Tag Archive for: Construction

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Labour Wants to Use “PFI” – Please Be Careful!

As we’re into the election period in the UK, the Labour Party is promising capital investment (in roads for instance) but saying that much of the money will apparently come from the private sector. This has brought back memories of the previous “Private Finance Initiative”, which was actually invented by the conservatives under John Major in the early 1990s but was enthusiastically embraced by Labour after 1997 when Tony Blair won the election.

I was procurement director at the Department for Work and Pensions for two and a half years, 1995-7, serving when Labour came into power, and was involved in some large PFI projects, including new construction programmes and some IT initiatives. Then in the noughties, I was consulting in government and held a couple of interim commercial director posts where PFI or similar initiatives were relevant too, including the ID Card programme.

So speaking from the inside, I can say that there were a number of positive aspects to PFI, despite later criticism. Having a single entity responsible for the financing, construction and then maintenance of a new hospital for instance created a clarity of purpose and an interest in whole-life costs. However, there were some less positive aspects which Labour must avoid if it is to make a success of PFI Mark 2 (or Mark 3, or wherever we are up to now).

In the past, some dubious financial engineering was definitely encouraged to get projects through the business case process. The comparisons were generally made in terms of the basic cost of the building in the case of construction projects. So PFI projects were often compared using “cost per square metre” metric, as the ongoing PFI charges overt the contract period were often based on that as the charging “unit”. That figure included the cost of capital, the construction cost and probably the basic infrastructure maintenance. It would then be looked it against the “public sector comparator”, i.e. what it would cost the government to provide the same facilities.

I actually sat in meetings where the PFI adviser (more on that later) said to a supplier, “the public sector comparator is marginally lower than your figure – you need to improve that”. Now that sounds like good negotiation, but the twist was this. The contract usually included a whole list of ongoing activities where the buyer would be locked into using the PFI supplier. And these were rarely included in that value for money comparison. So suppliers were encouraged to make their money on these extras, often around ongoing supply of goods or services, and keep their base charges low to get through the business case process.

The other way of making the contract attractive for the provider was to make it longer. Hence ridiculous 60 year contract periods, with guaranteed price increases of course, which again circumvented the business case issue as the comparisons would rarely look that far into the future.

So this is why seemingly trivial services or one-off type activities ended up costing schools and hospitals a fortune.  “Another school had to pay £302 for a socket, five times the cost of the equipment it wanted to plug in”, as the Daily Telegraph said in one report. This wasn’t an accident or bad negotiation – this was because the payment mechanisms were constructed deliberately to make the basic occupation charges look lower, with the provider making their money from these ‘extras’.

That would improve the apparent business case; then later on the occupier gets hit with unexpectedly high charges. It represented a conspiracy really between all the parties to make these projects happen, and arguably was a failure of finance and procurement across many organisations while these deals were being done; or at least a failure to stand up to pressure from other quarters and point out loudly the problems that were being stored up for the future.  I will take some credit though – one of the (probably few) good things I did in my DSS job was refuse to allow catering, cleaning and security to be included in one large property PFI deal we did, because I was concerned about future lock in for decades. That probably saved millions.

The other very dodgy aspect of “old PFI” was the role of Partnerships UK (PUK) in all this.  From 2000 onwards, Treasury promoted the use of PUK’s services – at extortionate consulting rates – for advice to public sector clients on particularly the commercial and financial elements of PFI deals. If you didn’t pay your three grand a day for a PUK adviser, you wouldn’t get your project approved by Treasury, was the feeling.

Yet PUK was 49% government owned, and 51% owned by the banks! That was a clear conflict of interest there in terms of PUK’s enthusiasm for PFI deals which made huge profits for those same banks. And the politicians – and even some top civil servants – were probably looking forward to their nice non-exec roles with the same organisations once they retired.

So Labour needs to take care here if it wants to bring back PFI-type ideas. It needs considerable commercial and procurement expertise on the government side of the table – and it must make sure the people who are supposedly representing the taxpayer in those discussion really do have our interests at heart, and are not feathering their own nests.   

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Guildford Council “Fraud” – WTF?!

After writing last week about competence in UK local government, as if by magic, a case of alleged fraud in a council very close to my home popped into view the other day.

Now several of my local councils haven’t been doing very well in recent years in terms of looking after taxpayers money. The Tory council in Surrey Heath, where I live, now ousted by the LibDems, bought well over £100 million worth of commercial property in Camberley right at the top of the market, and is now sitting on a loss in asset value of £50 million or so. Woking council, a few miles to the east, has basically gone bust after property deals and investments that make Surrey Heath’s look minor.

And now Guildford, to the south-east, has published a report into what is an alleged fraud and is at best a prime example of Bad Buying in its housing department. Two employees have been suspended and five agency workers had their contracts terminated.

The report to the Council by Jeanette McGarry of SOLACE, (the society of local government CEOs), is good but focused more on the governance issues rather than the procurement events. That may be because the matter is with the police now and an arrest was made in March, so precise details of the core issues may be sub judice.

But basically, a contractor working on the council’s housing stock was paid far more than the original contract value (which is not disputed) and also there was a possibility (as the report says),

  1. That work may have been ordered when it wasn’t necessary;
  2. That work may have been ordered, invoiced and paid for when it was not completed at all or;
  3. Not to a satisfactory standard;
  4. That duplicate invoices may have been submitted and paid for the same work;
  5. That works may have been ordered and undertaken that were not the responsibility of the Council.

Back in 2022, the council agreed to spend £24.5 to update its housing stock. But there were no in-house surveyors and doesn’t appear to have been much in the way of internal procurement either, as “Several agency staff were appointed and were able to appoint housing repair and maintenance contractors”.

A three-year contract for £2.4 million was agreed for EICR (electrical installation condition reports) testing and inspection to Seville Developments Ltd, “under direct award” via a framework. This was apparently achieved under the Council’s procurement process and “was found to be compliant”. I’d like to know more about how a direct award of that size could be acceptable, and if there was no competition within the framework, but the report does not go into that.

But the council realised in 2023 that expenditure had reached £18.9 million with Seville, with no authorisation or action taken such as contract variation. At this time, “the Corporate Procurement Team was staffed solely by temporary officers and there is evidence that an officer identified the unauthorised expenditure and raised this with the Housing client but did not escalate the matter”.  

Whistleblowing concerns were raised in 2023, and the staff suspensions and terminations took place in September 23, and in March 24 “An arrest was made by the South East Regional Organised Crime Unit”.

If we look at the anti-fraud measures outlined in my Bad Buying book, we can see a number of flaws in the Guildford process. There will I suspect be questions around the lack of transparency in supplier selection. Then we have the issues on signing off work – was that power too concentrated? Perhaps the biggest question is how on earth invoices that exceeded the contract value by £16 million got signed off and paid – that entire budget control process at Guildford must have been absolutely pathetic.

But an interesting point which is not one I really covered in the book is this dependence on contractors and temporary staff. To have a procurement team that is entirely “temporary officers” brings obvious dangers. It is not that contractors are necessarily crooks, but they cannot have the knowledge of the organisation and the internal relationships that are vital when things go wrong or strange events occur.

I also don’t understand why if Guildford was so short of staff, they didn’t call on Orbis for help. Orbis is the shared service organisation, hosted by Surrey County Council, that runs procurement for Surrey, East Sussex, and Brighton councils, and does a pretty good job. Surely they could have assisted Guildford if the council there couldn’t find its own procurement staff?

Anyway, another case study for “Bad Buying 2”!

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Sheffield Container Park Failure – Classic Bad Buying

Sheffield Council has been dysfunctional for some time, and will always be remembered as the council that decided thousands of mature trees would be destroyed in order to make pavements safer, or something like that.

There has been considerable “churn” at both elected councillor and senior officer level in recent years too, which doesn’t help, and the council is now in an “no overall control” state in terms of political leadership. But the Sheffield Fargate container park failure is not really “political” – it appears to be simply an example of what was very bad buying and probably even worse project management.

The controversial complex which was supposed to include shops, bars and entertainment failed due to poor decision making and a lack of governance, an internal audit report has found. The container park was intended as a pop-up space for stalls and shops but was beset by delays and criticism.  The £500,000 project opened in October 2022, but closed just three months later after a host of issues and lack of interest from traders and locals.

The “Head of Service” appears to be the individual who should carry most of the blame here, being responsible for the project. They “did not have dedicated specialist skills, support and resource. The Council’s specialist project management teams were not fully or formally involved, but only called upon using an ‘ad-hoc’ approach”.  It is not clear why specialist project managers weren’t involved but one cause seems to have been a rush to “get it done” to take advantage of various time-limited post-covid grants.

But I have to say, procurement does not seem to have covered itself in glory either.  There was no formal procurement manual in place explaining the desired process to users, for a start. Then the function carried out research on other container parks to try and identify potential suppliers who might be interested in developing the Sheffield park. A list was provided to the project owner as a potential tender list.

“However, when the suppliers on this list were approached it was found that they were management companies for the container parks, not the initial developers. No response came from those who were approached”. So not the best piece of market and supplier research I’ve ever come across…

This left just one supplier in the running, a firm that was already speaking to the Head of Service. They duly won the contract without any competitive tendering.  Lack of competition is of course a fundamental driver and predictor of poor performance and bad buying. “Though procurement was signed off at the correct level, there was no evidence to demonstrate that it was robust or complete to result in an informed decision-making process”.  

Then there seems to have been a lack of control in terms of payments to this supplier. There was no implementation plan so milestones were unclear, and the main contractor was not monitored in a structured or regular manner through the installation process.   Some of the report is redacted so we don’t get to see everything but comments such as this don’t fill you with confidence.  “…more worryingly formal financial and contractor monitoring throughout the work was poor or non-existent, furthermore, no risk management was in place”.  Indeed, the auditors were unable to test whether everything procured and paid for was actually received, which is pretty shocking and a very basic failure.

Invoices appeared to have been paid without proper authorisation, and whilst there is no evidence of anything criminal here, the lack of competition and then controls does mean that the risk of fraud or corruption was not at all managed. The budget of some £300K ended up as an actual spend £500K and certainly, the Head of Service should never be allowed near a budget again. 

Anyway, there were problems with the installation including safety issues and only the ground floor could be opened – and that was ten months late, opening in October 2022 rather than the Jan/February plan. And just three months later, the development was closed.

So, various points to note and learn from here. Procurement must make sure budget holders know what the rules are. Procurement also needs to make sure they understand what they are buying when they conduct market and supplier research. Competition is always a Good Thing. Project management is a skill – use professionals. Controls on payments and clear deliverables for suppliers are fundamental and must not be neglected no matter how “urgent” the work is.   

Sorry to Sheffield taxpayers (including my sister…) but the only good news here is that this is yet another interesting case study for my Bad Buying module when I lecture at Skema Business School next year…

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Why Is the UK so Bad at Capital Programmes?

It was tempting to write again about the HS2 rail programme given recent events and the question of whether it is going to ever get to Manchester – or indeed to Euston.  It will go down in history as one of the great British public sector disasters, perhaps costing us even more than NPfIT, the NHS IT programme a decade or more ago which certainly cost us billions.  From the very beginning, it was clear to me that the business case was a con in order to justify the programme, which was enough for me to think it was a misjudged idea.

But the wider question is this – why are we so bad in the UK at capital projects and programmes? A recent article in The Times from chief culture writer Richard Morrison highlighted that failure in the specific area of arts-related building projects. The renovation of the Colston Hall in Bristol – to be renamed the Bristol Beacon – is now expected to cost £132 million, against an initial budget of £48 million. In Manchester, the Aviva studios opens soon, with the price-tag of around £240 million, more than double the original cost estimate. In Edinburgh, the redeveloped National Galleries of Scotland is a relative bargain, a mere £38.6 million, only £22 million over budget.

In East London, there is the new East Bank cultural quarter on the former Olympic Park at Stratford. That was supposed to be £385 million, now we are looking at £628 million and still rising. As Richard Morrison said, we might wonder “what difference this glitzy arts campus will make to ordinary lives in London’s poorest borough”. Political vanity projects in London aren’t new of course. Remember Boris Johnson’s “garden bridge” fiasco?

Is it optimism bias we are seeing time and time again?  Is it simply incompetence in terms of properly defining the specification and carrying out costing exercises up front? Can we just blame inflation?  Is it poor contract management and a lack of control that allows suppliers to escalate prices through the project?  Or lack of control on changes in specification, changes which genuinely cause costs to grow?

The other possibility is conspiracy. It is in everyone’s interest for a project to look like a bargain when it comes to justifying it through the business case process. Your new concert hall (or railway) looks like a good investment at £x whereas it wouldn’t look good at £2x. so the sponsors, the professional services, engineering and construction firms involved, perhaps even local people, all want the case to be approved, so let’s make sure it is estimated at x and not 2x.  Everyone also knows that once it is underway, it is very difficult to stop these projects even as the costs escalate, as we are seeing with HS2 now.

This was discussed in a long running legal case over the new concert hall in Paris, which featured in the Bad Buying book. The dispute between the authorities and the architect, Jean Nouvel, got rather nasty before the case was eventually settled in October 2021.  Here is an extract from the book.

“In 2007, he (Nouvel) was contracted to build the auditorium for €119 million, but the final cost was estimated at €328 by the owners and €534 million by the regional state auditors (which in itself seems like a big discrepancy). Le Monde reported Nouvel saying that the €119 million was quoted purely to match the ceiling set for the public tender, and was not really a genuine cost estimate. He claims that €100,000 per seat was the established cost for similar concert halls, and the €119 million total would have required spending only half that much, so it was never realistic. He also claims that everyone knew that the real cost would be much higher – “this is pretty usual in France in public tenders for cultural projects”, he was quoted as saying. His lawyer also says Nouvel is being made responsible for failures in project management”.

So might HS2 have been a case of a conspiracy to reduce the predicted cost in order to get the project approved?  Is this happening in too many UK projects?  If Labour does win the next election, I would suggest an immediate and wide ranging review of why we seem to be so hopeless at building stuff to budget. You’ll need people who are genuinely independent or maybe folk who will blow the whistle on what really goes on! Because the answer can’t just be “a bit of inflation”. Something is going wrong on far too regular a basis in the UK.  

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Support to Disadvantaged Suppliers Attracts Fraudsters

Programmes to support minority owned businesses, smaller firms, social enterprises and the like via public sector procurement have become increasingly popular over recent years in many countries. The Social Value Act in the UK in 2012 made this sort of action more prevalent in the UK, but the USA is probably where such schemes are longest established.

However, the irony is that the more successful such programmes are in terms of actually directing spend towards such suppliers, the greater the temptation for fraud and corruption to spring up. Genuine firms that need support might lose out to unscrupulous criminals and conmen/women.

One mechanism for that is basically using what we might call “non-value for money” evaluation criteria to award contracts to a supplier that doesn’t really deserve them. That can lead to distortion in the selection of winning bidders. “This firm’s bid wasn’t the cheapest but they are a small firm / owned by a women / promise to employ lots of disabled local people. That gave them lots of marks for “social value” in the bid evaluation”.  What isn’t made public is that the firm is also owned by the budget holder or decision maker’s sister-in-law.

The other quite common fraud is where a firm is apparently owned by a person or people who qualify as a “minority” but in fact, control rests with non-minority owners. We have seen that a lot in the USA and also in countries such as South Africa which have had schemes to give preference to black-owned businesses in public procurement.  I gave several examples of this in the Bad Buying book from both of those countries.

But this is still going on – a recent report in the Chicago Tribune highlighted a current case. It is not clear yet which of those two mechanisms is suspected here; is it disguised ownership or the use of minority programmes to favour a firm for improper reasons?  But federal prosecutors are “investigating possible minority-contracting fraud involving a series of Chicago government contracts worth hundreds of millions of dollars, including many with ties to a clout-heavy trucking and recycling company owner, according to sources and documents obtained by the Tribune”.

James Bracken and his wide Kelly own several companies engaged in construction, waste management and transportation. Investigators have asked city agencies for copies of bid documents and more relating to several contracts and for information relating to the city’s women and minority owned “set aside” programmes.

The programmes started in 1990 with the aim of awarding at least 25% of the total value of all city contracts to minority businesses and 5% to women-owned operations. But there have been accusations of fraud from the beginning. Company owners, chasing multimillion-dollar contracts, have put up phony “frontpeople” to get certified as minority or women-owned. Another route is to claim that a high percentage of work will got to minority subcontractors. In my experience, that is the sort of claim that rarely gets checked once a contract is operational!

A lot of this comes down to procurement carrying out the appropriate due diligence and checking out firms at the bidding stage, managing contracts well once they are operational, and of course keeping an eye out for conflicts of interest and other potential drivers of corruption. It is a constant battle between the forces of good (procurement, usually) and evil (certain dodgy potential suppliers and general low-life scum!)

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Disqualifying Suppliers from Government Contracts

It feels like the new UK Procurement Bill has been moving through Parliament for years – it is only a year in fact, although before that there was an extended period of consultation.

One of the themes of the Bill is that it should be easier for the contracting authority (CA) to “bar” or disqualify suppliers from bidding altogether. That has been possible for many years if the supplier or one of its directors had committed certain criminal acts, but the new legislation includes exclusion for poor performance for the first time.  There is also exclusion for “improper behaviour” which has led to a supplier gaining an unfair advantage in the competitive process.

However, the authority will also have some flexibility. The new rules mean that the existence of a mandatory or discretionary exclusion ground is not enough in itself to throw the bidder out of the process.  The CA has to first decide if the circumstances giving rise to the exclusion are likely to happen again. That’s quite a difficult and potentially controversial assessment to ask the buyer to make, in my view. There is also going to be a centrally-managed list of firms that have been barred.

It will be interesting to see whether there will really be any significant change of behaviour in this area. In truth, CAs are very cautious about barring firms, fearing I suspect legal challenge and endless argument getting in the way of running the actual procurement process. I’m not sure that will change.

An interesting example of this unwillingness was reported recently on the Nation Cymru website. Campaigners have accused a National Health Service Trust of ignoring anti-fraud regulations by allowing two firms that have been convicted of bid-rigging to form part of a consortium to build a new cancer centre in South Wales. The Acorn Consortium is the preferred bidder for constructing the new Velindre Hospital in Cardiff. That project has faced strong opposition on environmental and medical grounds, and it is those against the construction who have raised this issue.

Nation Cymru has described how two of the consortium members – the Kajima group and Sacyr – have been found guilty of fraud offences in Japan and Spain respectively. As the website reported,

“Kajima was sentenced for bid-rigging in March 2021, with one of its executives receiving a suspended prison sentence and the company itself being fined 250 million yen (around £1.53m) for its role in the scandal, which involved a number of firms colluding with each other on the construction of a railway line to maximise their profits. Sacyr received a penalty of €16.7m in July 2022 for its part in creating a cartel aimed at aligning bids for government contracts”.

When asked why this had not led to exclusion, a Velindre University NHS Trust spokesperson responded: “The robust procurement process has been undertaken in line with procurement law, UK and Welsh government policy and all required due diligence has been undertaken.” 

I’m not sure that’s a good enough explanation really. When the spokesperson was asked to explain in more detail why “regulation 57” (which covers this sort of thing) did not apply or was over-ruled here,  they “did not offer an explanation”.  I do think they should say more.

But conceptually it’s a tricky one. With my buyer’s hat on, do I really want to kick out what presumably is my best bidder because two possibly quite minor consortium members did something bad hundreds or thousands of miles away? On the other hand, we do have regulations for a purpose. 

In terms of the justification, having had a quick read of “regulation 57” (it’s some time since I studied “the regs”), I suspect the answer lies in the famous “self-cleaning” clause. That says, “Any economic operator that is in one of the situations referred to in paragraph (1) or (8) may provide evidence to the effect that measures taken by the economic operator are sufficient to demonstrate its reliability despite the existence of a relevant ground for exclusion”.

So basically, if a supplier can show that it has taken lots of steps to make sure it will never, ever get involved in bid-rigging again, or any of the other reasons for mandatory OR discretionary exclusion, and the buyer is naïve enough – sorry, I mean if the buyer analyses those declarations and decides they are valid, then the supplier is back in the game.

You can see the logic in this, but it is a bit of a “get out of jail” card really. It’s also another reason why in practice, we so rarely see suppliers barred. It will be interesting to see whether anything changes once the new Bill has been implemented – but I have my doubts. Barring is potentially just so fraught with hassle and risk.

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HS2 Delayed – What a Surprise!!

So, the UK’s biggest case of Bad Buying for decades has hit the news again. The high-speed rail link (HS2) between London and “the north” is being delayed. The programme will slow down to spread the cost over a longer period. The line to Manchester will not open until at least 2043 and the new London terminal will also be delayed. So passengers travelling south will end their journey by being dumped in a siding near Willesden Junction*. Well, what a surprise.

The delays also kick the can down the road beyond the next election, so the government can continue making vague statements about levelling up and supporting growth in the north rather than just admitting they messed up. This is all stacking up to be a monumental waste of over £100 billion of our money.

I don’t claim amazing clairvoyant powers but since the beginning of the HS2 fiasco, I have predicted that it would cost far more than planned and would probably never be completed. I think it was on Twitter some years back that I got involved in an argument with a keen “train guy” who rubbished my claim that the eventual cost would be over £100 billion. And the business case was always dodgy – based on strange assumptions about how people use their time – but it became even more ridiculous once the working from home movement picked up steam during Covid. Back in September 2020 I wrote an article  – here is an excerpt.

“Construction of the HS2 high-speed railway network in England started formally last week. Some will be cheering – not me. At a time when working patterns have been changed because of Covid, perhaps for ever, and everyone is getting used to Zoom, Teams and the like, it seems crazy to be building new rail capacity so businesspeople can go to meetings. Other possibilities such as autonomous road vehicles make also make this very much a 20th century option.


HS2 is basically a job creation scheme, but an incredibly expensive one. The projected cost was initially £1-36 billion, but we’re now looking at £106 billion, incredibly.  The National Audit Office (NAO) report in January said this in summary. “In not fully and openly recognising the programme’s risks from the outset, the Department and HS2 Ltd have not adequately managed the risks to value for money”.

At the end of 2021, the eastern leg to Leeds got cancelled, and even the government had to admit that the business case was awful. As The Times said, “HS2 has long since ceased to be a project based on anything resembling a sound business case. The most recent business case published by the government, in June last year, awarded HS2 a benefit-cost ratio of 0.9. In simple terms, it will cost more to build than the advantages it bestows”.

Inflation is being quoted as one of the drivers for the delay – but ironically, delaying will only increase the cost further because of that very factor.  It is only the sunk cost fallacy that drives even the London-Birmingham leg to completion, and the political embarrassment if it were halted, after not just the money squandered but the impact on the countryside and wildlife through the construction to date.

In the meantime, much of the north of England suffers from dreadful public transport. A fraction of the HS2 budget could have made a real difference to local train and bus services, improving for instance the trans-Pennine routes which have been in a state of virtual collapse in the last few years.

The Times called for a “brisk inquiry into who got the country into this mess. Politicians, senior civil servants and the executives who have ridden the HS2 gravy train should be called to account”.  I’d also like to see a real analysis of why construction costs appear to be so much higher in the UK than elsewhere. There may be some genuine reasons – geographical, for instance – but I suspect there are other more addressable problems around the procurement process, risk appetite, the role of consultants and more. It would be good (but probably optimistic) to think that something could be learnt out of this disaster.

* Joke. Well, I think it is…

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Spotting the Dodgy Bidder

After a couple of weeks featuring the travails of the Chartered Institute of Procurement and Supply, let us return to the day-to-day world of Bad Buying.

Looking through a list of recent procurement-related frauds, there were the usual “fake invoice” incidents, still probably the most common way to extract money from an organisation. In most cases, it is an insider driving that, setting up fake companies and signing off payments themselves, but sometimes there may be external help too.

But then I spotted an interesting example of a type of fraud that is rarely reported. It involves a firm (or individual) submitting false information to a buyer and winning a contract on the basis of that information.  Now we might ask whether it is unusual to see this because it rarely happens – or because the perpetrators just don’t get caught!

In this case, Raymond White (who has used several other names during his long and not particularly illustrious criminal career) defrauded the US government by “submitting fraudulent documents and false information about himself, his company’s business, and his company’s finances in order to obtain a $4.8 million contract to build a munitions load crew training facility at Joint Base Andrews, Maryland”.

He also obtained a bond guarantee from the United States Small Business Administration in connection with the same contract, and just for good measure, he committed identity theft by using another person’s signature and Social Security number (presumably to avoid using his own name, as he was a known criminal!)

For his company, Kochendorfer Group USA Inc., to bid for the contract he submitted fake bank statements, accounting firm reports from a “firm” he had invented, and false financial statements. They showed the firm had plenty of cash when really it had almost nothing.  We shouldn’t laugh but some of it borders on the absurd – he also submitted a “false resume and firm dossier, which described fictitious construction jobs and provided fake references.  White claimed, among other things, that he had overseen the construction of a World Cup soccer stadium in Brazil from 2012 to 2014 when in fact, he  was in federal prison during that time frame, serving a prison term on a prior fraud conviction”.

I mean, if you’re going to lie, you might as well go big – not a local housing development but a World Cup stadium! Anyway, he won the contract but fortunately, the client (the National Guard) discovered the fraud before any work actually took place. White pleaded guilty, not surprisingly, and he will be sentenced in May.

If you are reading this and thinking, “this couldn’t happen here”,  then presumably you always check financial statements and take up supplier references, whether that is talking to another customer of the firm involved or indeed an employer or client if it is an individual contractor. Well done. But it doesn’t always happen.

A few years ago, I advised a firm that was challenging a procurement decision made by a very large UK government central department. Basically, another bidder had told lies in their bid and had won the contract. That bidder had provided a reference that would have exposed a lie – IF the Department has taken up that reference. There were other aspects of the bid that were dodgy and would have been exposed if the buyer had made a call or two. For instance, the bidder claimed that they were strong in certain regions of the UK when they clearly weren’t

When my client challenged this, the Department had an interesting response. They said that they were not required by procurement regulations to pursue references, or indeed that they had any obligation to check that anything a bidder said in their proposal was accurate and true! Now technically that might be correct, but we suggested to the Department that a judge might well make the assumption that a reasonably competent buyer had a duty to do some basic work around bid veracity! The Department went away to think about it, no doubt consulted their lawyers… and then re-ran the competition.

Obviously, buyers don’t always have time to check out every single detail of a bid and all the surrounding information and intelligence about the potential suppliers. But we are responsible for at least assuring ourselves that when someone claims to have built a football stadium in Brazil, they actually did, rather than being in jail at that time.  

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Should HS2 Go Ahead At All? Business Case Now Even Weaker…

So the eastern arm of the high-speed rail programme HS2 from London up to Leeds, has been cancelled. Well, what a surprise. The biggest money pit dug in the UK for a long, long time has become too deep even for this spendthrift government. As Construction News reported,

“The eastern leg of HS2 phase 2b between Birmingham and Leeds has been scrapped by the government as part of its Integrated Rail Plan (IRP) for the Midlands and the North. The cost-cutting on HS2, which the government estimates will save around £18bn, was unveiled … by transport secretary Grant Shapps alongside pledges to upgrade local and intercity rail links in the regions. The £96bn investment package will cut journey times between many towns and cities, and increase the capacity of the rail network, Shapps said”.

I wrote here and here about HS2, with some thoughts on why huge programmes fail and how it sometimes seems that everyone involved with such programmes has an incentive to mislead the public – and often some of the decision makers – about the true costs. 

Most of the press commentary about the recent decision has focused on the “betrayal” of the north of England and what this means to the Prime Ministers supposed “levelling up” agenda, which is aimed at spreading wealth from the south of England to the north.  But surely a bigger question is whether the rest of HS2 should be going ahead, given the costs and a business case that look weaker and weaker as time goes by.  I pointed out a year ago that the initial business case was, in effect, a fiddle or a fix, designed to justify the programme.  As I said then:

“The business case for HS2 was always highly questionable. It relied on ascribing a value to the extra 20 minutes or so the passengers would have because of their somewhat faster journey from London to Birmingham. It assumed that the journey time was “wasted” from a benefit point of view, which is clearly not true (have they never heard of smartphones or laptops?), and also assumed that passengers wouldn’t use the extra 20 minutes by staying in bed a little longer!”

Now the new issue of Private Eye magazine has pointed out that the initial business case also made it clear that the whole programme would only offer value for money if it was all completed. The full benefits of “Northern Powerhouse Rail”, some of which is still going ahead, were also conditional on the HS2 leg to Leeds.

Private Eye also points out that economic growth in the UK has been slower than the figures used in the 2015 business case, which reduces the return further. And of course, the pandemic has driven a major drop in rail usage, and it is far from clear at the moment whether pre-Covid traffic levels will return, given what appears to be a seismic change in working habits and the growth of hybrid home /office working patterns. 

So we are now in the crazy situation where the government is subsidising existing rail companies and lines by billons a year because of the lower levels of usage, whilst spending £60+ billion on the western arm of HS2. Think what that money could do to improve the creaking railway system in the north of England, the trans-Pennine routes, commuter services into Manchester, Liverpool or Leeds, getting Sunderland connected properly… I am not anti-rail, I should say, but I do not believe HS2 is a good use of public money in such huge quantities.

I also have doubts about the HS2 programme’s ability to avoid Bad Buying in terms of how it spends money with suppliers, but that’s another issue altogether!

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Corruption and Incompetence – It Gets Everywhere!

The Conservative government has been criticised for some of the procurement actions of the last year or so, with allegations of mismanagement and cronyism. But the Labour Party has not been free of controversy in terms of how its politicians spend public money in local government.

Croydon council in south London has basically declared itself bankrupt, with mismanagement of a council-owned property company and bad decisions about acquisition of property investments contributing to the dire financial situation. We may come back to this as more detail emerges.

Meanwhile, Joe Anderson mayor of Liverpool, was arrested last December on suspicion of conspiracy to commit bribery and witness intimidation.  He and four others were held as part of a police investigation into the awarding of building contracts in the city. The BBC reported that a “year-long police probe, Operation Aloft, has focussed on a number of property developers”.

An inspection ordered by the Minister for Housing, Communities and Local Government reported in March and the inspector, Max Caller, found major failings “in governance and practice”. That has led to the imposition of Commissioners in the City to help the council implement the changes needed. But the report also commented on Anderson’s son David, now caught up in controversy. His firm SCC was awarded contracts by the council through what seemed to be unusual procurement routes.

Mr Caller said that a decision to award SSC a £250,000 health and safety contract on the project to dismantle Liverpool’s Churchill Way Flyovers in 2019 ‘exposed the site teams to considerable safety risks’. The company had no previous relationship with the council before the ‘urgent appointment was instructed’ as work got underway in 2019.

The report calls for more power for the procurement function in the Council, but also highlights that it needs to up its game. More criticism for circumventing official processes and policies appears to be attached to the staff in other departments such as Highways.

This is only the latest in a long line of issues around public sector construction contracts. That area of spend has historically been plagued by claims of and indeed proven corruption in local government and elsewhere.

 Why is that? Well, it is one of the biggest spend categories for local government and many organisations, and it is also relatively opaque in terms of benchmarking costs and prices. So social care, or IT hardware are also huge spend areas for councils for example; but I’d suggest it would be pretty obvious if a care firm or laptop supplier were charging unrealistically high prices to fund bribery. If a firm was charging £25 an hour for carers when the standard for other firms or other councils was £18, even the slowest auditor or councillor might notice!

But a few hundred grand added onto a multi-million pound building contract for a new school or sports centre is much harder to spot. If we’re talking the council buying land or property, then there is even less of a clear “market value”. 

These are also areas where historically, professional procurement has been less involved than in some other spend categories. The construction departments in councils have had a reputation for being powerful and something of a law unto themselves.  I remember 20 years ago a friend of mine who was MD of a firm that supplied heating equipment refusing to deal with one Yorkshire council because the corruption was so overt. Basically his firm was expected to pay a % commission to certain individuals on every order.

So a lack of professional procurement scrutiny, bespoke work and limited market price benchmarks are factors that indicate how open to corruption a spend area might be.

Back to Liverpool and there is also a link with a controversial construction project where Unite, the trade union led by Len McCluskey, is the buyer.  The project appears to have cost almost £100 million against the £57 originally forecast. The BBC reported that; “The contract to build the 170-room hotel and conference centre was awarded in 2015 to the Flanagan Group, a Liverpool company run by an associate of McCluskey, who is the union’s general secretary. Another contract on the project was given to a company owned by the son of Joe Anderson, Liverpool’s mayor.”

Yes, it’s him again …

Anyway, Unite has responded saying “Every step of the way, the production of this complex was overseen by independent surveyors and architects. Accountability was built into the process to ensure that at every stage of this development we got value for this union’s money. All this was overseen by our democratically-elected, independent 62-strong executive council”.

 Bad Buying? Or worse?  I’m not sure.

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