the leading UK pub chain with 843 branches, and AB InBev, the world’s largest brewer (they produce Budweiser, Beck’s, Stella, and also some beers that aren’t tasteless).  In November 2021, Wetherspoons agreed to make AB InBev their lead brewer (“preferred supplier”) of mass-market lager, replacing Heineken. ‘Spoons, as it is affectionately known, sells a good range of real ales and interesting cask beers but still offers the standard products too for the less discerning drinker.

But the dispute relates to disagreement over who is going to pay to install the T-bars (the branded fittings that include the keg beer taps) in all the Wetherspoons pubs. The argument has gone to the UK high court now, to decide which company should be responsible for carrying out the works needed to fulfil a contractual requirement for pubs to display a set number of AB InBev beers on their T-bars. Wetherspoon claims that both parties believed the brewer was responsible, in line with standard industry practice. AB InBev denies this, saying the work should be subject to a sperate agreement.   

For two such large and apparently professional firms to be arguing over this seems incredible really. Presumably there is a formal contract between them, and surely that would include a clear allocation of responsibility for costs associated with the change.  If that was not included in the contract, then that represents both Bad Buying and Bad Selling, I would argue.

So the first of today’s two key learning points is this. A contract must detail the responsibilities that each party is expected to meet in order to uphold the legal agreement.  Now in very large or complex contracts, there might be some minor details that don’t get captured up front, but in particular, any activities that have an associated cost must be clearly laid out. Otherwise, there is a high probability of arguments later, as Wetherspoons and AB InBev have discovered.  I know this seems obvious, and yet there they are, in the high court.

The second case is both serious and quite amusing. Metal traders at Stratton Metals sold 24 tonnes of nickel to a German customer recently. Nickel is a valuable metal, increasingly used in batteries for electric cars, so much in demand. It is sold as briquettes, packed into 2-Tonne sacks. But when the customer took delivery and opened the sacks, they discovered that half contained worthless stones rather than nickel!

This was highly embarrassing for the London Metal Exchange (LME), which facilitated the contract and is Europe’s only remaining “open outcry” trading floor – rather than sitting in front of computer screens, traders literally shout at each other to arrive at buying and selling prices. The LME also operates through a network of 464 warehouses around the world which hold metals in stock, although LME does not own or manage these facilities. The dubious sacks were in a Rotterdam warehouse.    

Nickel seems to be a bit of a favourite for dodgy dealings at the moment. Last month, Trafigura, the Singapore-based commodities firm, took a hit of $577 million to its accounts when it discovered a huge fraud involving missing cargoes of nickel – although it is not clear that is linked to this recent stones substitution.  Trafigura is taking court action against Prateek Gupta, an Indian metals tycoon, over the missing metal.

Anyway, we might draw two wider procurement lessons from this. The first is very simple. Always check that you have been supplied with what you have paid for. Actually, that is not too difficult when it comes to physical metals – it is considerably more difficult when it comes to complex services, for instance. But the principle and the risk for the buyer is the same. You said you would provide this, I contracted to pay on that basis, and you have delivered something else.

Secondly, the nickel case shows that trust is still an important part of doing business. Despite the comments above about the importance of a robust contract, even a good example will not always protect you against corrupt, criminal or fraudulent behaviour. Trust does matter; so if you have a supplier you can trust, remember that is worth quite a lot. Nobody wants to find stones instead of nickel in their warehouse, literally or metaphorically.

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Germany’s Military and More Bad Buying

In many countries, the UK included, there is still a lot of admiration for German business and industry. The common view is that the German economy and the nation’s way of doing business generally is focused on organisation, efficiency and competence – and generally succeeds in terms of the results.  

That might seem to be a bit of a myth however,  if you read the story of Brandenburg airport, which featured as a major case study in the Bad Buying book. Years late and billions over budget, the story included dreadful programme management, terrible specifications for the airport and its internal fittings (such as escalators that weren’t long enough to reach the next floor…) as well as substantial fraud and corruption.

Now a recent report into the German military, the Bundeswehr, from Eva Högl, the parliamentary armed forces commissioner, suggests that that sector is also home to quite a range of shocking “bad buying” stories of bureaucratic incompetence and general failure. Högl says that the Bundeswehr needs 300 million to modernise properly and that at current rates of progress, it will take 50 years.

Högl is an ex-politician and travelled to 70 German military sites around the world and interviewed over 2300 people, so this wasn’t a quick management consultancy review. The Times reported that her findings included some almost unbelievable examples. A military hospital had no internet connection, so sensitive medical devices had to monitored manually. A microbiological laboratory was still using a dot matrix printer and an ancient refrigerator. The standard uniforms – introduced decades ago – are susceptible to “cold and damp”, which sort of negates the whole point of clothing, really!

Troops often had to buy their own equipment, and IT staff at one site waited months for computers. The bureaucracy is not just around procurement though – a sergeant in HR waited 3 years for a routine check on him to be caried out, during which time he was not allowed to access the HR systems or visit his own workplace unaccompanied!

We’ve featured plenty of stories about wasted money in the UK Ministry of Defence (and indeed the Bad Buying book has examples from that sector in several other countries ). But most of the stories related to major capital programmes; the Ajax armoured car, or the new aircraft carriers. An exception is the long-running and sorry tale of the army’s residential property estate.  However, the German report seems to suggest that the issues run across and through pretty much every aspect of  general management, including but not limited to procurement. 

Why is the situation so bad? Germany must have huge expertise in terms of management, including procurement and supply chain – you only have to look at their successful industries such as automotive and industrial equipment to see this. Why isn’t this translating into a professionally run military?

This isn’t just something to worry the people of Germany, of course. The country is a major contributor to NATO efforts, and that has been brought into the spotlight since the Russian invasion of Ukraine. Germany spent some 1.44% of its GDP on defence last year,  less than the UK or France and well below NATO’s 2% target. That spend in Germany surely must be increased if western Europe faces a long-term stand-off (or worse) with Russia. But just as the UK’s Treasury (finance ministry) is wary of pumping more money into the Ministry of Defence until it shows it knows how to buy expensive military hardware better, we might assume that there are similar worries in Germany. No-one wants to throw money at an organization that does not appear to know how to run itself properly and efficiently.

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HS2 Delayed – What a Surprise!!

So, the UK’s biggest case of Bad Buying for decades has hit the news again. The high-speed rail link (HS2) between London and “the north” is being delayed. The programme will slow down to spread the cost over a longer period. The line to Manchester will not open until at least 2043 and the new London terminal will also be delayed. So passengers travelling south will end their journey by being dumped in a siding near Willesden Junction*. Well, what a surprise.

The delays also kick the can down the road beyond the next election, so the government can continue making vague statements about levelling up and supporting growth in the north rather than just admitting they messed up. This is all stacking up to be a monumental waste of over £100 billion of our money.

I don’t claim amazing clairvoyant powers but since the beginning of the HS2 fiasco, I have predicted that it would cost far more than planned and would probably never be completed. I think it was on Twitter some years back that I got involved in an argument with a keen “train guy” who rubbished my claim that the eventual cost would be over £100 billion. And the business case was always dodgy – based on strange assumptions about how people use their time – but it became even more ridiculous once the working from home movement picked up steam during Covid. Back in September 2020 I wrote an article  – here is an excerpt.

“Construction of the HS2 high-speed railway network in England started formally last week. Some will be cheering – not me. At a time when working patterns have been changed because of Covid, perhaps for ever, and everyone is getting used to Zoom, Teams and the like, it seems crazy to be building new rail capacity so businesspeople can go to meetings. Other possibilities such as autonomous road vehicles make also make this very much a 20th century option.


HS2 is basically a job creation scheme, but an incredibly expensive one. The projected cost was initially £1-36 billion, but we’re now looking at £106 billion, incredibly.  The National Audit Office (NAO) report in January said this in summary. “In not fully and openly recognising the programme’s risks from the outset, the Department and HS2 Ltd have not adequately managed the risks to value for money”.

At the end of 2021, the eastern leg to Leeds got cancelled, and even the government had to admit that the business case was awful. As The Times said, “HS2 has long since ceased to be a project based on anything resembling a sound business case. The most recent business case published by the government, in June last year, awarded HS2 a benefit-cost ratio of 0.9. In simple terms, it will cost more to build than the advantages it bestows”.

Inflation is being quoted as one of the drivers for the delay – but ironically, delaying will only increase the cost further because of that very factor.  It is only the sunk cost fallacy that drives even the London-Birmingham leg to completion, and the political embarrassment if it were halted, after not just the money squandered but the impact on the countryside and wildlife through the construction to date.

In the meantime, much of the north of England suffers from dreadful public transport. A fraction of the HS2 budget could have made a real difference to local train and bus services, improving for instance the trans-Pennine routes which have been in a state of virtual collapse in the last few years.

The Times called for a “brisk inquiry into who got the country into this mess. Politicians, senior civil servants and the executives who have ridden the HS2 gravy train should be called to account”.  I’d also like to see a real analysis of why construction costs appear to be so much higher in the UK than elsewhere. There may be some genuine reasons – geographical, for instance – but I suspect there are other more addressable problems around the procurement process, risk appetite, the role of consultants and more. It would be good (but probably optimistic) to think that something could be learnt out of this disaster.

* Joke. Well, I think it is…

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