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Marble Arch Mound – Monstrous Mountain Misuses Money

I still don’t know if there will be a “Bad Buying Returns” book or perhaps an updated edition of the first volume, but the stories keep on coming in terms of case studies for potential inclusion.  The latest at least has an element of humour, which is a change from most of the pandemic-related bad buying we’ve seen over the last 18 months. It is, of course, the “Marble Arch Mound”.

Westminster council commissioned a mound or small hill to be built in London, at Marble Arch. It was to be a tourist and visitor attraction, designed to get people back into the West End of London and to shop in Oxford Street. The temporary 25-metre-high artificial hill, built on the corner of Oxford Street and Hyde Park, was supposed to be aesthetically beautiful and a great viewing point over London.  

The marketing drawings showed quite sizeable trees and shrubs covering its contours. However, when it opened a couple of weeks ago, there was dismay from visitors, who were annoyed at paying at least £4.50 for what one described as “London’s worst attraction”.  Instead of beautiful greenery, early visitors were greeted with sights of rubble, building works and scaffolding from the viewing platform, which was covered in brown turf. A tidy row of wheelie bins was arranged at its foot.

This episode seems to illustrate several of the drivers of “bad buying” that I discuss in the book. There is the tendency for politicians to like “vanity projects” – spending money where a business case in weak, but the politicians feel that they are creating a “legacy” or something that will make them more popular. Our Prime Minister Boris Johnson is of course a past exponent of this, with his ridiculous Garden Bridge (let’s blame actress Joanna Lumley as well for that), which wasted over £50 million and also saw some truly appalling procurement. There was also the costly Thames Cable Car and his crackpot ideas for a floating airport and a tunnel (or was it a bridge?) between Scotland and Ireland. 

In the case of the Mound, there seems to have been an arrogant attitude from a few council leaders who pushed the scheme through. There was no real consultation, and it was apparently not voted on by all councillors. That attitude again is often a precursor to bad decisions – witness my local council wasting millions on badly timed property purchases in Camberley, with decisions made by a small cabal without involving most of the elected representatives, let alone taxpayers.

But there also seems to have been a failure in more prosaic terms here around the specifications for the Mound, and tying down the cost of the construction. In May, the council reported the total build and operating costs would be £3.3m and £2m would be recouped largely through ticket sales to visitors. But now, costs are expected to be at least £6m, and it is not clear as yet exactly why that is the case. Amid all the light-hearted comments about the fiasco, the council’s deputy leader, Melvyn Caplan, has resigned and the political ramifications are growing.

However, the Mound is now free to visit, and ironically it has become busy as visitors flock to see if it is really as bad as the reports suggest … and let’s face it, Madame Tussauds still rakes in the cash so perhaps there is hope for the Mound after all.

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BBC Panorama Looks Into the Greensill Affair

Returning to the Greensill supply chain finance (SCF) scandal, the excellent BBC Panorama programme earlier this month dug further into the affair, including the role of ex-Prime Minster David Cameron.  It is well worth watching and gives a clear explanation of how the Greensill business model “worked” and eventually unwound. Panorama exposed how deeply involved Cameron was with the Greensill business, and says that he allegedly made $10 million for two and a half years of part-time work with the firm.

Cameron told Panorama he knew nothing about the dodgier aspects of Greensill, but if he didn’t know quite how flaky Greensill’s business model was, then he was naïve, as well as greedy. If he did know, and Panorama suggests he was aware of some of the key issues, then maybe he will end up in court alongside others who I’m pretty convinced will end up there. 

At the core of Greensill’s model was the ability to attract finance by claiming that his SCF loans were low risk because they were based on issued invoices that would be paid by the customer. Some of Greensill’s finance came from the bank in Germany that the firm owned – Panorama suggested that up to £2.5 billion might be lost from that source.  Greensill also raised vast amounts of cash via bonds issued through Credit Suisse – some $10 billion. Again that was presented to investors as very low risk, as loans were backed by invoices, so the cost of raising that money was low for Greensill.

It now transpires that some of the “invoices” that money was advanced against were not invoices at all in the way that any procurement or finance person (or frankly any sensible person) would recognise.  Rather, they were just vague expectations or hypothetical transactions concernign future income from customers of the firms to whom Greensill was lending money.  The Gupta steel firms in particular raised huge amounts of money from Greensill on the basis that they would at some point sell “some stuff” to “some companies”! The BBC suggests that other invoices were simply fake.

So this was totally unsecured lending to firms such as those in the Gupta group, rather than lending backed by real transactions and future income flows.  And guess what – much of the money Greensill lent is now not being repaid.

Lex Greensill told Panorama that he “did not mislead any investor, depositor or customer”. He said the predicted sales were “future receivables which are commonplace in the financial services market”. The loans were based on future trade that was likely to occur from current customers.  In fact, even this wasn’t true, as firms who were listed as “current customers” simply weren’t, according to Panorama.  Greensill then explained they didn’t even have to be current customers. He made all the right disclosures to Credit Suisse, he says ….

But back to the statement that this approach – lending money on predicted future invoices – is commonplace. It is not. Supply Chain Finance technology is covered well by Spend Matters and whilst it wasn’t my personal core area of interest, I met enough players in that market over my years editing Spend Matters to know that it was almost always based on actual invoices.

There were firms that were looking to base financing on invoices that had been received by the buyer but not yet approved, or invoices that would be issued in the future but were for agreed work (e.g. stage payments), with the buyer irrevocably committing to pay.  But even those approaches were seen as somewhat risky and daring because of the lending risk (what if the buyer didn’t approve the invoice?)

Nobody I ever spoke to was talking about payment against some totally imaginary future invoices, whether identified with current customers or not. So Greensill is talking nonsense when he suggests that lending against future receivables is some sort of common practice. But then he always talked a lot of nonsense.

On a related note, the Boardman “Review into the development and use of supply chain finance (and associated schemes) in government” came out last month.  It looks into how Greensill worked within government and the access he had to senior civil servants and ministers. I’m still getting to grips with that, so I may be back to this issue again.

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Forecasting Prices Isn’t Easy – Who Predicted the UK Property Boom? (Not Me …)

Sadly, my mother passed away last month, aged 93.  A broken hip, covid and pneumonia all hastened the end, but “frailty due to old age” was probably a fair enough cause on her death certificate. So we have started the process of selling her property, a bungalow, in Sherburn, an ex-mining village near Durham. I met the valuer from the estate agent last week, and he talked about the market situation and what has happened over the last 18 months.

“When lockdown started last year, we had a team meeting”, he told me. “I said to my boss, this is going to be a disaster! No-one is going to want to move during a pandemic – prices are going to crash”.

Of course we all know that he was wrong, and my new friend was very thankful for what has actually happened.  He gave us a valuation some 15% higher than it would have been 18 months ago and is confident the property will sell quickly. (Just to make potential home buyers in most of the UK envious, we are still only talking £150K for a three bedroomed detached bungalow).

The point is that I don’t remember any experts predicting a property price boom in early 2020. Of course, the UK government helped with its reductions in stamp duty and now schemes to help first time buyers. But even so, there seems to have been a surge in people assessing their lives and homes. Many have reconsidered where they want to live, and the importance of having a garden for instance has gone shooting up the priority list. The valuer said that flats and apartments were not sharing in the bonanza in quite the same way, even larger examples, and he had clients who had been locked down in such properties who were desperate to get into something with even a small patch of land of their own.

It is not just property prices of course that have surprised most of us. Timber prices have risen sharply due to a triple hit of high demand, HGV driver shortages and climate crises, reports Supply Management.

“The Timber Trade Federation (TTF) said suppliers have faced a post-pandemic “surge in demand” for timber this year, leading to the average import price of softwood increasing by 50% between January and May – a situation which is expected to continue”.

This is another example of the power of markets to surprise us. Even the experts get it wrong – in fact, it sometimes seems that they get it wrong more than the non-experts! And that applies to the markets that we deal with as corporate procurement people too. No matter how much analysis you carry out, how many numbers you crunch, the variables that aren’t predictable can screw up the best-researched forecast.

That might be human behaviour, which largely explains the housing boom, or it could be the weather in the case of crops for instance, or political upheaval, or even a pandemic. The “unknown unknowns” or black swans can cause havoc with our plans, and even smaller issues can disturb specific markets.  In my book I quote the famous Rowntree Mackintosh cocoa market disaster, which cost the firm huge amounts of money when they got their forecasts wrong for that commodity’s forward prices.  

So we have to consider all the facts if we want to avoid market-related “bad buying”, and think hard about less obvious risks. In some cases, we can use advanced techniques such as hedging to protect against future cost increases, and mechanisms such as long-term contracts to guard against shortages (but of course getting locked in to long term contracts with unfavourable conditions is a risk in itself!)

Carrying out scenario analysis, which looks at various “what ifs”, is another approach that can be valuable. Certainly, considering a range of possible events and outcomes is better than simply working on the basis of a single prediction of the future.  But this is one of the most difficult challenges procurement faces and no one can pretend that it is easy to forecast what is coming next. Let’s face it, if it was, we would all have bought timber futures, a second property and a large stock of PPE back in 2019!  

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Don’t Assume You Can Always Find a Good Supplier Out There!

I met an old friend – and consummate procurement professional – this week for the first time in several years. He is working in a very important and sensitive area of government, and this article is in his honour!

It is an extract from Bad Buying –  How Organisations Waste Billions Through Failures Frauds, and Fu*k-ups, where I discuss an approach we’ve seen quite regularly in the public sector. Sometimes private sector firms make the same mistake, but often I have to say it is politicians who make the assumption that there will always be a supplier out there who can successfully deliver the services (or goods) they require. Unfortunately, that is not always true…

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“In the government sector, many failures can be tracked back to an assumption that there will always be a range of credible suppliers who can execute the contract, whatever the organisation looks to buy. But that may simply not be true. If the buyers’ requirement is unique, as government work can often be, a market may need to be created from scratch. Even if there is some capability already, a sudden increase in demand, from a major government programme for instance, will put pressure on the market and it may take considerable time to reach a viable state.

The UK government decided in 2013 to outsource much of its probation services work, despite warnings from experts 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 Ministry of Justice, then under the command of minister Chris Grayling, created 21 Community Rehabilitation Companies (CRCs) to manage offenders who posed low or medium risk, and in February 2015, the CRCs were transferred to eight, mainly private sector, suppliers working under contracts that were to run to 2021-22.

However, a National Audit Office (NAO) report from March 2019 reported that implementation was rushed, there was little of the innovation that was promised from suppliers and, while the number of offenders has reduced, 19 of the 21 companies ultimately involved failed to meet targets for reducing the frequency of re-offending. Probation services have clearly not been transformed, and 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 NAO report estimated cumulative losses of £294 for the firms if contracts continued to the end date, and Working Links, one of the providers, collapsed into administration in February 2019 because of its probation contracts.  Finally, David Gaulke, by now the Minister in charge, announced in May 2019 that the contracts would not be offered to private firms – probation services was in effect re-nationalised after one of the highest profile UK buying failuresin recent years.

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.  The organisations that won CRC contracts ranged from those with experience in vaguely associated areas (Sodexho was a catering firm originally) to new partnerships such as Purple Futures, which involved Interserve, an outsourcing firm which eventually entered administration in early 2019 after financial problems, along with charities such as Shelter.

“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”.

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Procurement Fraud in the NHS – Could It Happen In Your Organisation?

One of the most annoying aspects of writing Bad Buying was reading dozens of fraud and corruption cases that came to court. Whilst the cases were often fascinating, the comments from the CFO or CEO of the organisation that suffered the fraud were always predictable. This is what I said in the book.

“But again and again, I see organisations failing to take basic precautions, and then once fraud is discovered, claiming that “this was a very sophisticated fraud”. In most cases, that remark is nonsense and is a fig-leaf for an embarrassed CFO or CEO who didn’t have basic fraud prevention measures in place.

Indeed, one way that fraud could be reduced globally is if CFOs in particular were told that their jobs are on the line. If a fraud takes place on their watch, that could have been prevented through simple actions, then they’ll be fired for incompetence. Implement this, and there will be a measurable drop in such cases very quickly”.

In recent weeks, a fraud committed by an IT manager in the UK’s National Health Service hit the headlines. Barry Stannard of Chelmsford in Essex, was “head of unified communications” for the Mid Essex Hospital Trust, which has since been merged into Mid and South Essex NHS Foundation Trust. He defrauded his employer of £806,229, which came out of the trust’s IT budget. He created two “fake companies” that he controlled, and then authorised payments against invoices from these firms – invoices he obviously produced himself.  He failed to declare any interest in these firms (obviously), no products or services invoiced were ever actually provided to the NHS, and he was sentenced to 5 years and 4 months’ imprisonment on June 30th.

At least the hospital did eventually spot this fraud. According to the Digital Health website, “Concerns first arose after the trust ran a data matching exercise on its payroll and accounts payable records, alongside Companies House records. After a comprehensive initial investigation by the Local Counter Fraud Specialist provider (RSM), the investigation was escalated to the NHS Counter Fraud Authority’s National Investigation Service”.

Stannard also charged VAT, which was never paid onwards to the tax authorities, so that was a further fraudulent element.  All of the hundreds of invoices submitted by his companies to the trust were individually for less than Stannard’s personal authorisation limit so he got away with it for some time.   

At least here nobody used the “sophisticated” word in describing the fraud, which is just as well because it wasn’t.  It was a pretty basic fraud and pretty basic best practice was not followed. That means there is a good case for sacking the CFO – and perhaps even the Procurement Head.  They certainly should answer these questions.

  • Why was there no proper “onboarding check” before a new supplier was first paid? Basic Companies House and Dun & Bradstreet checks would have shown a firm with Stannard as Director and presumably no other income.
  • Why was there no “separation of duties”? You should never have the same person able to choose a supplier, sign off the purchases, and approve the invoice (which includes confirmation of receipt of goods / services)?
  • Why did his boss not question the expenditure? Actually, it is not clear whether the budgets were his own or belonged to other managers (in which case why didn’t they query these costs for non-existent products)?

It all looks very negligent by the Trust and smacks of a poor attitude to spending taxpayers’ money, which unfortunately we’ve seen before in the case of public sector fraud of this nature.  So whatever your role, do think about whether such a fraud would be possible in your organisation.  If you wanted to extract money, how would you do it? Would you need an accomplice or could you do it yourself, as in this case.  If you do find gaps, then tell the CFO, CEO or equivalent. 

I reckon every organisation needs a few creative, cynical but trustworthy employees who can put themselves in the shoes of wrongdoers and have evil thoughts – for the greater good, of course!

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The Worst Tank in the World?

(This picture is not the Ajax vehicle we’re discussing here of course. It is my photograph of one of the earliest tanks ever made, now in the Museum of Lincolnshire Life in Lincoln, the city where the world’s very first tank was designed, in a meeting room at the White Hart hotel).

The story of the Ajax armoured fighting vehicles (small tanks, if you like), bought for the British Army from US defence firm General Dynamics, looks like it will be a lengthy case study if I do produce a follow up to my first Bad Buying book.

Wasting a fortune as in this case is by no means a unique occurrence for the military, and we have seen similar disasters in many countries, as equipment turns out to be far more expensive than planned or fails to provide the capability that was desired. Sometimes, both of those failings are present. 

In the case of Ajax, the General Dynamics solution was chosen in 2010 and the contract agreed in 2014. The first vehicles should have been delivered in 2017, and the first British Army squadron should have been using them by mid-2019. However, problems emerged during testing. For instance, the vehicles were so noisy that crews were required to wear noise cancelling headphones and be checked for hearing loss at the end of operations.

The Times reported expert opinion that problems with Ajax were so serious, the government should consider cancelling the £5.5 billion deal to buy 589 of the vehicles. So far, the vehicles have cost £3.2 billion despite only 14 being delivered — all without a turret and of odd sizes.  A leaked report by the Government’s own Infrastructure and Projects Authority, which reports to the Cabinet Office, says that the problems with the Ajax vehicle do not seem to be manageable or resolvable within the agreed costs and timescale.

Recently it was revealed that trials of the Ajax armoured vehicle were halted from November 2020 to March 2021. Then trials were paused again in mid-June on “health and safety grounds” amid concerns that mitigation measures put in place to protect soldiers — including ear defenders — were not sufficient.  Excessive vibration and noise meant crews suffered from nausea, swollen joints and tinnitus, and soldiers were only allowed 105 minutes inside the vehicle, with a maximum speed of 20 mph (32 km/h).

Not very good in a real-life conflict, really. “Could you stop shooting at us, we have to let our chaps out for a bit of a rest now, they’ve been in there almost 2 hours!”  Amazingly, suspension issues also mean that the turrets could not fire while the vehicle was moving, and vehicles were unable to reverse over obstacles more than 20 cm high. I think even my Kia could manage that – we’re getting into the territory of “you have to laugh really, or you would cry”.

Another element of the Ajax story which would be amusing if the whole programme weren’t such a huge waste of public money came last week when the public announcement of the latest problems was made during the England versus Germany football match! Talk about timing a bad news story to avoid public focus.

Tobias Ellwood, chairman of the defence select committee, said that the vehicle’s weight had ballooned to 42 tonnes after many redesigns. It was now “heavier than any tank during the Second World War”, he said.  Some observers have suggested senior officers in the army may have hidden the extent of the problem over recent months to prevent it being axed as part of the government’s Integrated Defence Review.

But there is some debate about the underlying causes of this fiasco. There are claims that there was a “anyone but BAE Systems” view in the military when the supplier was being chosen.  Private Eye and The Times also suggested that General Dynamics just said “yes” to everything the Army wanted, without really being able to provide it. “They went to General Dynamics and said ‘Can you do it?’ and they said yes”.

But others see the fault sitting with the military, with the specification being continually changed and made more complex over the years, leading to that issue with the weight of the vehicle, as Ellwood pointed out.

Bernard Gray, who was Chief of Defence Material from 2011-16, has published some interesting comments on Twitter recently.  He suggests that the initial contract was fine, which might be understandable as his team must have been very involved in that phase. But changes to the specification driven by the Army after contract signature, on what should have been a fixed price, fixed spec contract, are behind the problems, he suggests. Gray said this;  “I don’t think that’s true if the product was not fit for purpose. The problem was, how much had MoD deviated from the 2014 contract by 2019… that’s what we need to explore”.

If that diagnosis is correct, it may prove hard to recover money from General Dynamics. If the firm has simply done what it was asked or required to do by the customer, we can hardly blame it if the end product doesn’t work.

Another thread on Twitter related to the decision by the Australian army not to select the Ajax product. Apparently, that was because when they took up references from the British army in 2019, they were told to avoid it.

It is all a huge mess anyway, not just financially but also operationally, as this is a pretty essential and fundamental piece of kit for our soldiers. As usual, the taxpayer takes the hit, and as usual we will never find out exactly who should carry the can for this in the military, civilian MOD or political worlds, or indeed on the supply side. Will anybody get fired? You must be joking. Strangely enough, it always seems impossible to place the responsibility for Bad Buying in the public sector on anyone in particular.  

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Procurement Ethics – Dealing with Conflicts of Interest

Conflicts of interest as a ethical topic has always been relevant in procurement, both public and private sector. Here is a quick quote from my book, Bad Buying.

“At a local level, I’ve worked with organisations whose top management didn’t even want to put in place a clear “conflict of interest” policy. That would mean staff having to disclose any interest they (or close family / friends) have in another business that might be a supplier or a customer of the organisation for which they work. But there’s usually a reason for that hesitancy.  Where you see organisations that won’t support anti-corruption activities, then you might draw obvious conclusions”.

Conflict of interest is a key issue within the fight against procurement-related fraud and corruption. We want buyers and everyone involved in the process to select suppliers, negotiate and manage contracts without being biased because they have an external interest that affects their behaviour.

We’ve seen these issues come up a number of times over the last 18 months through the pandemic with spend on products such as PPE (personal protective equipment) being in the public eye. So some recipients of huge contracts for PPE have had links with politicians and other powerful people, which has led to suggestions that decisions were impacted by these conflicts of interest.

The standard approach when developing procurement policies and practices is to ask those involved in the process to declare any potential conflicts upfront. Somebody can then decide if that is significant, and if so, how to handle that. At the extreme, I’d suggest it might eliminate a potential supplier from consideration completely. That doesn’t happen often, but appointing a small consulting firm to do a procurement review when that firm is run by the Procurement Director’s wife might not be a good idea.

But more frequently, it is a case of making sure the person with the conflict does not play a central role in key stages of the process, such as selecting the supplier or negotiating the contract. Suppose a senior executive who has an interest in the service being purchased discloses that their sister is a senior manager in one of the bidding firms. I would not expect that firm to be disqualified, but the executive should not be involved in the key aspects of the procurement. There are potential issues of confidentiality as well as bias of course – so if the exec is going to have access to confidential information, then they need to understand that any breach will lead to disciplinary action! Or you may simply choose to keep such information away from them.

There are questions however about how far we can and should go. That came to mind with the revelations around Mathew Hancock, the UK Health Minister who resigned because he broke covid rules with his ”friend”. But another part of that report claimed that his friend’s brother runs a firm that has won NHS contracts.

Is that a worry?  If your friend’s brother is bidding for a contract with your organisation, do you need to declare that as a potential conflict of interest?  That probably depends on just how close the “friend” is. If they are in effect a partner (legally or secretly) then it probably should be declared. But frankly, I would very rarely have known what any of my friends’ siblings did for a living!  So we have to be reasonable in terms of how meaningful the risk is.

A similar argument applies to shareholdings. Most of us hold shares indirectly through pension schemes or investment funds and we may well have direct holdings too. We can’t be expected to know exactly where “our” money is invested in every case. But what about if I have just a couple of hundred pounds worth of shares held directly in a potential supplier? I’d suggest that it is sensible to declare that, but I would not necessary exclude someone from the process for that level of “conflict”. However, if it were several thousand pounds worth, or if we were considering share options in a start-up that could prove valuable one day, the position might be different.

These are tricky issues.  The key is to impress on everyone that if they are in any doubt, it is better to declare the potential conflict and let others decide how serious it is. That is much better than having to plead later on that “I didn’t realise it mattered”. 

And if you want to hear more about this and related topics, I’m speaking as part of a CIPS (Chartered Institute of Procurement and Supply) webinar on July 13th, 2021, at 12.30 pm. It is all about ethics and is titled “50 shades of Procurement – an Ethical Perspective”.  It should be interesting – and it is open to CIPS members AND non-members, so anyone can book here.

(The picture shows my cycling friends enjoying an outing with me last year – no contracts were awarded!)

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Children’s Social Care – A Broken Market

Sometimes Bad Buying stories are amusing, or we can learn from events without feeling too emotionally involved. But reports last week about the procurement and management of children’s care services brought just rage and sadness.

These are children who don’t have parents to look after them, or have been placed in care. Many have behavioural issues, or addiction problems.  So keeping them safe and providing an environment where they can learn and thrive is far from easy, and perhaps that is why public sector bodies (local councils) have over the years increasingly outsourced provision of residential facilities and care. The work goes to private sector firms, ranging from very small (individual foster parents at the extreme) to larger firms, including those funded or owned by private equity.

The Times reported problems both with the performance of some firms plus what looks like a rip-off in terms of the prices charged. The average cost per week is now £4,130 per child, and there is evidence that through the pandemic, new “get rich quick” firms have come into the scene, providing poor care and facilities but taking advantage of the lack of physical inspections by the regulators.

The Times highlighted cases reported by Ofsted (the regulator):  

  • Children were able to steal knives from one home and take them to school.
  • Staff dropped a young person off at the home of a drug dealer despite being warned by police to avoid the area; at another run by the same company a child was discovered riding a bike on a motorway hard shoulder.
  • A young person at a third home was found weaving through traffic and high on drugs. On another occasion inadequately trained staff locked themselves in a car when a resident became violent. One of the three people who set up the home was a scaffolder prosecuted for having an eight-inch knife behind the sun visor of his van.

A government review of children’s social care services is underway, and an interim report was also issued last week. The review is being chaired by Josh MacAlister, the founder of Frontline, a charity that has developed a scheme for fast-tracking bright graduates into children’s social work – similar to the Teach First scheme in the education world. I have worked with Frontline a number of times, and MacAlister is one of the most impressive people I have ever met. If anyone can address these seemingly intractable issues, it is him.

However, I did smile at his comment last week (made in a conference speech) when he appealed for large firms to moderate their prices and margins.

“I would implore those of you who are owners of private children’s homes, particularly large groups, to act with responsibility to bring down costs and reduce profit-making and to be responsive to the needs of children. It is better that plans to make this happen are started now”.

Asking firms with private equity behind them to reduce profits is like asking a spider to stop making webs or a fish to stop swimming.  Josh, it’s what they do. I think we can confidently predict that his appeal will have no effect at all.

In his speech, MacAlister also cited figures published in 2020 by the National Centre for Excellence in Residential Child Care (NCERCC) and Revolution Consulting, which identified a 40% rise in independent children’s home prices from 2013-19. The 20 biggest independent children’s social care providers were making combined annual profits of £265m, at a margin of 17.2%. However, the private sector argues it provides care that is as good as that provided by councils directly, at a lower cost.

Coming back to Bad Buying though, this strikes me as both market failure and a failure of procurement strategy. When we look at which services can most sensibly be outsourced, we should consider factors such as:

  • Are the services strategically critical for our organisation?
  • Is there a healthy, dynamic market out there to buy from, open to new entrants?
  • Could we move our business between suppliers or back in-house if we needed too?
  • Will there be a reasonable power balance between us and our suppliers, enabling us to exert  some negotiation leverage?

If we carried out this analysis on these services, I’d argue that this is basically not a suitable spend category to outsource. It is very sensitive, it is difficult to switch suppliers, with limited supply in some parts of the country. Once a child is being cared for, the provider has the upper hand in negotiations, as changing suppliers is difficult.  

I don’t know whether there has ever been a national procurement strategy here, or whether every council has developed its own. I suspect the current situation has just evolved, and now we have the taxpayer spending £500,000 a year per child in some cases, and not even being sure the service is up to scratch.

There is also a market study into children’s social care provision underway, led by the Competition and Markets Authority (CMA). Maybe that – as well as the MacAlister review – will lead to a new approach to the procurement issues around children’s care. This really does need some serious thought and a national strategy. That doesn’t necessarily mean big national contracts, I would add, but it does need considering strategically, rather than dozens of individual councils trying to do their best individually.

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PPE Procurement in Court, NAO Report and Radical Transparency (my thoughts)

The UK National Audit Office has published a report titled “Initial learning from the government’s response to the COVID-19 pandemic”. It draws on the various reports NAO has conducted over the last year or so, including those related to ventilator and PPE (personal protective equipment) procurement, and covers quite a range of topics including risk management, data, workforce issues and – most relevant to our interests – “transparency and public trust”.

It is timely, not least because the Good Law Project and EveryDoctor UK are currently in the midst of a court case concerning PPE procurement. Those organisations are challenging the way government awarded contracts to suppliers, with a particular focus on a handful of suppliers including Ayanda Capital and Pestfix. They also want the government to publish the full list of suppliers and (where relevant), disclose who put them forward to the “VIP list” that gave firms accelerated access to the procurement process.

Some startling information has already been disclosed in the court case. For instance, it appears that Ayanda did NOT pass the initial “due diligence” process, but somehow were still awarded contracts worth over £200 million. It is also clear that influential people were badgering the professional procurement staff to favour certain firms. 

In the case of Pestfix, evidence suggests that their executives told the government buyers that some of the payment was being used to bribe people in China to make sure supplies got through to the UK.  (Pestfix denies this but the emails seem pretty clear!) I’ve always suspected that was one reasons why the government didn’t want to deal directly with producers but involved agents and middlemen. Ministers and officials didn’t want to get their own hands dirty in what was a vicious battle to secure supply at the height of the shortages.

It is well worth keeping up with the developments in the case, but let’s revert to the NAO report and transparency. One of the main NAO learning points is the importance of transparency and clear documentation to support decision-making when measures such as competition, are not in place.

In more detail:

“ Transparency, including a clear audit trail to support key decisions, is a vital control to ensure accountability, especially when government is having to act at pace and other controls (for example, competitive tendering) are not in place. On the ventilator programmes, we found sufficient record of the programmes’ rationale, the key spending decisions taken, and the information departments had to base those on. However, in the procurement of personal protective equipment (PPE) and other goods and services using emergency direct awards during the pandemic, we and the Government Internal Audit Agency found that there was not always a clear audit trail to support key decisions, such as why some suppliers which had low due diligence ratings were awarded contracts”.

That due diligence issue relates back to Ayanda (and others) of course. As well as the lack of documentation, government was also slow to publish information.

“… many of the contracts awarded during the pandemic had not been published on time. Of the 1,644 contracts awarded across government up to the end of July 2020 with a contract value above £25,000, 75% were not published on Contracts Finder within the 90-day target and 55% had not had their details published by 10 November 2020. The Cabinet Office and DHSC acknowledged the backlog of contract details awaiting publication and noted that resources were now being devoted to this, having earlier been prioritised on ensuring procurements were processed so that goods and services could be made available for the pandemic response”.

We can have some sympathy here, as staff were under huge pressure, but given the large number of people (many of them expensive consultants) working on PPE procurement, it should have been possible to do a bit better than this.

In terms of transparency, I recently wrote a briefing paper with the Reform think-tank, titled Radical transparency: the future of public procurement.  The message is that the time is right for a step-change in transparency around public sector procurement. That is not just about public trust, important though that is. I believe the even bigger issue is that buyers, budget holders and commissioners in the sector have very limited visibility of what each other are doing.

That means knowledge about great ideas and amazing supplier performance is not shared – and neither is the learning when something goes wrong. Radical transparency is the answer. The recent government Green Paper on public procurement makes a few comments in this direction but really does not go far enough. As soon as you see the rules on Freedom of Information quoted as a basis for disclosure you know there is no intention of getting anything really interesting into the public domain!

If you have a few minutes and you are at all interested in public procurement, do have a look at the Reform paper. I’d love to hear your comments and thoughts on the concept that transparency can be an effective antidote to public sector Bad Buying!  

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The Post Office and Fujitsu Horizon Case Shows Bad Buying at Its Worst

Many of the Bad Buying stories featured here or in my book have an element of levity to them. Some are decidedly humorous even. But sometimes there is a case where it is impossible to feel anything other than horror, anger and amazement at the behaviour of the parties involved.

The case of the Post Office, their postmasters and the Fujitsu Horizon IT system is a case in point. Last month,  39 people had their criminal convictions quashed in the High Court, the latest in a series of legal cases which have finally ended up clearing these individuals and exposing the appalling actions of Fujitsu and the Post Office.

Without going through all the details, the Horizon system appeared to show discrepancies in the finances of Post Office branches. That was blamed on the people running those branches – they were accused of stealing money or at best mismanaging post office funds. Many of those accused dipped into their own pockets to make up the supposed shortfalls. Eventually, the Post Office prosecuted hundreds of post office managers for theft – many went to prison. Some were ostracised by friends and neighbours; at least one committed suicide.

And all the way through this the Post Office and Fujitsu insisted that the Horizon system could not be wrong.  But eventually, after investigations and court actions, it became clear that the system was flawed and could well make the errors that led to the numbers not adding up. Even then the Post Office keep fighting for years, putting the postmasters through more pain.

There is a chapter in my book which is all about “believing the supplier”, and how Bad Buying can result from exactly that. That seems to have been one problem here. The Post Office initially at least believed Fujitsu when the supplier said the system was foolproof. No doubt there were careers and sales bonuses on the line for senior Fujitsu staff. Then when the integrity of the technology was called into doubt, we saw greed, fear, arrogance and stupidity from Post Office management, who refused to admit they might have been wrong. Instead, they continued to harass and prosecute innocent people, failing to take responsibility until the very end. 

So Bad Buying on the Post Office side, a poor product from Fujitsu and morally bankrupt behaviour from many of those involved on both sides of the supplier/buyer relationship. Fujitsu witnesses were also made to look stupid in court as they defended their system. Indeed, as Computer Weekly reported, after a 2019 hearing, “The Director of Public Prosecutions (DPP) has referred information to the police relating to a High Court Judge’s concerns about the accuracy of evidence given by Fujitsu staff in criminal trials”.

The least the firm – along with the Post Office itself – can do now is offer a large sum of money to compensate those affected. (Fujitsu has continued to win huge government contracts, by the way). There may be charges of “malicious prosecutions” to be brought against Post Office executives too.

Well done to Alan Bates, the postmaster who initially took on the Post Office,  Computer Weekly and Tony Collins, the first to pursue the technology aspect of the story, and to Private Eye magazine which regularly investigated and reported on the whole affair over the years. It’s a lot more than simply bad buying and the story of another dodgy IT system of course – and it all adds up to one of the most distressing stories about corporate behaviour that I’ve heard in a long time.

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