Tag Archive for: Finance

(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:

  1. 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.
  2. The 10 trusts who deliver the greatest percentage point improvement in March (compared to January 2024 performance) will each receive £2 million.
  3. 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 12th, 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.

Incentivisation is a topic that probably isn’t discussed in procurement as often as it should be. I find it fascinating, as it encompasses a mix of finance, economics, contract law, psychology, low cunning…  How we construct contracts, the success measures we set for suppliers, how we reward their good behaviour or performance and punish the opposite – these all feed into how they behave.

Suppliers generally behave rationally given the incentives they are presented with. In the Bad Buying book, there is a whole chapter on the topic, because I found so many interesting case studies about incentives going wrong.

We see another example in a slightly different context in the UK at the moment, where the dental element of the National Health Service has failed in its core objective – to keep the nation’s teeth in good condition. A BBC investigation in 2022 found that nine out of ten dental practices weren’t accepting new NHS patients.  In some regions, that figure was 98%. That has led to more and more patients turning up at hospitals with terrible dental problems that require urgent treatment – which puts more pressure on over-stretched hospitals of course. Tooth decay is the most common reason for hospital admission of young children, shockingly. And 20,000 adults and 60,000 children were hospitalised last year to have teeth extracted under general anaesthetic. 

There are stories of people pulling out their own teeth, or making homemade dentures, fillings and crowns. We seem to have gone back to Victorian times. And it is all because the contract for dentists incentivises the profession in a manner that has led to that situation. The NHS contract does not pay dentists based on their actual effort, and does not allow them to make what they consider a reasonable income. So they have learnt that treating only private patients will reduce their patient numbers, but overall, the dentist will make more money. More and more practices are taking this view, unfortunately, making totally rational decisions.  

Funding for dentistry has been cut under this government. And one of the incentivisation issues is that the dentists’ contract does not always relate the income they make to the amount of work they do. So, simplifying the problem, their pay is broadly based on a fee for each course of treatment they deliver to an individual. So they receive the same amount whether they do one filling for me or six.

There is a vicious circle here – if people can’t find an NHS dentist easily, by the time they do, they probably do need more work doing, so they are even less attractive for the remaining NHS surgeries.  The current contract actually goes back to the days of the last Labour government, but the Tories have done nothing to address this issue in recent years – until now, when they see it becoming a potential election issue this year.

One solution would be to increase the supply of dentists, which in classic economic terms should drive prices down in the market – pushing more back into NHS work perhaps. But the five-year training scheme means this is impossible in the short or medium term. Another possibility would be forcing dentists to do NHS work for a certain number of years after qualifying, given they benefit from the taxpayer subsidising their training. Neither option has been tried.

Last week, the government announced incentives to encourage more dentists to do NHS work, but the profession doesn’t think this will work. We will see. But devising a contract that incentivises the behaviour the government (and the taxpayer) want to see should surely not be impossible.

However, politicians have struggled with contracts and incentivisation for the medical profession for years. I remember the new GP contract for first line “family doctors” that was agreed by the Labour government back in 2004. My friend who was a GP told me that he and his colleagues were astonished how favourable it was to them. When he first read the letter about his new payments and contract, he honestly did not believe it.

Anyway, I am fortunate to still have an NHS dentist, although I’m also fortunate to be able to afford private additional treatment when I need it. But the current situation is a disgrace. When we see people travelling from the UK to the Ukraine – a country at war – to get dental treatment, you know something has gone badly wrong with the UK situation.

Coming back to the Post Office Horizon scandal, last week at the long-running enquiry into the events, Fujitsu finally apologised and owned up to their contribution to the terrible events. The firm has now promised to make substantial contributions to the payments which should go to the affected sub-postmasters shortly, we hope.

As the BBC reported, “The boss of Fujitsu’s European arm says it has “clearly let society down, and the sub-postmasters down” for its role in the Post Office scandal.

Paul Patterson admitted there were “bugs, errors and defects” with the Horizon software “right from the very start”.  Mr Patterson also reiterated the firm’s apology for its part in the scandal.

Some of the Post Office staff involved in prosecuting the sub-postmasters came over at the enquiry as being both stupid and vindictive, enjoying their role as the “bad guys”. Clearly, the Post Office saw a role for nasty, vicious people in this case.

Then, in the Sunday Times today, Robert Colvile has written an excellent article about the history of the Horizon software. I was also surprised and pleased to find that he quoted from my book, Bad Buying, within his article. He reviewed the book (pretty positively) when it came out in 2020.  My quote is nothing to do with Horizon though – Colvile uses another story of mine to demonstrate general issues with contract management in the public sector.

But he makes a connection that I had missed (and I should have spotted). Horizon started with an ICL project, “Pathway”,  working with the then Department of Social Security back in the 1990s to automate benefits payment. I was actually Procurement Director at the DSS for part of the time this pretty lousy programme was running! But I had not realised it morphed into Horizon, and along the way the failing ICL got acquired by Fujitsu.  

When I joined the DSS, in 1995, I was not exactly welcomed by the people running that programme. I was struggling to get any traction with the programme leadership. So I asked my boss whether I should push harder to get involved. “Do you have plenty of other things to do”, he asked me. Yes, I replied, loads of stuff. “In that case, I think I would leave that programme alone”, he advised. He knew it was a dog and was saving me from failure by association.

That was when the Minister Peter Lilley stood up at the Tory Party conference and showed off the “benefits payment card”. It wasn’t real of course – there never was a working benefits payments card. His was mocked up in his hotel suite the night before by his aides, I was told.

I followed the Horizon case from the beginning and I thought I wrote about it on Spend Matters many years ago but I can’t find the article now, so maybe I just thought about covering the case. I do remember my internal debate about whether to include the story in my Bad Buying book, but it was complex, unfinished and subject to ongoing legal action, so I decided not to, unfortunately perhaps. Although I don’t think my book would have had any effect compared to the TV programme.

Let’s just hope now that the compensation gets sorted out quickly for those affected. And I’ll come back to another issue which Colvile comments on, the question of why Fujitsu has continued to win government contracts since the Horizon affair became public. That takes us into some interesting questions about public procurement regulations, so I’ll save that for another day.

(Peter is sitting at his computer, shopping on Amazon. The CEO, Shirley, enters his office).

Hi Peter, how’s that big project going?  I’m pleased to see that you’re taking personal responsibility for it, as our Head of Procurement. It’s an important project for us.

  • Thanks Shirley, yes, I’m on top of it I think.

So the CFO told me that we’ve started making payments to the service provider?

  • Yes, indeed. We paid them around £140 million last year.

OK, so what are they delivering now? How’s it going?

  • Well, nothing yet, that was just to get them on board really, get their co-operation, and help them get set up, you know what I mean.

Not sure I do really … so when do we expect to actually start getting some services from them? Soon I hope.

  • Well, we don’t know to be honest. I mean, they’ve pushed back on the specification in one area. Apparently we wanted them to do something that might be outside international law. So we’ve still debating that.

But we won’t spend any more until this is sorted?

  • Well actually, there was another £100 million we paid in April. Sorry, didn’t I mention that before?  

So that’s £240 million and nothing to show for it. Are you are absolutely sure they will actually deliver the services?

  • Well no, we might still change our minds. Or they might raise more issues. Or that legal issue could get in the way. But don’t worry, we’ve agreed we’ll only pay another £50 million next year. So that’s good news…

Well, thanks for explaining. I’ve got something for you (she hands Peter an envelope).

It’s your P45. £290 million, for nothing. It’s a disgrace and frankly – you’re useless.  Security will escort you out.

Yes, it is spot the analogy time. I do have some strong views on the refugee issue in the UK and more widely, because I see bigger problems ahead driven by climate and other developments that will increase the flow of refugees further. I’m not a “let them all in” person by any means. But keeping the politics out of it, the handling of the Rwanda issue by the UK government is just sheer incompetence. It is a huge waste of money from a government that has made huge wastes of money its speciality. It is truly dreadful.

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…

Last week the Sunday Times ran an expose of the UK’s HS2 rail project. The programme is being severely curtailed now due to massive over spending against the budget.

Over several pages, the Times laid out a culture of overspending and bad financial forecasting, with those who tried to point out the problems often forced out or removed if contractors. The accusation is that senior managers knew that budgets were unrealistic but covered up the facts for as long as possible. Presumably that was to keep their lucrative jobs, and keep ministers happy. The thinking may have been that If the programme got to a certain point, then it could not be cancelled.

There was more in yesterday’s edition of the Sunday Times, including an interview with Stephen Cresswell, one of the whistleblowers.

This first phase was expected to cost £21 billion and yet his calculations suggested a fairer assessment was £30 billion — a huge discrepancy. “There were problems with the way the figures had been calculated and it was likely to cost an awful lot more,” he says. “I did the calculations pointing this out but I was told to concentrate my efforts on something else.”

Unfortunately this good piece of reporting did not get much discussion on national TV news certainly, perhaps unsurprisingly given the disaster unfolding in Israel and Gaza.  The report did say that the internal audit function at HS2 is looking into the allegations – but that isn’t good enough. We really need a detailed external review of what happened in HS2, to understand that specific case but more importantly, to see what lessons can be learnt that apply to other large capital programmes in the UK.  Maybe that is best done by the National Audit Office, although several ex-employees have written to the SFO (Serious Fraud Office) accusing HS2 of mismanagement of public funds, so maybe this will all turn more “criminal”. 

If no action is taken quickly, then we will have to see if Labour will have the appetite for driving a review if they do form the next government. After all, it was Labour and Lord Adonis, then Transport Minister, who kicked off HS2 and Adonis was a non-exec of HS2 for some years. But we really do need a review. We can’t allow huge expenditures where the people involved and responsible are pursuing their own goals rather than the taxpayers’ best interests. As Cresswell put it: “Costs, risks, timescales and benefits are being manipulated to suit individuals or organisational goals rather than the public interest”.

Another interesting point the Sunday Times highlighted last week is that Ministers appear to have lied to Parliament – or at best “misled” the house. Chirs Grayling was one, but a junior Minister is also accused.

“ On June 7, 2019, Cook sent a first draft of his report to Grayling. It suggested HS2 was billions of pounds over budget and years behind schedule.….  In July, the minister for transport, Nusrat Ghani, fielded questions during a Westminster Hall debate on HS2 before the Commons final vote on the bill to approve the Birmingham to Crewe phase two leg.  She said: “I stand here to state confidently that the budget is £55.7 billion and that the timetable is 2026 and 2033.” She repeated her assurances five days later, during the third reading debate in the Commons.

An FOI request exposed that she had been told 3 months earlier that the programme would breach its budget – so doesn’t that sound like lying to Parliament?  

It was good to see the shadow Chancellor, Rachel Reeves, announcing that a “covid corruption commissioner” will look into PPE procurement during the pandemic and the waste of billions of public money. In terms of waste, HS2 is at least on that scale, so surely that also deserves a very thorough and independent look at what happened there?

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.  

Increasing numbers of local authorities (county, city and town councils) in the UK are facing financial crisis. The latest is Birmingham, England’s second largest city, which has issued a Section 114 notice – in effect declaring itself bankrupt. Commissioners will be sent in from central government to take over the running of the authority.

The core reason is an equal pay claim going back years. Women employed by the council weren’t paid as much as men doing similar jobs. But it seemed for some years that financial provisions had been made to pay those affected and all was well. But there appear to be more claims now, which suggests the original problems weren’t sorted out when they should have been. There should have been a serious job evaluation programme but somehow that hasn’t happened. Infighting amongst the ruling Labour Party has not helped either, some observers claim.

However, there also seem to be other reasons for the crisis. Birmingham spent over £100 million hosting the Commonwealth Games last year – good for motivating the locals perhaps, and maybe it brought cash into the city, but a lot of many to spend when you’re in a bad financial position.

Now we are moving into “bad buying” territory too, with  accusations of money being wasted in the procurement area. A report in the Daily Mail says, “calls for police probe into bankrupt Birmingham Council’s £11M payments to tiny taxi firm charging £200 a day to take one pupil to school”.  This firm, Green Destinations Ltd, (GDL) has grown rapidly in recent years to become the main beneficiary of  school transport contracts, and there is a suggestion that it might have been “close” in some way to executives who had influence on the contracts.

Now we have to be careful with headline reports. £200 a day might be for a special educational needs pupil who needed accompanying in the taxi and so on. But competitors also claimed that council officials told their drivers they might be better off working for the favoured firm in question. And the table of fares quoted by the Mail does seem to show very high fees compared to standard taxi rates. No doubt more will emerge on this.

However, there hasn’t been any suggestion that procurement in Birmingham is generally useless or corrupt. But I did feature the authority a couple of times in my Bad Buying book. The first was a call-centre contract with Capita, which an enquiry into the service pointed out did not incentivise Capita very sensibly. They were paid on a per call basis, so had no incentive to sort out problems first time or take the required time to do that.  (However, it was the council itself that wasn’t very good at sorting out the underlying problems, to be fair to Capita).

The other mention in the book was the disastrous road maintenance contract with Amey, which ended up with the firm paying £215 million to get out of a 25-year PFI deal. The relationship between the two parties had broken down completely, with a famous report that the council tried to charge Amey penalties of £48.5 million because the firm didn’t repair two bollards quickly enough. All of that was not necessarily the council’s fault, but you have to wonder why you would get into a 25 year contract for any service really. (Maybe it would have some logic for a large construction PFI, but not for roads maintenance). Put those two together and you might perhaps draw conclusions about naivety and a lack of commercial nous in Birmingham.

Anyway, the city may now need to sell art galleries, housing and land to try and balance the budgets, which is very sad for what is a great city. Of course, the national Conservative government is loving this, claiming it is an example of “Labour failure”. But in fact, it is just the latest in a long line of local government waste, corruption, bad buying and financial problems, a line that runs through Liverpool, Northamptonshire, Somerset, Thurrock, Slough, Surrey Heath, Woking, Croydon and more – both Tory and Labour authorities.  Reduced funding from central government is one reason; but there are also too many incompetent or corrupt people in our local government system, it seems.

The Chartered Institute of Procurement and Supply (CIPS) has had a troubled couple of years. We saw major arguments about changes to governance, then implementation of a new Oracle technology platform to manage membership, exam bookings, events – pretty much everything really – has been a disaster. The CEO, Malcolm Harrison, left at the end of March in circumstances that weren’t altogether happy, I understand. The Institute did manage to publish its accounts on time, and you can now examine the document on the Charities Commission website here. They run up to October 31st, 2022, so we’re already two-thirds of the way though the subsequent financial year.

The headlines – CIPS Group turnover in FY22 was £30.2 million with net income of £2.4 million before investments and pension scheme movements. The turnover was below budget expectations, but still represents an increase 11% above FY21, and operating profit was above budget despite the revenue shortfall. Reserves were down on plan but not dangerously low.  

There are a number of wider points of interest in the report. I liked the focus on volunteers; I don’t think I have ever seen information provided before on number of volunteers, where they are and so on. The report is pretty honest about the problems caused by the system failure; there is talk of staff having to go above and beyond to keep the show on the road, workarounds and more.  But the report makes this claim.

A programme is now in place to resolve the issues with the platform and to remove all workarounds. However the impacts have been significant with membership, exam bookings, revenue and profits all being negatively impacted.”  But clearly the issues were not resolved by the end of March when Harrison went – I’m not convinced all is sorted even now in July.   

But there is no simple number provided in terms of what the programme has cost or what more it might still cost to get the platform up and running.  However, there is a table that gives figures for “Intangible Fixed Assets. “Assets under development” stood at £4.9 million in November 21 and a further £2.6 million was spent in 2022. The assets under development were “brought into use” during 2022 – if all of this was the new platform, that means some £7.5 million had been spent by November 22.

Maybe some of this was other development though, but it is not clear. I was told a while ago that the budget was in the £5-6 million area so this would represent a major overspend by last November, with more since then. We’ll have to see what the number is in this year’s accounts, and maybe next year’s too! But it seems quite possible that CIPS will end up spending the best part of £10 million.

There have been other impacts too driven by these problems. MCIPS membership is down some 700 on the year, and the blame for that is put at the door of the system. Examinations revenue was up, although there was also mention of system issues there, so maybe it should have been even better. Some of the impact is not really financial but still matters. Talking to a Fellow the other day, it is clear that the issues have made even organising basic events much more difficult. The Fellows group has been one of the success stories of recent years; it would be a shame if it lost momentum simply because of a technical issue.

Looking at those membership numbers, and where revenue comes from, I think it is fair to say that CIPS is no longer primarily a membership organisation. Its two “core businesses” are student education and examinations; and corporate training and development. In terms of the latter, CIPS does not say how much of that revenue comes now from NGOs, governments and charities who provide grants to CIPS to help develop procurement in the developing world. The Bill Gates Foundation is mentioned, and the work in the health system in Africa sounds very worthwhile. Such revenue is not reliable year after year of course, but my feeling is once you get a decent reputation, there are a lot of funds out there for delivering these “good works”.

But 17,000 MCIPS members means membership fee revenue of around £4 million, only some 13% of total revenues. And it is hard to see that growing much, to be honest. As I’ve said before, so much of what used to be the CIPS membership proposition is now replicated by other organisations, from Procurious to the Sustainable Procurement Pledge, by tech and consulting firms or even by individual “influencers” in the profession, who together provide a huge among of insight, IP, networking opportunities and more – free of charge. Why pay CIPS if that is what you value?

So – wild idea – maybe CIPS should make membership free?

You would still need to do the exams or go through a rigorous non-examination route to get your MCIPS, but the “affiliate” status could be developed further for those who don’t want that. And just think how much more the CIPS membership list would be “worth” if it was five times the size it is now!  CIPS also needs to get better at working with software firms, consultancies etc – there is a lot more potential revenue there if CIPS gets its act together. But an expanded membership list would be a huge benefit.  And the credibility CIPS has in terms of winning corporate work or NGO and charity funded projects would also be far greater with more members.

The alternative is for MCIPS numbers to stagnate at best, and the organisation becomes that training and education body as I suggested earlier, with more and more focus on Africa and the Middle East  in the main.  But there are issues with the overseas approach too; the US was a disaster last year, losing over £230K after revenues fell and costs rose quite dramatically.  I’m also not totally sure about the ethics of doing so much work in Saudi Arabia. I guess our government and our football clubs don’t worry too much about that so there is no reason why CIPS should. 

In summary; CIPS had a difficult year, but to be clear, it is not about to go bust. However, the new system has cost millions more than planned and has caused other problems. Some of the overseas operations also look problematical. There is a new Chair and a new CEO (who has solid IT and procurement experience but has never run a business or a P&L before) just getting their feet under the table.  Core membership is static or declining, but education and training activities are going pretty well, with grant funded work in particular showing a lot of potential.

I gave up my membership last year after the governance shambles – but I wish the Institute well and hope 2023 proves a better year than 2022. I suspect some innovative thinking is necessary though.

We have local council elections in England on Thursday this week (May 4th). According to the opinion polls, the Conservatives may lose one thousand seats to Labour and (in areas like Surrey where we live), the Lib Dems.  Of course, as a mere procurement author and commentator, I wouldn’t dream of suggesting how you should vote. I mean, if you think we have seen growing prosperity in recent years, improving public services, clear rivers and lakes, a great train service, a ruling cadre that deeply cares about the people… you should vote accordingly.

Personally, I would like to see more councils where there is no single party in control, or at least where the control does and can change over the years. Where the same party rules for decades on end, complacency can set in, or elected councillors can even start behaving in an unethical or criminal manner.

We’ve seen some extreme cases of this in recent years. It is not just one political party behind these disasters either – it was Labour led councils that failed in places including Slough, Liverpool and Croydon, and the Tories in Thurrock, Woking and Northamptonshire. But they have all presided over financial disasters, with gross incompetence always a factor and accompanying fraud in some cases. 

Certainly one common thread is the secrecy, lack of openness and transparency that we see in the behaviour of the councils. My own local council, Surrey Heath, is not quite a disaster on the scale of some of these others, but the Tory council made an extremely misjudged investment in commercial property in Camberley town centre, buying right at the peak of the market. In terms of asset value, that has cost the local taxpayer over £50 million and counting. But the deals were stitched up by a very small cabal of councillors and executives – not even all the Tories in council knew what was going on. Hopefully, the Lib Dems will win here this week, then at least we might get to see the full accounts and the full story behind what went on.

In the case of Thurrock, it was brilliant work by journalist Gareth Davies that exposed the huge and very “strange” investments that may end up costing the taxpayer £500 million in real cash losses. Again, there was no transparency and councillors refused to disclose information for year, even after Freedom of Information requests. (I will be astonished if no-one ends up in court over this case).

Many of the cases involve “bad buying” in a conventional procurement sense too. That was certainly true in Croydon, where construction and refurbishment contracts were part of the story – that is another case where we don’t know yet if the driver was fraud, incompetence or both.  In other examples, it is dodgy investments (which is “buying” of a sort, I suppose), and we also see ridiculously extravagant payoffs to top executives too.

At the end of 2022, Labour published their plan for greater devolution of power. If Labour win the next election, the government will devolve more budget and control to local councils and mayors. I’m all for that in theory, but given what we have seen in the last few years, it also makes me nervous.  If Keir Starmer really wants to do that, he must put in place some checks and balances to make sure we don’t just see more Croydons and Thurrocks, but with even bigger sums of money.

Transparency needs to be addressed, public scrutiny should be made easier, and there should be a strengthened audit regime for councils. But the problem with audit is it is after the event when the money is already gone! So maybe there should be some sort of pre-expenditure check for projects, investments or contracts over a certain amount?  Perhaps a reincarnated Audit Commission could fulfil that role? Anyway, just throwing more money and power at some of the incompetent and /or crooked muppets we have seen around local government in recent years does not seem sensible.