Contracts Archives - Bad Buying

(Pic; A&E on a Saturday night)

Incentivisation is a fascinating topic. In a business context, for example in terms of incentivising the right behaviour by suppliers, it can require knowledge of psychology, contract law, finance, economics, and operations management. Most of us in procurement will have seen examples of it going wrong too – indeed, I dedicated a whole chapter in the Bad Buying book to dodgy incentivisation that drove unexpected or simply bad supplier performance.

In the UK’s National Health Service (NHS), the way “the centre” (usually the Department of Health or NHS England) incentivises hospitals and other Trusts that deliver services is very similar to a commercial buyer/supplier relationship. Basically, the centre gives money to Trusts and they agree to aim for certain performance levels.

Now I’ve looked up the cvs of Sarah-Jane Marsh, National Director of Integrated Urgent and Emergency Care and Deputy Chief Operating Officer, NHS England, and Julian Kelly, Deputy Chief Executive and Chief Financial Officer, NHS England. To be honest, there is nothing in them to suggest that these two are stupid. And yet they have launched one of the daftest and most inappropriate incentivisation-related initiatives I’ve ever seen.

It is in effect a “competition” through which Trusts can receive additional funding for capital expenditure in 2024/5. This is what they say in their letter to Trusts this week.

We recently met with ICB and acute trust leaders to discuss how we best work together to meet the challenge of delivering the agreed target of 76% A&E 4-hour performance during March 2024 so that more patients are seen, treated and discharged in a timely way….

In addition we are now announcing three other routes through which trusts will be eligible for additional capital funding in 2024/25:

The 10 trusts delivering the highest level of 4-hour performance (that means seeing people within 4 hours of their arrival at the accident and emergency department) during March will each receive £2 million.
The 10 trusts who deliver the greatest percentage point improvement in March (compared to January 2024 performance) will each receive £2 million.
The next 10 trusts who deliver the greatest percentage point improvement in March (compared to January 2024 performance) would each receive £1 million.

(It continues…)

So where do we start with this? As I say, I look on it as a supplier incentivisation exercise, and on those grounds I would immediately point out a few major flaws .

It was issued on March 12^th, and relates to performance in March. So how can Trusts possibly have time to make any significant or lasting changes to their processes to improve A&E within days?
Shouldn’t capital expenditure be allocated based on where it will get the best return rather than on some sort of “Hunger Games trial by A&E”? You would put money into a collaborative venture with a supplier based on its potential return, not on some spurious “performance measures”, wouldn’t you?
Doesn’t relating much of it it to improvement mean those Trusts that were particularly awful in January have more chance of winning then the consistently good Trusts? That seems unfair.
How do you stop “gaming” of the process and the data? I’d pay a few local layabouts to come into A&E with a “bad finger”, see and discharge then in two minutes, then rinse and repeat until my figures look amazing.
Indeed, this could lead to patient care that is driven by finance, not needs. See the easy cases in A&E, not those with their leg hanging off…

This strikes me as politically driven, surely the only explanation as to why Kelly and Marsh would take this deeply flawed step. Ministers desperately want some good news from the NHS now in case there is a Spring election. Officials must have been instructed to do this – that must be it? If not, if this really is an NHSE internal initiative, then the NHS really is in even deeper trouble than we thought.

How should you react if a supplier lets you down? If it is a minor issue, a quality failure perhaps, or a lightly late delivery, then you discuss the issue, what might be needed to avoid a repeat, and perhaps administer some sort of direct critique – “we’re very disappointed in you….” You might take more severe action if minor problems become frequent of course.

But what if the supplier really lets you down? What if, shortly before they are due to deliver something – maybe raw materials, components, or some new tech equipment – they tell you they can’t. Or perhaps a lawyer who is collaborating with you on a big project says they can’t make that critical meeting on Friday – even though you’ve got the CEO and CFO both lined up to attend?

Then, when you ask why, they tell you that basically, they’ve had a better offer from another customer. Going back to my first procurement job at Mars, maybe a supplier of orange juice tells me that Rowntree’s have offered more so the shipment is going to them. “Your contract is at £1 a litre – they’re offering me £2 a litre”. But, I say, we might have to close down the Starburst production line for a week! Tough, says the supplier, that’s business.

That is an approximate analogy to what has happened with Reading and Leeds music festivals. Jack Harlow and Italian rock band Maneskin, both near the top of the bill, pulled out of next week’s festival in recent days. (Harlow is a boring white US rapper – Pitchfork said his latest album was “among the most insipid, vacuous statements in recent pop history”. )

Their reason appears to be that both were offered live slots at the MTV VMAs (video music awards) in the US next weekend. Actually, I’m not sure MTV will have offered lots more money; it is probably an “exposure” factor that has made the artists and their managers decide to let down some 150,000 UK live music fans.

Going back to Mars, let’s consider how procurement would respond to this sort of action. It’s easy to say that you would never work with that supplier again, but that would come down to power and market situation (if they are my only approved supplier of orange juice, I have a problem). But if I had the opportunity to exclude that firm, possibly forever, I would certainly do so. They have betrayed my trust and that is not easily remedied.

I might also look at taking legal action. Can I sue for breach of contract, and claim damages – such as the cost of shutting down the production line, perhaps? It will depend on the contract, but generally “force majeure” incidents which allow contractual terms to be ignored are quite different from someone just overtly breaking the contract for commercial reasons. Note that Rage against the Machine pulled out of the festivals too recently – and they were a headliner – but one of the band is ill and their entire European tour has been cancelled. That is quite different from the VMA issue.

So I hope Harlow and Maneskin get backlisted by every festival in Europe from now on, and that promoters of any gigs with them understand they are not to be trusted and should look at having really punitive clauses in their contracts. I hope Reading and Leeds have also been compensated in some way – otherwise I don’t know why they wouldn’t take some sort of action against the acts. There’s also a reputational issue for the festivals here. If customers start thinking that you can’t trust the list of artists that are spread across the marketing material, why would I commit £250, months in advance, for a Reading ticket?

Anyway, not Bad Buying (unless Reading didn’t have a decent contract in place, of course); but certainly Bad Suppliers!

Tag Archive for: Contracts

The NHS gets “supplier” incentivisation all wrong

Top Acts Pull Out of Reading and Leeds Festivals – Bad Supplier Behaviour