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The UK National Audit Office has published a report titled “Initial learning from the government’s response to the COVID-19 pandemic”. It draws on the various reports NAO has conducted over the last year or so, including those related to ventilator and PPE (personal protective equipment) procurement, and covers quite a range of topics including risk management, data, workforce issues and – most relevant to our interests – “transparency and public trust”.

It is timely, not least because the Good Law Project and EveryDoctor UK are currently in the midst of a court case concerning PPE procurement. Those organisations are challenging the way government awarded contracts to suppliers, with a particular focus on a handful of suppliers including Ayanda Capital and Pestfix. They also want the government to publish the full list of suppliers and (where relevant), disclose who put them forward to the “VIP list” that gave firms accelerated access to the procurement process.

Some startling information has already been disclosed in the court case. For instance, it appears that Ayanda did NOT pass the initial “due diligence” process, but somehow were still awarded contracts worth over £200 million. It is also clear that influential people were badgering the professional procurement staff to favour certain firms. 

In the case of Pestfix, evidence suggests that their executives told the government buyers that some of the payment was being used to bribe people in China to make sure supplies got through to the UK.  (Pestfix denies this but the emails seem pretty clear!) I’ve always suspected that was one reasons why the government didn’t want to deal directly with producers but involved agents and middlemen. Ministers and officials didn’t want to get their own hands dirty in what was a vicious battle to secure supply at the height of the shortages.

It is well worth keeping up with the developments in the case, but let’s revert to the NAO report and transparency. One of the main NAO learning points is the importance of transparency and clear documentation to support decision-making when measures such as competition, are not in place.

In more detail:

Transparency, including a clear audit trail to support key decisions, is a vital control to ensure accountability, especially when government is having to act at pace and other controls (for example, competitive tendering) are not in place. On the ventilator programmes, we found sufficient record of the programmes’ rationale, the key spending decisions taken, and the information departments had to base those on. However, in the procurement of personal protective equipment (PPE) and other goods and services using emergency direct awards during the pandemic, we and the Government Internal Audit Agency found that there was not always a clear audit trail to support key decisions, such as why some suppliers which had low due diligence ratings were awarded contracts”.

That due diligence issue relates back to Ayanda (and others) of course. As well as the lack of documentation, government was also slow to publish information.

“… many of the contracts awarded during the pandemic had not been published on time. Of the 1,644 contracts awarded across government up to the end of July 2020 with a contract value above £25,000, 75% were not published on Contracts Finder within the 90-day target and 55% had not had their details published by 10 November 2020. The Cabinet Office and DHSC acknowledged the backlog of contract details awaiting publication and noted that resources were now being devoted to this, having earlier been prioritised on ensuring procurements were processed so that goods and services could be made available for the pandemic response”.

We can have some sympathy here, as staff were under huge pressure, but given the large number of people (many of them expensive consultants) working on PPE procurement, it should have been possible to do a bit better than this.

In terms of transparency, I recently wrote a briefing paper with the Reform think-tank, titled Radical transparency: the future of public procurement.  The message is that the time is right for a step-change in transparency around public sector procurement. That is not just about public trust, important though that is. I believe the even bigger issue is that buyers, budget holders and commissioners in the sector have very limited visibility of what each other are doing.

That means knowledge about great ideas and amazing supplier performance is not shared – and neither is the learning when something goes wrong. Radical transparency is the answer. The recent government Green Paper on public procurement makes a few comments in this direction but really does not go far enough. As soon as you see the rules on Freedom of Information quoted as a basis for disclosure you know there is no intention of getting anything really interesting into the public domain!

If you have a few minutes and you are at all interested in public procurement, do have a look at the Reform paper. I’d love to hear your comments and thoughts on the concept that transparency can be an effective antidote to public sector Bad Buying!  

The second UK National Audit Office report on pandemic procurement was issued recently. Titled “The supply of personal protective equipment (PPE) during the COVID-19 pandemic” it focuses entirely on PPE. It has received less media coverage than its predecessor, which looked at wider procurement issues, although it too had a lot of PPE-related content.

That reduced attention was probably because it lacks some of the obviously newsworthy headlines the first reported generated, around contract awards to firms such as Ayanda Capital and Pestfix, who have been in the news for a while, and discussions of potential conflict of interest at Ministerial level. But that’s a shame, because there are some very interesting findings in the more recent report too, although it still leaves a couple of key questions outstanding.

The report gives more visibility of the process as the pandemic struck in the spring. It clarifies some of the failures we saw around the existing pandemic stockpile, which was a combination of sheer incompetence and a more forgivable lack of preparedness for this type of virus.  Once it became clear that the normal NHS channels, such as Supply Chain on the procurement side and Unipart for delivery couldn’t cope, we saw Lord Deighton getting involved, bringing in people he knew (including HR support through another questionable contract).  We know Clipper won a huge distribution contract, also without any competition, although they seem to have done a pretty good job all in all.

The Parallel Supply Chain buying operation was set up in late March, with one team looking at extending UK manufacturing and another sourcing PPE globally. McKinsey supported the Department in putting together a demand model to predict how much PPE was going to be needed. The teams then went off and agreed contracts with some of the thousands of suppliers who had expressed interest – some of whom came though the “VIP route”, already exposed previously.

That takes us into our three big outstanding issue though.

  1. We still don’t understand the process by which suppliers were selected from those that put themselves forwards. Why did Ayanda Capital win a contract for £250 million? Why not £50 million? Or indeed £500 million? Why did 47 suppliers win contracts, with value ranging from less than a million to the hundreds of millions – was there an overall strategy of some sort, or was it literally the buyers accepting the first offers that were made that got through the approval process?  We know that process was flawed early on by the lack of real due diligence, but we’ll park that for the moment. But the process used for selecting suppliers and determining quantities per contract is still opaque.
  •  Why has the demand model turned out to be just so inaccurate? We are now in a situation where, as NAO says, if the recent rate of use of PPE continues, then the 32 billion items that had been ordered by the Parallel Supply Chain by 31 July could last around five years (with variations across the different types of PPE). The Parallel Supply Chain’s initial estimate of the PPE that would be required nationally anticipated an enormous increase compared with pre-pandemic use, but actual use has been lower than this (although still far higher than pre-pandemic use). What went wrong?
  • There is still some doubt over how much PPE is unusable or at least does not meet original specification. From the report – “The Department (of Health and Social Care) told us that it had identified 195 million items which were potentially unsuitable, which was equivalent to around 1% of the items it had received to date. However, it has not provided us with sufficient information to be able to verify these figures because, it told us, this would compromise its ability to resell the PPE”.   In other words, NAO can’t be sure the Department isn’t fibbing.

Coming back to the demand issue, did the model assume that the absolute peak of PPE usage in March / April would continue forever, and that there would be no reduction in cases as we went into lockdown? Was it the move away from putting patients on ventilators, as clinicians learnt more about optimal treatment pathways?  Were contingencies built on top of contingencies? I understand that the model did initially include the devolved countries (Scotland, Wales, N Ireland) who then went their own way on PPE, but that factor isn’t enough to explain the huge quantities ordered. It’s a shame the NAO report didn’t dig onto this issue a little more deeply, I feel.

By the time that the PPE team was “professionalising” through the summer and bringing in more people with real public procurement experience, I’m told that it wasn’t really a buying job any longer. The vast majority of the contracts were placed in May and June. Through the autumn, teams have been focused more on how to manage this huge over-ordering situation. That’s one of the reasons why UK ports are struggling – they are clogged up with billions of items of PPE, ordered earlier but for winter delivery.

My prediction is that soon, there will be stories of suppliers being paid off – they’ll get the majority of the contract value paid but be told not be bother supplying what is not yet delivered.  There is also a very serious problem here, as a range of new UK- based manufacturers were encouraged to move into this market. But if there is 5 years’ worth of stock (or committed orders) already, who needs more from these possibly expensive UK manufacturers?

I do have sympathy with the people involved here. Predicting demand in the peak of the pandemic must have been a difficult task, that is undeniable. But how did smart civil servants and McKinsey consultants (charging a fortune, no doubt) get it so wrong?  That demand model has cost the taxpayer billions. We have bought far too much stock, and even if it does get used eventually, it was bought at the top of the market, at prices several times the norm in many cases.

This week saw the publication of the UK National Audit Office’s second report concerning government procurement during the pandemic. The first, all about ventilators, raised some interesting issues (which I discussed on a Podcast here) but was not overly critical of the procurement process.

This new report is very different. It’s a strong but fair report, with plenty of detail and insight, and impressive given the pressure NAO must have been under itself (in terms of staff, politics, and time). In measured and factual tones, it exposes some very questionable practices, processes and actions taken this year, principally but not exclusively in terms of buying PPE (personal protective equipment).  It does not get deeply into PPE performance – there’s another report on the way shortly looking at that in more detail, apparently.

We wrote here about the VIP route for PPE, whereby firms with connections could get fast-tracked as potential suppliers, and the NAO report highlights just how beneficial that was for those firms who accessed that channel. They had a 10% chance of winning contracts, some (like the Ayanda Capital deal) for £100 million or more. Your chances if you weren’t on it were less than 1%.

I understand why there was a desire to look at more credible offers first, but the way it was done simply meant that it was literally a case of “who you knew”, not what you had done historically or were offering now.  That was clearly unfair and broke the fundamental principles of fairness and equal treatment that underpin public procurement.

Urgency was the reason why normal processes could not be followed, and I do understand that, but there were ways in which proposals could have been assessed without this blatant favouritism (and before anyone says, “so how would you have done it”, I have an answer for that – maybe a future article. Or Cabinet Office can pay me for a few days consulting and I’ll tell them. I’m a lot cheaper than McKinsey or Deloitte).

The failure to track where the 500 referrals came from in many cases (only half were noted) and apparent lack of awareness or concern about conflicts of interest also leave a bad taste here.  Indeed, a lack of documentation to support decisions is a theme running thought the NAO report.

Then, even after the NAO report, it is still not clear how the suppliers were chosen or the size of the contract determined. So there was a decent enough general process documented in the report for evaluating the suppliers and their offer in terms of credibility, but that doesn’t explain why Ayanda was given a £250 million contract while another firm might have been awarded a £1 million deal. Was it simply that they bought whatever the supplier offered once they got through the process? Was it first come, first served in some sense until the requirement was met – but that still begs the question, how did firms get to the front of the queue?

And remember, there were many credible suppliers complaining at the time that their offers of PPE weren’t even being considered. Did they fail simply because they didn’t know the right people? Did the team actually work through all the offers, or just focus on the VIP offers until they had ordered enough stock?

Given these issues, that lack of documentation around why suppliers were chosen for contracts is disappointing and unforgivable really, given the lack of competition and the size of many contracts. It broke the government’s own March 2020 Cabinet Office guidance as well, which said that buyers should keep good records of how and why suppliers were chosen.

We might speculate as to why it happened – incompetence? Arrogance? Lack of time to keep notes (with 450 people in the team, including highly paid consultants, that doesn’t feel like a good excuse)? Or corruption of some sort? The suspicion of bribery of officials remains, given this report. There must have been people who had the power to move suppliers to the front of that queue and we have no evidence of safeguards in place to ensure that wasn’t done for the wrong reasons.  

The lack of clarity on the “due diligence” process is also worrying – it wasn’t in place at all initially by the sound of it and then seems questionable, given some suppliers seem to have got through despite very dubious backgrounds. The stories in the press this week about jewellery manufacturers with “consultants “ in Spain being paid £20 million, or a young woman somehow winning a contract for almost a million pounds with no relevant experience whatsoever don’t fill us with confidence that due diligence was very effective.

Another issue was the buying of masks with the wrong specification. That appears to have been  a ”human error”, incompetence if we’re being unkind, somewhat excused by the time pressures. It has proved to be a very expensive mistake though – with the caveat that perhaps the masks can be found a useful purpose somewhere.

The report doesn’t really cover whether the prices paid were reasonable, so perhaps that will crop up in the next report. The margins being made by traders, middlemen, agents and spivs generally still haven’t been disclosed either, although the stories emerging such as the jewellery firm example seem to suggest some people made an absolute killing.

All in all, and even given the time pressures, this was not public sector procurement’s finest hour, I’m genuinely sorry to say.  In part 2, well look at some non-PPE contracts that NAO examined in the same report, and I’m afraid there is even more concerning Bad Buying to discuss there!

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

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

Does anyone really think that those “risks to value for money” will be achieved through the rest of the programme? Look at Crossrail, where the project is now three and a half years (at least) behind schedule, and the cost has risen to at least £19 Billion, some £5 billion over budget.

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

This is an example of a vanity-driven Bad Buying project, and there are others described in my new book, Bad Buying – How organizations waste billions through failures, frauds and f*ck-ups,  published by Penguin on October 8th (you can pre-order it here). Politicians love to spend money in a way that they feel will provide them a “legacy”, assuming that posterity will thank them for their initiative and forget the huge waste of taxpayers’ money once a few years go by.

Another problem with huge programmes of this nature is the lack of anyone in a controlling position who has a vested interest in really managing costs. The engineering and construction firms are probably smart enough to avoid signing up to onerous fixed price deals, so they would like the construction to go on for ever. Likewise the well paid HS2 staff, including thousands of “contingent labour” workers (including procurement people) no doubt earning a very good day rate. The longer the better for them.

We might assume that the politicians have an interest in managing costs, but the problem here is both the relative timescales and the asymmetry of information. Even the Transport Minister has no idea whether they are being spun a line by the experts who are closely involved in the programme. And most Ministers last less than 3 years in post so they know that they probably won’t be around themselves to carry the can – and later Ministers can blame their predecessor! So who really represents the interests of the poor old taxpayer in this? NAO perhaps, but their reports, although excellent, tend to be put together well after the event.

The only positive I can see is that if I do write a sequel to Bad Buying, I’m sure HS2 will give me some good stories. But I’m not sure that offsets the likely spending of £5,000 for EVERY family in the UK, to build what may well become a major white elephant.