Tag Archive for: Finance

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PPE and the UK taxpayer get burnt (again)

The BBC ran a story this week about the UK’s spend on PPE during the pandemic. I was contacted by the journalist, Jon Ironmonger, and did a video interview at the BBC, although I believe it has only appeared (a short excerpt anyway) on a BBC East programme, which I haven’t seen! The report centred on Full Support Healthcare, who are based in Wellingborough in that region.

But there were articles on the main BBC website, quoting my remarks. The journalist actually wanted me to be balanced and give an “expert” perspective on what happened with PPE procurement.  I tried to explain the problems when demand for anything suddenly rockets, but I was critical of a number of aspects of the programme, all of which I have written about over the years since 2020.

One continuing mystery is why the initial forecast of demand turned out to be so far out – about twice what in retrospect would have been reasonable. That was what triggered the “panic buying” in May 2020, so arguably it was the single biggest cause of the subsequent disastrous waste of money (over £10 billion).  The forecast led to some incorrect specifications being issued in haste, use of very strange suppliers (not all of whom were properly vetted, despite the re-writing of history that some politicians have attempted), the lack of anything much in the way of cost / price analysis or negotiation with suppliers, and the infamous “VIP Lane” for suppliers with a contact in government.  

The latest article from Ironmonger focuses on the stock management aspect. It appears that some £1.4 billion of aprons, masks and googles just from Full Support have been incinerated, recycled or written off. A general rule of thumb is that around twice as much PPE was contracted for as was needed, as it turned out. So given the total bought from that firm was £1.8 billion, it is not clear why such a high percentage of their product has been wasted.

The Department of Health and Social Care disputes that loss number, saying some money has been recouped by recycling, but the Department basically refused to engage with Ironmonger while he pursued this story, ignoring his requests, and has failed to provide clear evidence of what has happened to stock or financial details.

Full Support was an established supplier of PPE before the pandemic, unlike many of the cowboys who got in on the game once panic set in. Sarah Stoute of the firm told the BBC the shipping containers that transported her company’s PPE were unloaded “various times up to 207 days post-arrival”. She said the masks were “perishable goods and required to be kept cool and dry” and “not intended to be stored for a prolonged period in a shipping container, yard or field”.

The port of Felixstowe became jammed with PPE containers in November 2020, and they were moved to various airfields, other ports and available land. After some stock was sold off to other dodgy people for disposal, it was found dumped on a site in a New Forest.

Here is is one of the many articles I have written on this topic. This one gives a good summary of what I still feel are the key issues or questions around what happened. It’s right that we remember the desperate situation that faced us back in early 2020, and both users and buyers of PPE were in a particular crisis situation. But I still wonder if we have really learnt lessons from what certainly wasn’t one of UK public procurement’s finest hours.

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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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Avoiding Bad Buying in UK Local Councils

As the results come in from local elections in England, it is clear that basically the country just wants the Conservative Party to go, the sooner the better. I don’t think there is huge enthusiasm for anyone else but most of the public are just sick of the infighting, incompetence and idiocy of the ruling party in recent years.

However, will changing our local councils make things better? A very interesting article in The Times   looked at data provided by a new agency, the Office for Local Government (Oflog). Ministers set up Oflog last summer to provide “authoritative and accessible” performance data to support improvement in local government.

The data looks at the efficiency and effectiveness of local councils across 27 categories in five main areas: waste management, corporate and finance, adult social care, planning and roads. It revealed for example that some councils have recycling rates that are twice as good as others and that some authorities are failing to process half of planning applications on time, while others are not late on a single one. The figures also show the extent to which many councils are struggling with debts, with six local authorities already having declared themselves bankrupt since 2021. That is certainly in part becuase of lower funding from the centre of government, but competence (or lack of) seems to come into play too in most cases.

The Times accessed all the data to look at variations, which are huge and pretty inexplicable other than by sheer management competence. For example, in the year to September 2022, Hinckley & Bosworth borough council in the East Midlands completed less than half of household planning applications on time. But Tamworth borough council, just 30 miles away, was not late on any.  

The Times also came up with league tables to see if there was any political correlation with performance. Nottingham (Labour controlled) was the worst performing authority. Torridge district council, on the north Devon coast, came top of the table – it is run by independent councillors.

But the results actually supported a theory I’ve held for years, suggesting it is not that the Conservatives (Tories) are generically better or worse than Labour in terms of competence (with the Lib Dems in the picture too in a smaller way). Of the ten worst-performing councils, six are controlled by Labour. Of the ten best-performing councils, six are in coalition or are run by independents, while the Liberal Democrats and the Conservatives run two each.  Eight of the ten worst-performing county councils or rural unitary authorities are controlled by the Conservatives – while seven of the best-performing ten are in coalition or run by independents.

So what it does seem to show is that the worst-performing councils are almost always in areas, towns or cities where there has been a long-term dominant party, whether that is Labour or Tory. Conversely, the best-performing councils are generally more contested, so independents rule the roost, or no single party has a clear majority, or power has changed hands over recent years.

That stands to reason really. If there is a long-term dominant party, there is more scope for arrogance to creep into decision making, or fraud and corruption to spring up, and there is less scrutiny of decisions. “Bad buying”, whether it is just wasting money on frivolous or unnecessary spending, or more serious fraudulent or corrupt expenditure, is more likely where power is well entrenched. Take fraud for example. You are less likely to bribe a councillor, or to stand as a councillor yourself so you can influence planning decisions for nefarious purposes, if it is not clear who will be in charge after the next election.

Similarly, some of the arrogance we have seen in councils such as Woking, where the dominant Tory council invested hundreds of millions in unwise property deals, or in Nottingham, where the council (Labour in power since 1991, 50 of 55 councillors) thought it could run an energy firm better than the professionals, came about I’d suggest in part at least because the councillors thought they were unchallengeable and had complete power.  My own council, Surrey Heath, has also lost money – not as much as Woking though – on property deals put in place by a very arrogant Tory leadership. But last year for the first time ever the Lib Dems took power here.  

However, the correlation is far from perfect. Thurrock, where the council is now suing “businessman” Liam Kavanagh, who allegedly cheated the council out of over £100 million with dodgy solar farm investment schemes (hopefully the ex-finance head at the council will end up in court too), has actually had a few changes of council over the years.

But Liverpool is another example where single-party dominance led to a culture of corruption. Even after commissioners came in to run the City in 2021, the job description I saw for the Head of Procurement role still did not suggest a real appetite to put in place all the controls and governance you would want to see as a taxpayer!

Anyway, all this suggests that if your main interest as a voter is in the effective running of local services, rather than any deep political beliefs, you should aim to keep your local council and councillors on their toes by creating a competitive environment. How you can best do that will vary by area and even local electoral ward. But that seems the best strategy if you want your money to be used honestly and well.

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The NHS gets “supplier” incentivisation all wrong

(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.

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You Get What You Incentivise

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.

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Horizon – Robert Colvile Investigates and Fujitsu Owns Up

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.

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A Bad Buying Play in One Act

(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.

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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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We Need a Review of HS2

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?

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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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