My Sad Story of Sausage-Related Buyer’s Remorse

The Manchester Christmas Market has moved from the spacious Albert Square, which is being dug up, to several different pedestrian streets around the centre. That works well in the sense that different streets have different themes – so one is mainly eating places, one has stalls selling craft-type items and so on.

I was there last week for the HCSA (NHS procurement) conference where I was speaking, and I had a wander around the market when I arrived on Monday night. The big question of course was – what should I eat? Fully loaded Patatas Bravas from the El Gato Negro stall, right outside that restaurant? A large slab of pizza? The special Christmas Parma from Parmogeddon (!), including chicken parma, chips, gravy, stuffing balls and pigs in blankets? 

I spent a good 20 minutes looking around the market, but given the Germanic origins of these markets, I finally settled on Bratwurst with onions in a roll from The Witch House. And it was delicious. A roughly nine-inch (22cm) sausage, very tasty, and £7.50 which didn’t seem cheap but wasn’t too ridiculous.  (OK, I confess, I has some patatas bravas as well…)

I headed off back towards my hotel, taking a different route, and not 100 metres from my Bratwurst stall, I came across another selling similar products. Except… this one was offering half-metre Bratwursts – in larger rolls of course – for £7! Literally more than twice as much sausage for a slightly lower price!

I was devastated. After my extensive market research, tramping the streets on a very cold night, I had missed the key supplier that could have met my needs in an optimal value for money fashion, if I had just spent a few more minutes looking around. Or maybe if I had conducted my research in a more structured manner I could have discovered my nirvana – perhaps I could have got a list of all the sausage sellers and actually checked them all out before making my choice?  

Now clearly, I don’t know how good the larger sausages were. My selection seemed very good quality, and perhaps the giant competitor was not up to that standard. A good procurement person would of course ask that question, and might wonder how the seller could offer such a low price per metre compared to the competition. But as I walked back to my hotel, I was definitely suffering from a bit of buyer’s remorse.

So, based on my sad but true story, what can we learn from this particular bit of sausage-related Bad Buying?  One key learning is that it is hard to know sometimes just how much market and supplier research is necessary to support and inform a good buying decision. We can’t spend as much time on that as we might sometimes like – clearly, it would be silly to spend hours researching  a £7 sausage purchase. But if there is anything to be taken from this, it is perhaps the point about structuring the research. My random walking did help me make a decision; but doing a little bit of planning, and using some information that was available to me, would have led to a better decision.

And going back to my previous existence at Spend Matters, I wonder whether procurement people sometimes choose procurement technology solutions in a similar way to my decision – a bit of a random walk around the first available products they find. So if you are in the market for a solution, do carry out some structured research, don’t just wander blindly around the many available products. Because if you do, you might just end up with the nine-inch sausage instead of the eighteen-inch.   

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Sheffield Container Park Failure – Classic Bad Buying

Sheffield Council has been dysfunctional for some time, and will always be remembered as the council that decided thousands of mature trees would be destroyed in order to make pavements safer, or something like that.

There has been considerable “churn” at both elected councillor and senior officer level in recent years too, which doesn’t help, and the council is now in an “no overall control” state in terms of political leadership. But the Sheffield Fargate container park failure is not really “political” – it appears to be simply an example of what was very bad buying and probably even worse project management.

The controversial complex which was supposed to include shops, bars and entertainment failed due to poor decision making and a lack of governance, an internal audit report has found. The container park was intended as a pop-up space for stalls and shops but was beset by delays and criticism.  The £500,000 project opened in October 2022, but closed just three months later after a host of issues and lack of interest from traders and locals.

The “Head of Service” appears to be the individual who should carry most of the blame here, being responsible for the project. They “did not have dedicated specialist skills, support and resource. The Council’s specialist project management teams were not fully or formally involved, but only called upon using an ‘ad-hoc’ approach”.  It is not clear why specialist project managers weren’t involved but one cause seems to have been a rush to “get it done” to take advantage of various time-limited post-covid grants.

But I have to say, procurement does not seem to have covered itself in glory either.  There was no formal procurement manual in place explaining the desired process to users, for a start. Then the function carried out research on other container parks to try and identify potential suppliers who might be interested in developing the Sheffield park. A list was provided to the project owner as a potential tender list.

“However, when the suppliers on this list were approached it was found that they were management companies for the container parks, not the initial developers. No response came from those who were approached”. So not the best piece of market and supplier research I’ve ever come across…

This left just one supplier in the running, a firm that was already speaking to the Head of Service. They duly won the contract without any competitive tendering.  Lack of competition is of course a fundamental driver and predictor of poor performance and bad buying. “Though procurement was signed off at the correct level, there was no evidence to demonstrate that it was robust or complete to result in an informed decision-making process”.  

Then there seems to have been a lack of control in terms of payments to this supplier. There was no implementation plan so milestones were unclear, and the main contractor was not monitored in a structured or regular manner through the installation process.   Some of the report is redacted so we don’t get to see everything but comments such as this don’t fill you with confidence.  “…more worryingly formal financial and contractor monitoring throughout the work was poor or non-existent, furthermore, no risk management was in place”.  Indeed, the auditors were unable to test whether everything procured and paid for was actually received, which is pretty shocking and a very basic failure.

Invoices appeared to have been paid without proper authorisation, and whilst there is no evidence of anything criminal here, the lack of competition and then controls does mean that the risk of fraud or corruption was not at all managed. The budget of some £300K ended up as an actual spend £500K and certainly, the Head of Service should never be allowed near a budget again. 

Anyway, there were problems with the installation including safety issues and only the ground floor could be opened – and that was ten months late, opening in October 2022 rather than the Jan/February plan. And just three months later, the development was closed.

So, various points to note and learn from here. Procurement must make sure budget holders know what the rules are. Procurement also needs to make sure they understand what they are buying when they conduct market and supplier research. Competition is always a Good Thing. Project management is a skill – use professionals. Controls on payments and clear deliverables for suppliers are fundamental and must not be neglected no matter how “urgent” the work is.   

Sorry to Sheffield taxpayers (including my sister…) but the only good news here is that this is yet another interesting case study for my Bad Buying module when I lecture at Skema Business School next year…

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US Government Takes Down Procurement Fraudster

This story from the Homeland Security Today website dates from a couple of months ago, but it is an interesting procurement fraud case, as it does not involve any internal participants – it is a purely supplier-based fraud. Whilst that is certainly far from unique, it is probably not as common as those driven by internal staff or through collusion between internal and external players.

In this case, Cory Collin Fitzgerald Sanders, age 39, of Hagerstown, Maryland, was sentenced to 45 months in federal prison, followed by three years of supervised release, for wire fraud, false claims, and making and using a false document in connection with his companies’ performance on federal contracts. He also had to pay around $200,000 in fines and restitution.

The offences related to his two telecoms firms between 2015 and 2020.  The charges were pretty wide ranging but generally related to contracts with federal agencies that required his firms, Sandtech or Cycorp Technologies, to provide new telecommunications equipment which was still under manufacturers’ warranty. 

He contracted to supply new equipment, but then actually provided second hand, or non-warranted equipment instead. He claimed to have accreditation from the OEMs (original manufacturers) that would protect his customers when in fact he didn’t. He also was not authorized to provide certain IT services to the federal government, but represented to government officials that he was. It sounds like he invoiced in a fraudulent manner too, getting the agencies to pay for “deficient or non-existent performance”.

“Mr. Sanders deserves to be held fully accountable for his actions to defraud the U.S. Government by routinely providing telecommunications equipment that did not meet contract specifications and submitting false documentation in an attempt to cover up his scheme,” said Special Agent in Charge Greg Gross. 

The US government does seem pretty hot on prosecuting dodgy suppliers, more so than I’ve seen generally in the UK, for instance. In this case, a prison sentence of 45 months again feels more severe than “white collar criminals” tend to get in the UK. That’s a good disincentive for others who might be tempted to commit fraud, of course.

So what can procurement people and others do to protect their organisations against this sort of fraud? There are a few potential risk mitigation steps.  Firstly, checking out the credentials of any new supplier (and their directors) is important. And take up references wherever possible. Maybe that would not have stopped Sanders – but it certainly makes it harder to create new firms for fraudulent purposes.

Another obvious point is that goods delivered, whatever they are, should be checked to make sure they align with what was contracted for. And don’t assume that any accreditations and certifications are genuine – documents and emails can be forged. It is better to go back to the source if you can  – you could go back down the supply chain and check with the OEM that a distributor really is properly accredited, for instance.

So the usual safeguards against procurement fraud come into play again – and you can get the full list of mitigating actions and plenty of good advice on avoiding fraud and corruption in the Bad Buying book of course!

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Babylon’s Burning… the Story of the Failed “AI” Health App

The Sunday Times has really got into its investigations recently, and after its excellent expose of the UK’s HS2 rail programme, last week it looked at another issue with a definite “Bad Buying” angle.

Babylon Health, set up in 2013, was going to revolutionise healthcare. Ali Parsa, the founder, is a serial entrepreneur whose previous venture, Circle Holdings, also had some issues (he stepped down from Circle before he set up Babylon). Circle ran Hinchingbrooke Hospital in England, the first fully outsourced hospital. Initially, it seemed to go well, and Parsa was a highly visible cheerleader for the operation, but after a couple of years, Circle pulled out leaving the NHS to pick up the pieces.

But with Babylon, Parsa seemed to have a real product that could benefit everybody. It was an AI powered diagnostic platform that could tell you what health problem you had after a short online consultation. The “app” scored better than doctors on medical tests, Parsa claimed, and could provide excellent diagnosis and care at a fraction of the current cost. For the permanently hard up health services in the UK and US, it seemed too good to be true – and of course it was. However, Parsa used political connections to win business, as the Times reported. Between 2015 and 2022, the company had 22 meetings with government ministers.

“Babylon’s deals with the NHS, which saw it receive at least £22 million over the past three years alone and helped it to woo investors, were in part due its links with the Conservative Party and the backing of Hancock, the health secretary from 2018 to 2021. The Tories received more than £250,000 in donations from individuals and companies with stakes in Babylon Healthcare, including Hancock, whose failed Tory leadership bid in 2019 received £10,000.”

However, the newspaper’s investigation found high-pressure sales techniques and some claims for the product that were simply false. For example, at the Royal College of Physicians in 2018, Parsa showed how Babylon’s AI used a phone’s camera to analyse the facial expression of a female patient to pick up subtle cues that a doctor might miss. This is how the Times describes it.

“This is a real consultation,” Parsa said on stage. “This is what we have built. None of this is a show.”

It was a show. The facial-analysis tool, a prop for a demo, never made it to market. The “patient” in the video was an executive assistant at Babylon… This sleight of hand was a small example of a culture fixated on form over substance, a trait common in Silicon Valley but dangerous in healthcare.” 

Indeed, the much vaunted AI was little more than a decision tree written in Excel based on doctors’ knowledge. Soon, sceptics began testing it and found that it could easily mistake a heart attack for a less serious panic attack, or an ingrowing toenail for gout. I remember various people on Twitter talking about how dangerous it was and calling out Babylon as a con.

But the firm managed to raise $1.2 billion from investors between 2013 and a stock market float in 2021, and at one point Babylon was valued at some $4.2 billion. But after that float, some badly judged deals started affecting the firm’s finances, just as more expert voices also pointed out the technical failings. For instance, the Royal Wolverhampton NHS Trust signed a ten-year deal for a digital-first GP service that would allow patients to use Babylon’s digital tools. But Babylon cancelled the contract in 2022, saying it just could not afford to invest in the service.

Finally in August this year, the firm collapsed into administration and the remnants were picked up by a couple of trade buyers. Parsa has pretty much disappeared, as has most of his own fortune.

It all reminds me a little of the Theranos scandal – the fake blood testing equipment launched by Elizbeth Holmes (who is now in a US jail). Babylon was not as fake as that, and Parsa is not accused of wrongdoing, but the principal of something that everyone wanted to work, but really was built on sand, is the same. And there is also FOMO – the “fear of missing out”. This is an extract from the Bad Buying book section on Theranos.

“Buying failure come into this because retailer Walgreen’s spent $140 million with Theranos over seven years, hosting around 40 blood-testing centres in their stores. They got very little benefit from that and recovered some $30 million after a lawsuit and settlement following the eventual disclosure of the issues.  Amazingly, as Bad Blood reports, Walgreens’s own laboratory consultant, Kevin Hunter, had seen early on that something wasn’t right with Theranos. But the executive in charge of the programme at Walgreen’s said that the firm should pursue the pilot because of the risk that CVS, their big competitor, would beat them to a Theranos deal.

Again, buyers wanted to believe that something was real, even in the face of mounting evidence that it wasn’t. This relates back to comments around believing the supplier … it is easy for a naïve or gullible buyer to be sucked into believing what the supplier wants them to believe.

Suppliers will take advantage of this tendency – whether it is the relatively innocent “yes, we can install this new IT system in six months” or the more dangerous “this equipment will find hidden bombs”.  And FOMO – the fear of missing out to the competition – is something else suppliers will use, and that can lead to bad decisions.  It’s not just physical goods either. The top consulting firm selling its latest “strategy toolkit” will mention that the potential client’s biggest rival is also very interested”.

One day, there is little doubt that a real AI-powered system will be really useful in the world of medical diagnoses. So maybe Parsa was just ahead of his time?  But that is two of his “innovative” businesses that have cost health services time and money without much benefit in return. So I’d be very careful next time he announces he has a great idea…

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We Need a Review of HS2

Last week the Sunday Times ran an expose of the UK’s HS2 rail project. The programme is being severely curtailed now due to massive over spending against the budget.

Over several pages, the Times laid out a culture of overspending and bad financial forecasting, with those who tried to point out the problems often forced out or removed if contractors. The accusation is that senior managers knew that budgets were unrealistic but covered up the facts for as long as possible. Presumably that was to keep their lucrative jobs, and keep ministers happy. The thinking may have been that If the programme got to a certain point, then it could not be cancelled.

There was more in yesterday’s edition of the Sunday Times, including an interview with Stephen Cresswell, one of the whistleblowers.

This first phase was expected to cost £21 billion and yet his calculations suggested a fairer assessment was £30 billion — a huge discrepancy. “There were problems with the way the figures had been calculated and it was likely to cost an awful lot more,” he says. “I did the calculations pointing this out but I was told to concentrate my efforts on something else.”

Unfortunately this good piece of reporting did not get much discussion on national TV news certainly, perhaps unsurprisingly given the disaster unfolding in Israel and Gaza.  The report did say that the internal audit function at HS2 is looking into the allegations – but that isn’t good enough. We really need a detailed external review of what happened in HS2, to understand that specific case but more importantly, to see what lessons can be learnt that apply to other large capital programmes in the UK.  Maybe that is best done by the National Audit Office, although several ex-employees have written to the SFO (Serious Fraud Office) accusing HS2 of mismanagement of public funds, so maybe this will all turn more “criminal”. 

If no action is taken quickly, then we will have to see if Labour will have the appetite for driving a review if they do form the next government. After all, it was Labour and Lord Adonis, then Transport Minister, who kicked off HS2 and Adonis was a non-exec of HS2 for some years. But we really do need a review. We can’t allow huge expenditures where the people involved and responsible are pursuing their own goals rather than the taxpayers’ best interests. As Cresswell put it: “Costs, risks, timescales and benefits are being manipulated to suit individuals or organisational goals rather than the public interest”.

Another interesting point the Sunday Times highlighted last week is that Ministers appear to have lied to Parliament – or at best “misled” the house. Chirs Grayling was one, but a junior Minister is also accused.

“ On June 7, 2019, Cook sent a first draft of his report to Grayling. It suggested HS2 was billions of pounds over budget and years behind schedule.….  In July, the minister for transport, Nusrat Ghani, fielded questions during a Westminster Hall debate on HS2 before the Commons final vote on the bill to approve the Birmingham to Crewe phase two leg.  She said: “I stand here to state confidently that the budget is £55.7 billion and that the timetable is 2026 and 2033.” She repeated her assurances five days later, during the third reading debate in the Commons.

An FOI request exposed that she had been told 3 months earlier that the programme would breach its budget – so doesn’t that sound like lying to Parliament?  

It was good to see the shadow Chancellor, Rachel Reeves, announcing that a “covid corruption commissioner” will look into PPE procurement during the pandemic and the waste of billions of public money. In terms of waste, HS2 is at least on that scale, so surely that also deserves a very thorough and independent look at what happened there?

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Coldplay go Legal – Dodgy Specifications Involved!

In recent weeks, it feels like I have been writing about pretty serious topics here – HS2, social value, fraud, failures in local government procurement in the UK and the like. So a story I saw recently was attractive as a topic because it wasn’t a matter of life, death or wasted taxpayer money. It was however (allegedly) about a waste of multi-millionaire rock star money. It was also an illustration of a key point that is forgotten surprisgly often when we’re writing specifications and talking to suppliers.

The band Coldplay has gone through an interesting critical trajectory. The hip and trendy NME made A Rush of Blood to the Head album of the year in 2002; but over the years, many started seeing them as purveyors of somewhat dull, middle-aged music. I’ve always thought they were fine songwriters although recent material is a little MOR for my tastes. But what no-one can deny is the level of their success – over 100 million albums sold and still the 14th most listened to band on Spotify today.

For some 22 years, their manager was Dave Holmes. Little is known about him, but more is coming out now as he and the band are busily suing each other. He started legal action in the summer, claiming £10 million from Coldplay in commission on earnings that (he sasy) they have not paid him. But the counter-case from the band is looking for £14 million from him, saying that he has wasted millions of their money. 

And this is where it gets Bad Buying interesting. Much of the claim is around preparation for the huge global Music of the Spheres tour, for which Holmes held ultimate responsibility. By the way, that tour took $617.8 million in ticket sales alone. (Ever thought you are in the wrong business?)  The band claims that costs escalated  and say that equipment was not suitable or was bought at inflated prices. As the Times reported;

Examples in the claim are eye-watering. They include, “16 bespoke stage pylons” for lighting and video that, it allegedly soon became apparent, would be unjustifiably expensive to even use. However, it was too late — €10.6 million had already been chucked at the pylons.

A “visual project known as Jet Screen” was commissioned for $9.7 million, with a huge chunk of that cost, the band claim, personally authorised by Holmes. The problem was that … the dimensions given to the manufacturers for the Jet Screen were wrong — and it was too big. It was only used for ten concerts in Buenos Aires.

Yes, it’s another “Irish government printer” faulty specification story!  In the Bad Buying book, we have the case study of the Irish government buying a state of the art printing machine that simply did not physically fit into the building that was supposed to house it. That was a reminder that sometimes getting the specification right is not a matter of highly complex technology or difficult outcome-based definitions – it can be as basic as the physical measurements!

The Times draws a parallel with the classic Stonehenge scene in the best comedy film of all time, Spinal Tap, where the band commission a model to use on stage – and when it is delivered, it turns out to be tiny. But in this case, the Jet Screen was just too big.

Holmes is also accused of not opening “the shared online Dropbox which contained the designs for the Music of the Spheres Tour at any time between August 2020 and February 2022”.  Rock and roll madness right there! More interesting is his relationship with Live Nation, the promoters of the tour. Holmes had taken loans from Live Nation at what look like preferential terms and the band say he owed some £27.5 million when he was negotiating terms for the tour with the firm. This, say Coldplay, was an inherent conflict of interest, and if those facts are acccurate, that does have some validity in my opinion. It is an interesting situation without a doubt – I certainly wouldn’t want one of my procurement managers negotiating with a supplier if she owed them money.

So we’ll see what happens next. And just remember, if you’re buying anything in the equipment line, just make sure you know how big you really want it to be! Many elements of the specification may be much more complex in many situations, but let’s face it – size really does matter.

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Why Is the UK so Bad at Capital Programmes?

It was tempting to write again about the HS2 rail programme given recent events and the question of whether it is going to ever get to Manchester – or indeed to Euston.  It will go down in history as one of the great British public sector disasters, perhaps costing us even more than NPfIT, the NHS IT programme a decade or more ago which certainly cost us billions.  From the very beginning, it was clear to me that the business case was a con in order to justify the programme, which was enough for me to think it was a misjudged idea.

But the wider question is this – why are we so bad in the UK at capital projects and programmes? A recent article in The Times from chief culture writer Richard Morrison highlighted that failure in the specific area of arts-related building projects. The renovation of the Colston Hall in Bristol – to be renamed the Bristol Beacon – is now expected to cost £132 million, against an initial budget of £48 million. In Manchester, the Aviva studios opens soon, with the price-tag of around £240 million, more than double the original cost estimate. In Edinburgh, the redeveloped National Galleries of Scotland is a relative bargain, a mere £38.6 million, only £22 million over budget.

In East London, there is the new East Bank cultural quarter on the former Olympic Park at Stratford. That was supposed to be £385 million, now we are looking at £628 million and still rising. As Richard Morrison said, we might wonder “what difference this glitzy arts campus will make to ordinary lives in London’s poorest borough”. Political vanity projects in London aren’t new of course. Remember Boris Johnson’s “garden bridge” fiasco?

Is it optimism bias we are seeing time and time again?  Is it simply incompetence in terms of properly defining the specification and carrying out costing exercises up front? Can we just blame inflation?  Is it poor contract management and a lack of control that allows suppliers to escalate prices through the project?  Or lack of control on changes in specification, changes which genuinely cause costs to grow?

The other possibility is conspiracy. It is in everyone’s interest for a project to look like a bargain when it comes to justifying it through the business case process. Your new concert hall (or railway) looks like a good investment at £x whereas it wouldn’t look good at £2x. so the sponsors, the professional services, engineering and construction firms involved, perhaps even local people, all want the case to be approved, so let’s make sure it is estimated at x and not 2x.  Everyone also knows that once it is underway, it is very difficult to stop these projects even as the costs escalate, as we are seeing with HS2 now.

This was discussed in a long running legal case over the new concert hall in Paris, which featured in the Bad Buying book. The dispute between the authorities and the architect, Jean Nouvel, got rather nasty before the case was eventually settled in October 2021.  Here is an extract from the book.

“In 2007, he (Nouvel) was contracted to build the auditorium 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. His lawyer also says Nouvel is being made responsible for failures in project management”.

So might HS2 have been a case of a conspiracy to reduce the predicted cost in order to get the project approved?  Is this happening in too many UK projects?  If Labour does win the next election, I would suggest an immediate and wide ranging review of why we seem to be so hopeless at building stuff to budget. You’ll need people who are genuinely independent or maybe folk who will blow the whistle on what really goes on! Because the answer can’t just be “a bit of inflation”. Something is going wrong on far too regular a basis in the UK.  

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Bad Buying in Birmingham?

Increasing numbers of local authorities (county, city and town councils) in the UK are facing financial crisis. The latest is Birmingham, England’s second largest city, which has issued a Section 114 notice – in effect declaring itself bankrupt. Commissioners will be sent in from central government to take over the running of the authority.

The core reason is an equal pay claim going back years. Women employed by the council weren’t paid as much as men doing similar jobs. But it seemed for some years that financial provisions had been made to pay those affected and all was well. But there appear to be more claims now, which suggests the original problems weren’t sorted out when they should have been. There should have been a serious job evaluation programme but somehow that hasn’t happened. Infighting amongst the ruling Labour Party has not helped either, some observers claim.

However, there also seem to be other reasons for the crisis. Birmingham spent over £100 million hosting the Commonwealth Games last year – good for motivating the locals perhaps, and maybe it brought cash into the city, but a lot of many to spend when you’re in a bad financial position.

Now we are moving into “bad buying” territory too, with  accusations of money being wasted in the procurement area. A report in the Daily Mail says, “calls for police probe into bankrupt Birmingham Council’s £11M payments to tiny taxi firm charging £200 a day to take one pupil to school”.  This firm, Green Destinations Ltd, (GDL) has grown rapidly in recent years to become the main beneficiary of  school transport contracts, and there is a suggestion that it might have been “close” in some way to executives who had influence on the contracts.

Now we have to be careful with headline reports. £200 a day might be for a special educational needs pupil who needed accompanying in the taxi and so on. But competitors also claimed that council officials told their drivers they might be better off working for the favoured firm in question. And the table of fares quoted by the Mail does seem to show very high fees compared to standard taxi rates. No doubt more will emerge on this.

However, there hasn’t been any suggestion that procurement in Birmingham is generally useless or corrupt. But I did feature the authority a couple of times in my Bad Buying book. The first was a call-centre contract with Capita, which an enquiry into the service pointed out did not incentivise Capita very sensibly. They were paid on a per call basis, so had no incentive to sort out problems first time or take the required time to do that.  (However, it was the council itself that wasn’t very good at sorting out the underlying problems, to be fair to Capita).

The other mention in the book was the disastrous road maintenance contract with Amey, which ended up with the firm paying £215 million to get out of a 25-year PFI deal. The relationship between the two parties had broken down completely, with a famous report that the council tried to charge Amey penalties of £48.5 million because the firm didn’t repair two bollards quickly enough. All of that was not necessarily the council’s fault, but you have to wonder why you would get into a 25 year contract for any service really. (Maybe it would have some logic for a large construction PFI, but not for roads maintenance). Put those two together and you might perhaps draw conclusions about naivety and a lack of commercial nous in Birmingham.

Anyway, the city may now need to sell art galleries, housing and land to try and balance the budgets, which is very sad for what is a great city. Of course, the national Conservative government is loving this, claiming it is an example of “Labour failure”. But in fact, it is just the latest in a long line of local government waste, corruption, bad buying and financial problems, a line that runs through Liverpool, Northamptonshire, Somerset, Thurrock, Slough, Surrey Heath, Woking, Croydon and more – both Tory and Labour authorities.  Reduced funding from central government is one reason; but there are also too many incompetent or corrupt people in our local government system, it seems.

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Yet Again, a “Sophisticated” Fraud Hits the NHS

The UK’s National Health Service has for years been a “good” source of Bad Buying fraud and corruption stories.  There are several reasons for that. Firstly, it is huge organisation, employing some 1.3 million people. Secondly, it actually has a pretty good counter-fraud unit, and when fraudsters are discovered, they are often prosecuted, so the news becomes public domain, whereas private sector firms often hush up embarrassing cases. But it has to be said – the cases I’ve seen over the years often also suggest that too many NHS organisations have very weak policies and processes around procurement and payments.

The latest case reported in the media recently saw Thomas Elrick, 56, jailed for 3 years and 8 months.  He was assistant managing director for planned and unscheduled care at Harrow Clinical Commissioning Group (CCG) where he had the authority to approve invoices up to £50,000. That organisation is a purchaser rather than a direct provider of healthcare – so it buys services from providers on behalf of the local citizens. 

Elrick created a company, Tree of Andre Therapy Services Limited, using the name of his husband (who knew nothing about it) as the owner, and invoiced the Trust for services that were never provided. Between August 2018 and December 2020 he authorised payments totalling £564,484. To cover his tracks, he also sent an email from the account of his dead wife which claimed to show details of patients the firm had “treated”.

Elrick spent over £100,000 on holidays to Dubai, Hong Kong, the Maldives, Singapore and Switzerland, and also spent just under half a million on shopping, with Amazon, Apple and David Lloyd gyms. But eventually a smart colleague decided to look up the Care Quality Commission accreditation for this firm and found of course that it did not have one, and then the connection to Elrick was found.

There is an interesting angle here in terms of his response. In a statement after he was sentenced, Elrick said “I wish I could turn back the clock but I know that I cannot and I sincerely apologise…  I am not a bad person. I believe that I am fundamentally a good person who made bad decisions, for which I take sole responsibility.” 

Self-delusion is an amazing thing, isn’t it?  I stole half a million from the NHS but I am “fundamentally a good person”.  The mind of a fraudster is often interesting, I suspect.   

But we have to ask how on earth this fraud was possible?  In my Bad Buying book, I give seven key anti-fraud precautions every organisation should follow and this case study and organisation broke several of them. There was no check on the onboarding of a substantial new supplier, which had no trading record, no CCG listing and a conflict of interest in the ownership (although that might not have been easily spotted). There was no check apparently that services paid for were actually received; and of course most fundamentally one person could conduct the whole pseudo-procurement process and authorise payment of large invoices without anyone else being involved or approving the spend. “Separation of duties” and all that.

This was not a sophisticated fraud. It was enabled by an incredibly weak process that was wide open for exploitation by anyone with a modicum of intelligence (and a lack of morals).  Personally, I would fire the CFO and the Procurement Director at the Trust for allowing this money to be stolen so easily.  But this is the case in so many organisations and so often – basic precautions against fraud are simply not put in place. Is it ignorance, laziness, or maybe a management team that wants to leave the door open just in case they want to do something dodgy themselves? Who knows.

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UK Government Spend With Smaller Firms Declines

Without fanfare or comment, in the middle of the holiday season, the UK government recently published the data for spend with SMEs (small and medium enterprises) for 2021/22.  This covers central departments, and some associated bodies, although the definition of what is in and what is out is not always clear. The data is given as direct spend – money that goes straight to the small firms – and indirect, the spend that goes via larger firms that then use SMEs in their supply chain.

It is not unusual for it to take over a year from the end of the period in question before data is published. That is in part because it does take a while to gather the data, but I suspect the publication might have happened sooner if there had been a positive story to tell.

But the headline number was that SME percentage spend declined in 2021/22 compared to 2020/21.  The total was down from 26.9% to 26.5%, and the direct spend was down from 14.2% to 12.3%. That does not look good against the government target of 33% of spend.

Indirect spend was up by 1.4% but that was not enough to compensate for the drop in direct spend.  It looks like the main reason for the overall decline was a big drop in the Department of Health and Social Care (DHSC) SME spend year on year. I suspect that is the “PPE effect” – as we know, there was lots of PPE bought in 2020 and 2021 from smaller firms. They were often crooks, chancers and friends of ministers, but they were SMEs, nonetheless.

Until the pandemic, the DHSC spend was relatively small compared to MOD and Transport – the two “traditional” big spenders.  Most health spend was out in the Trusts so not captured in this data. But the huge amount of “central “ buying, on PPE but also track and trace and other projects, pushed up the significance of DHSC in the overall numbers.

In 2019/20, DHSC spend was just £3.1 billion against MOD’s £21.1 billion. But the figure shot up to £13.3B in 20/21 (MOD was £19.5B) and was still £11.5B in 21/22.  In 20/21, 23.3% of the DHSC total was direct SME spend, so that made the year look better, but by 21/22 that dropped to 14.2%, pulling down the whole percentage.

I’m going into some detail there because it does demonstrate how ridiculous looking at the overall number actually is. When one factor – PPE – in one Department can skew the whole data set, it is pretty useless. But let’s go back in time and look at how this target emerged.  

Supporting smaller firms was one of the first “social value” type issues government embraced. I worked in the Office of Government Commerce (part of Treasury, the UK finance ministry) as a consultant back in 2009 on the implementation of the 2008 Glover report – “Accelerating the SME economic engine: through transparent, simple and strategic procurement”.  (That link took some finding!)

But Sally Collier (OGC’s Policy director) and I didn’t really like the idea of targets for spend with SMEs for various reasons. One was the difficulty of setting sensible targets, which really needed to vary by department to be meaningful. We were interested in departments and buyers simply doing the right things, and therefore also worried that targets would mean effort going into the data, not the real action. But our advice was ignored and after the 2010 election a 25% target was set. 

It quickly emerged that 25% was unachievable. The Ministry of Defence and the Highways Agency (Transport) accounted for almost half of central government procurement spend and there was no way an SME was going to build a warship or the M25 motorway.  So the target was changed to an “aspiration”, a classic Francis Maude fudge, and then indirect spend was included to make it easier to hit the target.

But many of the first-tier suppliers to government have no idea really how much they spend with SMEs, so the data is pretty dodgy. Then the 25% target – which had never been achieved – was stupidly changed in 2015 to 33%, purely because the Cameron government wanted to say something positive for the “small business” lobby in their election manifesto.  And 33% is unachievable too, as we’ve seen, even including indirect spend.

The other issue is whether supporting SMEs is the right target today. We have become much more sophisticated in the 15 years since Glover and now most large private firms are interested in supporting diverse suppliers, not simply small firms.

So why not shift the focus to using government procurement to support charities and social enterprises, minority owned firms, innovative businesses, firms in deprived areas or those that employ lots of disabled people?  You don’t see Unilever or other admired private sector businesses defining some prospective suppliers as special just because they are small. Indeed, many SMEs are small because they want to be, or because they just aren’t very good.

But there has been good work in government over the years in terms of helping SMEs. For example, even back in 2009, MOD led some impressive initiatives to promote SMEs through their supply chain. But really, this element of public procurement policy is crying out for a refresh, a more nuanced set of objectives and – if we must have targets – something that is realistic and motivating, not a painful data collection exercise that is bound to end in failure.  

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