, ,

Manipulating the specification for procurement fraud

One of the more creative ways of committing procurement-related fraud is by the manipulation of specifications. It requires a little more skill than simply bribing a decision maker to choose your firm  or over-invoicing a client and hoping no-one notices, but it can be very effective.  The basic approach is that during the process to select a supplier or suppliers, a key person or people in the buying organisation make sure the specification favours strongly one particular supplier that they want to win the contract.

It is by definition a fraud that requires internal involvement, although often the supplier that wins the contract will be aware of it. Indeed, usually the supplier will be paying some sort of bribe or ‘thankyou’ to their internal accomplice(s). But sometimes, the supplier who benefits is not aware of what is going on, and sometimes the internal protagonist might not even get anything personally out of it. They may even feel they are doing the right thing for the organisation – “I know that Smith and Co are the best firm to do this consulting work, so I just want to make sure nothing goes wrong in the procurement process and they do win it”.

But I would argue this is still corruption if the specification is maniplated away from what would be the ‘best’ for the buying organistion, even if that is ‘just’ corruption of the process rather than corruption for personal gain. Bidding firms often spot this. They will read a specification and think “that has been written to favour our main competitor”.  Often they don’t bid on that basis, and the level of competition is reduced.  There have been many allegations of this practice in the defence sector for example over the years, and this is from the Bad Buying book.

‘One case where corruption was allegedly involved is the long-running saga of the Indian government helicopter contract with AgustaWestland, worth some $466 million. India terminated the contract after accusations that the firm – owned by Finmeccanica of Italy – bribed officials. The Indian government said in 2014 they “terminated with immediate effect the agreement that was signed with AgustaWestland International Ltd (AWIL) on 8 February 2010 for the supply of 12 VVIP/VIP helicopters on grounds of breach of the pre-contract integrity pact and the agreement by AWIL.”

The allegations surrounded manipulation of the specifications, with suggestions that the company had used middle-men to bribe Indian officials to win the 2010 contract. The allegation was that a defence ministry specification insisting its new helicopters should be capable of flying at 6,000 metres altitude was cut to benefit AgustaWestland’.

Actually one of the worst examples I saw of this was when a consultant was repeatedly used by local authorities to help develop the specification for a particular fairly specialist service – he often worked on the procurement as well. Oddly enough, his specifications always seemed to favour one particular supplier, the same one that the consultant regularly worked for in the periods between his work on the buy-side! All the other suppliers knew this and generally didn’t bother bidding if they saw he was involved with the procurement.

Another interesting example popped up recently. The State of Oklahoma in the USA decided to give all its schoolkids a copy of the Bible. But rather oddly, the specification included the requirement that the bible must also include certain US historical documents, such as the Constitution and the Declaration of Independence. Funnily enough, the only version of the Bible that has these additions is what is known as the “God bless the USA bible”, produced with the endorsement of Donald Trump for which he gets a cut of the revenue. It’s a luxury item, bound in leather and sells for the ridiculous amount of $60. A standard bible can be acquired for a fraction of that.

Critics alleged that Oklahoma leaders are keen Trump supporters and deliberately manipulated the specification. However, whether or not that was true, there was good news this week. The state amended its request for 55,000 school Bibles, so other versions can be state approved. The request was altered, removing some of those onerous requirements, a victory for “good buying”!  

So remember how important a good and fair specification is, and if you want a strong competition, try and make sure it isn’t too obviously tilted in favour of one bidder. Unless you want it to be, of course …

(Footnote – you might expect me as a Humanist to be against forcing kids to read the Bible. But actually, I cannot think of anything more likely to make young people feel negative about religion and maybe help them make up their own minds about their beliefs and how they want to live their lives!)

/0 Comments/by
, ,

Can politics learn from the ethics of procurement?

The headlines in the UK have been dominated in recent days about whether it is acceptable for politicians to receive gifts and hospitality from political donors. The new Labour government has come under fire for taking money to buy clothing as well as accepting tickets to Taylor Swift concerts and football matches. Looking at it from a procurement perspective, I’ve spotted three major fallacies in how Ministers have defended their actions.

Fallacy 1 – “Well it’s within the rules”. 

The obvious answer here is that “well, the rules are wrong.”  And once your party is in charge, or if you are the new CPO / head of procurement function, you have an opportunity to change the rules. So Labour people accepted these gifts when they were the opposition and no-one noticed too much. But wouldn’t it have been great if the Prime Minister had announced a major “clean up politics” initiative in his first weeks in power? You’re in charge now people, you can make the rules based on what is ethically right.

Fallacy 2 – “It’s OK as long as I declare it”.

No, it is not.

I discovered this issue when I joined the civil service way back in the 1990s. I was told by my team that there was a register of gifts and hospitality, and that made everything OK. As long as things were registered, it was all fine.

The counter to that is pretty obvious. If I registered a two-week holiday in the Seychelles paid for by a current supplier, or my category manager accepted a gift of a Rolex from a firm that is going to bid on the forthcoming major tender, is that OK? Of course not. The other problem with the “register” concept is that it often is an “after the event” process. In other words, I’ve already been to the Seychelles and my category manager is already proudly showing off his new watch before anything is public or able to be approved.

So that was the immediate change I was able to make in my civil service role. Staff would need to ask permission before accepting anything – if their boss or I said “yes”, then it could be recorded in the register. But you ask permission before you do or accept anything. Incidentally, I do believe that sometimes corporate hospitality can be justified as a way of building relationships at a senior level, maybe with a key strategic supplier,. If Bill Gates was in the UK and invited my software category manager to join him for a lunch, I’d absolutely say yes.  Or if I’d travelled to Brittany to inspect a new dairy and talk to the owners (as I did at Mars, at our corporate expense), then I’m not going to refuse a quick steak frites lunch in the local café!

Fallacy 3 – “I am incorruptible, so it doesn’t matter what I accept”. 

You will hear this a lot, usually from senior people, particularly if you try and tighten up an ethics policy. They are respected and respectable people, they are affluent, and of course they would not give a supplier a contract merely because they were entertained at the Cup Final or got a Harrods hamper at Christmas.

There are a number of problems with this. Firstly, it is exactly what a genuinely corrupt person would say if challenged. If I was actually giving a supplier contracts unfairly, or facilitating them being paid a higher price than the market dictates, and receiving bribes in return, then that is how I would respond if challenged.

Secondly, even if you don’t feel consciously that you now owe the supplier something, and you haven’t been asked for anything in return, you are now obligated. That is a basic aspect of human psychology, proven in experiments.

“Since gifts represent our desire to build or cement a relationship, they also require some form of reciprocation. Contemporary sociologist Dimitri Mortelmans argues that gift giving creates a “debt-balance”, so to prevent ill feelings gifts must be repaid creating a cycle of gift giving”.

It is why gift-giving is a key element in many communities, probably going back to pre-historic times. You exchange gifts with the neighbouring tribe, you are less likely to kill each other. That’s the positive side; but in a business context, it means I feel somewhat obliged to you when it comes to marking that latest tender.

So do Lord Ali and other gift-givers want something in return from Labour? Possibly not – perhaps they just like the people and the Party. But if they do want something, it is clear that there will be powerful people now who feel some obligation because of gifts. That is just human nature. I would be less nervous actually if all gifts were given to the Party, which can then decide whether the PM’s spectacles or Bridget Phillipson’s party is a good use of funds. But the personal nature of these gifts feels risky.

I also wonder whether one problem is that few people work in “proper” companies before they get into politics. If Labour had a few more ex Martians or Marks and Spencers veterans on board, they might be more sensitive to these issues.

/by
, , ,

Grenfell Tower Inquiry Phase 2 Report – Just Terrible

I’ve generally stayed away from writing about the Grenfell fire tragedy. It just seemed too serious and horrible an issue to be talking about “bad buying” and technical procurement issues. What the victims went through is just unimaginable.

The Phase 2 report from the Inquiry was released recently and it is quite rightly highly critical of quite a range of people and organisations. Companies in the sector that provided materials used in the building; the architects and designers; the local authority and housing managers; central government civil servants; then-Minister Eric Pickles; the London fire brigade… they all bear some responsibility for what happened. Wider failures in building regulations and fire safety also contributed.

CIPS (the Chartered Institute of Procurement and Supply) contributed strongly to the Inquiry, initially chairing the Procurement Working Group as part of the Hackitt Review of building regulation and fire safety (leading to the Building a Safer Future report).  What became clear, CIPS says, is “there were many examples of poor commercial practices in the years leading up to the fire, focusing on price and margin at the expense of safety.”

I often hear complaints that public procurement is “all about price and nothing else”. I always push back on that and say that in my experience, price or even total cost is always an evaluation factor, but the vast majority of procurement exercises also consider other non-cost factors, which have serious weighting in the evaluation model. But it is probably fair to say that some parts of the construction procurement world have not exactly been at the leading edge of good practice thinking.

That seemed evident from the report, where too many decisions were made simply to save money rather than through a proper consideration of all the true “value for money” factors. And if a value for money model doesn’t include looking at the chances of killing people, then it should. This is from the Phase 2 executive summary report. (TMO is the “tenant management organisation” that was responsible for Grenfell).

“Although Rydon’s tender was judged to be the most competitive, it still exceeded the TMO’s budget. As a result, although the TMO had received advice from its lawyers that it would be improper to do so, it entered into discussions with Rydon before the procurement process had been completed leading to an agreement that, if Rydon were awarded the contract, it would reduce its price to an acceptable level”.

Illegal, bad practice, and of course led to Rydon, the principal contractor on the tower refurb, being focused very firmly on cost minimisation.

It was also shocking to see that the firms involved, including those that had basically lied about the products they were supplying, or had hidden test results, continued to win public sector work after Grenfell.

The Guardian reported that “about £250m in public deals have been made in the past five years with corporations involved in the high-rise’s refurbishment, according to searches of public contracts by the outsourcing data firm Tussell for the Guardian. They include companies currently or formerly owned by Saint-Gobain, which made the combustible Celotex insulation used on the tower, and Rydon, the main contractor for the works”.

Now the new UK (excluding Scotland) Procurement Act includes what are in theory stronger provisions to allow firms to be barred from public procurement competitions. The Prime Minister told Parliament that he wanted to ban the firms involved here. “This government will write to all companies found by the inquiry to have been part of these horrific failings as the first step to stopping them being awarded government contracts,” Starmer pledged.

That doesn’t seem as strong as you might expect, but no doubt there will be process that must be followed if we want to avoid legal challenge from those suppliers. I’ve been somewhat cynical about the chances of the new “debarment regime” in the Act really being effective, but I sincerely hope I’m wrong and these firms are kicked out of public business for a very long time.

It is difficult for individuals within large organisations to speak up sometimes. We can all get caught up in the corporate “groupthink” and perhaps misplaced loyalty.  (Look at all the people in the Post Office who knew the Horizon system was dodgy and that postmasters were being treated appallingly, but said nothing).  Grenfell shows how terrible the consequences of that sort of behaviour can be. So if your firm is expecting you to lie or deceive others about the chances of your product killing people, then perhaps you really should say something.

/by
,

CIPS Annual Report – a Mixed Bag

The Chartered Institute of Procurement and Supply (CIPS) annual report is out now for the year ending October 2023. I’m not sure exactly when it was published but it always takes a few months to emerge.

The report suggests it was another mixed year for the world’s leading procurement institute. Revenue was up 13% year on year, which is pretty impressive, driven largely by business from corporates in the UK and Middle East. The CIPS Corporate Award programme continues to bring in revenue as firms invest in professional development and capability, which is good news.

However, membership was down 4.5% which is less good news for what is supposedly a “membership organisation”.  That was mainly down to a drop in student numbers, with MCIPS-level numbers pretty static. Exam entries were also short of budget although recovered in the second half – that may be in part because of the well-publicised problems with the new system, which amongst other things, made exam booking tricky at times. And new student numbers were at their highest for ten years, so maybe the decline in student membership is just a “blip”.

Total income was £34.2 million, up 13% on the previous year but below budget. That led to an operating loss of around £400K, although the accounts are not easy to interpret given so many figures for pension valuations and adjustments, loans, and other one-off accounting issues. But the cash position actually improved, with group cash position standing at £5.2 million at year end. To be honest, I struggled to really understand how this increase came about given the loss in the year.   

Generally, CIPS still has the perennial problem that many students want to get their qualification but then don’t want to pay £200+ a year for ongoing membership. Whilst CIPS rightly says you can’t put MCIPS after your name if you are not a current member, I suspect many who pass the exams, and many employers, look at that qualification as more important than the ongoing membership. There are many other ways to demonstrate your continuous professional development these days that don’t cost a fortune.

It is also fascinating to see how CIPS continues to become much less of a UK-centred organisation. Australasia seems to have stabilised after some issues there.  CIPS MENA is not set up as a certified company, but by all accounts is doing very well in many middle-eastern countries, in terms of numbers and revenues, and the recent promotion of regional boss Sam Achampong to run half the world 80% of the world for CIPS indicates one reason why that has been the case in recent years.

Yet some problems continue in other regions. The US is an ongoing disaster really, losing money for CIPS year after year despite ambitious intentions. As Eddie and the Hot Rods once said, maybe it is time for CIPS to Get Out of Denver…

Looking at the numbers in detail, an analyst might worry about control of staff costs. There has been a 16% increase year on year in total cost, with staff numbers up only 4%, implying an almost 12% cost per person increase, well ahead of inflation. However, there is a major distortion.

Malcolm Harrison, the then-CEO, left rather suddenly in March 2023, yet the highest paid member of staff, presumably him, was in the £250-300K bracket for 2022-23 salary.  (Last year he was in the £200-250K bracket). That suggests he received in effect a full year’s package despite leaving just 5 months into the financial year. So his pay-off accounts for quite a chunk of that apparent staff cost hike, although the Trustees need to keep an eye on senior staff costs – there were 16 people earning over £100K in 2023, against 11 in 2022.

The new IT platform seems to have settled down somewhat now, so if that crisis is almost over, I’d suggest CIPS needs to focus on its membership proposition and numbers as the key strategic challenge, which raises some fundamental issues again about the whole nature of the Institute.  

It’s clear that getting rid of the President post has worked well in increasing the standing of the Institute (he said sarcastically…) although I do hear that the relatively new Membership Committee is doing some good work.  High profile individuals such as Sam Achampong and Savita Mace (membership committee) do a lot to keep CIPS in the public eye, but I feel that many of the Trustees (Board members) still need to do more to promote CIPS and the profession now the Presidential focal point has gone.  

But that is by no means the only reason why MCIPS numbers are in slow decline, even as P&SCM increases its importance globally. CIPS really needs to understand how to change that situation to improve its long-term prospects, or accept that it is now in effect a consulting, education and training business rather than one with a membership focus.

/by
,

My Manifesto for Public Procurement

I commented recently on the major UK political parties’ manifestos in terms of their procurement ideas, and literally thousands of readers – well, one or two – said “so what would you do then, smart-ar**?”

So here we go.

A Public Procurement Manifesto from the Peter Smith Party

The UK public sector spends over £300 billion a year with third party suppliers – although different definitions of “third-party spend” give somewhat different numbers.  That is £6,000 for every adult in the country, every year. Suppliers are also central to every aspect of public services, from provision of tanks and ships for our country’s defence to medical and social care, from administering benefits to building schools or roads.

So the first priority here must always be to obtain excellent value for money for the taxpayer  – buying the most appropriate goods and services to support effective management of all the country’s public organisations.

Unfortunately, the Conservative government has been responsible for some of the biggest fiascos and wastes of public money that we have even seen, such as HS2, the PPE scandal, Ajax armoured cars that literally deafened the troops inside them, awarding contracts to ferry companies that did not have any ships, or the Carillion disaster, which jeopardized numerous NHS projects.  

Much (but not all) of this has been down to political failings, but procurement officials must play their part too if we are to improve the situation. There have been some positive developments in recent years in terms of procurement capability, in central government in particular, but we need to see more focus on spreading that capability across local government, the NHS, education, police and all government bodies.

Procurement related fraud and corruption has also increased under the Tories’ watch. In 2022 Britain slumped to its lowest-ever international ranking in the independent Transparency International’s global Corruption Perceptions Index (CPI). There needs to be more focus on transparency and competition – the first of those is addressed somewhat in the new Procurement Act, the second imperative is not.

And value for money is about a lot more than “getting a good deal”, or finding the lowest possible price for an item. Public procurement and the way it is carried out is relevant to many different goals, from fighting against corruption to supporting exciting new businesses.

So I will address this be delivering on key themes in terms of how this massive amount of public money is spent every year.  I have 3 key goals for public procurement. As well as delivering on the core value for money promise, we will use these billions of taxpayers’ money  to:

  1. Drive economic growth for the UK
  2. Release cash to invest in better services
  3. Fight against corruption and fraud

Let’s look at the broad objectives my party will pursue under each of those headings.  

1. Drive economic growth for the UK – we will:

  • Encourage and provide early opportunities for innovative young UK businesses.
  • Introduce a programme to identify and support “critical national industries”, including how they can be helped through public procurement.
  • Drive carbon reduction with a stronger approach to public sector supplier requirements.
  • Use government procurement and spend to support charities, CICs, social enterprises, SMEs and minority owned businesses, and make “social value” more relevant locally.

2. Release cash to invest in services – we will:

  • Drive more competition for contracts, with potential to save billions (as the NAO has independently identified).
  • Reduce spend on consultancy services by 50% (including managing risk of “leakage”).
  • Identify and take action where public sector suppliers are making clearly excessive margins.
  • Conduct a thorough review of major capital programmes, particularly HS2, to identify the failings of last decade and the way forward. 
  • Introduce a sceptical “NAO type review” process BEFORE major programmes are started.
  • We will hold an open competition titled “how do we sort out defence competition”? The best response will win £100,000 and a seat on the MOD main Board.

3. Fight against corruption and fraud – we will:

  • Investigate the PPE contracting process.
  • Appoint a “Procurement Ombudsperson” to improve relationships between suppliers and government buyers and to handle complaints, whistleblowing, etc.
  • Introduce stronger safeguards against conflicts of interest.

If you really want further detail… here we go

  1. Drive economic growth for the UK

Encourage and provide early opportunities for innovative young UK businesses

We will launch an innovation programme that gives start-ups the opportunity to “pitch” their offering to government, with the promise that they will be awarded some sort of contract if they are amongst the “winners”. That should be possible under the new UK procurement legislation if handled properly.  The programme would be supported by publicity and promotional opportunities for the participating firms.

Programme to identify and support “critical national industries” including through procurement

The pandemic identified goods and services that really should have some domestic providers within the supply landscape. Proper analysis needs to take place to determine critical areas of weakness, which could range from PPE to complex electronic components. Appropriate actions can then follow, which might take the form of grants, targeted procurement with a UK focus or even government-backed start-ups.

Drive carbon reduction with a stronger approach to public sector supplier requirements

Firms bidding to win large government contracts already have to provide carbon reduction plans. But they only have to show a plan with achievement of a 2050 target – a long way away. So an intermediate (2035?) target should be introduced and the current threshold for this applying reduced to bring more contracts and firms into the policy.

Support charities, CICs, social enterprises, SMEs and minority owned businesses

The long-standing SME spend target simply has not worked. Indeed, it is a classic example of the many Tory policies that were both badly designed, and then not implemented properly. We will replace that with a much more carefully constructed programme and KPIs that focus on a wider range of “deserving cases” in terms of suppliers; businesses with a social purpose, minority owned firms, social enterprises and charities – as well as smaller firms, particularly innovative start-ups. But we will not lose sight of the value for money issue, so  “social value” weighting will be capped at 15% in procurement exercises, at least until proper academic research analyses performance to date of this initiative.

2.         Release cash to invest in services

Drive more competition for contracts, with potential to save billions (as per NAO report)

Competition for major government contracts has decreased under the Tory government. Lack of competition means the taxpayer gets worse deals from suppliers and is also an indicator of corruption. There have been too many examples of contracts being given “to your mates” in recent years – if there is no competitive process, this often suggests some nepotism or favouritism even if we are not looking at outright fraud.

Competition also drives suppliers to give government the best deal. The National Audit Office (NAO) in a July 2023 report showed that 72% of large contracts were bought through frameworks (which restrict or eliminate competition) in 2021-22 compared to 43% in 2018-19. NAO estimates that lack of competition has cost the taxpayer £4 – £7.7 billion per year. So our new policies will drive government bodies into using proper competition in all but the most unusual situations. Use of frameworks and of collaborative buying organisations, including Crown Commercial Services, will be reduced, by legislation if necessary.  Single-supplier frameworks will be banned and non-competitive call-offs controlled more actively, with disciplinary action for transgressors.  

Reduce spend on consultancy services by 50% (including managing risk of “leakage”)

Consultancy spend has risen dramatically in recent years. Some of that is down to lack of skills in the public sector, some is because of the unhealthily close relationship between the big firms, Ministers and senior civil and public servants. Much tighter rules on consultancy frameworks will be introduced and the CCS framework re-tendered with a proper focus on value this time around. 

Labour and the Conservatives have announced that spend will be reduced by 50% through tighter controls on expenditure. But there will need to be close management of “leakage” – consulting spend must not be re-classified as “interim staff” or “managed services” – if that is to succeed. That is what happened when the Tories tried to implement a similar policy in 2010, a policy that initially had some success but quickly dissipated.  

Identify and take action where public sector suppliers are making clearly excessive margins

There is nothing wrong with good suppliers making decent profits from supplying the public sector. However, there comes a point where excessive profit margins indicate a “failed market” and action needs to be taken. For instance, one firm that supplies software to the NHS – and the NHS is virtually its only customer – made £45 million profit last year on a turnover of £70 million, a margin of over 50%. Coincidentally the same firm has become a huge donor to the Conservatives.  That cannot be right on several counts. Such examples will be identified and targeted negotiations will take place to reduce margins to reasonable level and free up cash for spending on key services.

Review of major programmes particularly HS2 to identify failings of last decade and way forward

This is a very important step towards making sure the UK spends public money wisely.  We cannot make progress with the capital investment the country needs if we do not spend the money needed wisely and effectively. We will also publish the review into the Nuclear Decommissioning Agency  procurement fiasco with Bechtel that cost the taxpayer over £100 million. It has been supressed for five years now.

Introduce a sceptical “NAO type review” process BEFORE major programmes are started.

The National Aduit Office does great work in explaining why billions of pounds have been wasted. The problem is that it’s too late by then to do anything, and the lessons learnt become lessons forgotten very quickly. We will introduce an independent, transparent review process (by NAO or equivalent body) to examine all programme plans before money starts to be spent. We will introduce legislation so that government cannot commit to initiatives before they have been validated.

We will hold an open competition titled, “How do we sort out defence procurement”? The best response will win £100,000 and a seat on the MOD main Board.

Frankly, I do not know how to sort out defence procurement. Perhaps someone out there does.

3.         Fight against corruption and fraud

Investigation into PPE contracting process

Labour has announced this and we agree – it is a necessary investigation into the many billions of public money was wasted on PPE during the pandemic. We need to identify the reasons behind this huge loss to the public purse, identify where corruption played its part and look to recover money wherever possible from crooked and incompetent suppliers.

Appointment of “procurement Ombudsperson” to handle complaints, whistleblowing, etc.

Countries such as Canada have appointed an ombudsman whose role is to act as a neutral and independent arbitrator that helps resolve contracting disputes between businesses and government bodies.  Such a role can help improve the competence of procurement but also acts as a bulwark against corruption and fraud in public procurement.

Conflicts of interest

We have seen a worrying growth in “conflicts of interest” affecting public procurement during the Tory government. That is not just friends of Ministers being awarded PPE contracts; it covers MPs and Ministers getting too close to government suppliers and taking up lucrative roles whilst they are in office or immediately on their departure. The same applies to senior public and civil servants, and MOD is probably the major area of concern where conflicts of interest are endemic and ongoing. But other areas such as senior tech roles in the NHS are of increasing concern. We cannot have a situation where the best route for a supplier to win contracts is to quietly promise senior decision-makers in the public sector jobs later if they favour the firms now. That is happening too regularly today.

Vote Peter Smith!

June 2024

/by
, ,

The Minister for Public Procurement Speaks!

Yes, as we’re into the UK election campaign now, articles for the next few weeks may well have a political theme I’m afraid.

Alex Burghart has been in his role for 18 months, which given the turnover in the “UK Minister for Public Procurement” role over the previous few years is a positive. He is a teacher and academic by background, with a PhD in History, who then became a political adviser. So no business experience, but a clever guy, clearly. He spoke at the Procurex National event in Liverpool last month, and his speech is now up on the Cabinet Office website. So first of all, let’s give him credit for showing up and also to Procurex for getting him to attend. Let’s have a look at some of his comments on the new UK public procurement regulations, due to come in to force in October, with my comments on various of his remarks.

“And at the heart of this is ensuring more transparency than ever before, so that we’re spending taxpayers’ money in a way that can be properly scrutinised”.

Rather oddly, that is about all he says in terms of transparency, which is actually one of the biggest changes in the Regulations, with a host of new requirements for buyers. I’m in favour of more transparency but I do worry about the workload burden for already stretched organisations.

“A new duty will require any contracting authority to consider SMEs, to take account of their unique challenges, and we have introduced 30-day payment terms on a broader range of contracts, in response to what SMEs asked us to do”.

“Consider” SMEs does not of course mean using them. I’ve written many times before about the daft SME target for government spend and indeed I do not really see why we support SMEs rather than social enterprises, minority owned firms, local firms, innovative start-ups… The answer is political of course.  So we’ll see whether the Act has any impact on public procurement SME spend – I have my doubts.

“We’re also creating a new central digital platform for suppliers to register and store their details, so that they can be used for multiple bids, and enable them to see all the opportunities in one place”.

Yes, good idea, Sally Collier and I proposed this in 2009 when I was working in government. But given the track record of government developing new platforms, I’ve got my fingers crossed for this one.

“It puts a requirement on public bodies to provide feedback on bids, giving you greater consistency of feedback, helping you shape your next bid”.

This is one of a couple of rather odd or misleading statements from Burghart. There has been a requirement to provide feedback for as long as I can remember and indeed, there are some concerns that the new requirements may lead to less useful feedback. But we’ll have to see how that pans out. Not new or radical though in any sense.

“We are making value for money a core part of our process – ensuring that all contracting authorities must place value for money at the forefront of all procurement activities”.

So what were we basing our procurement decisions on up to now? It seems odd, particularly for a party that has been in charge for 14 years, to suggest that public procurement hasn’t been based on value for money up to now!  But it has, this is just nonsense, unless I’m missing something.

But, perhaps most importantly, we are also going to create a register, accessible to all public sector organisations, that will list suppliers who must – or may – be excluded from contracts.

This is clearly NOT the most important aspect of the new regulations. (I would say that the flexibility to design new procurement processes, which he didn’t really mention, and the transparency rules are the most important).  It is to be welcomed, but benefits will be limited and the proof will be in the implementation. I will be amazed if there are more than a handful – literally – of suppliers on this list by the end of 2025, let’s say. It is well-meaning but will prove very difficult to implement.

A new National Security Unit for procurement in the Cabinet Office will review suppliers for potential risk to our national security in a way never achieved before. It will also conduct investigations and make debarment recommendations to Ministers alongside the Procurement Review Unit, which will do the same for other exclusion grounds.

That sounds good but again let’s see if it actually has any real effect.

Not a bad speech then, all in all, but assuming there isn’t a miracle on July 4th, the Tories will be blaming Labour for “not implementing the new regulations properly” if it all proves to be a disappointment. Burghart has what looks like a very safe seat, even with the predicted swings, so he may well still be around to comment anyway. Indeed, he might be Leader of the Opposition the way things are going.

/0 Comments/by
, , ,

Avoiding Bad Buying in UK Local Councils

As the results come in from local elections in England, it is clear that basically the country just wants the Conservative Party to go, the sooner the better. I don’t think there is huge enthusiasm for anyone else but most of the public are just sick of the infighting, incompetence and idiocy of the ruling party in recent years.

However, will changing our local councils make things better? A very interesting article in The Times   looked at data provided by a new agency, the Office for Local Government (Oflog). Ministers set up Oflog last summer to provide “authoritative and accessible” performance data to support improvement in local government.

The data looks at the efficiency and effectiveness of local councils across 27 categories in five main areas: waste management, corporate and finance, adult social care, planning and roads. It revealed for example that some councils have recycling rates that are twice as good as others and that some authorities are failing to process half of planning applications on time, while others are not late on a single one. The figures also show the extent to which many councils are struggling with debts, with six local authorities already having declared themselves bankrupt since 2021. That is certainly in part becuase of lower funding from the centre of government, but competence (or lack of) seems to come into play too in most cases.

The Times accessed all the data to look at variations, which are huge and pretty inexplicable other than by sheer management competence. For example, in the year to September 2022, Hinckley & Bosworth borough council in the East Midlands completed less than half of household planning applications on time. But Tamworth borough council, just 30 miles away, was not late on any.  

The Times also came up with league tables to see if there was any political correlation with performance. Nottingham (Labour controlled) was the worst performing authority. Torridge district council, on the north Devon coast, came top of the table – it is run by independent councillors.

But the results actually supported a theory I’ve held for years, suggesting it is not that the Conservatives (Tories) are generically better or worse than Labour in terms of competence (with the Lib Dems in the picture too in a smaller way). Of the ten worst-performing councils, six are controlled by Labour. Of the ten best-performing councils, six are in coalition or are run by independents, while the Liberal Democrats and the Conservatives run two each.  Eight of the ten worst-performing county councils or rural unitary authorities are controlled by the Conservatives – while seven of the best-performing ten are in coalition or run by independents.

So what it does seem to show is that the worst-performing councils are almost always in areas, towns or cities where there has been a long-term dominant party, whether that is Labour or Tory. Conversely, the best-performing councils are generally more contested, so independents rule the roost, or no single party has a clear majority, or power has changed hands over recent years.

That stands to reason really. If there is a long-term dominant party, there is more scope for arrogance to creep into decision making, or fraud and corruption to spring up, and there is less scrutiny of decisions. “Bad buying”, whether it is just wasting money on frivolous or unnecessary spending, or more serious fraudulent or corrupt expenditure, is more likely where power is well entrenched. Take fraud for example. You are less likely to bribe a councillor, or to stand as a councillor yourself so you can influence planning decisions for nefarious purposes, if it is not clear who will be in charge after the next election.

Similarly, some of the arrogance we have seen in councils such as Woking, where the dominant Tory council invested hundreds of millions in unwise property deals, or in Nottingham, where the council (Labour in power since 1991, 50 of 55 councillors) thought it could run an energy firm better than the professionals, came about I’d suggest in part at least because the councillors thought they were unchallengeable and had complete power.  My own council, Surrey Heath, has also lost money – not as much as Woking though – on property deals put in place by a very arrogant Tory leadership. But last year for the first time ever the Lib Dems took power here.  

However, the correlation is far from perfect. Thurrock, where the council is now suing “businessman” Liam Kavanagh, who allegedly cheated the council out of over £100 million with dodgy solar farm investment schemes (hopefully the ex-finance head at the council will end up in court too), has actually had a few changes of council over the years.

But Liverpool is another example where single-party dominance led to a culture of corruption. Even after commissioners came in to run the City in 2021, the job description I saw for the Head of Procurement role still did not suggest a real appetite to put in place all the controls and governance you would want to see as a taxpayer!

Anyway, all this suggests that if your main interest as a voter is in the effective running of local services, rather than any deep political beliefs, you should aim to keep your local council and councillors on their toes by creating a competitive environment. How you can best do that will vary by area and even local electoral ward. But that seems the best strategy if you want your money to be used honestly and well.

/0 Comments/by
, , ,

What Happened to Ethics, we ask “Professional” Services Providers!

Bad buying obviously covers every potentially sector and category, but I have had a long interest in professional services spend and procurement for many years, including as co-author of “Buying Professional Services”, my first published book.

A couple of recent stories highlighted that although most of the people working in that sector are highly educated and intelligent, they can still behave just as badly and even illegally as any petty criminal.

The first story was about a survey of lawyers run by the “rolllonfriday” website, anonymous of course given that 35.5% of the respondents admitted that at some point they have been guilty of adding time that hadn’t been incurred to their time sheets (which then means the invoices to clients are also inappropriately inflated). As the report said,

Thirteen percent admitted they did it regularly, 12.6% confessed to being “occasionally” culpable, while around 10% said it was something they had done, albeit “rarely”. 

Well, that probably won’t come as any surprise to most of us, but it was interesting to see our suspicions as cynical buyers confirmed. It reinforces the view that whenever possible, engaging professional service providers on some sort of fixed fee, outcome, output or success based basis is better than a simple “time and materials “ hourly or daily rate.

However, it can be difficult in the world of law, because we often don’t know just how much work will arise from a particular assignment, particularly if other parties are involved (litigation for instance). So it is hard for the parties to arrive at a sensible view of risk, which you need in order to agree a fair fixed price.

You should always look for where you can define some sort of clear work package and agree a price for that, but one thing buyers can also do is challenge their provider if bills look “padded”.  Many people feel nervous about actually digging into a statement and saying to their lawyer, “so did you really spend 30 minutes on that two-line email”?

Now they are unlikely to immediately back down and reduce that bill, but next time, they might just think “perhaps I’ll just put 20 minutes for this email” because they know you will challenge. So don’t be scared to be a nuisance and analyse billing carefully.

The second piece of news was even more shocking. Consulting and auditing firm KPMG was fined  in  the Netherlands for endemic cheating around professional examinations taken by their staff. As the Times reported, “The Public Company Accounting Oversight Board in the United States found that between 2017 and 2022 hundreds of KPMG workers in the Netherlands, including senior partners and managers, had shared questions and answers with one another. This included for exams that they had to sit to test their understanding of professional ethics”.

Cheating on an ethics test! You have to laugh really. But I don’t understand why it is the US regulator doing the fining though rather than the Dutch equivalent.  

To make it worse, KPMG lied to the investigators, saying they knew nothing at senior levels about the answer sharing – but it turned out two board members had indulged in these activities themselves! A $150,000 fine was also imposed on Marc Hogeboom, who used to run KPMG’s Dutch audit division, and he was banned for life from working for any firm that audits American public companies.

These people are auditing public companies and giving investors confidence (or otherwise) in those businesses – so having the right skills and training is critical beyond just KPMG’s own operations. The cheating means there may be incompetent people doing important work, which is not a good thought, and of course it means buyers have paid for people whose qualifications (which largely determine the level of fee paid) were bogus. Maybe some big clients should sue the firm now.

It seems that it isn’t the first time this has happened and KPMG is not the only firm that has transgressed. Last week the American regulator also fined Deloitte’s businesses in the Philippines and Indonesia $1 million each for answer-sharing on professional tests. And two years ago EY was fined $100 million by the US Securities and Exchange Commission, because a “significant number” of its American auditors cheated on the ethics component of their Certified Public Accountant exams.

The lack of ethics and morals of those involved is quite shocking for supposed “professionals”. Whilst the latest fine was substantial, it does not seem to be enough really to reflect the seriousness of the crime. I think it would have been appropriate to ban KPMG from all audit work in the Netherlands for a few years. I also think maybe a few jail sentences for the most senior people involved might have made others sit up and take notice.

So the advice to procurement people is this. As with the lawyers, don’t necessarily believe everything your consultants or auditors tell you, or everything they put on the invoice, just because you think they are ethical and trustworthy professionals. Not all seem to fit that description.

/0 Comments/by
, ,

Is UK Public Procurement Getting Confused About AI?

This is a big year for public procurement in the UK. In October (probably) the new Procurement Act becomes law, finally replacing the EU public procurement legislation with a new set of regulations designed by and for UK organisations.

Generally, I feel the Cabinet Office policy team did a good job steering the consultations and proposals into a set of new rules, although there are some issues that concern me. But the team has now tied itself in knots somewhat over a different issue that has suddenly leapt to the forefront of everyone’s minds – how AI might affect public procurement (and many other aspects of our life of course!)

A PPN (Procurement Policy Note) was issued the other day that has caused some controversy and confusion. I must say, PPNs are usually clear and helpful, whether or not you agree with the underlying policy they are communicating, but PPN 02/24 is a mess.  Having read it a few times now, I think the problem is that it tries to cover too many issues, all AI related but really quite different, in one note.  I can see the following all mentioned in the note:

  1. Concerns about the use of AI in writing tender responses and proposals, in particular whether AI responses are likely to be inaccurate in terms of reflecting the actual capability of the supplier or how they will deliver the contract. In other words, the risk of AI generated bullsh*t showing up in bids. 
  2. Confidentiality or even national security issues in terms of firms using government documents connected with the procurement process to train AI systems and models.
  3. Worries that AI becoming ubiquitous and cheap is going to lead to many more suppliers putting in bids in response to opportunities, putting stresses and strains on procurement (and other) resources in public bodies.
  4. Issues around the actual purchase of AI solutions.

It seems to me that these are totally different issues. For instance, even if there was an outright ban on any use of AI in developing bids (which would be daft), there would still be legitimate security and confidentiality issues around the use of government documents in “training” AI.  That needs to be considered, but really has very little to do with procurement.

Similarly, advising people how to buy AI technology well is fine, but that surely is no differ relay to “category-related procurement advice” around energy, laptops of anything else. It is not really a procurement policy issues.

The first point – on use of AI in writing bids – has probably gained the most comment and criticism. The PPN suggests that buyers should ask suppliers to disclose whether AI has been used in bid construction, but that the answer “should not be scored” as part of the evaluation process. However, if the supplier says “yes” , might that mean their scores for other questions will be reduced if buyers know AI was involved? This could be a legal minefield.  And as others have pointed out, asking questions “for information only” in tenders is not good practice, only increasing bureaucracy and cost for bidders and indeed buyers.

The PPN also mystifyingly mentions the “risks” inherent “if a bid writer has been used by the bidder”. Sorry? I mean, someone always writes the bid. I assume they mean an “external” bid writer, but in my experience such individuals usually take more care to reflect the organisation accurately than some poor sales person who gets landed with the task of writing the document! 

The key point surely is that any bid should reflect the organisation’s capability and experience accurately, and provide a proposal that is meaningful and realistic about the actual goods and service that will be delivered if that bidder is chosen. That applies whether AI was involved or not. Indeed, humans are just as capable as AI of making up nonsense to put into bids – in fact, I suspect humans, being more creative, are more likely to write lies or nonsense than AI.

Anyway, this is a badly thought-out PPN, written in haste I assume, and further clarification and development of the very different points discussed within it will surely be necessary.

/0 Comments/by
, , ,

The NHS gets “supplier” incentivisation all wrong

(Pic; A&E on a Saturday night)

Incentivisation is a fascinating topic. In a business context, for example in terms of incentivising the right behaviour by suppliers, it can require knowledge of psychology, contract law, finance, economics, and operations management. Most of us in procurement will have seen examples of it going wrong too – indeed, I dedicated a whole chapter in the Bad Buying book to dodgy incentivisation that drove unexpected or simply bad supplier performance.

In the UK’s National Health Service (NHS), the way “the centre” (usually the Department of Health or NHS England) incentivises hospitals and other Trusts that deliver services is very similar to a commercial buyer/supplier relationship. Basically, the centre gives money to Trusts and they agree to aim for certain performance levels.

Now I’ve looked up the cvs of  Sarah-Jane Marsh, National Director of Integrated Urgent and Emergency Care and Deputy Chief Operating Officer, NHS England, and Julian Kelly, Deputy Chief Executive and Chief Financial Officer, NHS England. To be honest, there is nothing in them to suggest that these two are stupid. And yet they have launched one of the daftest and most inappropriate incentivisation-related initiatives I’ve ever seen.

It is in effect a “competition” through which Trusts can receive additional funding for capital expenditure in 2024/5. This is what they say in their letter to Trusts this week.

We recently met with ICB and acute trust leaders to discuss how we best work together to meet the challenge of delivering the agreed target of 76% A&E 4-hour performance during March 2024 so that more patients are seen, treated and discharged in a timely way….

In addition we are now announcing three other routes through which trusts will be eligible for additional capital funding in 2024/25:

  1. The 10 trusts delivering the highest level of 4-hour performance (that means seeing people within 4 hours of their arrival at the accident and emergency department) during March will each receive £2 million.
  2. The 10 trusts who deliver the greatest percentage point improvement in March (compared to January 2024 performance) will each receive £2 million.
  3. The next 10 trusts who deliver the greatest percentage point improvement in March (compared to January 2024 performance) would each receive £1 million.

(It continues…)

So where do we start with this? As I say, I look on it as a supplier incentivisation exercise, and on those grounds I would immediately point out a few major flaws .

  • It was issued on March 12th, and relates to performance in March. So how can Trusts possibly have time to make any significant or lasting changes to their processes to improve A&E within days?  
  • Shouldn’t capital expenditure be allocated based on where it will get the best return rather than on some sort of “Hunger Games trial by A&E”?  You would put money into a collaborative venture with a supplier based on its potential return, not on some spurious “performance measures”, wouldn’t you?
  • Doesn’t relating much of it it to improvement mean those Trusts that were particularly awful in January have more chance of winning then the consistently good Trusts? That seems unfair.
  • How do you stop “gaming” of the process and the data?  I’d pay a few local layabouts to come into A&E with a “bad finger”, see and discharge then in two minutes, then rinse and repeat until my figures look amazing.
  • Indeed, this could lead to patient care that is driven by finance, not needs. See the easy cases in A&E, not those with their leg hanging off…

This strikes me as politically driven, surely the only explanation as to why Kelly and Marsh would take this deeply flawed step. Ministers desperately want some good news from the NHS now in case there is a Spring election. Officials must have been instructed to do this – that must be it? If not, if this really is an NHSE internal initiative, then the NHS really is in even deeper trouble than we thought.

/0 Comments/by