Tag Archive for: Conflict of interest

I had the honour to speak at the Procurement Lawyer’s Association (PLA) annual dinner last week in London. 140 lawyers in a room together – actually a surprisingly lively and friendly audience, I’m pleased to say.

I was looking at their website before the event and noticed a paper the PLA produced a couple of years ago, all about conflicts of interest. It has a particular focus on public sector procurement, although many of the comments and recommendations apply just as well to the private sector. It runs to 56 pages, but the “Practical Guidance” summary (page 26) gives you most of the “meat” of the report, and is sensible and thoughtful advice. 

On reflection, I should have said more on that topic in my Bad Buying book. Although it is mentioned in the section on fraud and corruption, there is more I should have said. Talking to one of the lawyers at my dinner table last week, we agreed it is a major topic that is not discussed enough. We also each had some examples that indicate different aspects around the issue.

I remember as an interim CPO having a conversation with a relatively new Chief Executive in a large government organisation. He had joined from a large consulting and services firm, who were about to bid for a very large contract with our organisation.  I needed him to make a conflict of interest declaration, but initially he didn’t see the point as “I don’t work for them any more”.

Do you still have equity in the firm, I asked? Yes, was the reply. Do you still have friends, relatives, or lovers who work there? Yes, he said (to the “friends” at least)!  To be fair, I did get through to him why this mattered, and he agreed that his involvement with the procurement would have to be pretty arm’s length.

Sometimes the conflict can be more subtle and can even veer into real corruption. I knew of one independent consultant who had a good reputation for leading procurement projects in local government for a particular service – let’s say it was catering (it wasn’t, but it was that sort of thing). Oddly, it seemed that all the procurement exercises he ran ended up with the same catering firm winning. I then discovered that between his assignments for different councils, he always went back to consulting work with the same firm!  (Who knows whether he did real work with them or just got paid for his loyalty).

My lawyer friend highlighted a somewhat similar case – an independent consultant leading a procurement exercise who suggested that an unsuccessful bidder should perhaps engage him to provide them with training in how to write better bids. That could have been genuinely well meaning of course – but the price for his training was a lot more than you might expect. The implication seemed to be that employing him might well mean the bidder would do better next time the consultant was in a key project role.

So one point from all that is to look at conflicts of interest for anyone involved with the procurement process – internal staff, consultants or yes, even lawyers! We’ve also talked about the very difficult issue of “future” potential conflicts of interest. Mathew Syed in the Times called this “retroactive inducements” and it covers those cases where someone on the buy side favours a company because they believe, hope or expect that the favoured firm will help them personally in the future, with a great job or other benefits.

We’ve seen that in the procurement world but also more widely with other senior managers and even with politicians and special advisers. George Osborne, ex-UK chancellor, got a ridiculously lucrative job with Blackrock, an investment firm he had been responsible for regulating. That struck me as an unacceptable example of exactly this problem. We’ve regularly seen civil servants and advisers involved in awarding lucrative UK government and health service contracts to consulting or IT firms, then jumping ship for senior roles in the same firm.

Anyway, take a look at the PLA paper fi you are interested in this topic. And if you are running procurement processes, before you get going, don’t be afraid to explain to your colleagues (whoever they are) why this matters and why you need to know if they are conflicted in any way.

The vexed question of conflict of interest in public sector procurement came up the other day with reports that a senior executive in the National Health Service digital team had been doing rather well out of that organisation.

The HSJ reported that NHS Digital (NHSD) paid over £3 million to a small technology firm, Axiologik, one of whose owners was working as a Board-level interim director in the organisation.

The money was paid to Yorkshire-based tech support company Axiologik, whose co-founder and director Ben Davison also served as NHS Digital’s executive director of product delivery – for which he received annual pay of £260,000, working as a contractor, in 2020-21.”

A number of issues arise from the HSJ investigation. Firstly, it appears that no other candidates were considered for the position when Davison was appointed. That seems odd, to say the least.

Then nine months after his appointment, Axiologik was appointed to provide programme management support for the Covid booking service, followed by more work (according to HSJ)  “to lead NHSD’s “tech and data workstream” which involved “portfolio level executive leadership across citizen-facing digital services” run by NHSD such as the NHS App, NHS.uk website and 111 Online”.

In the current year, turnover of the firm is set to grow from £6.5 million to £15m, not surprisingly. NHSD say that they put measures in place to avoid conflicts of interest – Davison had no involvement in the procurement process, or delegated authority for contracting or spend approvals. But as a top-level interim executive, how could he hold a supplier to account in any meaningful way if he was also a director of that supplying firm?  

Another issue arose because Davison was paid in the £260,000 – £265,000 band in 2020-21 according to the NHSD accounts, making him the highest paid person in the NHS.  But there is more. The Treasury then got involved because his appointment broke the rules on getting approval for contractors who work for more than six months!  (The engagement of two other NHSX contractors also broke the rules). That led to Treasury withholding £645,000 of allocated funding to NHSD because they have been such naughty boys and girls.

But perhaps the most important question is this. Was Axiologik appointed after a competitive process?  The HSJ does not make that clear – presumably because they do not know – although they report that the firm was appointed from the government’s G-Cloud framework.

There are many frameworks used in the public sector covering a wide range of goods and services. They enable users to bypass much of the formal “legal” public procurement process and can be very useful when used properly, retaining the ability to achieve value for money but simplifying the process. The Cabinet Office’s Crown Commercial Services (CCS), which runs G-Cloud, is the biggest manager and promoter of such contracts.

But too often, frameworks are being used today to award contracts without any real competitive process, leading to potential shortcomings in terms of value or even corruption.  In most cases, for example, users should (legally) run some sort of competitive process between at least some of the firms on any given framework to select the supplier that can provide best value. But in practice, users at times just pick their favourite and justify it on spurious grounds that “they are clearly the best…”

Some framework managers don’t really have an interest in whether the process is run properly either. They make their money as a percentage of the spend through their frameworks paid by the supplier, so CCS for instance is targeted on increasing its “sales”. If they put controls on usage, or police this issue of further competition too strongly, then users might just switch to another framework and CCS loses income. Indeed, the funding of CCS and other major framework managers leads to a range of perverse incentives in terms of ultimate taxpayer value – something I’ve been saying for many years.

Anyway, to be fair, we don’t know whether Axiologik was engaged without a competitive process, so maybe all this is irrelevant here. But in any case, someone at NHSD was very naïve about conflict of interest issues, and very ignorant when it comes to Treasury rules on interims. So definitely a contender for the next volume of Bad Buying!

Conflicts of interest lie behind many cases of procurement corruption and indeed other “corruption” in its widest sense. Often, these are not the highest profile or most serious examples – compared to envelopes of cash, swiss bank accounts and expensive prostitutes.  But if the practice of ignoring conflicts of interest (or covering them up) becomes pervasive in an organisation or a country, it can be corrosive and very damaging in the longer term.

A UK government minister, Robert Jenrick, is currently in the public eye because of a planning decision he made that favoured billionaire Richard Desmond. The two men had met at a dinner and chatted not long before the decision was made.  Jenrick is now facing more claims that another conflict of interest cropped up when he had a ministerial meeting with a “family friend” who had a financial interest in the future of a rival mining project that Jenrick was overseeing as minister.

In the procurement world, conflicts of interest can lead to bad buying when a supplier who shouldn’t win a contract does so, or is given a favourable contract, because someone on the buy-side has a vested interest in that happening. Often it is not overt bribery, but is based on relationships, nepotism, friendship, enjoyable dinners, invites to corporate events or Christmas presents. The dividing line between real corruption and poor judgement is very thin here, so we need to make sure that any conflicts are always declared and managed.

Back in my days as a procurement director, I had to ask our CEO, who had recently left Accenture, whether he still owned equity in the firm, as we were running a competition for a major contract for which Accenture was short-listed. If he did, then he couldn’t play any part in the selection process. I think he was genuinely surprised and a little offended by my question. But even if he was a cross between Jesus, Gandhi and Nelson Mandela in his personal ethics, it is how others perceive matters as much as the actual risk. And really, if others perceive a conflict, then it probably does exist.

There was a “hushed up” case (my freedom of information requests didn’t get very far) in the NHS not long ago where a small group of procurement executives gave contracts to a firm they controlled, which was also providing services to their organisation.  They may have felt those services were genuine and outside the scope of their “day jobs”. But was there a conflict of interest? Too right there was, and everyone could see that instantly.

And here’s another interesting issue. If I am involved in the decision to award a particular firm a contract, then six months later I join that firm on a huge salary, is that OK?  Many might say “no it isn’t”. But it happens all the time; this was an NHS example when an executive joined Deloitte shortly after the firm had won a large contract from his organisation.  There are of course many cases in the private sector as well as the public. 

And let’s face it, this starts from the top. The UK’s ex-chancellor George Osborne got a part-time job worth £600,000 a year for doing some pretty unspecified work for BlackRock, the world’s largest fund manager. But only months earlier, he was ultimately responsible for regulating the entire  financial services industry in the UK. Corruption? Maybe not. A retrospective conflict of interest? Absolutely.  It is the same with staff in the military who jump from managing contracts with big defence and services firms to working for those businesses.

My advice is to make sure your organisation’s HR and procurement policies make it very clear what defines a conflict of interest, and how people must act in that situation. Ensure every employee understands the rules and what they need to do.  And, by the way, “writing it down in a book” or sending a form to some admin person in HR or procurement is not a strong enough policy (just as it isn’t enough for declaring gifts or corporate hospitality).  Do it properly, then if anyone has a conflict, you can take steps to ensure they are not involved in decisions.

And of course, there is more on this in my book, Bad Buying- How Organisations Waste Billions Through Failures, Frauds and F*ck-ups, to be published in October by Penguin Business.