(But a Government procurement leader joining a supplier while still working as a civil servant is!)

In my last article about fraud related to supply chain finance (which came to mind because of the emerging Greensill / Gupta developments), I said that I hadn’t come across that type of fraud previously. There are plenty of other variants on invoice-related fraud in my book, however.

That brought a call from a friend. He told me of a case he had seen where a business created fake invoices to “clients” and used those invoices to obtain funding from their supply chain finance (SCF) provider. The amusing angle was that the finance provider was a major bank, and the fake invoices included a number that were supposedly issued to the same bank!

So the finance was provided by a bank on the basis of non-existent delivery of goods or services to the same bank … you might have thought that someone would have spotted this or checked to see if the supposed supplier was in their AP system. But perhaps they did, given the fraud was discovered eventually! You also wonder whether the fraudster was stupid, secretly wanted to be caught or was just having a laugh at the expense of the bank itself.

Exploring this theme further, it is clear that supply chain finance related fraud is not new. Just last year, a major scandal in Singapore saw the Him Leong oil trading company collapse. Part of that was down to false invoicing and over stating of receivables, which enabled the firm to obtain financing based on these invoices.

As the spglobal website reported, “financial statements for the year ended 31 October 2019 grossly overstated the value of assets by “an astonishing amount of at least $3 billion” comprising $2.23 billion in accounts receivables which had no prospect of recovery and $0.8 billion in inventory shortfalls”.

There are also cases that are not overtly “fraudulent” but are misleading. When leading UK construction and facilities management firm Carillion collapsed in 2017, the use of supply chain finance was one of the ways it concealed its problems until the final reckoning.  Carillion worked with Santander bank to offer its suppliers payment earlier than its ridiculous 120-day standard payment terms (in return for a fee, of course). Santander then retained the money it owed for the full period.

Globalconstructionnews website reported that “Carillion tucked the cash managed through reverse factoring into the box labelled “trade and other payables”, to which it had added “other creditors”. This, believes S&P, allowed it to show a modest increase in working capital from 2012 to 2016, because “working capital” does not usually include trade payables.  After 2012, the growth in money owed under trade payables ballooned from £263m that year to £761m in 2016. Reverse factoring, said S&P, allowed Carillion to “hide a substantial part of its debt from view”.

To widen the discussion to fraud generally, I believe that Boards, CFOs and CPOs should regularly ask themselves, “how would I defraud this organisation if I was an evil criminal genius”? Or maybe employ an actual evil criminal genius consultant to do that for them (I’m available at very reasonable evil genius rates). Read most of the cases I quote in the Bad Buying book, and you realise that any intelligent insider could have spotted the flaw in process that allowed the fraud, if only they had spent some time thinking about that.

However, the problem with much SCF related fraud or dubious practice is that it is almost always an internally generated fraud. It might involve third parties, innocent or not so innocent, but it is often driven by very senior people in the business, or even owners and founders. So there would not have been much point asking the Board of Carillion to look at the use of SCF if they were complicit in the  bad practice. If it is found that the Gupta companies did issue fake invoices to generate SCF funding  from Greensill, then no doubt that will have originated at a pretty high level in the business.

Meanwhile, back to other aspects of the Greensill affair, and yesterday we saw newspaper revelations that Bill Crothers actually joined Greensill two or three months before he left the civil service, while he was still Chief Commercial Officer for the UK government. Such a move seems very odd but it was all signed off within the Cabinet Office, apparently.  That seems to show very poor judgement at best from Crothers, and perhaps the judgment of the experienced top-level civil servants who approved this was even more suspect. More to come on all this, I’m sure.

We wrote about the collapse of Greensill Capital here, and more information has emerged on a daily basis over the last couple of weeks. It seems increasingly clear that the talk of innovative new supply chain finance models was nonsense, concealing some old-fashioned dodgy lending to unstable companies. (after I drafted this article, the Sunday Times of March 28th had yet more about Cameron’s involvement and that of others, including Bill Crothers and Jereny Heywood, head of the civil service).

For instance, Greensill’s financing of the Gupta group of companies was based (in part at least) on a notional future income stream. But there were no actual orders, no contracts and not even any named customers in some cases! That is a million miles away from traditional invoice factoring. The way this very high risk lending was then dressed up and sold by firms such as Credit Suisse as low-risk bonds will I suspect keep the courts occupied over coming years.

But another interesting aspect has been the role played by the UK’s ex-Prime Minster David Cameron. He appointed Lex Greensill as his “crown commercial representative” for supply chain finance back in 2014. Greensill got his CBE in 2017 and Cameron then took up a role as an adviser to the firm when he left office. His share options were rumoured to be worth tens of millions. Last year, he is alleged to have lobbied the Treasury and the chancellor of the Exchequer Rishi Sunak to try and obtain government grants and loans for Greensill. To the credit of senior civil servants, most of Greensill’s applications were refused.

That has led to questions about the propriety and ethics of Cameron’s intervention. But it raises some broader questions too. In an excellent article in the Sunday Times (behind the paywall unfortunately), columnist Mathew Syed raises the general issue of ex-politicians and their activities post-politics.

For instance, as Syed says, “ Robert Rubin, former US Treasury secretary, helped introduce a law that allowed banks to merge with insurance firms, something lobbied for by Citibank. He left the Treasury the day after the law was passed and, three months after that, was hired by — you guessed it — Citibank. He earned $126 million (£91 million) over eight years as the bank loaded up on risk, then used his connections to secure $45 billion in taxpayer bailouts when it failed”.

The former Danish Prime Minster Thorning-Schmidt says that she is still independent, despite co-chairing Facebook’s Oversight Board. But she now argues that an aggressive regulatory approach could “infringe freedom of speech”.  She won’t say how much she is being paid in this role – but we know that Nick Clegg, ex leader of the UK Liberal Democrats, now VP of Global Affairs at the firm is on something around $1 million a year. Ex UK Chancellor Philip Hammond now has 14 jobs including with the finance minister of Saudi Arabia, whilst his predecessor George Osborne has nine jobs including at the world’s largest investment firm.

Syed points out that what we are seeing is dangerous and calls this sort of process “retroactive inducements”. It is undermining our faith in capitalism and democracy as politicians see that their route to future wealth is to help market incumbents, Syed argues. “Unconsciously or otherwise, the revolving door is lubricated”.

I would slightly disagree with Syed in that it does not need to be an “incumbent” – Greensill was a relatively new market entrant. But the concern is that those in positions of power might see future benefits coming to them if they do favours for a firm now.

It’s not just the politicians…

And of course it is not just Cameron and co that we should worry about. Bill Crothers became vice-chairman of Greensill having been government’s Chief Commercial Officer from 2012-15.  Now I don’t think for a moment Crothers did particular favours for Greensill in that role – I didn’t pick up any hint of that at the time. In fact, I have heard it suggested that Crothers may have actually put money into Greensill himself, so may be a personal creditor.

But you can see the danger here of senior decision makers looking to their futures.  I know it is an issue in the Ministry of Defence. So many senior people, particularly uniformed mid-level officers who leave the forces in their forties or fifties, end up working for defence suppliers. Are they tempted to help those firms whilst they are public servants, or be gentle with them if they are a contract manager with the firm as a supplier, because of what they might get in the future?

Syed calls for change. The solutions are simple, he says.  He wants “stronger constraints on lobbying and donations, together with new rules on monopolies and moral hazard. Crucially, we should also raise the pay of ministers and regulators, with the quid pro quo of longer periods that prevent them from working for corporations after leaving office”.  I don’t agree that these are “simple” issues though – higher pay for Ministers would not go down well with many! But he is absolutely right when he says this.

Above all, though, we need a transformation in values of the kind that has (partially) changed medicine. For until seemingly decent people can see that their actions are unethical, we cannot hope to win. It is, I think, the only way to save capitalism from itself”.

And I would extend that beyond politicians, to the ranks of the senior public, military and civil service too. If key people are constantly thinking about what might be in it for them at some future stage of their career, we’ve got big problems.

(On the day I published this article, the Sunday Times of March 28th had yet more about Cameron’s involvement and that of others including Bill Crothers and the late Jeremy Heywood, ex-head of the civil service. So we may come back to this story again once I have digested that!)

There have been interesting developments in terms of procurement of PPE in several European countries.   Last month, the Times reported that magistrates in Italy had ordered the seizure of property worth more than €70 million (£60 million) including a yacht, a Harley-Davidson motorbike, watches and several apartments from eight middlemen.  They are accused of exploiting the desperate shortages of PPE last year at the height of the pandemic.

The allegation suggests that a group of businessmen earned commissions worth €72 million on the purchase of 800 million facemasks from China. Those masks cost the Italian government some €1.2 billion. The suspects are accused of “illicit influence trafficking, receipt of stolen property and money laundering”. There is some cronyism involved here too. One of the accused is Mario Benotti, 56, a journalist and general director of two technology companies, and someone who knew Domenico Arcuri, 57, the Covid commissioner.  But Benotti says that he intervened to help his country and because Arcuri asked him to.  He acknowledges getting €12 million but says he earned it.

It has to be said that a margin or commission of €72 million sounds a lot. But on a spend of over a billion, that is “only” 6%.  Is that really exploitation?  A BBC Panorama programme this week suggested that firms such as Ayanda Capital made significantly more than that supplying the UK with PPE – a margin of 15.8% according to Tim Horlick, the boss. But in any case, if 800 million masks cost €1.2,  that is €1.5 per mask, which shows just how crazy the market got last year.

In Germany, the scandal is deeper and more shocking. Several leading politicians have been forced to resign because of the money they made personally from the pandemic shortages. Earlier this month, two members of the parliament and of Angela Merkel’s ruling CDU party resigned this week because of the scandal.

It appears that Georg Nüßlein and Nikolas Löbel both personally profited from government contracts for face masks. Löbel is alleged to have received €250,000 in payments for brokering a deal between a Chinese supplier of masks and the German cities of Heidelberg and Mannheim. Nüßlein is accused of making €660,000 through a consultancy firm for lobbying the government on behalf of a supplier. Mark Hauptmann, from the eastern state of Thuringia, is the latest to go. He is stepping down due to his alleged links concerning medical supplies and Azerbaijan. It all seems somewhat opaque, but Hauptmann has admitted that Azerbaijan and other countries paid for adverts in a newspaper he publishes.

Coming back to the UK, we also don’t know if any of our politicians took their cut for promoting PPE suppliers onto the “VIP” path, which greatly enhanced the firms’ chances of winning contracts. We still don’t know how Ayanda Capital and others were chosen to be awarded contracts, or why each got the size of contract they did.  This week, the BBC Panorama programme looked at how some very odd firms won huge contracts or acted as facilitators, such as an upmarket dogfood business! It also exposed that details of some contracts awarded last spring and summer have still not been published.

But there only four possible options in terms of the process used in the UK to select suppliers.  

1. There was an actual selection process. I don’t mean the due diligence assurance which was carried out once a firm had been chosen – I mean the process for choosing which firm would get which volume. But if there was such a process, we still don’t know what it was.

2. It was random. All the names in a hat …

3. It was literally first come, first served. The first firms that got their offers in won the work, until all the volume needed was covered.

4. It was fundamentally corrupt.  

We still don’t know which of these is the most accurate explanation, and until we do, we can’t rule out the possibility of more scandal emerging in the UK, as we have seen in these other nations. This story isn’t dead yet.

(I asked CCS if they wanted to comment on this article and they said no).

The Crown Commercial Service (CCS) is the central buying organisation for the UK government – particularly used by central departments, although any other public body (councils, hospitals, universities etc.) can use their contracts and frameworks too. It does some good work and employs a lot of hard working, smart procurement people. But sometimes it gets it badly wrong, as it has with the new management consulting procurement process.

Bids from potential suppliers are now in for the latest iteration of their Management Consultancy Framework, MCF3 as it is known. It is split into 10 Lots, ranging through general “business”, functional areas including procurement, and high-level topics such as “strategy”. Suppliers can bid for all or any of the Lots.

I have looked at the way the Lots and evaluation process are structured, and the way it is designed looks at first sight very strange. However, if you believe that it is aimed at meeting four key objectives, then it is quite sensible. Those objectives do not, unfortunately, include “delivering value for the taxpayer”.  

Instead, they appear to be:

  1. Make sure the big firms (McKinsey,  Deloitte, BCG, PWC etc) win a place on the more “strategic” Lots 2, 3 and 4 for strategy, finance and transformation work.  Why is it essential that these firms are successful?  Simply because Ministers and senior civil servants want to use those firms, and CCS itself relies on the commission it gets from sales through its frameworks to fund itself. If they weren’t available via CCS, budget holders would find another way to engage those firms and CCS would lose revenue.  
  2. Make sure those firms get onto the framework without having to offer particularly competitive prices, so they will be happy to put senior people onto government work without worrying about the rates.  
  3. Ensure that there are a large number of “SMEs” (smaller firms) who win a place on the MCF. Ministers can then supposedly support the small business agenda and announce that “over 50% of the firms selected are small firms”.
  4. But also make sure there is no need for any government department to actually use any of these small, lower cost firms.

So if these are indeed the objectives, how has CCS given itself the best chance of achieving this?

A Dodgy Price Evaluation

The way price is evaluated is a major factor here. So Lot 1 is general “business”, and up to 75 suppliers will be appointed to this Lot. Here, when the bidders “price” is evaluated, it is weighted at 90% of the total marks available. But the other 10% is just a tick box to say you will deliver the services (which is odd in itself – why would I be bidding otherwise?)

Price is calculated as the median of the prices offered for the 6 grades, from junior consultant up to Partner level. So basically, this is purely a price selection. The cheapest firms, which will be small firms that few of us will have ever heard of, will win a place. And because no-one has heard of them, and (in some cases at least) they are not very good, which is why they are cheap, they won’t be used much. But CCS and Ministers will have lots of SMEs on the list to boast about.

So then how does CCS make sure that the big firms succeed? For Lots 2, 3 and 4, price is only weighted at 10% of the total marks.  The rest come from essay-type questions in which the firms have to show extensive capability. There is plenty of scope for some flexibility in the marking too, and given the low weighting, price barely matters.   I would bet my mortgage that the “usual suspects” will all win places here.  

But just to make sure that those firms don’t have to worry about not making enough money, the price on which marking is based is not calculated as the average (the mean) of the 6 grades, which would seem to be a logical approach, or a weighted average rate based on likely frequency of use of each grade. Instead, it is the average of just two grades, the two “middle” ones (senior consultant and principal consultant / associate director). Actually, that would seem to be the same as the “median” price which is how Lot 1 is defined – it is not clear why different terminology is used.

So that means you don’t have to worry much about the price you put in for Partner. There is one more constraint in that for each grade, the price must be between 10 and 50% lower than the grade above.  But that isn’t too much of a hardship – for instance, you could put in this bid:

FIRM A

Partner                               £6000 a day

Director                              £3000

Principal consultant        £1500

Senior consultant             £1300

Consultant                          £1150

Analyst                                £1000

Your score would be based on the average of £1300 and £1500, so that is £1400, which is probably not too out of line with many bids. But once you win a contract, you can legitimately put your Partners in at £6K a day!

This is an “Illegal” Evaluation Methodology

There is also a technical/legal issue here, in that your evaluation score could be the same as another bid that puts in much lower rates for the top two grades (or indeed the lowest two), as long as you offer the same rates for those two in the middle. That seems to break fundamental rules of public procurement, that you have to make “value” your selection factor and you have to show you have a “fair” process.  So Firm B (below) scores fewer points in the evaluation than firm A, even though their pricing is much better value overall!

FIRM B

Partner                               £2000 a day

Director                              £1750

Principal consultant        £1500

Senior consultant             £1320

Consultant                          £900

Analyst                                £600

I can think of no reason why the average of the 6 grades has not been used – other than to help the big firms charge a fortune for their Partners. Unless I’ve missed something here, it feels like either a real error or there is something odd going on. I’m not a conspiracy theorist, but you do sometimes wonder if there is some sort of plan for certain firms to suck as much money as possible out of the public purse at the moment?   

This is the Argos Catalogue, not a “Framework”

Finally, there is another somewhat technical issue, in that users of the framework who want to choose a supplier for an individual project should (to be legally compliant) in most cases invite all the suppliers listed in the Lot to bid. But if you have to ask 75 firms (Lot 1) or even 30 firms (Lots 2 to 6 ) to put in proposals, that is quite a workload to manage and evaluate.

So I suspect CCS assumes that many users will just choose their favourites from the list, even if this technically breaks the regulations. We’re going back to the old days when I worked in government in the 1990s and that was how frameworks were generally used. Budget holders just picked their favourites from a preferred supplier list. The approach didn’t deliver value for money for the taxpayer then, and it doesn’t now.

But again, having such extensive lists of suppliers ensures that there is plenty of choice on the framework for users, so CCS maximises its own revenues. I’m afraid that looks like a major driver here, along with keeping Ministers, budget holders and the big firms happy.

What Does the Lord Think?

I do also wonder what Lord Agnew, the Cabinet Office Minister, thinks of this, or if he is even aware of what is going on. It was Agnew who wrote to senior civil  servants last September telling them to “rein in spending on consultants” and that Whitehall was being “infantilised” by their over-use. 

But when you see headlines in a year or two about “firms charging £6K a day for consultants”, you know why. Basically, the government, through Crown Commercial Service, has designed its procurement process to allow that. This is all very disappointing, given the undoubted talent of the people in CCS involved in this exercise.

PS  Buying consulting services based on a “day rate” model is almost always the wrong way to do it, anyway. More on that another day.

PPS There is no mention of “social value” in the tender either.

Bad buying takes many forms, and there is a risk we might see a new driver for poor procurement emerging in the coming months and years. The problems are avoidable, but we need to be aware of the risks.

Social value has become a very hot topic in the public sector in many countries. Recently, I wrote two articles (here and here) on the topic for our Procurement with Purpose website.  That is my other major interest at the moment, alongside “Bad Buying”, and we might consider those aspects two sides of the procurement coin. Procurement with purpose is all about how (if we are smart) the money organisations spend with suppliers can contribute to environmental, social and economic improvements that go beyond the specific contract. That is exactly the same as “social value” in the public sector.

So we are now seeing public contracting authorities incorporating social value factors with quite significant weightings in the evaluation process. Indeed, this is not just relevant to the public sector. Vodafone announced recently that they were going to use similar factors in their supplier selection models. Choosing a supplier is then not just about price, service and quality, but can also incorporate a range of other factors, from emissions, to employment of disadvantaged people, to support for local sub-contractors.

That’s fine, and we applaud the concept. But one fear is that we could see firms being selected based more on their social value offering than on their actual ability to do the job.

Scotland has led the way in many senses in terms of applying social value, and we interviewed one of the key leaders in that effort, Julie Welsh, for the Procurement with Purpose website a while back. But there is another side to the story. The Ferguson Shipyards case is an example of a firm that was supported with public contracts, in part with a view to supporting Scottish business and employment. Unfortunately, it appears that the shipyard may have been incapable of building the two ferries for which the government contracted, and costs to the taxpayer will run to over £100 million more than planned.

Reports suggested that the bid “was the highest quality bid received, in other words the highest specification, but also the highest price” of all the six yards competing for the job.  It seems likely that a high mark for social value contributed to the shipyard being the top score on “quality” and winning the bid – yet in fact, it failed to actually do the work, as well as being the most expensive bid. Without knowing the full story here, it does illustrate the need to maintain proper procurement processes and a commercially sensible approach. Suppliers must not win work on social value alone. 

That means social value weightings must be proportionate, and not outweigh what is the core goal in all public (and indeed private) sector procurement – finding the best supplier to meet our needs and provide the best overall value. Incorporating social factors in that “value” is fine, but it should not  come before the supplier’s capability to do the work properly and cost effectively.

Another key issue is how we can ensure that the social value offered is meaningful.  It should not become skewed by politics, or relate to factors that are immaterial to the contract or the needs of the buying organisation. It should also be capable of some sort of tracking and measurement to ensure the supplier does deliver on their promises; a focus on social value makes the need for effective contract management stronger than ever.   

There is also a risk that fraud and corruption could emerge as social value becomes more important in terms of winning contracts. I won’t go into that here, but it is discussed in my articles on the Procurement with Purpose website.

So all in all, incorporating social value or procurement with purpose factors into supplier selection  has the potential to be good news. On the other hand, if it isn’t handled with care, it could actually drive more “bad buying”. Our advice therefore is to implement with care and thought.

Just before the end of 2020, the UK government issued a Green Paper on the future of public procurement regulations post Brexit. I know, it sounds dull, but before you stop reading, this matters to every taxpayer and citizen in the UK. The government spends some £300 Billion of our money every year with suppliers, so getting that right has a huge impact in terms of value for money, the economy, as well as the services provided to UK citizens.

One of the themes in the Paper is around proposed changes to the way that unhappy bidders can complain about and challenge procurement decisions.  Without going into all the gory details here, pretty much everyone involved would agree that the current process is slow, cumbersome, and often leaves the bidders feeling unhappy. It can be a real problem for the buyer, even if they haven’t done anything wrong.

So this is an area where change is needed. But has the Green Paper got it right?

One controversial proposal is to cap the damages that a bidder can receive to one and half times the bidding costs plus legal fees, except in some exceptional circumstances. Critics of that idea say it will greatly reduce the incentive for a supplier to challenge, even when there has been bad or unfair procurement.

I have very mixed feelings on this issue, and there are some tricky balances here. In my Bad Buying book, I tell the story of a disastrous Nuclear Decommissioning Agency (NDA)  contract.

The case involved a 2016 legal challenge by Energy Solutions Ltd., the incumbent supplier for a huge contract to clean up de-commissioned UK nuclear power stations. They lost the tender … to a Babcock Fluor consortium (CFP).  But there were a number of mistakes made during the procurement process.

One related to “pass / fail thresholds”; areas where the NDA defined up-front that failure to meet certain conditions would lead to instant disqualification for the bidder. However, once bids were scored, it became clear that one supplier had failed to meet the threshold. But instead of chucking them out of the competition, the NDA decided to let them stay. Now this may all seem a little technical, but it is clearly unfair; and public procurement regulations really don’t like unfair buying processes”.

You can’t change your mind about the rules once you get into the buying process.  As the judge said, after a bidder has failed to meet a defined threshold, you can’t ask “was that threshold Requirement really that important?”, arrive at the conclusion that it was not, and then use that conclusion to justify increasing the score to a higher one than the content merited (or to justify failing to disqualify that bidder)”.

To disguise the failure of one bidding firm, the NDA team also adjusted original scores given to the bidders during the marking process. But they failed to provide any audit trail or justification for these changes, a fact that became obvious through the trial.

The judge found that the procurement did break the rules – an unsurprising outcome because it was one of the most blatantly unfair, incompetent tender evaluation processes I have ever seen.  The NDA agreed  to pay the firm (and their consortium partners Bechtel) around £100 million to settle the legal claim for their loss of profit on the contract. And an inquiry into the fiasco still hasn’t appeared, unfortunately.

Now that doesn’t really seem like a fair solution for the UK taxpayer, however bad the procurement process was. £100 million is a lot of money! But equally, firms should have the right to recover something – and probably more than 1.5 times bid costs – if they miss out on a contract because of incompetent, unfair or illegal procurement.

The failure to publish the report into the NDA affair is another common problem. In another case, Virgin Health received a settlement rumoured to be in the millions because of a botched procurement run by six clinical commissioning groups (CCGs) in Surrey, Surrey County Council (my home county) and NHS England. But the settlement and case details were subject to a non-disclosure agreement, so we never found out what happened, and that means other contracting authorities cannot learn from the expensive mistake.

So that was “Millions out of the health service and into the pockets of billionaire Richard Branson” – at least that is how some saw it, although Virgin defended their action.  Again, I would support the right of firms to challenge and get some reward if they are truly victims. But more thought probably needs to go into the Green Paper recommendations, and I would also make it compulsory for both parties to disclose full details of the challenge publicly. No more of these Bad Buying cover-ups please.

So what do we make of the UK schools lunch food box scandal? It all started with a mother posting a picture on social media of what she said were the contents of a food box that replaced her child’s usual free school lunch.

The contents weren’t very appetising, nor did they come close to being two-weeks’ worth of lunches. There was talk of this box replacing £30 worth of vouchers, another not very flattering comparison.

But there has been some confusion since then. The box was actually only a week’s worth of food, according to the supplier. Some suggested that certain pictures flying around social media didn’t include everything that was in the box. However, Chartwells, the supplier of the box and part of the giant Compass food service group did apologise and say that the box hadn’t met the required high standards, and committed to refunding the costs. The firm is clearly trying to recover from the bad publicity and is now including some additional breakfast provisions in the box, free of charge and the government has given an additional allowance of £3.50 per week per child.

It does also seem that the box was charged at £10.50, not £30, which is very different in terms of the value to the taxpayer and the recipient, and that includes food, packing and distribution. And whilst my initial thinking was that the specification must have been far too loose, or non-existent, it appears that the guidance for what should be provided is quite detailed and looks very appropriate. This is from the guidance prepared by LACA (the Lead Association for Caterers in Education), Public Health England and the Department for Education:

Food parcels should contain a balance of items from the different food groups, to reflect a healthy balanced diet for a child, as depicted by the Eatwell Guide and in line with the School Food Standards. Each parcel should provide: 

  • A variety of different types of fruit and vegetables, to provide at least one portion of fruit and one portion of vegetables each day. These can be fresh or tinned but it’s best to source versions tinned in water or fruit juice, with no added salt or sugar.
  • Some protein foods (such as beans, pulses, fish, eggs, meat and other non-dairy proteins), to provide a portion of food from this group every day. Meat and fish should be cooked (e.g. cooked ham or chicken slices) or tinned (e.g. tuna, salmon). Consider alternating between different protein foods to provide variety.
  • Some dairy and/or dairy alternatives (such as milk, cheese, yoghurt), to provide a portion of food from this group every day.

So let’s go back to first principles and consider whether we have seen “Bad Buying” here. The specification issue is a good place to start. Was this product specified properly? It looks like the answer might be “yes”, if we consider those guidelines. They give some leeway but are pretty clear.  

Then we can look at competition. A theme running through my book – and good procurement in general – is the power of competition as a lever for driving value and supplier performance.  Now it isn’t clear whether Chartwells won this business through a competitive process. I suspect there may be a framework with a number of providers approved to supply food boxes, as it appears that individual schools are the actual “buyers” here.  

We would hope there was some competitive process behind that – but the food boxes provided to people who were locked down last year were supplied by firms under emergency contract regulations which did not require competition, according to Spend Network and the Good Law project. Was it the same with the school boxes?

There is then the question of establishing value for money, which comes back to both the specification and the competitive process. But even if there wasn’t competition , it should have been possible to establish a “fair” price for the boxes, including the food itself, packing, handling and distribution.  I can’t say that £10.50 was a fair price – but it doesn’t feel too far out if it had covered five meals to the standard required in the guidelines.

The final and critical point comes down to supplier performance and therefore contract and supplier management. The furore all started with the pictures of substandard boxes hitting the media. Chartwell’s have mentioned supply issues; but the fact is, they should not have delivered boxes that did not meet the standards. Or, if there really was no alternative because of shortages or other supply issues, they should have explained that to their customers.

If there was a widespread and  deliberate policy of delivering less value than the specification required, then of course that would be a different issue altogether. But if this was more of a one-off, the schools involved should have been told that the product was not up to standard and that some reparation or mitigating steps would be taken quickly. That would probably have headed off the public exposure.

So this looks like a failure of supplier performance, possibly fairly isolated rather than endemic, which arguably showed some issues with contract management too. If someone on the buy-side knew of the issues, they should have done something about it, and if they didn’t know, there was something wrong with the relationship between Chartwells and the “contract manager”, whoever that was.  But I’m less sure that it was a failure in the core procurement process in this case.

Earlier this month the first Proctopus Christmas Party and Awards evening took place in the glittering surroundings of … Zoom.  Proctopus is an informal group, largely LinkedIn based, that has grown through this year to provide networking, career support and general community for around a thousand procurement professionals, many of them interims and “solopreneurs”.

Great credit is due to Dave Jones, Keith McCabe, James Meads and Graham Copeland, the main instigators of Proctopus, who have developed something really quite impressive and heart-warming in its goal to improve life for many who have found this year a bit of a struggle!  Anyway, I sponsored a prize for “ worst example of Bad Buying” at the event – the evening raised a couple of thousand pounds for good causes – and we had a live vote between three contenders:

  • UK government PPE procurement
  • “Other” UK government pandemic contracts
  • Forced Labour in Chinese garment manufacturing

All good cheerful stuff! It was a very close poll, but the “other” pandemic contracts won. I guess the audience of procurement folk really weren’t impressed with the scale and number of contracts awarded by the UK government without any real competition or process, covering communications and PR, consultancy, testing kits, track and trace process management … the list goes on.

Just to continue the theme of poor management practices, it has been impossible to follow the enquiry into the Grenfell Fire disaster without feeling strong emotions. Sympathy for the people who lost their lives, their loved ones, their homes, but also anger – fury, in fact – and disbelief at the behaviour of firms and individuals who supplied the flammable cladding that caused the fire to become so tragic.

There certainly was some “Bad Buying” within this process too. The Kensington and Chelsea council and housing management organisation have not covered themselves in glory, and that includes procurement practices that clearly did not work well given the end result.

But there were supplier firms such as Celotex, Kingspan and Arconic, some of which blatantly lied, cheated, fiddled test results, and threatened those who raised issues. Frankly, it would have been hard for the best procurement professional to navigate themselves through the cesspool of appalling behaviour from too many individuals on the supply side. The building and construction regulators and authorities also failed in their responsibilities, it should be said.

And now there are also thousands of people – perhaps millions –  around the country stuck in flats they can’t sell because of fears about cladding. In some cases, they are paying huge amounts of money for work to be done or for “fire wardens” to sit around all day just in case a fire breaks out and their building’s cladding kills them.  No-one is taking responsibility for sorting this out, but you would have thought somebody was liable here. I also find it infuriating that our government can find £100 billion for a high-speed railway of doubtful value but can’t spend a tiny fraction of that to solve this problem (or indeed to fix Hammersmith Bridge – but that’s another story).

Anyway, that’s not a very festive story for what will probably be my last article of 2020. Whilst it has been very satisfying to see my book published in 2020, and many thanks to all who have bought it, that’s about all there has been in my personal positive column for the year.  So let’s hope there is more “Good Buying” in 2021, and that generally it is a happier year for all of us.

The second UK National Audit Office report on pandemic procurement was issued recently. Titled “The supply of personal protective equipment (PPE) during the COVID-19 pandemic” it focuses entirely on PPE. It has received less media coverage than its predecessor, which looked at wider procurement issues, although it too had a lot of PPE-related content.

That reduced attention was probably because it lacks some of the obviously newsworthy headlines the first reported generated, around contract awards to firms such as Ayanda Capital and Pestfix, who have been in the news for a while, and discussions of potential conflict of interest at Ministerial level. But that’s a shame, because there are some very interesting findings in the more recent report too, although it still leaves a couple of key questions outstanding.

The report gives more visibility of the process as the pandemic struck in the spring. It clarifies some of the failures we saw around the existing pandemic stockpile, which was a combination of sheer incompetence and a more forgivable lack of preparedness for this type of virus.  Once it became clear that the normal NHS channels, such as Supply Chain on the procurement side and Unipart for delivery couldn’t cope, we saw Lord Deighton getting involved, bringing in people he knew (including HR support through another questionable contract).  We know Clipper won a huge distribution contract, also without any competition, although they seem to have done a pretty good job all in all.

The Parallel Supply Chain buying operation was set up in late March, with one team looking at extending UK manufacturing and another sourcing PPE globally. McKinsey supported the Department in putting together a demand model to predict how much PPE was going to be needed. The teams then went off and agreed contracts with some of the thousands of suppliers who had expressed interest – some of whom came though the “VIP route”, already exposed previously.

That takes us into our three big outstanding issue though.

  1. We still don’t understand the process by which suppliers were selected from those that put themselves forwards. Why did Ayanda Capital win a contract for £250 million? Why not £50 million? Or indeed £500 million? Why did 47 suppliers win contracts, with value ranging from less than a million to the hundreds of millions – was there an overall strategy of some sort, or was it literally the buyers accepting the first offers that were made that got through the approval process?  We know that process was flawed early on by the lack of real due diligence, but we’ll park that for the moment. But the process used for selecting suppliers and determining quantities per contract is still opaque.
  •  Why has the demand model turned out to be just so inaccurate? We are now in a situation where, as NAO says, if the recent rate of use of PPE continues, then the 32 billion items that had been ordered by the Parallel Supply Chain by 31 July could last around five years (with variations across the different types of PPE). The Parallel Supply Chain’s initial estimate of the PPE that would be required nationally anticipated an enormous increase compared with pre-pandemic use, but actual use has been lower than this (although still far higher than pre-pandemic use). What went wrong?
  • There is still some doubt over how much PPE is unusable or at least does not meet original specification. From the report – “The Department (of Health and Social Care) told us that it had identified 195 million items which were potentially unsuitable, which was equivalent to around 1% of the items it had received to date. However, it has not provided us with sufficient information to be able to verify these figures because, it told us, this would compromise its ability to resell the PPE”.   In other words, NAO can’t be sure the Department isn’t fibbing.

Coming back to the demand issue, did the model assume that the absolute peak of PPE usage in March / April would continue forever, and that there would be no reduction in cases as we went into lockdown? Was it the move away from putting patients on ventilators, as clinicians learnt more about optimal treatment pathways?  Were contingencies built on top of contingencies? I understand that the model did initially include the devolved countries (Scotland, Wales, N Ireland) who then went their own way on PPE, but that factor isn’t enough to explain the huge quantities ordered. It’s a shame the NAO report didn’t dig onto this issue a little more deeply, I feel.

By the time that the PPE team was “professionalising” through the summer and bringing in more people with real public procurement experience, I’m told that it wasn’t really a buying job any longer. The vast majority of the contracts were placed in May and June. Through the autumn, teams have been focused more on how to manage this huge over-ordering situation. That’s one of the reasons why UK ports are struggling – they are clogged up with billions of items of PPE, ordered earlier but for winter delivery.

My prediction is that soon, there will be stories of suppliers being paid off – they’ll get the majority of the contract value paid but be told not be bother supplying what is not yet delivered.  There is also a very serious problem here, as a range of new UK- based manufacturers were encouraged to move into this market. But if there is 5 years’ worth of stock (or committed orders) already, who needs more from these possibly expensive UK manufacturers?

I do have sympathy with the people involved here. Predicting demand in the peak of the pandemic must have been a difficult task, that is undeniable. But how did smart civil servants and McKinsey consultants (charging a fortune, no doubt) get it so wrong?  That demand model has cost the taxpayer billions. We have bought far too much stock, and even if it does get used eventually, it was bought at the top of the market, at prices several times the norm in many cases.

The NAO report on UK government procurement through the pandemic came out recently and we wrote about it here, focusing mainly on the PPE (personal protective equipment) issues it identified and analysed.

Today, we’ll look at some of the other non-PPE contracts that the NAO investigated. It’s worth highlighting that the auditors looked at 20 contracts and did not find problems with all of them by any means. So their list includes examples from the Department of Work and Pensions and different bodies within the health sector for instance, and in most cases, there were no serious issues identified.

However, the real villains sit in Cabinet Office, where three contracts were examined and each was a case study of (certainly) incompetent and (arguably) unethical procurement. That is ironic, as that Department also houses the HQ of the Government Commercial Organisation and Gareth Rhys-Williams, the government’s Chief Commercial Officer. His role is to promote better procurement across the whole of central government and his influence runs even more widely. But it appears to be a case of, “listen to what I say, don’t look at what we actually do in the Cabinet Office” if the NAO report is anything to go by.

The three contracts were for £3.2 million with Deloitte, the consulting firm, for support to the PPE programme. The second was a contract for a maximum of £840,000 with Public First, for running focus groups around the pandemic – although there were stories initially that there was some link with Brexit work too. Then the third was worth £1.5 million and was awarded to Topham Guerin for “publicity campaign coordination services”.    

The first problem is that in all three cases, the supplier was engaged and indeed started work some months before a contract was actually put in place, without any form of competitive process to support the choice of supplier. Work started in March but contracts weren’t in place until June or July.  

I suspect anyone reading this will understand why this is bad news; if you haven’t formally agreed what the supplier is going to do, how they will be rewarded, how any risks will be managed (from confidentiality to termination provisions), then you shouldn’t be starting the work really. We can only assume our old friend “urgency” is again the excuse here. But doing a few focus groups or a bit of publicity is hardly the same level of urgency as finding life-saving PPE.

Then we have faults that are familiar from our previous article covering the PPE issues in the NAO report. There was no documentation available in each of the three cases to explain why and how the supplier was chosen. The cynics amongst you might say the answer is clearly “because they were our mates” but I couldn’t possibly comment. Again, it is bad practice at best, and something more sinister at worst.

Then we have the conflict of interest issues. Topham Guerin and Public First have previously worked with Cabinet Office Ministers such as Michael Gove and advisers including Dominic Cummings. According to the Guardian, Public First “is owned by the husband-and-wife team James Frayne, previously a long-term political associate of Cummings, and Rachel Wolf, a former adviser to Gove who co-wrote the Conservative party manifesto for last year’s election”.  But in that case, the NAO “found no documentation on the consideration of conflicts of interest, no recorded process for choosing the supplier, and no specific justification for using emergency procurement”.

So procurement process, policy and propriety in the Cabinet of Office, at the centre of government, has been corrupted. It appears that somebody senior – that could be a Minister, a special adviser, or a civil servant – either just engaged supplierd themselves with no procurement input, or told procurement to “JFDI”.  Either procurement is not in the loop and doesn’t even know what has happened till after the event, or the function and procurement leadership is too weak to say to the budget holder, “that’s not the way we should do things”.

In either case, it does not speak well of the Cabinet Office’s own procurement team, I’m afraid. Even more embarrassingly, we have the fact that the department is supposed to be showing the rest of government how procurement should be done. But Rhys-Williams, the government’s Chief Commercial Officer, is going to struggle now I suspect when he tries to tell other departments how they should be doing procurement. Yes, they’ll say, we’ll follow the best practice guidelines – just like your lot did on that Public First contract …