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NAO Pandemic Procurement Report Sticks the (Well-Judged) Boot In

This week saw the publication of the UK National Audit Office’s second report concerning government procurement during the pandemic. The first, all about ventilators, raised some interesting issues (which I discussed on a Podcast here) but was not overly critical of the procurement process.

This new report is very different. It’s a strong but fair report, with plenty of detail and insight, and impressive given the pressure NAO must have been under itself (in terms of staff, politics, and time). In measured and factual tones, it exposes some very questionable practices, processes and actions taken this year, principally but not exclusively in terms of buying PPE (personal protective equipment).  It does not get deeply into PPE performance – there’s another report on the way shortly looking at that in more detail, apparently.

We wrote here about the VIP route for PPE, whereby firms with connections could get fast-tracked as potential suppliers, and the NAO report highlights just how beneficial that was for those firms who accessed that channel. They had a 10% chance of winning contracts, some (like the Ayanda Capital deal) for £100 million or more. Your chances if you weren’t on it were less than 1%.

I understand why there was a desire to look at more credible offers first, but the way it was done simply meant that it was literally a case of “who you knew”, not what you had done historically or were offering now.  That was clearly unfair and broke the fundamental principles of fairness and equal treatment that underpin public procurement.

Urgency was the reason why normal processes could not be followed, and I do understand that, but there were ways in which proposals could have been assessed without this blatant favouritism (and before anyone says, “so how would you have done it”, I have an answer for that – maybe a future article. Or Cabinet Office can pay me for a few days consulting and I’ll tell them. I’m a lot cheaper than McKinsey or Deloitte).

The failure to track where the 500 referrals came from in many cases (only half were noted) and apparent lack of awareness or concern about conflicts of interest also leave a bad taste here.  Indeed, a lack of documentation to support decisions is a theme running thought the NAO report.

Then, even after the NAO report, it is still not clear how the suppliers were chosen or the size of the contract determined. So there was a decent enough general process documented in the report for evaluating the suppliers and their offer in terms of credibility, but that doesn’t explain why Ayanda was given a £250 million contract while another firm might have been awarded a £1 million deal. Was it simply that they bought whatever the supplier offered once they got through the process? Was it first come, first served in some sense until the requirement was met – but that still begs the question, how did firms get to the front of the queue?

And remember, there were many credible suppliers complaining at the time that their offers of PPE weren’t even being considered. Did they fail simply because they didn’t know the right people? Did the team actually work through all the offers, or just focus on the VIP offers until they had ordered enough stock?

Given these issues, that lack of documentation around why suppliers were chosen for contracts is disappointing and unforgivable really, given the lack of competition and the size of many contracts. It broke the government’s own March 2020 Cabinet Office guidance as well, which said that buyers should keep good records of how and why suppliers were chosen.

We might speculate as to why it happened – incompetence? Arrogance? Lack of time to keep notes (with 450 people in the team, including highly paid consultants, that doesn’t feel like a good excuse)? Or corruption of some sort? The suspicion of bribery of officials remains, given this report. There must have been people who had the power to move suppliers to the front of that queue and we have no evidence of safeguards in place to ensure that wasn’t done for the wrong reasons.  

The lack of clarity on the “due diligence” process is also worrying – it wasn’t in place at all initially by the sound of it and then seems questionable, given some suppliers seem to have got through despite very dubious backgrounds. The stories in the press this week about jewellery manufacturers with “consultants “ in Spain being paid £20 million, or a young woman somehow winning a contract for almost a million pounds with no relevant experience whatsoever don’t fill us with confidence that due diligence was very effective.

Another issue was the buying of masks with the wrong specification. That appears to have been  a ”human error”, incompetence if we’re being unkind, somewhat excused by the time pressures. It has proved to be a very expensive mistake though – with the caveat that perhaps the masks can be found a useful purpose somewhere.

The report doesn’t really cover whether the prices paid were reasonable, so perhaps that will crop up in the next report. The margins being made by traders, middlemen, agents and spivs generally still haven’t been disclosed either, although the stories emerging such as the jewellery firm example seem to suggest some people made an absolute killing.

All in all, and even given the time pressures, this was not public sector procurement’s finest hour, I’m genuinely sorry to say.  In part 2, well look at some non-PPE contracts that NAO examined in the same report, and I’m afraid there is even more concerning Bad Buying to discuss there!

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Advertising Spend Can Be Bad or Brilliant Buying – Consider Kevin the Carrot!

(Picture courtesy of my phone and a very old carrot from the back of the fridge)

Let’s have a rest today from pandemic related buying failures, (potential) frauds and so on, and look at something more heart-warming.

Advertising is a fascinating field when it comes to bad – or good – buying. That’s because of the multiplier effect. It is one of those spend categories where the impact of the spend can be out of all proportion to the amount of money actually paid out. That can be either a positive or negative impact, it is important to say.

So if I am buying cleaning services, or packaging, or raw materials, then as long as there isn’t a major fraud (contaminated material, perhaps) probably the worst that can happen is we “lose” the value of the expenditure.  The packaging doesn’t work on our production line, or the cleaning service is hopeless. Even then, I may well be able to recover something from the supplier. But if I spend a million on a brilliant advertising campaign, that spend could generate tens or even hundreds of millions of “brand value” in terms of future sales and profit. And if I make a lousy buying decision, we might lose similarly large amounts of value.  

There’s a great seasonal example right now with supermarket group Aldi and their “Kevin the Carrot” campaign, which first was aired in 2016, five Christmases ago.  I don’t know how much Aldi paid for the creative genius behind Kevin, but it was money very well spent. Aldi now receive millions of pounds worth of free advertising as the media highlights the adventures of Kevin without the firm paying a penny for much of the coverage.

There is even a range of Kevin-related soft toys, and demand is so great that “to help reduce crowds in the current climate, this year Aldi has introduced a digital queuing software that’s also used by music festival Glastonbury”, according to Wales Online’s coverage of Kevin!

But we might imagine the first meeting when the agency pitched this to the Aldi marketeers… “ a talking carrot? Are you sure? I mean, carrots aren’t even very Christmassy really”? 

“Yeah, but a cute talking turkey might not work…”

Anyway, marketing and advertising can go the other way too. Remember the backlash in 2017 when the Pepsi ad with Kendall Jenner seemed to suggest that public demonstrations would all turn into happy, cheerful love-ins if Kendall just shared some Pepsi around the police and the protesters? That was withdrawn and although Pepsi got free publicity too, just like Aldi, it wasn’t quite as positive.

There’s an older example in my Bad Buying book, with the case of Schlitz Beer. It’s a multi-part story really, because the firm’s problems started with a sequence of recipe changes to the beer, which didn’t go well in terms of customer reaction. With sales falling rapidly, a new advertising campaign was the answer.

Unfortunately, the creative contribution was the opposite of the inspired talking carrot, as Schlitz used a boxer who got upset when someone offered him a beer that wasn’t Schlitz. His anger at this proposal was not very appealing however, and it went down in history as the “drink Schlitz or I’ll kill you” campaign!  The firm was eventually bought at a knock-down price by a competitor, as sales continued to slide.

That was an example of advertising spend having that negative multiplier I described earlier and I’m sure we can all think of ads that made us feel less rather than more inclined to buy a product. But in the meantime, enjoy Kevin, and I’ll see you in the queue for the Giant Kevin the Carrot Plush Toy! (too late, sold out already…)

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Why Do Complex Programmes Like HS2 Always Overspend – Conspiracy or Cock-up?

I was interviewed about my new Bad Buying book by Jeremy Vine on his UK Radio 2 BBC show last week – over 7 million listeners apparently. He seemed to have read at least some of the book which was surprising and pleasing, and said it was a “fascinating book … I haven’t read a book like it before”. Which you could interpret in a number of ways!

During the interview, the positioning from Vine was about governments wasting money, which was not my choice really in term of emphasis.  I believe private sector firms probably waste just as much money through bad buying (procurement) as public sector organisations. But it is not as visible, because there is no UK National Audit Office (or their equivalent in other countries) to keep an eye on private firms. And of course the private sector is only wasting shareholders cash, not that funding provided by every citizen via their taxes.

One issue we got onto during the interview was why major projects always seem to run way over budget.  HS2 is a good example. Some £30 billion was the initial budget – we’re now at around £100 billion and I’ll be pleasantly surprised if we come in at even that amount. But why does this happen?

One of the callers to the show identified a key issue. “If we’d known it was £100 billion from the start, HS2 would never have been approved,” he said. Another example is the Scottish Parliament building which amazingly went from initial estimates of around £40 million to a final cost of £414 million!  The eventual report into this said, “The figure of between £40 and £50 million originally put before the Scottish public was never going to be sufficient to secure the construction of a new Parliament building of original and innovative design”.  

My feeling is that there is little incentive for key stakeholders to be honest about costs at the early stages of major construction, technology or other programmes. The supply side wants the programme to be approved as they will benefit. On the buy-side, lots of civil servants, consultants and interim managers see a gravy train going on for years, maybe for the rest of their careers (in the case of something as mega as HS2).

The politicians want their vanity project to go ahead, knowing that when the chickens come home to roost and the overspends become public, they will have long gone to lucrative private sector jobs or the House of Lords.  (I’m sure some Scottish politicians just wanted a prize-winning new building, whatever the cost). So most of the key stakeholders are likely to underplay the potential costs, and overstate the benefits too (the HS2 business case is largely a work of fiction).

It is not just the UK that is vulnerable to this either. In 2019, Jean Nouvel, a celebrated French architect, started criminal action against the owners of the Philharmonie de Paris, the new concert hall he designed. He claimed fraud, embezzlement and favouritism, all in response to a 2017 claim by the owners as well as city and local government against him for payment of €170 million in damages for budget excesses and delays in the construction.

He was contracted to build the auditorium in 2007 for €119 million, but the final cost was estimated at €328 by the owners and €534 million by the regional state auditors (which in itself seems like a big discrepancy).

Le Monde reported Nouvel saying that the €119 million was quoted purely to match the ceiling set for the public tender, and was not really a genuine cost estimate. He claims that €100,000 per seat was the established cost for similar concert halls, and the €119 million total would have required spending only half that much, so it was never realistic. He also claims that everyone knew that the real cost would be much higher – “this is pretty usual in France in public tenders for cultural projects”, he was quoted as saying.

So in cases like this, do buyers really know the supplier isn’t to be believed, but everyone conspires to make sure the programme goes ahead? I’m sure this happen in defence projects, where the buy- side and sell-side are very cosy members of the same industry, and every major purchase seems to lead to a huge cost overrun.

The problem is, I’m not quite sure what we can do about this. Maybe more scrutiny up front, from NAO, the media, or opposition political parties? Or a “citizens convention” to review major spending ideas and bring a note of cynicism to the optimistic projections?  Or perhaps we will just keep spending a fortune, then wondering after the event how on earth it all happened. Again.

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Bad Buying Reviewed in The Times – and Why “Sophisticated Frauds” Usually Aren’t

Bad Buying was published last week, and whilst there wasn’t exactly a rush of media appearances, it was reviewed in the Times on Saturday (behind the paywall unfortunately).

The reviewer (Robert Colvile) enjoyed it, although he found it annoying / depressing that governments seem to make the same mistakes time and time again when it comes to spending public money. Well, yes, I’d agree of course, that being one of my reasons for writing the book! He also picked up on one important point that is mentioned in the book but perhaps deserves more focus.  As Colville put it in his review,

“And the mistake was usually pretty elementary (as a rule, anyone who talks about how their organisation was victim to a “very sophisticated” gang of thieves is telling porky pies: far more likely is that there was a failure to attend to the absolute basics).”

This is so true. We see it almost every time there is a fraud case – the organisation that has lost out claims it is the cleverness of the fraudsters, not the stupidity of management that is to blame. That is the case even if all the fraudsters have done is phoned up the finance department and said “hello, this is IBM here, we’ve changed our bank details, please can you pay our outstanding invoices now to this new account”. Very sophisticated…

But it is  certainly not just the public sector that gets caught out. EssilorLuxottica, the worlds leading lens and eyewear firm, was the target of a 190 million euro ($213 million) fraud at one of its factories in Thailand. At the end of last year, the firm announced that it had fired employees associated with the incident (well, you would, wouldn’t you) and was looking to recover the money.

An intelligent guess would suggest that this was a “fake supplier” fraud, where money was paid under the authorisation of someone internally to external firms that were controlled by the fraudsters.  Those firms would not in reality be supplying anything to EssilorLuxottica of course, and by the  time the fraud was spotted, those bank accounts would have been closed and the cash long since extracted.  But this was a huge amount of money to disappear from a single factory in Thailand – it  sounds like it could be equivalent to the firm’s entire annual revenue in that country.

Assuming that was the nature of the fraud, how on earth could such large sums of money be extracted without anyone noticing? What were the policies in place and processes to check up on those new “suppliers” and their legitimacy? Who was allowed to approve high value payments?  Did the firm outsource any part of the payment process to a third party services provider? (That can sometimes lead to weaknesses in the process and less focus on what is going on).  Maybe there was some sophistication here in the fraud, but it really does smack of poor internal management and controls.

Anyway, that story is really told to demonstrate that it is not just the public sector that can waste money and fall down on basic anti-fraud processes. I’d suggest that every procurement or finance leader and every Board should consciously think about this question – “if I wanted to defraud my organisation, how would I do it”? 

Think  through the different options and potential points of weakness, and evaluate whether there are processes, checks or policies in place that would stop you getting away with it. If the answer is “no”, then either tighten up quickly or accept that you might be the next person waffling on to the press about “sophisticated criminals”!  Personally, I would also fire the CFO if such a basic fraud was committed on his or her watch.

The Bad Buying book might be useful too if you are concerned about these issues.  It contains seven key anti-fraud principles, with some practical and clear advice on how you can at the very least reduce the chances of fraud and corruption affecting your organisation.

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Tomorrow is Bad Buying Publication Day – But It’s About “Good Buying” too!

It’s tomorrow!  Just over 18 months since I started writing Bad Buying – How Organisations Waste Billions Through Failures, Frauds, and F*ck-ups, it will hit the shops and virtual shops tomorrow.

And right on time, a new example of what might be Bad Buying with serious public consequences has hit the headlines, with pharmaceutical firm Roche telling the UK National Health Service that it can’t supply kits for Covid and other testing purposes.  

This is apparently because of a problem Roche has experienced with a new warehouse, but that is rather vague. Has the firm lost physical stock in the transfer? Has some sort of automated equipment broken down? Or is it systems issue, as it so often the case these days?  In any case, it would be surprising if Roche didn’t have a supplier of some sort to share the blame. Then there is the question of why the NHS appears to be so reliant on one supplier for such crucial items, but we’ll come back to all that another day.

Back to the book. After chapters describing failures and frauds, with dozens of case studies to illustrate the points, the final chapter provides “ten principles for good buying”.  As the book is aimed at a wide range of managers and professionals, not just procurement experts, those of you who proudly wear the MCIPS badge may find some of these a little obvious.

For instance, For everything you buy, consider how that item or spend category contributes towards strategic goals, and conduct buying appropriately.

Well of course. But how many CEOs, CFOs or indeed budget holding managers generally really understand that?  (One of my wilder thoughts is that procurement leaders might buy a copy of the book for each of their senior internal stakeholders… well, you can live in hope!)  The need for good data is another reasonably “obvious” principle.

But there are couple of principles that may be more thought-provoking, even for the procurement world. And the final one is perhaps the most important of all  – Everyone who plays a role in the buying process must be appropriately knowledgeable and skilled to get the most out of your suppliers.  

As I say, “From the technologist who specifies the new IT system to the accounts clerk who checks invoice payments, from the CEO who gives consulting contracts to her friends to the regional manager who fails to manage a difficult services supplier in his region, a large organisation will have thousands of staff involved in what I’ve called the buying process.  Indeed, every time someone in your organisation talks to someone in a supplier organisation, the conversation is potentially part of the negotiation process – and sometimes, it can be a critical part”. 

I think having a good procurement function has even given some organisations a false sense of security, with CEO’s thinking, “we must be OK, our procurement director has won awards and her team is involved in most of what we buy”. But even the best procurement function won’t save you from disaster if others have no idea what they are doing, which is why the book is aimed at that wider audience, whilst I hope still having enough serious content to appeal to the professionals!   

So, if you haven’t ordered yet, check out the links here. (In fact, one friend tells me his book arrived yesterday). There is also a podcast now (“Peter Smith’s Bad Buying podcast”) and the first two episodes, around 15-20 minutes each, are available on most podcast platforms.

There is even a Bad Buying playlist on Spotify (all my section titles in the book are also song titles …) It is a “diverse” playlist, as my daughter described it, but I’ll take that as a compliment!  You can make your own judgment on that.

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Two Days to Bad Buying … How Vulnerable is Your Organisation to Fraud?

It is now just two days to publication of Bad Buying. So today, let’s focus again on the second section of the book, all about fraud and corruption. Whilst I really enjoyed writing and researching this section, it was also somewhat annoying and frustrating. That’s because so many of the cases featured could have been stopped, avoided or at least made a lot more difficult if certain basic processes and policies had been in place.

How was Fat Leonard allowed to corrupt so much of the US Navy, to the point where hundreds of officers (up to Admiral level) have ended up in court? Even when his firm did not legitimately win contracts for servicing ships in south-east Asia, the ship commanders used his firm anyway.

So why was no-one checking up on contract compliance  when the firms who should have got the business didn’t? Why did no-one look at spend analysis and ask questions about just how much money and share of business was going to Fat Lenard’s firm?  And how do you end up with a situation where several whistle-blowers raised the issue, but so many people were corrupt (including some recipients of whistleblowing information) that it still carried on for years?

Or for something a little less exotic, consider the legendary Sainsbury’s potato fraud. The UK supermarket group was defrauded for years by collusion between the buyer and a key vegetable supplier. The buyer agreed to pay over the odds for all the potatoes bought from that firm and in turn took kickbacks and had expensive meals and trips with the sales director. But why did no-one spot that Sainsburys were paying more than the should? Why was there no regular open and competitive process to source potatoes? Why was the decision making resting apparently in one man’s hands?

So I’ve laid out seven key anti-fraud principles in the book, and I’d seriously recommended that everyone should consider how their own organisation scores on these. Some seem obvious until you actually look at how many organisations really adhere to the principle.  For example, it is vital that all entities to which money is paid must be verified and authorised.

We need to make sure the order and the payment isn’t going to a fake or dummy company, perhaps even one controlled by the order placer (the internal fraudster) or their associates (when there is internal / external collusion).  That “supplier” may still supply the goods and services required, or something approximating to them, with the fraud being the quality or quantity of what is provided. Or they may supply nothing, relying on no-one other than the fraudster realising that nothing has actually been received. Or perhaps the time-lag before the discrepancy is noticed is enough for the fraudster to safely disappear, before anyone asks where those 5000 laptops that have been paid for have got to.  

So we must check that the entity we’re paying money to is genuine. Is it a registered company with a trading history? Does it have a track record? Who are the Directors? You really need to understand who your suppliers are, and identify any that aren’t genuine.  

That’s enough on fraud for now, and tomorrow I’ll look at the final chapter in the book where I lay out some thoughts on how you can drive “good buying”.  The book isn’t all case studies of failure – there is advice too, because the aim is to educate and inform, as well as to entertain and to shock people a little!    

So you might still get delivery of the book on publication day (Thursday) if you order now – check out the links here. (In fact, one friend tells me his book arrived yesterday). There is also a podcast now (“Peter Smith’s Bad Buying podcast”) and the first two episodes, around 15-20 minutes each, are available on most podcast platforms.

There is even a Bad Buying playlist on Spotify (all my section titles in the book are also song titles …) It is a “diverse” playlist, as my daughter described it, but I’ll take that as a compliment!  You can make your own judgment on that.

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Three Days to Bad Buying … Fraud and Corruption, From Small-scale to Huge and International

It is now just three days to publication of Bad Buying. So today, let’s move on to the second section of the book, all about fraud and corruption.

This was really enjoyable to write to be honest, even though we should be horrified at some of the stories. It was fascinating to see how frauds range from the mundane and often quite sad in terms of why the perpetraotrs do it ad the consequences, to those that have national or even international implications at the highest level.

One very ancient type of fraud is the cartel, although it is interesting to note that cartels weren’t always seen as a bad thing – and indeed, even today, we have OPEC, the oil cartel. But the medieval guilds were set up in part to operate as cartels and restrict the entrance of new suppliers into a market. But in modern times, we’ve seen illegal cartels in all sorts of areas, from international marine hose supplies (no, I’d never heard of marine hoses either), to construction firms in the UK public sector market, to brewers in India.

Many frauds relay on the buyer being able to ”fix” the supplier selection. In fact, that is a necessary condition in order to extract money though mechanism such as inflating invoices, over-billing or under-delivering. If a buyer and a supplier are going to collude – as they did in the case of a famous Sainsbury’s potato fraud – first of all, the buyer has to make sure that the supplier is chosen or wins the competitive process.

There are some rather ingenious examples of how this has been done. For instance, in the UK health service, a property manager manipulated the way that cost quotes were provided by suppliers to favour a relative’s decorating firm.  Bidders were asked to quote for different jobs, but work that actually was rarely needed was given a high weighting in the evaluation, and his relative bid low on those jobs, to score lots of points. But the jobs that actually would be frequently required were given a low weighting in the evaluation so his relative could bid high on those and still win the tender, knowing that he would then make significant money on that work. Very clever!  

That story points out one of the basic mitigations you can take to guard against fraud. Don’t leave any key parts of the process to a single individual, whether that is designing the evaluation process, marking the bids, negotiating prices… you can’t rule out collusion, but many of the examples I’ve seen are driven by just one personal internally. Putting a barrier in their way by taking away ability to act individually makes fraud much more difficult.

If that NHS example is small-scale, but interesting, at the other extreme we have the Petrobas / Odebrecht scandal in Latin America. At first that looked like a simple case of a large construction supplier paying bribes to win work from the Brazilian government-owned oil firm, Petrobas.  But as investigations went deeper, they exposed a vast network of corruption, with buyers paying over the odds to fund not just individual bribes but political donations too – and those political parties then appointing their stooges into positions in Petrobas where they could demand and get even more bribes!  Later, the related scandal spread to Peru, Mexico and further, leading to arrests and even the suicide of a leading politician accused of corruption.

That’s where the idea that a few more people knowing what’s going on breaks down. If corruption really becomes endemic in an organisation, it can be very hard to eliminate. Luckily, that doesn’t happen too often …

Anyway, there is still time (just) to order and get delivery on of the book on publication day – check out the links here. There is also a Bad Buying podcast now (“Peter Smith’s Bad Buying podcast”) and the first two episodes are available on most podcast platforms. There is even a Bad Buying playlist on Spotify (all my section titles in the book are also song titles …) It is a “diverse” playlist, as my daughter described it, but I’ll take that as a compliment!  You can make your own judgment on that.

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Four Days to Bad Buying Launch – Incentivising Suppliers and Sheer Stupidity

OK, I misspoke yesterday when I said it was six days until publication of Bad Buying – it was five. So today, not surprisingly, it is 4 days to go, and we’ll look at a few more of the chapters – the full contents list is here, at the end of yesterday’s post.

One of the most enjoyable and interesting sections in the book to research relates to supplier incentivisation and why it can so often go wrong.  Take a simple example, one I saw in my own work. If you outsource back-office financial management, including accounts payable, you might agree to pay the outsourced service provider per invoice that they process.

But then if one of your key suppliers comes up with a smart idea to reduce the number of invoices, and they ask the firm doing the processing to adapt to a new process, they may well say “no”, because it will reduce their income. You really should be incentivising that supplier to help reduce invoice numbers – but that’s surprisingly tricky to do contractually.

And how do you incentivise construction firms? That’s been a long running challenge for buyers. Agree a fixed price, and you risk the supplier cutting corners on quality of work or materials; agree to pay on a “time and materials” basis and the project may never finish. That’s led to all sorts of interesting contract variants, such as the “NEC3 Engineering and Construction Contract option C (target contract with activity schedule)” which was used with considerable success on the London 2012 Olympic constucion programme.

Away from traditional procurement, there are fascinating cases such as the Colombian government, who in trying to get farmers to switch away from growing coca, actually introduced an “incentive” that made them grow more of that crop! 

There is more on that in the book, and another chapter picks up those cases that I couldn’t neatly categorise as having an underlying cause based on lack of capability or knowledge. So I called it “stupidity” although sometimes “arrogance” might be a better term actually. Yes, political stories do feature here, as too many politicians think they know best (even if the professionals are telling them something isn’t going to work) or want to build a monument to their own vanity.

The EU does get a mention here, with their programme to build airports in places that quite frankly nobody wanted to fly into.  Kastoria in Greece cost €7.7 million to build and generated revenues of €176,000 in seven years… then of course we have the somewhat crazy UK Brexit-related ferry contract with the company that didn’t own any boats. Another big success for ex-Minister Chris Grayling there.

But it is not just the public sector that suffers from this madness at times. Carlos Ghosn, the ex-Nissan and Renault chairman, is on the run from Japanese prosecutors in the Lebanon now. But whatever happens next, hiring Versailles for a party costing €635,000, supposedly to celebrate a business alliance but holding it on his own 50th birthday, and (allegedly, I should quickly add) inviting mainly family and friends, hardly smacked of humility and a deep concern for shareholder funds. 

There are also cases in this section that might tip over into the fraud and corruption section. I get into the murky world of defence contract “offsets”, and if you don’t know about this mechanism, it is another fascinating aspect of our procurement and buying world. With offsets, the supplier agrees to spend a portion of the contract value in the country of the buying organisation. So, for example, if India buys fighter jets from France, they might insist that the supplier spends 20% of the contract value with Indian firms. Unfortunately, that leads too often to decisions that are just wasteful and inefficient, or outright fraudulent – offsets are a very handy way of concealing bribes to the politicians or defence officials who placed the contract.

So I hope this has given you a further flavour of the book. There is still time to order and get delivery on publication day – check out the links here. There is also a Bad Buying podcast now (“Peter Smith’s Bad Buying podcast”) and the first two episodes are available on most podcast platforms. There is also a Bad Buying playlist on Spotify (all my section titles are also song titles …) It is a “diverse” playlist, as my daughter described it, but I’ll take that as a compliment!  You can make your own judgment on that.

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Six Days to Bad Buying Publication … Irish Printers, Easter Eggs and Contracting with Friends

Bad Buying: How Organisations Waste Billions through Failures, Frauds and F*ck-ups hits the virtual shops and bookshelves next Thursday the 8th (you can order it here) so in the next five days, I’ll take you briefly through the chapters of the book.  Literally thousands of people (well, one at least) asked to see the contents page so here it is, at the end of this article.

Chapter 1 looks at specifications. And I’m sorry to play to stereotypes (and my wonderful “boss” at Penguin is Irish) but my favourite story is the Irish government buying super high-tech digital printing equipment – only to find that the machinery was too big to fit into the Dublin parliament building where it was going to be housed. Take the roof off, that’s the answer… Which just goes to show, that while specifications for complex IT programmes or mega-construction projects can be a problem, sometimes the basics (like dimensions) can catch us out.

But we can also under-specify, trying to save money but in a manner that causes problems or doesn’t deliver real value. There is a theory for instance that the Titanic sank because of cheap iron rivets that weren’t up to the job. And one of my early successes as a young procurement manager was paying more than I could have got away with in order to get innovative Easter Egg packaging designs from my suppliers. Within a couple of years, those new products helped Mars go from having no presence in that market at all, to selling millions of eggs and being a market leader  – yes, it’s the famous Milky Way Rocket Carton!

In the book, we then move on to understanding the market and choosing suppliers. That takes us into dodgy social media practices, the Rowntrees historical cocoa market wipe-out, and the problems when you give contracts to your friends. I know, you would never do that… Anyway, more tomorrow, and here is the contents list.

PART 1:  FAILURE

1. Getting the Specification Right: Irish printers, Easter- egg rockets and Aussie train toilets

2. Understanding the Market: Cocoa beans, fake followers and rehabilitating offenders

3. Choosing Suppliers: Dodgy T-shirts, working with mates and banking fiascos

4. Don’t Get Too Dependent: Seat covers, hospital rip-offs and bigger isn’t always better

Bad Buying Award  – Schlitz Beer

5. How to Negotiate: Charlie Hurley, missile interceptors and consultants’ lunches

6. Understanding Incentives: Cultivating coca, Dutch traffic jams and Birmingham call centres

7. How Not to Be Stupid (particularly if you’re a politician): Misplaced airports, imaginary ferries and Indian offsets

Bad Buying Award  – NHS National IT Programme (NPfIT)

8. Trust No One (at least not suppliers): Lulu the dog, French concert halls and US Navy ships

9. Coping with Change: Technology disasters, fried- chicken shortages and Crossrail delays

10. What’s the Risk?: The wrong fish, Japanese earthquakes and running bears

Bad Buying Award – Berlin Brandenburg (not yet an) Airport

11. The Joys of Contract Management: Bollards, Xmas parties and big IT overspends

PART 2: FRAUD & CORRUPTION

12. The Fundamentals of Fraud: Power stations, hotel bills and the greyhound-racing mafia

13. Who Am I Really Buying From?: Marine hoses, Indian brewers and the ’Ndrangheta

14. Fixing the Supplier Selection: Canadian politics, working with Mum and painting the NHS

Bad Buying Award – Fat Leonard and the US Navy

15. What Am I Really Buying?: Bomb detection, Frenchified kiwi fruit and spaceship resilience

16. Spending Someone Else’s Money: Florida dogs, owl jars and sex lairs

17. What Am I Paying For?: Pricey potatoes, horse semen and shops in Wolverhampton

18. Politics and Fraud: Ski-jumping, bribing dictators and Austrian promises

Bad Buying Award – Petrobas and Odebrecht

19. Preventing Fraud: Collusion, checking and commitments

PART 3: HOW TO AVOID THE F** K-UPS

20. Ten Principles for Good Buying

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Boohoo Report on Leicester Sweatshops – Lack of Governance and Supplier Management

We should give Boohoo credit for commissioning an independent report from a top legal expert, Alison Levitt QC, to look into the Leicester “sweat shop” scandal.  Earlier this year, the Sunday Times exposed multiple factories that were paying staff well under the statutory minimum wage as well as raising issues around workers’ health and safety during the pandemic. Boohoo was perhaps the highest profile of the retailers that sold  garments made in these factories.

But the report makes uncomfortable reading for the Boohoo board and investors. The very first paragraph is striking. “One of the aspects that I have observed is a tendency by the Boohoo board to treat every piece of negative publicity about the Leicester garment industry as though it was the first time they had ever heard it.”

But the firm knew about issues months (at least) before the story broke.  One auditor told the Board that the conditions in one factory were amongst the worst they had seen in the UK. Levitt says that there was no intenional exploitation by the firm, but rather that “governance” and processes were weak. Fundamentally, Boohoo felt no responsibility for the conditions in their suppliers’ factories. It was also unimpressive to see John Lyttle, the CEO, didn’t mention a trip he had made to “appalling ”factories when he was interviewed by Levitt. That only came out when she talked to others, which made Lyttle look somewhat devious or maybe just very forgetful …  

There is an interesting philosophical dilemma here of course. When I was a CPO in large organisations, I would have objected if you told me I had to take responsibility for every worker in every one of the thousands of firms and facilities that supplied NatWest or the Department of Social Security. So there is a question of scale and dependence here. But we have seen how the leading firms in the procurement with purpose movement (read our “Procurement with Purpose” interview with Unilever here, for instance) do step up when it comes to their major suppliers. They also look to intervene positively when important supply chains contain major sustainability-type risks and issues, whether they are environmental or social.

So suppliers of the clothes that are the main engine of Boohoo’s business should be defined as pretty strategic and worthy of more diligent supplier management from the firm than we saw in these cases. Boohoo has now accepted the review’s recommendations in full and apologised for failing to “match up to the high expectations we set for ourselves”.  The CEO also said the company would be a “leader for positive change in the city”, and promised to go further and faster to improve our governance, oversight and compliance.”

What about the business impact of all this on Boohoo? Well, the initial scandal certainly did have a negative impact, as the share price crashed by some 50%. But it is interesting to see that it is now back almost where it started, within 5% of so of pre-scandal level.  Does that suggest the group that is the main customer base for the firm – young females – has a short memory? Or do they think Boohoo has apologised and will take action, so everything is OK?   

Some of those customers are undoubtedly very committed to serious campaigning on purpose-related issues, from climate change to diversity. But (and sorry to sound like an old cynic here), it seems like many are happy to jump on a Twitter or Instagram controversy about transgender rights or veganism and express an instant virtue-signalling opinion, rather than do something more demanding and difficult – such as changing their buying behaviour and checking out the provenance of the clothes they buy.

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