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15 years of government policy failure – can Shirley Cooper change that?

Congratulations to Shirley Cooper, CIPS Past President, who has become the UK government’s “Crown Representative for small businesses”. In that role, she will represent the interests of smaller firms, particularly in terms of their ability to win government contracts. “She will work with the Cabinet Office’s Small Business Advisory Panel, departments, suppliers and trade bodies to further level the playing field for small businesses, start-ups and social enterprises and ensure they can compete for and win more government contracts” says the announcement.

The government’s policy goal to increase the amount of spend going to SMEs is a long-running failure. I worked with Sally Collier of OGC on the implementation of the first review of small business and government procurement, the Glover review, way back in 2009. We recommended that there should not be a target or targets set for spend with SMEs – we felt targets would distract and take resources away from actually doing real stuff that would help SMEs. But the new coalition government disagreed, so a target of 25% was set, with no real logic behind it.  

It wasn’t hit in the first few years, but ridiculously, the Tories said they would increase the target to 33% in the 2015 election manifesto, purely to say something that sounded good to appeal to the small business lobby. Everyone in public procurement knew it was a ridiculous move. But surprisingly, the Tories won the election and the target was increased. Even the Public Accounts Committee in 2016 concluded “it is not clear how the Government decided on 33% as a target or how achievable it is”. 

The answer to the achievability question is that the target is impossible to hit because a few organisations dominate the overall spend figures – particularly MOD and National Highways (previously the Highway Agency). Because SMEs can’t build aircraft carriers or the M25, even if every other department does really well, the target won’t be achieved because of those big spenders.

So the government decided that the target should include second tier spend, the money big suppliers spend with smaller suppliers of their own. Of course, if you are going to add this in, then following the logic, really you should subtract the money SME first tier suppliers spend themselves with big suppliers! Anyway, many of the large suppliers to government don’t really track their own spend with SMEs. I suspect when government asks its first tier suppliers for the data, many of them just make up the numbers.

So in 2021/22, the total spend with SMEs went down from 26.9% to 26.5%, including that indirect second tier spend. Direct spend went down more dramatically from 14.2% to 12.3%.  But what happened in 2022/23, you say? We don’t know yet. The data tend to come out around 18 months after the end of the period in question, either because it is so difficult to put together or because if you publish it really late, it takes some of the potential political heat out of the report. Maybe both.

The decline may be due in part to another trend that has been reported by the National Audit Office. More spend is not competed these days, with more use of frameworks, direct awards and single supplier contracting. Whilst SMEs are on many frameworks, that mechanism makes it easy for buyers to just choose their favourite (usually large) firm. 

There is talk about how the new Procurement Act will help SMEs, and to be fair, there are a couple of positive factors there. “The Act places a requirement on contracting authorities to assess the particular barriers facing SMEs throughout the entire procurement lifecycle, and to consider what can be done to overcome them”, for instance.  

Tougher “rules” on prime contractors paying sub-contractors could also help if policed. A single registration system for potential suppliers is a good move for everyone (Sally and I suggested that in 2009). But the idea that the greater flexibility for buyers and contracting authorities will suddenly lead to a boom for SMEs is just wishful thinking in my opinion.

There are also a whole range of arguments around whether supporting SMEs is a sensible policy goal at all.  Might it be better to support diverse, minority owned business? Or social enterprises? Or innovative start-ups? Or firms based in deprived areas?  Is simply looking at size a sensible way of targeting assistance?

So really, the role of the SME Crown Rep has historically been as a figurehead to show the government “cares” about SMEs, and get some votes from small firm owners. In fact, big firms have continued to rule the roost in terms of actually winning contracts.  Maybe Cooper can change that – we’ll see, but I wish her luck and hope she can have an impact. It woudl also be interesting to know how she plans to measure her effectiveness.

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Fancy a Great Job?

There was a major announcement this week in UK public sector procurement.  Gareth Rhys Williams (GRW), who has been Chief Commercial Officer for government since 2016 was appointed the new Chair of National Highways, which looks after major roads across the country.

I assume that Rhys Williams will therefore be standing down from his commercial role. I’ll be taking a longer look at his track record shortly, which is mixed. There have undoubtedly been some positives, but the many billions wasted on PPE during the pandemic and the infamous “VIP route” for friends of Ministers will always sit in the other column. On the other hand, I don’t see him getting involved in a business committing a huge (alleged) fraud when he eventually leaves government, unlike his predecessor…

He has also appeared recently in an exciting and inspirational video made by recruitment firm Odgers to promote a current senior vacancy in the government commercial world, the Commercial Director for the Ministry of Justice. OK, the video is not really exciting and inspirational. Rhys Williams comes over as a very decent chap, which I believe he is, but there is not a hint of charisma or energy in his “performance”.  Lucy Harding, the excellent Odgers Partner and interviewer, tries her best but my goodness, it is hard going.

Indeed, my reason for writing this is to say this – the job is more interesting than you might think if you merely watch the video!

The MoJ is a very interesting and complex Department, and the Commercial Director role reflects that. You’ve got the core central department, then related organisations such as the Probation Service, Prison Service and the Legal Aid Agency. I was a Commissioner (a non-exec in effect) for its predecessor, the Legal Services Commission in about 2006-10 and just working out how to manage the £2 billion legal aid spend with the legal “market” is a task that would challenge most CPOs! And it still hasn’t been sorted out from what I can see.

There have been major capital investment construction programmes in the prison sector and the  courts service, some moderately disastrous IT programmes, and probably some better ones we don’t get to hear about, and the famous prisoner tagging scandal, where the then CPO at MoJ and his colleagues put their Sherlock Holmes hats on to investigate a tangled web of dodgy supplier behaviour. (That was one of the most interesting procurement stories I ever reported on in my Spend Matters days).  All in all, it really is a fascinatingly complex Department, and there is as wide a range of procurement tasks and objectives as you will find anywhere.

So if you like a challenge, go for it. You will also be working in areas that really matter to citizens. In my time as a government procurement director, I did find that genuinely satisfying, compared to buying skimmed milk power for Mars or computers for Dun & Bradstreet. You do run the risk of appearing on the front page of the newspapers – which happened to me once – but actually, that just emphasises that you will be doing stuff that matters.

I’m sure Odgers is very open to applicants with different backgrounds, so don’t think that your track record in terms of which sector(s) you have worked in matters. And in the video, GRW talks about progression. Well, there is his job to aspire to, which he doesn’t mention!

Assuming he is going soon, it would be too soon I guess for this new appointee, but that role is a possibility in the future. As GRW does say, there is also the chance to move into a non-commercial operational role in government. A very capable women who worked for me at NatWest in her early career moved into government procurement at a middle management level but ended up in a very senior and high profile line management role in the civil service.

Anyway, you’ve got to get your application in by February 25th, so you haven’t got long…

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Mone Moans, But Still PPE Questions to be Answered

Over the holiday period, we heard a lot more about the case of Medpro, the firm that is being taken to court by the UK’s Department of Health and Social Care over the supply of PPE, gowns in particular, which allegedly turned out to be unfit for purpose. The beneficiaries of this, the high profile Michelle Mone, a member of the House of Lords, and her husband Doug Barrowman, produced a documentary arguing their side of the case, and gave an interview on the BBC. This came after the couple had originally denied publicly that Medpro was anything to do with them, with Mone lying to the press and then getting lawyers to issue threatening letters to various publications.

The general response to all this new self-generated publicity was not very favourable for the couple. The interview was called a “car crash” and was likened to the Duke of York’s famous “I was at Pizza Hut and I don’t sweat” interview with Emily Maitlis in 2019. There are some questions though which still need answering on the government’s side of the story.

  • Why is this the only legal case that the government appears to be pursuing? There have definitely been other examples of quality issues, and cases of firms that look at least as dodgy as Medpro winning major PPE contracts. Is there a logic to this or has the government chosen to pursue Medpro because of Mone’s profile, know there would be more publicity given her involvement and that would show the authorities were taking action?
  • Mone claims that she has an email from an official on the PPE team saying, “the gowns have been approved by technical”.  But that seems to be pre-delivery so the approval was before anyone had seen the actual delivered product, which seems odd. Maybe there were samples? But the gowns were apparently inspected by Uniserve, the logistics provider appointed by the government, from July 2020 in China.  And £122 million was paid out in the summer of 2020 for the gowns, which would usually suggest the buyer is content with what has been delivered. 
  • The government says that random testing in April 2022 found that 54 of the 60 randomly selected Medpro gowns weren’t sterile. But that is almost two years after delivery. Even if those tests were accurate, Medpro lawyers may argue that the gowns might have become unsterile in the intervening almost two years, perhaps because of sub-optimal storage conditions?
  • As a buyer, if I have inspected the goods, told the supplier they meet my specification, and handed over the payment as per the contract, then it is pretty unusual, and very difficult to go back a year or two later and say, “hang on a minute, I’ve had another look and I don’t like that stuff I bought from you after all”. In my experience, the supplier would be likely either to laugh or (if they valued my business) say something vaguely sympathetic such as, “Peter, you said it was fine – you must appreciate we can’t really do anything at this stage, terribly sorry”.

However, the fact that Mone lied about her and Barrowman’s involvement and personal gains from the deal is a major issue working against them. There is also the question of alleged bribery. This has been part of the investigation, but there has been no hint as to who it was that Medpro might have  bribed. Their political contacts? PPE procurement people? Other officials?  Flows of money are usually relatively easy to check, unless it is literally £50 notes in a brown envelope, so that’s still an  interesting unanswered question.

In any case, this is likely to be a big story through 2024, not least because Labour will emphasise “Tory sleaze” when it comes to the UK election. Labour has also promised to appoint a “covid corruption commissioner” to look into PPE contracts, so this story will no doubt run and run.

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Competition in Public Procurement – Thoughts on the PAC Report

The UK House of Commons Public Accounts Committee (PAC) published a report last week titled “Competition in Public Procurement”.  It’s a shame that the report came out so close to Christmas and in the middle of Gaza, the Covid inquiry, Conservative Party meltdown and general office party debauchery. That meant it got less publicity than it should have, because it contains some important analysis and recommendations. It is also very relevant because 2024 is going to be the most important year for public procurement in ages, with new regulations and (probably) a new government too.

The PAC usually takes reports from the National Audit Office as their starting point and this is no exception. NAO published “Competition in public procurement – lessons learned” in August and we covered it here. But this PAC report does pick up on some other issues, such as the need to transition to the new procurement regulations in October 2024.

“We are concerned that the government may not have sufficiently considered the time, money, and resources required to provide the commercial capabilities to successfully implement the Procurement Act 2023”, says the PAC.

But the heart of the report questions (as NAO did) whether the UK government is getting value for money (VFM) from procurement spend, in particular by using competition effectively.  One of the core issues here is the lack of good data around public procurement which means “government is unable to evaluate competitive trends, understand how effectively markets are open to small and medium enterprises (SMEs) and other companies outside government’s strategic suppliers, or set out clear directions and guidance for contracting authorities”.

That is a fair comment, and it appears that there is less competition in public procurement than there was a few years ago, which is a worry. But I do struggle a bit with the concept that better data will allow you to judge VFM. All of us who have worked in procurement know how difficult it is to absolutely KNOW that the contract or deal we have done is the best we could have achieved or even that it is genuinely good VFM. More data in itself does not necessarily help in that.

What you can do is look at the inputs into procurement activity as a proxy for getting the right outputs. That is why aspects such as having the right processes, policies, systems, trained and capable people, strong competition and so on are so important. We can make some assumptions that if you get all that right, you probably will get good value out of the other end.

On that note, the report picks up on the growth in use of frameworks in recent years. Now frameworks do have a valid role to play, but as the PAC says, “the Government Commercial Function has not provided sufficient guidance to address the potential risks to competitive benefits”.  Used wrongly, frameworks can contribute to closed or competitive markets, and provide a route for buyers to simply choose their favoured suppliers without real competition. That may be done for different reasons.

  1. “Reasonably good” reasons – “we’re in a real hurry and I know this firm can meet our needs”
  2. “Poor reasons – “We’re short-staffed, I just don’t have the resource to run a proper competition”
  3. Or REALLY bad reasons “I’ve been unofficially promised a job with this software firm / consultancy when I leave the civil service so it’s worth my while keeping them happy now”.

The PAC does make the fundamental mistake of bleating on about SMEs (small firms). It really is about time we had a proper, rigorous review of the idea that supporting SMEs is the right policy. Why not minority owned firms, or social enterprises and charities, or innovative start-ups, or local firms? The supporting SME policy has in any case failed to deliver against its objectives for a decade now, so for goodness sake, let’s take a proper look at it.

If Labour does win the election next year, there are radical steps it could take and a review of the SME policy would be one. But abolishing Crown Commercial Services would be another. CCS has many successes and positives, but it does inevitably support the idea of central contracts and frameworks, many of which are fundamentally anti-competitive. Then all the little buyers around the country are encouraged to use them, because they don’t have the skills or time to do procurement properly themselves.

The PAC report says this. “While we acknowledge that government has made progress to professionalise the commercial function at the centre, we are concerned that it has not sufficiently prioritised the need to develop that expertise across government, to ensure the successful implementation of the Procurement Act”.

I think that is a fair point. If Labour is serious about devolution, then it will be interesting to see if that strategic thrust is applied to procurement as well as to other policies and approaches. If so, Labour will need to spread the expertise that has been increasingly concentrated in Cabinet Office, break up large national frameworks, drive more competition, encourage a wider range of firms into the public sector supply base, and get more procurement expertise to the front line.  Will that happen? I have my doubts, but we’ll see.

Anyway, the PAC report is worth 20 minutes of your time over the festive period. Enjoy… and happy Christmas! 

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A Bad Buying Play in One Act

(Peter is sitting at his computer, shopping on Amazon. The CEO, Shirley, enters his office).

Hi Peter, how’s that big project going?  I’m pleased to see that you’re taking personal responsibility for it, as our Head of Procurement. It’s an important project for us.

  • Thanks Shirley, yes, I’m on top of it I think.

So the CFO told me that we’ve started making payments to the service provider?

  • Yes, indeed. We paid them around £140 million last year.

OK, so what are they delivering now? How’s it going?

  • Well, nothing yet, that was just to get them on board really, get their co-operation, and help them get set up, you know what I mean.

Not sure I do really … so when do we expect to actually start getting some services from them? Soon I hope.

  • Well, we don’t know to be honest. I mean, they’ve pushed back on the specification in one area. Apparently we wanted them to do something that might be outside international law. So we’ve still debating that.

But we won’t spend any more until this is sorted?

  • Well actually, there was another £100 million we paid in April. Sorry, didn’t I mention that before?  

So that’s £240 million and nothing to show for it. Are you are absolutely sure they will actually deliver the services?

  • Well no, we might still change our minds. Or they might raise more issues. Or that legal issue could get in the way. But don’t worry, we’ve agreed we’ll only pay another £50 million next year. So that’s good news…

Well, thanks for explaining. I’ve got something for you (she hands Peter an envelope).

It’s your P45. £290 million, for nothing. It’s a disgrace and frankly – you’re useless.  Security will escort you out.

Yes, it is spot the analogy time. I do have some strong views on the refugee issue in the UK and more widely, because I see bigger problems ahead driven by climate and other developments that will increase the flow of refugees further. I’m not a “let them all in” person by any means. But keeping the politics out of it, the handling of the Rwanda issue by the UK government is just sheer incompetence. It is a huge waste of money from a government that has made huge wastes of money its speciality. It is truly dreadful.

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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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Too Soon for 30% Weighting for Social Value in Tenders

I spoke recently at the UK Universities Procurement conference and as usual, had some interesting conversations around the margins of my session. In one such discussion, a sustainability person from a major university told me that his organisation was looking to increase the percentage of marks awarded to “social value” in tenders from 20% to 30%.  I must admit this surprised me, and I am certainly not in favour of this at the moment. It feels like we are heading for another new category of Bad Buying stories – where firms win tenders based mainly on their social value proposals rather than on their capability and the real “value” of their offering.

I have been consistently in favour of including social value in public procurement. But we haven’t been doing it for long, and I have not seen much analysis of exactly how successful it has been to date. So it seems too soon to be putting quite so much emphasis on that at the expense of cost, wider quality or service issues, supplier innovation and so on.  I would personally like to see 10-15% of the marks allocated to social value until we have more evidence.

One key concern is that organisations in my experience sometimes don’t really understand their own evaluation processes. My question to anyone thinking of moving to 30% is this. Given the evaluation methodology you are using, how much more are you prepared to pay for a proposal that scores 100% on social value creation as against one that scores 50%? Because that is what your evaluation scheme actually determines.

Some might say “ah, but social value has a real financial benefit too”.  In general, that is simply not true – certainly for the contracting authority itself. Read my article from a year ago here if you want more to support my claim). A quick extract – “In almost all cases, this is not real money. “Wooden dollars” as someone described it to me recently. It does not show up on the buyer’s P&L or balance sheet. You can’t spend these “financial” benefits on more road maintenance, a new operating theatre, or re-opening a drop-in centre for vulnerable people. No cash appears in the CFO’s hands.

The other big problem is that where there are benefits from social value, they often don’t go to the actual buyer. So if a university is accepting something like “employing more apprentices” as a positive social value factor, then how exactly does that benefit the university itself? Maybe it is good for society more generally, although big firms always employ apprentices so whether this is real incremental benefit from this contract is often questionable. We are also building in a barrier for smaller suppliers when we do this.

If we go down the 30% route, I can see some scandals emerging where contracting authorities end up paying way over the odds for goods or services, and their defence is “but the social value was great – look, the supplier painted a scout hut”. Yes, but was that worth the extra million you paid to a supplier who turned out to be not very good at the core work?  Look at the Scottish ferries fiasco if you want an example of what can happen when a basically incompetent supplier wins a contract for non-value for money reasons.

I don’t want to become an “anti-social value” campaigner, but I really don’t like the idea of 30% of evaluation marks going on social value until we understand a lot more about best practice and how we can get the most out of this initiative for the taxpayer. And we’re not there yet.

However, there is one more innovative option. You could specify a fixed price and then evaluate on service, social value and other factors. I have heard of this being done and it has some merits. So you might say “we are prepared to pay £500K for this service – now tell me how you will do it and what social value you will provide”. In that case, I’m open to a 30% weighting.

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