Tag Archive for: Defence

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Committee Takes Aim at MOD Procurement

The UK government’s Public Accounts Committee (PAC) which keeps a beady eye on government spend trained its attention on the Ministry of Defence last week. And PAC, made up of members of parliament from different political parties, was not impressed with what it saw. The PAC gets most of its ammunition from National Audit Office reports and investigations. It can then call “witnesses” to question in person. Sir Geoffrey Clifton-Brown, Deputy Chair of the Public Accounts Committee said this as the committee’s report was published.

“If the MoD does not act swiftly to address the fragility of its supply chain, replenish its stocks, and modernise its capabilities, the UK may struggle to maintain its essential contribution to NATO. The 2022-2032 Equipment Plan is already somewhat out of date. It doesn’t reflect the lessons emerging from Ukraine, more than a year in. And every year it’s the same problems – multi-billion-pound procurement problems. Equipment arrives in service many years late and significantly over-budget, and some of it just isn’t arriving at all. The MoD still does not have or seem to be able to attract the skills it needs to deliver the Plan”.

The MOD does not have a great track record when it comes to major capital spend for equipment in particular. The latest disaster (which we’ve covered here previously) is the £5 billion Ajax armoured car programme. Delivery of vehicles from the supplier, US manufacturer General Dynamics, is years late, there have been problems with soldiers suffering from hearing problems after using the test vehicles, and the MOD is in a commercial dispute with the supplier.

As usual, many people are keen to offer simple-sounding solutions. Clifton-Brown speaking on Sky News said that MOD should bring in more private sector procurement people. But many of the (huge) current procurement team in MOD do have private sector backgrounds, and frankly buying MOD kit is not really very similar to anything the private sector does. Indeed, high profile and extremely smart private sector folk such as Bernard Gray have tried to fix defence acquisition and largely failed. The problems are far deeper and more intractable than a bit of a capability shortfall.

To be clear, a lack of skills in procurement is an issue (but probably even more true for contract management and project management capability), but there are other harder-to-fix problems in terms of MOD acquisition, such as these.

  • A conspiracy between MOD, Treasury and the supply side to consistently under-estimate the cost of new equipment at business case stage in order to get it approved.
  • Competition between the services (Army, Air Force, Navy) which means bidding for new investment is competitive rather than collaborative – this plays into the previous point about misleading plans and budgets.
  • Cosy relationships between industry and MOD staff, bordering on the corrupt at times, with a “revolving door” which often makes MOD people cautious about “upsetting” firms that might one day be their own employer.
  • The desire to keep changing specifications post contracts – driven by the rapidity of technological advances and also the desire of MOD senior leaders to have “the latest kit”.
  • Perpetual uncertainty about the highest level strategies around maintaining the UK’s manufacturing and maintenance capability, and setting that against the concept of buying the best value for money kit off the shelf from whoever makes it.
  • Unwillingness of the best staff to go and work on what are perceived to be failing programmes.

These issues should be addressed, but its not all going to be sorted out by recruiting a few more decent procurement professionals from Unilever or Toyota.

Then we also saw stories last week about another MOD dispute with a supplier. Babcock is building a new low-cost (in theory) frigate, which will not only be used by the British navy but will be sold to other countries. However, MOD and Babcock are now arguing about the commercial details of the contract for 5 Type 31 general purpose vessels. Babcock has warned investors it could lose up to £100 million on the contract and there is an argument as to who picks up the bill for the escalating costs. It appears to be related to inflation increasing far more than expected, putting pressure on the supplier as the cost of steel and other items rises.

So the question seems to be this. Who in the contract agreed to take “inflation risk”?  Now I would have expected this to be laid out very clearly – if it was not, then that was both Bad Buying and Bad Selling! Or just bad contracting. Then the problem may have arisen if Babcock foolishly agreed to take that risk, not thinking that we might see inflation at 10%+.  MOD would be perfectly within their rights to tell the firm to just get on with it, but perhaps there is something more nuanced in the contract, as the parties are now apparently going to a dispute resolution process. We’ll watch with interest to see what comes out of that.  

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Germany’s Military and More Bad Buying

In many countries, the UK included, there is still a lot of admiration for German business and industry. The common view is that the German economy and the nation’s way of doing business generally is focused on organisation, efficiency and competence – and generally succeeds in terms of the results.  

That might seem to be a bit of a myth however,  if you read the story of Brandenburg airport, which featured as a major case study in the Bad Buying book. Years late and billions over budget, the story included dreadful programme management, terrible specifications for the airport and its internal fittings (such as escalators that weren’t long enough to reach the next floor…) as well as substantial fraud and corruption.

Now a recent report into the German military, the Bundeswehr, from Eva Högl, the parliamentary armed forces commissioner, suggests that that sector is also home to quite a range of shocking “bad buying” stories of bureaucratic incompetence and general failure. Högl says that the Bundeswehr needs 300 million to modernise properly and that at current rates of progress, it will take 50 years.

Högl is an ex-politician and travelled to 70 German military sites around the world and interviewed over 2300 people, so this wasn’t a quick management consultancy review. The Times reported that her findings included some almost unbelievable examples. A military hospital had no internet connection, so sensitive medical devices had to monitored manually. A microbiological laboratory was still using a dot matrix printer and an ancient refrigerator. The standard uniforms – introduced decades ago – are susceptible to “cold and damp”, which sort of negates the whole point of clothing, really!

Troops often had to buy their own equipment, and IT staff at one site waited months for computers. The bureaucracy is not just around procurement though – a sergeant in HR waited 3 years for a routine check on him to be caried out, during which time he was not allowed to access the HR systems or visit his own workplace unaccompanied!

We’ve featured plenty of stories about wasted money in the UK Ministry of Defence (and indeed the Bad Buying book has examples from that sector in several other countries ). But most of the stories related to major capital programmes; the Ajax armoured car, or the new aircraft carriers. An exception is the long-running and sorry tale of the army’s residential property estate.  However, the German report seems to suggest that the issues run across and through pretty much every aspect of  general management, including but not limited to procurement. 

Why is the situation so bad? Germany must have huge expertise in terms of management, including procurement and supply chain – you only have to look at their successful industries such as automotive and industrial equipment to see this. Why isn’t this translating into a professionally run military?

This isn’t just something to worry the people of Germany, of course. The country is a major contributor to NATO efforts, and that has been brought into the spotlight since the Russian invasion of Ukraine. Germany spent some 1.44% of its GDP on defence last year,  less than the UK or France and well below NATO’s 2% target. That spend in Germany surely must be increased if western Europe faces a long-term stand-off (or worse) with Russia. But just as the UK’s Treasury (finance ministry) is wary of pumping more money into the Ministry of Defence until it shows it knows how to buy expensive military hardware better, we might assume that there are similar worries in Germany. No-one wants to throw money at an organization that does not appear to know how to run itself properly and efficiently.

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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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What’s In Store for Bad Buying in 2023?

As we enter 2023, what do the prospects for Bad Buying look like? No doubt, we will continue to see regular procurement and contract related fraud and corruption. It will be greeted on discovery by the CFO explaining that “it was a very sophisticated fraud”. Usually, that is simply not true.  What the CFO (or CPO) means is “our processes were rubbish and wide open to criminal exploitation, but I can’t say that because you might question why I’m paid a six or seven figure salary to manage this shambolic process”.

Talking of fraud, the long-running controversy over PPE procurement in the UK will continue in 2023, with an announcement this week that the government is going to court over the supply of gowns from supplier PPE Medpro. One paragraph in the Guardian report on this leapt out at me.

“The legal claim states that the DHSC had paid PPE Medpro the full £122m for the 25m gowns by 28 August 2020. This was before any of the gowns had been inspected in the UK, and before all the gowns had arrived. Health officials rejected the gowns after a first inspection at the NHS depot in Daventry on 11 September 2020”.

I know the situation was desperate back in 2020, but to pay the full contracted amount before inspecting the product at all – it just seems incredible that any procurement professional would agree to that. Anyway, more to come on PPE this year, no doubt with more discussion of links to politicians, dodgy suppliers and billions of wasted money.

Moving on from PPE, the public sector (in every country) will continue to struggle with complex and technologically complex procurement in areas such as Defence and major IT programmes. We can hope that the UK Ministry of Defence sorts out the long-running Ajax armoured vehicle fiasco, another programme with potentially billions of pounds on the line.  The latest comments in December during a House of Lords debate seemed a little more positive but let’s wait and see. It’s not just the UK of course. Just before Christmas, we saw reports in the German press and on the Jane’s website about some of their army’s vehicles following a major training exercise.

“Germany suspended procurement of the Puma infantry fighting vehicle (IFV) on 19 December after 18 of the vehicles broke down in an exercise preparing for their first assignment to the NATO Response Force Very High Readiness Joint Task Force (VJTF) in January, when Germany takes over command of the force”.

But the UK MOD seems to have issues with low tech procurement too. Recent reports suggest that the organisation still hasn’t got to grips with maintenance of military housing, a long-running example of Bad Buying on several counts. It started with a dreadful PFI programme that cost the taxpayer billions, and now the relatively new contract for looking after the homes is not delivering satisfactory outcomes for those who live there.  A contract management failure maybe?

Of course, it isn’t just the public sector that demonstrates Bad Buying, although the private sector is better at keeping failures hidden. I would argue that the professional services market (audit, consultancy, legal services) demonstrates a long-term failure of markets, procurement and buyers generally. Last month, the 100 Group, which represents the Finance Directors of some of the UK’s biggest firms, wrote to the “big four” audit firms to complain about rising fees. To which we might respond – well, you are the clients, why don’t you do something about it?

In truth, there is an oligopoly in the audit market. So the firms can get away with saying they are “investing in audit quality,” whilst in practice the extra revenue is channelled into paying their partners more and more each year – £1 million plus now in large firms. EY also increased the salaries of its junior accountants by 13% recently – nice for those people no doubt, but we all know that it is the clients who will pay for that generosity.

To some extent, legal service and strategy consulting has gone the same way – higher and higher salaries for firm’s partners in particular, whilst clients get exploited. Yet too many buyers are unwilling to use approaches that might mitigate cost increases, such as applying real competitive pressure, negotiating hard and skilfully, managing individual assignments more carefully, or looking at alternative suppliers to the top (and most expensive) firms.

Anyway, I’ll leave you with four thoughts for the New Year – maybe they could form the basis of some procurement new year resolutions for your organisation!

  • Check that you have everything in place to minimise the risk of fraud and corruption in your procurement activities. You can’t make it 100% criminal-proof, but you can make wrongdoing much more difficult by applying reasonably basic processes, systems and policies.
  • Competition is still the best mechanism invented to drive positive outcomes and outputs from suppliers and contracts. Use it well and widely.
  • Be a little cynical – well, maybe more than a little – about what suppliers promise you and the claims they make about their products and services, particularly in areas such as technology.
  • Organisations that are “good at procurement” don’t just focus on the skills and knowledge of their procurement teams – they understand that a wide range of people in the organisation need to understand their own role in the end-to-end process. They must also have the right commercial skills to play their part in procurement success.
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UK Politicians Not Impressed with Army Ajax Programme

We wrote about the UK Ministry of Defence (MOD) Ajax armoured vehicle fiasco almost a year ago.  Now, the Public Accounts Committee (PAC), made up of politicians from all parties, has urged MOD to either fix or scrap the scheme by the end of 2022.

The programme has been running for 10 years and has failed to deliver a single usable vehicle. By December 2021, the Department had paid the supplier, General Dynamics, £3.2 billion, although Ministers now say there will be no more payment until problems are resolved. Noise and vibration problems proved to be a health hazard for soldiers during testing, and there were other performance issues too. The initial design had some 1,200 “capability requirements” and both buyer and supplier under-estimated the complexity of what they were trying to build. In their report published recently, the PAC said this.

“The Department’s management of the programme was flawed from the outset as the programme was over-specified and the Department (MOD) and General Dynamics did not understand the scale of the technical challenge. We have seen similar failings again and again in the Department’s management of its equipment programmes. The Ajax programme also raises serious concerns about the Department’s processes and culture for testing whether new equipment is safe to use”.

The MOD still appears to have no idea when, if ever, the vehicles will go into service and will not commit to a target date. And assuming this does not end well in term of delivering adequate vehicles, we can expect a serious legal battle – unless the MOD just caves in and pays up, of course. As the PAC report says, “because of programme delays and missed milestones, the Department estimates that it owes General Dynamics £750 million for completed work, but has not paid anything since December 2020, and the parties remain in dispute”.

The PAC comments follow a report from the National Audit Office in March 2022 which went into more detail, and there were several points in that report that I found particularly shocking. For example:

“The Army’s policy of regularly rotating posts means that the programme has had a high turnover of senior personnel, with five senior responsible owners (SROs) since November 2011, and four   programme directors and six project managers since September 2013. Defence Equipment & Support (DE&S) replaced the programme manager who had negotiated the reset immediately after the contract was updated in May 2019, affecting the programme’s corporate knowledge. It also replaced other senior programme personnel after the new director general was appointed in December 2019”.

That issue is largely within the control of the MOD, and the “revolving doors” staffing policy has been identified before as an issue; yet it still happens. And some senior roles were not even full-time before 2021! Then we have the Ajax Programme Office, responsible for running programme.

“The programme management office, which supports the SRO, has remained small for a programme of this scale and complexity. In 2016, six of the eight posts were vacant …  By April 2019, it had filled these vacancies to manage the contract renegotiation in 2018, but then reduced resources – at a time when the programme was missing milestones. In July 2020, the programme management office had dropped to four posts…”

What madness is this? A huge, critical and failing programme, and you reduce the programme management resources? Why? Would nobody take the jobs because they knew it was a doomed programme? Or did senior people want it to fail? Or did they think that a lack of resources might be a good excuse when the proverbial hit the fan?  Anyway, it is a shame the PAC didn’t pick up on this issue.

The NAO report identifies many other issues, from poor programme governance to specification issues, and really it is a textbook example of how not to run a major equipment procurement programme. It will certainly deserve its own chapter if and when “Bad Buying Part 2” emerges …

We are looking at increasing defence spending in the UK for obvious reasons following Russia’s invasion of Ukraine. That is fine; but as a taxpayer, I don’t want to see a penny more of my money going to MOD until I see a detailed and convincing plan laying out how the organisation will ensure it doesn’t waste more billions on equipment.  Ajax isn’t the first disaster of this nature; it just happens too often.

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Dossier of Defence Waste Published – But Who has the Answers?

Our attention bandwidth has been pretty much occupied by Covid for the last two years now, with some small space left for assimilating news about trips to Barnard Castle, Downing Street parties and maybe the goats in Llandudno for a bit of light relief.

That has led to many of the usual issues that might have got more media coverage slipping through the net, including some that might have been featured here as Bad Buying cases studies. Outside pandemic-related stories, government procurement has not really hit the headlines. Yet huge sums are still being spent, including in the defence arena.

The UK Labour Party recently published a “Dossier of waste in the Ministry of Defence 2010 – 2021”, a report looking at the projects that have cost the taxpayer “at least £13B in taxpayers’ money since 2010”. Many were fundamentally procurement-related and the report is a depressing litany of write-offs, overspent procurements and contract cancellations.  Often this sort of report is light on the analysis and heavy on the politics, but I must say that this one is worth reading – it appears to be thoroughly researched, using reputable source material and non-sensationalist analysis.

However, although the report covers the period starting with the election of the Tory-led coalition in 2010, the truth is that Labour has not historically had a great record on defence spending either. It has been a challenge for every government. Indeed, programme lead times are often so drawn-out, it is virtually impossible to pin the blame accurately on anyone – politician, official, consultant or supplier side.  

For example, the Nimrod maritime patrol and attack aircraft  “waste” of £3.7 Billion quoted in the report, based on 2013 MOD accounts and arising from final contract exit in that year, relates to contracts let way back in 1996 in the dying days of the John Major Tory government. But the significant issues and problems through the development phase happened under Labour, before the coalition finally (and probably sensibly) pulled the plug in 2010.

The other issue with this new report s that it is much stronger on putting numbers to the problem than it is in terms of offering solutions. The final words from John Healey, Labour’s Shadow Defence Secretary, are these;

This Government shows no serious intent to get a grip of these deep-seated problems. So as our first steps from day one, Labour in Government would:

  • Commission the NAO to conduct an across-the-board audit of MoD waste
  • Make the MoD the first department subject to our new Office for Value of Money’s tough regime on spending decisions.

Reforming the department will not be easy, but this report takes a crucial first step in revealing the unacceptable scale of waste in the MoD.

Well, he is certainly correct to say reform won’t be easy. But I’m not sure what an NAO “across the board audit” will achieve.  NAO can do little more really than verify the numbers. The organisation does on occasion also offer recommendations for performance  improvement, but has no resource to follow that through into implementation. And it is far from clear what the new Labour  “Office for Value for Money” is actually going to do that Cabinet Office, Crown Commercial Services, NAO and Treasury can’t already. (Although I am polishing up my application to be its CEO, of course).

We’ve had (and still have) some very capable procurement leaders in MOD and people such as Bernard Gray –  who had his foibles, but possessed a first-class brain – have had a go at running the totality of Defence Acquisition. They haven’t managed to improve matters much, because the issues are clearly deeply engrained in the whole of the military ecosystem. Problems go way beyond “acquisition” or “procurement” into very high level and fundamental issues such as the three services split, uniformed/civilian tension, the pressure on military leaders to lie to secure budget, arguments over domestic industry capability, and the unhealthy proximity of the buy-side and the supply-side in UK defence.

If these tough challenges aren’t addressed – and they probably won’t be given the short-term nature of British politics – then I’m afraid “waste” and “procurement failures” will continue. That applies whichever political party is in charge and whichever Defence Minister has his or her couple of years pretending to run things.

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The Bad Buying Awards 2021 – Part 1

Welcome everyone and yes, it is time for the inaugural Bad Buying Award Ceremony – virtual of course.  Over the next three days we will announce the six winners of these prestigious awards, given to those who have demonstrated truly Bad Buying.

Our definition of Bad Buying incorporates a number of different but linked topics. Obviously, it includes failure in procurement (poor performance on the buying side of the table). It can also relate to a contract that goes badly wrong because of supplier performance, failure or fraud that is not properly managed or mitigated by the buyer, client or customer. Or it can be a more general fraud linked to the procurement process, such as fake invoice scams or corrupt collusion between buyers and sellers.

So today, we will start with our two international awards.  

International (Private Sector): Kraft Heinz

Awarded for Creative Use of Supplier Contracts

Food giant Kraft Heinz (KH) was charged by the US Securities and Exchange Commission (SEC) with mis-stating its accounts following the merger of Kraft and Heinz in 2015. The firms said the deal would deliver cost savings of $1.5bn a year, and procurement savings-related targets were set for staff. But after 2017, savings proved hard to find,  As the SEC said, management “pushed procurement division employees to come up with ideas to generate additional immediate, same-year savings”.

The dodgy accounting practices were then based around manipulation of supplier-related payments. For instance, buyers negotiated “prebates” (!!) – a sugar supplier gave KH $2 million up front in return for a 3-year contract, with the agreement that the money would be recovered by the supplier through the contract. Or  suppliers might reduce prices in the short term in return for a longer-term increase. These schemes when recorded as current-year “savings” and added immediate profit, rather than being accounted for properly.

Kraft Heinz had to restate its accounts, correcting a total of $208m in wrongly-recognised cost savings. The CPO, Klaus Hoffman and the COO Eduardo Pelleissone were accused of violating anti-fraud provisions, failure to provide accurate information to accountants and violating accounting controls.

Without admitting or denying the allegations, in September Pelleissone agreed to pay a civil penalty of $300,000.  Rather than addressing risks after being made aware of issues, “he pressured the procurement division to deliver unrealistic savings targets”. Hofmann agreed to pay $100,000 and was barred from serving as director or officer of a public company for five years. KH agreed to a penalty of $62m, also without admitting or denying the findings.

This was a very interesting and unusual case, which demonstrated approaches that the judging panel had not previously seen in their many years of procurement service. Given that creative application of supplier negotiation and contractual mechanisms, this was a very worthy winner of the Bad Buying International (Private Sector) Award.

………

International (Public sector): Balfour Beatty Plc

Awarded for Over-invoicing of US Defence Clients

In December 2021, the US housing management subsidiary of UK engineering and services firm Balfour Beatty agreed to pay fines and restitution of $65 million after admitting over-charging US defence clients for some years. Under the terms of the plea agreement, Balfour Beatty Communities agreed to make the payment  after a federal investigation into its scheme to claim performance bonuses by submitting false information to various clients. 

The issues came to light when living conditions at US Air Force bases were found to be unsatisfactory. The company’s homes did not meet fire safety codes and had mould, rodents, pests, radon gas, and other defects. An investigation then found that the firm maintained two sets of maintenance records at some bases. One included the issues of mould, asbestos, and leaks that were not promptly fixed, whilst the other showed fake quick repairs that allowed the company to claim contractual bonuses from the Pentagon.  As always in these cases, the company blamed a few rogue individuals who have presumably now left.  It also appears that the firm is still engaged on the contract which seems a little surprising.

In cases like this, it is arguably not so much “bad buying” as a “bad supplier”. However, where the issue runs for some time, it usually indicates a failure of contract management, as well as bad behaviour by the supplier. At least the client did eventually identify the issue and take action – but it is an interesting case study in supplier behaviour, and on that basis, Balfour Beatty and its affected clients win the Bad Buying International (Public Sector) Award.

Two more prize winners tomorrow!

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Do You Need a Helicopter, Mate? I Can Do You a Deal…

Is that expensive “sea bass” in the restaurant, or that you buy as “Category Manager – Fish” for a frozen food manufacturer –  really sea bass? Or is it a cheaper product? Or even something that should not be sold at all, an endangered fish species perhaps. What about those electrical components? Are they genuine, made by the reliable firm whose name is on the case, or are they counterfeit, bad quality products from an obscure plant in an obscure country?

There is a whole category of procurement-related fraud that is based on buyers not getting what they thought they were paying for, and you won’t be surprised to know that a chapter in my forthcoming book  “Bad Buying: How Organisations Waste Billions Through Failures, Frauds and F**k-ups” covers that very topic.

There are some pretty surprising cases too. Even bulk oil shipments can lead to issues, as there was a court case some years back based on a very large firm shipping oil that was apparently lower grade than the specification agreed with the buyer. So as in that case (or indeed the sea bass example), it can be very difficult to know if you are getting something genuine. Understanding the provenance of what you are buying is key – but not always easy.

However, a story this week from Moldova made even my jaw drop. The “counterfeit” goods in this case are … helicopters! Balkan Insight website reported this.

“The Moldovan Prosecutor’s Office for Combating Organised Crime and Special Cases and investigators from the Police General Inspectorate closed a clandestine factory in the Criuleni area near the Dniester river in the east of the country on Tuesday that was producing copies of Kamov KA-26 Soviet-type helicopters”.

The helicopters were destined to be illegally exported to other ex-soviet countries, and were “produced without the necessary permits and documents of origin for the parts and equipment used.”

 It is not clear whether the buyers knew they were getting unauthorised machines (but presumably at a lower price than the “real thing”) or whether they though the items were genuine. It also raises questions of safety of course. Were they actually made to the right specification, but the manufacturer was acting without the right permissions, or might the helicopters have proved dangerous as well as dodgy?

Anyway, this certainly qualifies as a prime case of Bad Buying, and one of the more interesting cases of what we might call “provenance fraud”. It also has confirmed my personal vow never to step into a helicopter again. I did once, from the centre of New York out to the airport, and while it was an “interesting” experience, it was also a “never again” moment!  

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