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Government Procurement Cards – Wasteful or Wonderful?

The focus in the UK public sector is now firmly on cuts, saving money and trying desperately to stay within the chancellor’s ‘financial envelope”.   There have been some signs of a structured approach that could save money in the procurement space, such as this story in The Times about more spend governance in the Home Office.

“An audit of costs, ordered by Yvette Cooper, the home secretary, has found evidence of “excessive spending” on awaydays, public opinion research and contracts handed out by the department to external suppliers. As a result, ministers have demanded personal sign-off of all large expenses in the department and have put some future spending plans on hold”.

The other initiatives that hit the news last week was the freezing of all government ‘Procurement (or purchasing) Cards’. Spend on the Cards has more than quadrupled over the last four years, apparently. As the BBC reported:

“Thousands of taxpayer-funded credit cards will be cancelled under plans to crack down on “wasteful” spending, the government has announced… the government said spending on the cards had quadrupled in the past four years without enough scrutiny.

The Cabinet Office will order departments to freeze almost all of the around 20,000 cards in circulation this week, with a strict new application process aiming to cut the number by 50% …

More than £675m was spent on the cards by central departments and core agencies last year, up from £155m in 2020/21”.

Now any procurement professional reading this knows that ‘procurement cards’ are in reality ‘payment cards’. In themselves, they do not define or dictate a particular procurement route. You might buy by making just one phone call, or run a 6-month long tendering process, and in both cases, ultimately pay with a Card.

So the key aspect (to avoid Bad Buying) is that the decision to make a purchase with a Card must be legitimate and controlled, as in the case of any other purchase. The difficulty is establishing just from the headlines whether this has been the case here. Examples quoted included “£1,200 on luxury coffee pods by one team in two months and more than £1,800 on a “value for money” course”.

At first glance, some of the expenditure does sound dodgy, but really we need to know what the process for approval, sign-off and audit was before we can talk about fraud or incompetence here. And sometimes there are innocent explanations for what sounds odd at first. This is from my Bad Buying book.

“Some years ago, I talked to a logistics manager based in the UK Ministry of Defence’s Head Office. He told me he had not long returned from Afghanistan, where he was working as a logistician in a big military camp there …

We talked about the need for buying processes to be flexible and for buyers and logistics people to be able to react quickly in military situations. The use of the Purchasing Card came up, and he explained there had been a bit of an internal furore when finance had looked at expenditure on the card in use at the Camp. One invoice related to expenditure on a range of golf equipment. That looked very strange, possibly fraudulent.

But it wasn’t. He explained that opportunities for rest and relaxation were limited for the troops in Afghanistan. Not many friendly bars, you couldn’t just go off for a run through the hills or take a trip to the beach. So, someone had the bright idea of buying some golf equipment and rigging up practice nets. Even non-golfers were getting into it, with more expert players offering lessons. The golf kit showed up on the Card bill, and looked odd, but most people would agree it actually was an appropriate and intelligent use of public money.

As a corporate executive, and on behalf of the firm, I’ve bought retirement presents, flowers for staff to celebrate a wedding or birth, strange items to be used on corporate away-days, booze, and many items that would have looked odd on that card bill. But all were justified and for the organisation’s benefit, not mine. Another case saw a government body chastised for spending money at a horseracing venue. But that was explained as the fees for a legitimate business meeting, booked in the hospitality suite on a day when no racing was taking place. Today, horse tracks and football grounds often have good meeting facilities, and can be cheaper than equivalent hotels, so again this might well have been good buying rather than fraud or failure”.

So don’t jump to conclusions when you see headlines about use of Cards. Having said that, it seems sensible and reasonable for the government to be taking a hard look at this. Looking back, we can now see there was precious little management of the civil service going on in the later years of the chaotic Tory government, so a bit more control and scrutiny now is no bad thing.   

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My Manifesto for Public Procurement

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

So here we go.

A Public Procurement Manifesto from the Peter Smith Party

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

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

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

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

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

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

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

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

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

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

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

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

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

3. Fight against corruption and fraud – we will:

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

If you really want further detail… here we go

  1. Drive economic growth for the UK

Encourage and provide early opportunities for innovative young UK businesses

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

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

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

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

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

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

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

2.         Release cash to invest in services

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3.         Fight against corruption and fraud

Investigation into PPE contracting process

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

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

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

Conflicts of interest

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

Vote Peter Smith!

June 2024

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PPE and the UK taxpayer get burnt (again)

The BBC ran a story this week about the UK’s spend on PPE during the pandemic. I was contacted by the journalist, Jon Ironmonger, and did a video interview at the BBC, although I believe it has only appeared (a short excerpt anyway) on a BBC East programme, which I haven’t seen! The report centred on Full Support Healthcare, who are based in Wellingborough in that region.

But there were articles on the main BBC website, quoting my remarks. The journalist actually wanted me to be balanced and give an “expert” perspective on what happened with PPE procurement.  I tried to explain the problems when demand for anything suddenly rockets, but I was critical of a number of aspects of the programme, all of which I have written about over the years since 2020.

One continuing mystery is why the initial forecast of demand turned out to be so far out – about twice what in retrospect would have been reasonable. That was what triggered the “panic buying” in May 2020, so arguably it was the single biggest cause of the subsequent disastrous waste of money (over £10 billion).  The forecast led to some incorrect specifications being issued in haste, use of very strange suppliers (not all of whom were properly vetted, despite the re-writing of history that some politicians have attempted), the lack of anything much in the way of cost / price analysis or negotiation with suppliers, and the infamous “VIP Lane” for suppliers with a contact in government.  

The latest article from Ironmonger focuses on the stock management aspect. It appears that some £1.4 billion of aprons, masks and googles just from Full Support have been incinerated, recycled or written off. A general rule of thumb is that around twice as much PPE was contracted for as was needed, as it turned out. So given the total bought from that firm was £1.8 billion, it is not clear why such a high percentage of their product has been wasted.

The Department of Health and Social Care disputes that loss number, saying some money has been recouped by recycling, but the Department basically refused to engage with Ironmonger while he pursued this story, ignoring his requests, and has failed to provide clear evidence of what has happened to stock or financial details.

Full Support was an established supplier of PPE before the pandemic, unlike many of the cowboys who got in on the game once panic set in. Sarah Stoute of the firm told the BBC the shipping containers that transported her company’s PPE were unloaded “various times up to 207 days post-arrival”. She said the masks were “perishable goods and required to be kept cool and dry” and “not intended to be stored for a prolonged period in a shipping container, yard or field”.

The port of Felixstowe became jammed with PPE containers in November 2020, and they were moved to various airfields, other ports and available land. After some stock was sold off to other dodgy people for disposal, it was found dumped on a site in a New Forest.

Here is is one of the many articles I have written on this topic. This one gives a good summary of what I still feel are the key issues or questions around what happened. It’s right that we remember the desperate situation that faced us back in early 2020, and both users and buyers of PPE were in a particular crisis situation. But I still wonder if we have really learnt lessons from what certainly wasn’t one of UK public procurement’s finest hours.

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Memories of Charlie Hurley – Negotiating with your Hero!

Charlie Hurley passed away on April 22nd at the age of 87. That name will mean nothing to most people but to football fans of a certain generation, and in particular Sunderland fans, he will be remembered with great affection and respect. I met him twice, once at the age of about six, then again many years later, as I described in my “Bad Buying” book. Here is the relevant extract.

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After I left the Mars Group, I worked for a smaller food firm that owned a dozen small to mid-sized businesses. I worked on acquisitions as well as looking to save money through “group buying”.  One firm supplied several of our businesses with plastic trays for frozen and chilled meals, so I wanted a meeting to discuss a central deal for all our firms – with the aim of achieving a substantial discount on current pricing, of course.

Their sales director came to see me. I didn’t quite catch his name on the phone, but he introduced himself as Charles, and after a few minutes, asked me where I was from – “I’m picking up a bit of a north-eastern accent”? Yes, I said, born and bred in Sunderland. Ah, he replied. I worked in Sunderland for a few years. What did you do? I asked.

“I played for the football team. I was Charlie then, Charlie Hurley”.

My jaw dropped as I processed this. Hurley, a skilful and imposing centre-half, was voted “Player of the Century” by Sunderland fans in 1979[1]. He was team captain and also captained the Republic of Ireland team. Some consider him the greatest centre-half of his generation, and if he’d been born the other side of the Irish Sea, would probably have won a 1966 World cup medal. He was also my boyhood idol, the first person to sign my little red autograph book, in 1964 when I first stood outside Roker Park players’ entrance with my father. 

When we met, he was by now in his fifties, and he told me that he now pretty much ran his father-in-law’s packaging firm. He’d been more successful than most of his old footballing mates, as well as still being in a happy first marriage, unlike many. Players were not highly paid in the 1960s, and many ended up working as taxi drivers or running small shops, or more sadly, drank themselves to death.

Of course, when we got back to business, my whole negotiating approach had disappeared completely. I seem to remember he offered me a 5% “group rebate” in return for making his firm a preferred supplier, and I accepted, still in a daze.

The message, which I will come back to later, is that personal issues can affect the outcomes in buying negotiations, and rarely in a good way.  The best negotiators keep emotion and personal feelings out of the equation, even if they know how to use “fake emotion” when it is appropriate. But generally, if you are looking to negotiate well, try and avoid coming up against your childhood heroes on the other side of the table!

[1] https://www.safc.com/history/the-roker-roar/charlie-hurley

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What does NAO think about NHS Supply Chain?

Last month, the UK National Audit Office published “NHS Supply Chain and efficiencies in procurement”, a report looking particularly at the National Health Service’s Supply Chain organisation. Supply Chain (SC) acts as a central procurement “organisation”service provider”, putting in place contracts for a huge range of goods and services that can be used by hospitals and other NHS organisations.

It has a complex history, going back 50 years or so, which we won’t fully explore here. But after its perceived failure during the pandemic in terms of supplying PPE in particular, it has been going through yet another re-organisation or “transformation”.  The operation of various “category towers” had been outsourced – although the outsourced service providers were actually other NHS procurement organisations in most cases. But now the category work is being brought back in house.

As we might have expected, the report paints a mixed picture but on balance, I would call it a somewhat worrying report. There is still a lot of mistrust between SC and procurement leaders in many health trusts. Much of that is historical, but more needs to be done.

One example of this is the “eDirect” service. SC operates a logistics service, delivering to NHS sites from its own warehouses. But it also runs “eDirect”,  a direct delivery services from suppliers to the NHS – more of a “dropshipping” model, as it were. However, that has not been working well. The report says that procurement route accounted for around £1.5 billion of orders via Supply Chain in 2022-23, but more than a quarter of orders were delivered late, by an average 22 days, between June 2022 and March 2023. I hate making facile comparisons, but Amazon would be horrified if it was providing that level of service.

The mistrust also comes from issues such as the measurement and reporting of “savings” – basically, SCL reports big numbers to justify its existence, but many Trusts don’t recognise the numbers or feel that SCL is really delivering tangible savings they can see in their own organisation. In 2019, the Department of Health set Supply Chain a target to deliver £2.4 billion savings by 2023-24. SC told the NAO that it had exceeded its £2.4 billion savings target as of 2022-23, however NAO did not (or could not) validate this and there seems some confusion over how the rather weird savings methodology was initially agreed.  

So it was interesting to see just yesterday (January 31st) Jacqui Rock, Commercial Director at NHS England, announcing a new unified savings measurement process for the NHS. We’ll see if this solves the problem.

Clearly, there is a lot of change going on in the Supply Chain organisation, and it has not all been plain sailing. I was worried around a year ago when two very good senior executives left Supply Chain suddenly (and not to go to better jobs) – not a sign of a happy ship. So how does NAO rate the effectiveness of the transformation programme? More concerns here;

“Transformation is not being run as a multi-year programme, instead it is managed on a year-by-year business cycle in line with NHSE’s business planning process. Supply Chain has not articulated clearly defined or measurable objectives with a detailed and costed timetable for delivery. There are gaps in Supply Chain’s senior leadership team and an over-reliance on the Chief Executive Officer.  Recruitment of senior staff is being slowed by time taken for the civil service approvals process and the addition of an extra layer of approval for high-cost posts created by its move to NHSE …”

There are two sides to every story of course and some Trusts (and people within them) are guilty of pursuing procurement independence for their own reasons. But those reasons aren’t always selfish and the report is disappointing in the sense that it suggests that Trusts should make more use of Supply Chain, without really explaining why that would be a good thing, other than assuming bigger buyers get better deals.

“Supply Chain estimates that trusts spend approximately £3.4 billion outside of its function. Trusts are largely free to purchase goods outside Supply Chain. Supply Chain estimates that, as at September 2023, trusts’ annual procurement spend through Supply Chain was £4.5 billion with £3.4 billion spent outside of Supply Chain’s function”.

But is this lack of use of SC a good thing or a bad thing?  Trusts cannot be forced into using Supply Chain given their legal independence, so there is always a tensions here, and I do wonder sometimes whether the NHS is just too big. I’ve argued for years – not just in the NHS context – that the benefits of aggregation and centralisation in procurement are almost always over-estimated. Trying to do effective “central procurement” in an organisation that employs 1.4 MILLION people in the UK is perhaps just too much to expect. I wouldn’t take on the Supply Chain CEO role for £1 million a year and a knighthood, so I do have sympathy for the team there, but maybe this is just an impossible task.   

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“Give Us More Money” – Handling Professional Services Fee Demands

I was talking to a friend who is (very) close to the professional services market recently, and he told me some horror stories about suppliers demanding huge price increases in response to the inflationary environment. Proposed fee rises of 20% or even more are being proposed. In one case – a pretty unusual situation perhaps – the supplier was looking to more than double their rates!

So how do you respond in that sort of situation?

  1. If you have a contract in place, make sure you understand what that says. A contract that covers professional services input to a long-term project or programme might for example have included some price adjustment clauses. Make sure you know what they say before you get into negotiations!
  2. Remember that the opening proposal from any supplier is often a case of positioning or anchoring, as behavioural psychology guru Daniel Kahneman would put it. If a firm is suggesting a 30% fee increase, they may well be hoping that they end up achieving 10% – which a naive buyer might see as a success for them given the starting point. You might even get in first on the anchoring front and suggest a 10% fee reduction given the difficult economic times your organistion is facing…
  3. Suppliers will also stress the most extreme cost drivers when they justify their proposed increases. Even professional services firms will be moaning about the dramatic increases in energy costs. But that probably represents only a couple of percent of the cost base for most firms in that sector.
  4. Staff costs are of course the biggest single element of the total cost picture for firms in this sector. But inflation here is at least partly self-inflicted. If I was negotiating with PWC right now, I would be saying, “look, you chose to give your staff a 9%+ pay increase, that’s not my problem!”
  5. The other issue I would be introducing into the negotiation is the earnings of partners (or equivalent) in the firms. The proposed increases in reality are all about sustaining the income and the lifestyle of partners who are accustomed to making £700 – 900K a year (the big consulting / audit firms) and well over a million in the magic circle law firms and probably some of the top boutique / strategy consulting firms. That’s what we are paying for as customers.
  6. As in the case of any other spend category, the strength of your negotiation position depends on your options and alternatives. If you are in a position where “our CEO will only work with McKinsey and Linklaters”, then you have a problem. But this might be a suitable time to raise the issue with the CFO, and ask the question – “are we always going to be prepared to pay whatever these firms demand”?  If the answer is “yes” then you will simply get ripped off forever.

I know this isn’t easy – as a CPO I’ve been told politely to f*** off by a big firm consultancy partner when I tried to negotiate rates. “Your MD has already signed this, what makes you think you can change our agreement”?  

But you need to try and resist these inflationary demands. Remember, every extra pound, dollar or euro you give away is a reduction in your own organisation’s shareholder value, or less in the taxpayer’s pocket in the case of the public sector. And it is another step on the way to the next Ferrari, cottage in Tuscany or bottle of Latour 1945 for the professional services partners.

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CMA Report on Social Care for Children Highlights Market and Procurement Issues

Life goes on despite the temptation to doomscroll Twitter and Facebook all day for the latest news on Russian atrocities.  But there hasn’t really been much else to cheer, and some news that should have generated more attention in normal times passed almost unremarked.

The Competition and Markets Authority (CMA) published a report last week on the provision of children’s social care (fostering and children’s homes) to UK local councils.  The CMA looks at issues from an economic point of view rather than as procurement experts, but their worrying findings in this case clearly indicate some major procurement (and market) issues.

The final report “found there is a shortage of appropriate places in children’s homes and with foster carers, meaning that some children are not getting the right care from their placement. Some children are also being placed too far away from where they previously lived or in placements that require them to be separated from their siblings. This shortage also means that high prices are often being paid by local authorities, who are responsible for placing children in appropriate settings, with these costs picked up by taxpayers”.

The CMA also commented on the risk of providers going bust – and yet in some parts of the market, providers are making what we might call “excess profits”, with margins of 20%.

“For the children’s homes providers in our cross-GB data set we have seen steady operating profit margins averaging 22.6% from 2016-20, with average prices increasing from £2,977 to £3,830 per week over the period, an average annual increase of 3.5%, after accounting for inflation”.

As an example of the sort of supplier that plays in this market (accepting of course that not all are of this nature), the Guardian recently featured a report about Robert McGuinness, who was paid £1.5m by two local authorities between 2015 and 2020. He owned a “community interest company” (CIC) which provided vocational training to children from 14-16, excluded from mainstream schools.

“The owner of a children’s home in Bolton shut down for “serious and widespread failures” spent thousands intended for educating marginalised children on drinking, foreign trips and his pub business, the Guardian can reveal”.

He siphoned money out of the CIC through a “director’s loan”  to invest in another of his businesses (running a bar).  The bar has since gone bankrupt and the liquidator says “there is currently no prospect” of the CIC settling the £100,000 loan repaid.  He also drives a Lamborghini – just the sort of public-spirited person you’d want to see running sensitive social services for youngsters.

The market failure evident in this sector has a number of causes. One ironically arises from the attempts to regulate the market. Even though that is well-meaning and certainly necessary to some extent, it creates more barriers to entry. Well-functioning markets see new entrants coming in and competing all the time, and also firms can exit the market relatively easily. Buyers can also switch suppliers easily in well-functioning markets; not the case here given the nature of the services.   

There are other barriers to entry in this case, such as the need for capital investment.  Over the past 20 years or so, the amount of public sector provision of such services has disappeared, replaced by private provision. One reason has been the need for investment in council-owned facilities. Rather than finding the money for that, as central government grants to local government have declined, councils have increasingly closed down their own facilities such as children’s homes and care homes  and bought those services from private providers.

That has weakened competition further. Then we can see a failure of procurement and contract management too. Do buyers know what margins are being made by their providers?  And how well are providers managed? I suspect because the users of the service are kids, there isn’t a lot of connection between the providers, the users and the commissioners (and budget holders) for the services.  Councils have seen headcount reduced in areas such as contract management too as income was squeezed.  The report on the gov.uk website agrees that something needs to be done.

“The CMA’s analysis finds that the main reason for this is the fragmented system by which services are commissioned, which means that local authorities are not able to leverage their role as the purchasers of placements or to plan properly for the future”.

To address these issues, the CMA recommends that the UK Government, Scottish and Welsh Governments, “create or develop national and regional organisations that could support local authorities with their responsibilities in this sector. These would improve commissioning by carrying out and publishing national and regional analysis and providing local authorities and collective bodies with guidance and by supporting them to meet more placement needs in their local area”.

I am no lover of aggregation of spend and centralisation of public sector procurement.  But this does seem like an area where a national “category strategy” and some serious procurement talent needs to be brought to bear.  

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CIPS Members’ Survey – Results Show Overwhelming Concern About Proposed Changes

Thanks so much to everyone who responded to the CIPS members’ survey I launched on Monday. We had 100 responses by 3pm on Monday and I closed it last night with around 180 replies. Here are the basic results. I will comment on them more in a further article. However, the main reason for doing this was to check whether other members felt as strongly as I do about the changes being proposed. It seems pretty clear that my views are not unique!

More to follow, as I say, including “comments on the comments”, as it were – respondents made many interesting remarks in the free text part of the survey!   And thanks again for your participation.

Do you agree that the elected Congress should be replaced by an appointed Membership Committee directly reporting to the Board of Trustees?

Yes                                                                  6%

No                                                                  76%

Not sure / need more info                          15%

Don’t care – no strong view                         3%

Are you happy with members losing their democratic vote and the chance to choose at least some of the people involved in the running and governance of  CIPS?

Yes                                                                    2%

No                                                                  94%

Not sure / need more info                           3%

Don’t care – no strong view                         2%

Are you comfortable with the Board of Trustees appointing the Nominations Committee, which then appoints members of the Board of Trustees (with no elected members on either body)?

Yes                                                                  2%

No                                                                  92%

Not sure / need more info                            5%

Don’t care – no strong view                         2%

Do you agree that the role of CIPS President should be abolished?

Yes                                                                  3%

No                                                                  71%

Not sure / need more info                         21%

Don’t care – no strong view                         6%

On a scale of 1-10, how well do you think CIPS has engaged with and communicated to members in terms of these proposed (and implemented) changes?  (1 = not impressed at all,  10 = delighted)

Score 1  66%

2              22%

3              7%

4              1%

5              1%

9              1%

10           1%

The sample was heavily weighted towards more senior members of CIPS, with no less than 28% Chartered Professionals (and MCIPS / FCIPS of course). 26% were MCIPS and the same percentage exactly were FCIPS.  Over 80% were UK based.

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CIPS Implements Major Structural Change Without Member Communication or Agreement

The Chartered Institute of Procurement and Supply (CIPS) is currently making major changes to how the Institute is run, its governance and structure. Unfortunately It is implementing the changes after only limited consultation with selected members, and without communicating openly what it is doing, let alone asking for members’ approval to the changes. The most significant change would remove members’ voting rights; a disenfranchisement of 20,000 CIPS full members.

I know this has been a difficult time for all organisations, and I’m sure the CIPS Board believe they are doing the right thing. But as a member for 30 years, a Fellow and a Past President, I do not think this approach has been appropriate, and CIPS could lose a large number of members if it does not handle this well. So it feels like time for an open debate about exactly what has been going on here “behind closed doors”.  

There is undoubtedly a need for some review of CIPS structures; for instance, I don’t believe that the Congress has established a clear role since it was formed.  But change must be managed properly, and members must be involved and treated with respect. 

The major changes in progress

  • The Congress, which advises the Board, and is elected by members voting on a regional basis, has already been abolished – without communication to members. In its place, a global Membership Committee is being appointed, reporting into the Global Board of Trustees (GBT), which is the ultimate governing body of CIPS. The Membership Committee will be appointed following applications and interviews carried out by the Nominations Committee (NC), which itself is a sub-committee of the GBT.

  • Currently, half the members of GBT are appointed by the NC and half are elected by Congress from amongst Congress members. This means all full members have at least an “indirect” say in GBT membership – we vote for Congress representatives, and Congress elects half the Board from its own membership. Under the new proposals, the NC will appoint all members of the GBT following an interview-type process.  There will be no member voting.

  • The position of President is being abolished – a move which in my opinion seems to be based as much as anything on the last Presidential appointment not working out as well as was hoped.  

What does this mean?

  • CIPS members will no longer have a democratic vote of any kind to elect the people who run CIPS.  We will only be a “membership” organisation in the sense that the AA is a vehicle recovery “membership organisation” – we will simply be consumers of a service. That will be a different model from pretty much every other professional Institute as far as I know. All that I have checked retain some sort of membership democracy.   

  • There is a worrying ‘circularity’ in that the Global Board of Trustees (GBT) is appointed by the Nominations Committee (NC), but the NC itself is appointed by the GBT and largely consists of GBT members anyway. This does not appear to represent any sort of good governance.  I appoint you, you appoint me, I appoint you, and so on and so on!  

  • Making appointments purely via the NC and eliminating all democratic voting could easily lead to cliques, “chumocracy” and conflicts of interest.  Such a move seems unlikely to give members a greater sense of ownership, belonging or commitment to CIPS.

  • In terms of the Presidency, there will no longer be a professional leader for the Institute, a respected professional who can speak on our behalf. The CEO takes on some of those responsibilities but we can’t always guarantee that the CEO will be a credible procurement professional themselves (as our last two have been) and their core role is pretty demanding in itself.  There has been vague talk about “regional ambassadors” being appointed but no concrete proposals for replacing the President.

In conclusion

In my opinion these changes have not been fully considered, members have not been properly consulted, and I believe the disenfranchisement of members is simply wrong.  I fear the changes could lead to many members leaving the Institute.  If we want to get formal about matters, proposals and indeed actions already taken also appear to be in breach of CIPS Regulations and Charter.  Finally, the lack of communication to members so far is disturbing. If the Board has a case to make for the changes, it should make it openly and in consultation with members. And members must be given a vote on any proposals that fundamentally change the way a 90-year-old, globally respected and influential professional Institute is run and governed.

Survey

So, in the absence of CIPS consultation, I believe it might help move this situation forward if members follow the link below and complete a brief survey form. It will only take 5 minutes and will be strictly confidential. The results may prove me wrong – perhaps members think all of the ideas are fine and democracy is over-rated. I will happily shut up if that is the case. I have tried to make the questions unbiased, and I know some members, including a couple of Past Presidents I have spoken to, just don’t really care, so I have included that as an option for responses.

I will publish the results (anonymised of course). Please follow the link and give your views now. In the absence of CIPS pro-actively involving members in these important decisions, this approach seems like a sensible option to test views and indeed to provide some feedback to the CIPS Board. 

Link –

https://www.surveymonkey.co.uk/r/7C7NGYD

SURVEY NOW CLOSED – THANKS TO EVERYONE WHO REPLIED!

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Covid Tests Failure – More Questions About Pandemic Procurement

Another UK pandemic-related supplier appointed in haste without competition (and perhaps without proper due diligence) appears to have failed in performance terms.

Immensa Health Clinic is being investigated scrutiny after the UK Health Security Agency (UKHSA) found at least 43,000 people may have been given a “false negative” Covid test result.  That has serious consequences – if those people carried on working and mixing with others, when they were actually suffering with Covid, they may have passed on the virus to others.

That has led to operations at the firm’s privately run laboratory in Wolverhampton being suspended.  The NHS test and trace operation said about 400,000 samples had been processed by that lab, most of which will have been negative results, but around 43,000 people, mainly in the south of England, may have been given incorrect negative PCR test results between 8 September and 12 October. It doesn’t appear to be the kits but rather the analysis at fault – a people problem rather than an equipment issue, by the sound of it.

Immensa was only founded in May 2020 by Andrea Riposati, a former management consultant and owner of a DNA testing company. He is also the founder of Dante Labs, which is under investigation in the UK by the Competition and Markets Authority over its PCR travel tests.  But within three months of Immensa’s birth, it won a £119m PCR testing contract awarded by the Department of Health (DHSC).  That was awarded without being put out to tender, like so many contracts we have seen though the pandemic, some genuinely urgent and others less so.

Back in January this year, the Sun on Sunday newspaper found that workers at the Wolverhampton lab appeared to be sleeping, fighting, playing football and drinking whilst “working”.  (Pretty much like life in the civil service, really). The government said then it would speak to Immensa as it took “evidence of misconduct extremely seriously”.  Despite this, Immensa won another contract for £50 million in July.

We haven’t seen any suggestion of corruption, officials or politicians on the make, or Immensa doing anything dodgy. But again, there will be reasonable questions asked about lack of competition, lack of robust contract management, and why even after the warning signs, further work was given to the firm.

Which brings me on to the recent report, Coronavirus: Lessons learned to date, from the UK parliament’s Health and Social Care Committee and the Science and Technology Committee, and elected members from all parties.  The report is rightly very positive about the vaccine procurement programme.

The procurement model deployed by the Vaccine Taskforce of making decisions at risk, outside conventional procurement procedures, proved highly effective. Lessons from this success should be applied to other areas of Government procurement.

I’m in agreement with looking at useful lessons learnt, but we can’t be naïve about this. This quote about the way vaccines were bought also comes from the report.

Dominic Cummings said: “Patrick Vallance and his team were saying that the actual expected return on this was so high that even if it does turn out to be wasted billions, it is still a good gamble in the end.”

This is absolutely true, and highlights the key issue of risk and reward.  The fact is, there are very few other purchases by government where the balance is similar to the vaccine example. Getting vaccines faster certainly saved thousands of lives and (possibly) billions of pounds in government expenditure.  But taking risks in procurement of other goods or services just does not have the same potential.  Who would seriously place orders for five different armoured vehicles, IT systems or management consultancy firms just in the hope that one or two of them worked out well?

There may well be learnings around how the vaccine team was run, but talk of getting rid of procurement process, rules and so on is unwise and will lead to waste and, unfortunately, to more fraud and corruption. More transparency would help alleviate some of those risks (see my paper for Reform here), but I suspect some of those in favour of radical procurement change are thinking more of the millions they, their chums and associates can extract from the public purse.    

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