Tag Archive for: NHS

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Blood Tubes – Is This the Latest NHS Bad Buying Case Study?

Last year, Personal Protective Equipment (PPE) hit the headlines when shortages threatened the lives of health workers and patients in the early months of the pandemic. That demonstrated how a spend category that was traditionally seen as low risk and suitable for “leverage” type approaches to procurement could become highly strategic, critical and even politically sensitive.

We now have another example with a similar change in perception for what seems like a pretty standard item, a simple ”commodity” even.  GPs (“family doctors”) in the UK National Health Service have been told to stop performing most blood tests until mid-September. Hospitals have also been instructed to cut their number of tests by 25%, all due to a shortage of blood tubes (sometimes known as sample bottles).

NHS England wrote to doctors and hospital leaders, telling them that “the supply position remains constrained and is forecasted to become even more constrained over the coming weeks.  While it is anticipated that the position will improve from the middle of September, overall supply is likely to remain challenging for a significant period.”  That is thought to mean months rather than weeks.

The shortage has arisen apparently because Becton Dickinson (BD), the main supplier of blood collection tubes to the health service, just has not been able to keep up with demand.

This is obviously a hugely concerning issue. Blood tests help determine whether patients have particular conditions or illnesses, provide warning signs and monitor overall health. A reduction in capacity here will almost certainly cost lives. 

So what has caused this problem? There appears to have been an increase in demand, perhaps because of the pent-up health issues now being exposed as people go back to doctors surgeries after avoiding them for many months because of COVID. But the company also said it was facing issues transporting the tubes, for example, challenges at the UK border. That has been picked up by some as an example of post-Brexit supply chain issues around customs, tariffs and so on, issues that are affecting many businesses.

But with our Bad Buying perspective, might this also be a case where the procurement strategy is partly to blame for the problem?  Is BD the only supplier of this product?  That seems unlikely, but it is possible that the NHS has taken an aggregation and leverage approach to this item, as it did to many others, including PPE prior to the pandemic. Is BD a sole supplier because they offered a great deal for the whole NHS volume?

Maybe that is not the case, but you do wonder why other suppliers are not being mentioned, although the NHS has said new providers will come on stream soon. But it may be this is another example of over-aggregation creating unhealthy dependence on one supplier.  It doesn’t even always add to better prices, too. Here is a short extract from Bad Buying (the book) where I talk about the risks of supplier dependence and how it is created by poorly considered procurement approaches.

“Buyers aggressively aggregate their own spend, believing they’ll get better deals if they offer bigger contracts – until in some industries only the largest can meet your needs. Buyers might insist that suppliers must service every office or factory across the US, or Europe. Smaller firms and start-ups, which often offer real innovation, flexibility and service, are shut out of the market.

Buyers assume economies of scale, that ‘bigger is better ‘and bigger deals mean lower prices. But that is not necessarily true; the price curve may flatten after a certain volume, with further increases in volume not generating any further price reduction. There are even cases where you see dis-economies of scale– the buyer pays more as the they spend more…”

In this case, it would be fascinating to know just how the NHS has ended up with shortages of such a fundamental item. But in the meantime, just hope that you don’t need a blood test anytime soon!

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Procurement Fraud in the NHS – Could It Happen In Your Organisation?

One of the most annoying aspects of writing Bad Buying was reading dozens of fraud and corruption cases that came to court. Whilst the cases were often fascinating, the comments from the CFO or CEO of the organisation that suffered the fraud were always predictable. This is what I said in the book.

“But again and again, I see organisations failing to take basic precautions, and then once fraud is discovered, claiming that “this was a very sophisticated fraud”. In most cases, that remark is nonsense and is a fig-leaf for an embarrassed CFO or CEO who didn’t have basic fraud prevention measures in place.

Indeed, one way that fraud could be reduced globally is if CFOs in particular were told that their jobs are on the line. If a fraud takes place on their watch, that could have been prevented through simple actions, then they’ll be fired for incompetence. Implement this, and there will be a measurable drop in such cases very quickly”.

In recent weeks, a fraud committed by an IT manager in the UK’s National Health Service hit the headlines. Barry Stannard of Chelmsford in Essex, was “head of unified communications” for the Mid Essex Hospital Trust, which has since been merged into Mid and South Essex NHS Foundation Trust. He defrauded his employer of £806,229, which came out of the trust’s IT budget. He created two “fake companies” that he controlled, and then authorised payments against invoices from these firms – invoices he obviously produced himself.  He failed to declare any interest in these firms (obviously), no products or services invoiced were ever actually provided to the NHS, and he was sentenced to 5 years and 4 months’ imprisonment on June 30th.

At least the hospital did eventually spot this fraud. According to the Digital Health website, “Concerns first arose after the trust ran a data matching exercise on its payroll and accounts payable records, alongside Companies House records. After a comprehensive initial investigation by the Local Counter Fraud Specialist provider (RSM), the investigation was escalated to the NHS Counter Fraud Authority’s National Investigation Service”.

Stannard also charged VAT, which was never paid onwards to the tax authorities, so that was a further fraudulent element.  All of the hundreds of invoices submitted by his companies to the trust were individually for less than Stannard’s personal authorisation limit so he got away with it for some time.   

At least here nobody used the “sophisticated” word in describing the fraud, which is just as well because it wasn’t.  It was a pretty basic fraud and pretty basic best practice was not followed. That means there is a good case for sacking the CFO – and perhaps even the Procurement Head.  They certainly should answer these questions.

  • Why was there no proper “onboarding check” before a new supplier was first paid? Basic Companies House and Dun & Bradstreet checks would have shown a firm with Stannard as Director and presumably no other income.
  • Why was there no “separation of duties”? You should never have the same person able to choose a supplier, sign off the purchases, and approve the invoice (which includes confirmation of receipt of goods / services)?
  • Why did his boss not question the expenditure? Actually, it is not clear whether the budgets were his own or belonged to other managers (in which case why didn’t they query these costs for non-existent products)?

It all looks very negligent by the Trust and smacks of a poor attitude to spending taxpayers’ money, which unfortunately we’ve seen before in the case of public sector fraud of this nature.  So whatever your role, do think about whether such a fraud would be possible in your organisation.  If you wanted to extract money, how would you do it? Would you need an accomplice or could you do it yourself, as in this case.  If you do find gaps, then tell the CFO, CEO or equivalent. 

I reckon every organisation needs a few creative, cynical but trustworthy employees who can put themselves in the shoes of wrongdoers and have evil thoughts – for the greater good, of course!

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Procurement Ethics – Dealing with Conflicts of Interest

Conflicts of interest as a ethical topic has always been relevant in procurement, both public and private sector. Here is a quick quote from my book, Bad Buying.

“At a local level, I’ve worked with organisations whose top management didn’t even want to put in place a clear “conflict of interest” policy. That would mean staff having to disclose any interest they (or close family / friends) have in another business that might be a supplier or a customer of the organisation for which they work. But there’s usually a reason for that hesitancy.  Where you see organisations that won’t support anti-corruption activities, then you might draw obvious conclusions”.

Conflict of interest is a key issue within the fight against procurement-related fraud and corruption. We want buyers and everyone involved in the process to select suppliers, negotiate and manage contracts without being biased because they have an external interest that affects their behaviour.

We’ve seen these issues come up a number of times over the last 18 months through the pandemic with spend on products such as PPE (personal protective equipment) being in the public eye. So some recipients of huge contracts for PPE have had links with politicians and other powerful people, which has led to suggestions that decisions were impacted by these conflicts of interest.

The standard approach when developing procurement policies and practices is to ask those involved in the process to declare any potential conflicts upfront. Somebody can then decide if that is significant, and if so, how to handle that. At the extreme, I’d suggest it might eliminate a potential supplier from consideration completely. That doesn’t happen often, but appointing a small consulting firm to do a procurement review when that firm is run by the Procurement Director’s wife might not be a good idea.

But more frequently, it is a case of making sure the person with the conflict does not play a central role in key stages of the process, such as selecting the supplier or negotiating the contract. Suppose a senior executive who has an interest in the service being purchased discloses that their sister is a senior manager in one of the bidding firms. I would not expect that firm to be disqualified, but the executive should not be involved in the key aspects of the procurement. There are potential issues of confidentiality as well as bias of course – so if the exec is going to have access to confidential information, then they need to understand that any breach will lead to disciplinary action! Or you may simply choose to keep such information away from them.

There are questions however about how far we can and should go. That came to mind with the revelations around Mathew Hancock, the UK Health Minister who resigned because he broke covid rules with his ”friend”. But another part of that report claimed that his friend’s brother runs a firm that has won NHS contracts.

Is that a worry?  If your friend’s brother is bidding for a contract with your organisation, do you need to declare that as a potential conflict of interest?  That probably depends on just how close the “friend” is. If they are in effect a partner (legally or secretly) then it probably should be declared. But frankly, I would very rarely have known what any of my friends’ siblings did for a living!  So we have to be reasonable in terms of how meaningful the risk is.

A similar argument applies to shareholdings. Most of us hold shares indirectly through pension schemes or investment funds and we may well have direct holdings too. We can’t be expected to know exactly where “our” money is invested in every case. But what about if I have just a couple of hundred pounds worth of shares held directly in a potential supplier? I’d suggest that it is sensible to declare that, but I would not necessary exclude someone from the process for that level of “conflict”. However, if it were several thousand pounds worth, or if we were considering share options in a start-up that could prove valuable one day, the position might be different.

These are tricky issues.  The key is to impress on everyone that if they are in any doubt, it is better to declare the potential conflict and let others decide how serious it is. That is much better than having to plead later on that “I didn’t realise it mattered”. 

And if you want to hear more about this and related topics, I’m speaking as part of a CIPS (Chartered Institute of Procurement and Supply) webinar on July 13th, 2021, at 12.30 pm. It is all about ethics and is titled “50 shades of Procurement – an Ethical Perspective”.  It should be interesting – and it is open to CIPS members AND non-members, so anyone can book here.

(The picture shows my cycling friends enjoying an outing with me last year – no contracts were awarded!)

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Three Days to Bad Buying … Fraud and Corruption, From Small-scale to Huge and International

It is now just three days to publication of Bad Buying. So today, let’s move on to the second section of the book, all about fraud and corruption.

This was really enjoyable to write to be honest, even though we should be horrified at some of the stories. It was fascinating to see how frauds range from the mundane and often quite sad in terms of why the perpetraotrs do it ad the consequences, to those that have national or even international implications at the highest level.

One very ancient type of fraud is the cartel, although it is interesting to note that cartels weren’t always seen as a bad thing – and indeed, even today, we have OPEC, the oil cartel. But the medieval guilds were set up in part to operate as cartels and restrict the entrance of new suppliers into a market. But in modern times, we’ve seen illegal cartels in all sorts of areas, from international marine hose supplies (no, I’d never heard of marine hoses either), to construction firms in the UK public sector market, to brewers in India.

Many frauds relay on the buyer being able to ”fix” the supplier selection. In fact, that is a necessary condition in order to extract money though mechanism such as inflating invoices, over-billing or under-delivering. If a buyer and a supplier are going to collude – as they did in the case of a famous Sainsbury’s potato fraud – first of all, the buyer has to make sure that the supplier is chosen or wins the competitive process.

There are some rather ingenious examples of how this has been done. For instance, in the UK health service, a property manager manipulated the way that cost quotes were provided by suppliers to favour a relative’s decorating firm.  Bidders were asked to quote for different jobs, but work that actually was rarely needed was given a high weighting in the evaluation, and his relative bid low on those jobs, to score lots of points. But the jobs that actually would be frequently required were given a low weighting in the evaluation so his relative could bid high on those and still win the tender, knowing that he would then make significant money on that work. Very clever!  

That story points out one of the basic mitigations you can take to guard against fraud. Don’t leave any key parts of the process to a single individual, whether that is designing the evaluation process, marking the bids, negotiating prices… you can’t rule out collusion, but many of the examples I’ve seen are driven by just one personal internally. Putting a barrier in their way by taking away ability to act individually makes fraud much more difficult.

If that NHS example is small-scale, but interesting, at the other extreme we have the Petrobas / Odebrecht scandal in Latin America. At first that looked like a simple case of a large construction supplier paying bribes to win work from the Brazilian government-owned oil firm, Petrobas.  But as investigations went deeper, they exposed a vast network of corruption, with buyers paying over the odds to fund not just individual bribes but political donations too – and those political parties then appointing their stooges into positions in Petrobas where they could demand and get even more bribes!  Later, the related scandal spread to Peru, Mexico and further, leading to arrests and even the suicide of a leading politician accused of corruption.

That’s where the idea that a few more people knowing what’s going on breaks down. If corruption really becomes endemic in an organisation, it can be very hard to eliminate. Luckily, that doesn’t happen too often …

Anyway, there is still time (just) to order and get delivery on of the book on publication day – check out the links here. There is also a Bad Buying podcast now (“Peter Smith’s Bad Buying podcast”) and the first two episodes are available on most podcast platforms. There is even a Bad Buying playlist on Spotify (all my section titles in the book are also song titles …) It is a “diverse” playlist, as my daughter described it, but I’ll take that as a compliment!  You can make your own judgment on that.

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Conflicts of Interest – Be Alert !

Conflicts of interest lie behind many cases of procurement corruption and indeed other “corruption” in its widest sense. Often, these are not the highest profile or most serious examples – compared to envelopes of cash, swiss bank accounts and expensive prostitutes.  But if the practice of ignoring conflicts of interest (or covering them up) becomes pervasive in an organisation or a country, it can be corrosive and very damaging in the longer term.

A UK government minister, Robert Jenrick, is currently in the public eye because of a planning decision he made that favoured billionaire Richard Desmond. The two men had met at a dinner and chatted not long before the decision was made.  Jenrick is now facing more claims that another conflict of interest cropped up when he had a ministerial meeting with a “family friend” who had a financial interest in the future of a rival mining project that Jenrick was overseeing as minister.

In the procurement world, conflicts of interest can lead to bad buying when a supplier who shouldn’t win a contract does so, or is given a favourable contract, because someone on the buy-side has a vested interest in that happening. Often it is not overt bribery, but is based on relationships, nepotism, friendship, enjoyable dinners, invites to corporate events or Christmas presents. The dividing line between real corruption and poor judgement is very thin here, so we need to make sure that any conflicts are always declared and managed.

Back in my days as a procurement director, I had to ask our CEO, who had recently left Accenture, whether he still owned equity in the firm, as we were running a competition for a major contract for which Accenture was short-listed. If he did, then he couldn’t play any part in the selection process. I think he was genuinely surprised and a little offended by my question. But even if he was a cross between Jesus, Gandhi and Nelson Mandela in his personal ethics, it is how others perceive matters as much as the actual risk. And really, if others perceive a conflict, then it probably does exist.

There was a “hushed up” case (my freedom of information requests didn’t get very far) in the NHS not long ago where a small group of procurement executives gave contracts to a firm they controlled, which was also providing services to their organisation.  They may have felt those services were genuine and outside the scope of their “day jobs”. But was there a conflict of interest? Too right there was, and everyone could see that instantly.

And here’s another interesting issue. If I am involved in the decision to award a particular firm a contract, then six months later I join that firm on a huge salary, is that OK?  Many might say “no it isn’t”. But it happens all the time; this was an NHS example when an executive joined Deloitte shortly after the firm had won a large contract from his organisation.  There are of course many cases in the private sector as well as the public. 

And let’s face it, this starts from the top. The UK’s ex-chancellor George Osborne got a part-time job worth £600,000 a year for doing some pretty unspecified work for BlackRock, the world’s largest fund manager. But only months earlier, he was ultimately responsible for regulating the entire  financial services industry in the UK. Corruption? Maybe not. A retrospective conflict of interest? Absolutely.  It is the same with staff in the military who jump from managing contracts with big defence and services firms to working for those businesses.

My advice is to make sure your organisation’s HR and procurement policies make it very clear what defines a conflict of interest, and how people must act in that situation. Ensure every employee understands the rules and what they need to do.  And, by the way, “writing it down in a book” or sending a form to some admin person in HR or procurement is not a strong enough policy (just as it isn’t enough for declaring gifts or corporate hospitality).  Do it properly, then if anyone has a conflict, you can take steps to ensure they are not involved in decisions.

And of course, there is more on this in my book, Bad Buying- How Organisations Waste Billions Through Failures, Frauds and F*ck-ups, to be published in October by Penguin Business.

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Spend £5B with Private Hospitals? Hang on a Minute, Treasury says…

We’re seeing so many interesting procurement and supply chain issues during the pandemic, but focus tends to shift week by week. We’ve had the challenge of finding more ventilators, which has more or less disappeared as medics have found that such treatment isn’t advisable for many patients. Then we had global shortages of PPE (personal protective equipment) – that issue certainly hasn’t disappeared, and we’re now all very interested in how a tiny pest-control business in England could win a contract for over £100 million of PPE supply.

But there’s another “spend category” that could make £100 million contracts look trivial. According to the Guardian today (June 18th), the UK’s National Health Service is considering a huge deal with the private hospital sector to use the private facilities in order to help clear the backlog  of non-Covid treatments that re urgently needed. (The NHS has effectively taken over the private hospital sector since March, but there is evidence that many of their facilities have not been heavily used up to now).

The newspaper says that “Matt Hancock, the health secretary, and NHS bosses are pushing for a £5bn-a-year deal to treat NHS patients in private hospitals and tackle a spiralling backlog amid the coronavirus pandemic”.

However, the Treasury (the UK finance ministry) has refused to sign off the deal, and has told the health department (DHSC) to “get more detailed commitments from private firms about the number of patients who will be treated every month in return for the payments”.

Well done, the Treasury!

I’d like to think that some sensible procurement professionals are involved in those discussions, although I am surprised that those procurement experts who sit in the DHSC (and there are a few…) didn’t get everything in line before the deal went to Treasury. It does also suggest that Sir Simon Stevens, who leads the NHS, and was apparently about to announce the deal, maybe doesn’t really “get” procurement. That is something we have suspected for a while and was reinforced by his choice of a Chief Commercial Officer last year who had no procurement experience whatsoever.

In any case, throwing £5 billion at some private firms without knowing exactly what they will do for the money wouldn’t be sensible and would indeed be “Bad Buying”.  It may be that the view was to set up some sort of “cost plus” or “time and materials” arrangement with the private firms, rather than having very clear deliverables, payment based on outputs and so on. But those mechanisms, where payment to suppliers is based on their costs rather than what they actually do, has some major disadvantages. Here is a short extract from my forthcoming book, “Bad Buying – How organisations waste billions through failure, fraud and f*ck-ups” (to be published by Penguin in October). I’m talking about construction contracts here, but the principles are absolutely the same.

“How about ‘time and materials’? In that type of agreement, the builder keeps a record of all materials they buy for the project, and the time that staff – bricklayers, carpenters, labourers and the like – spend on the work. The buyer agrees to pay those actual costs, plus some sort of margin to cover overheads and profit. Traditionally, many such agreements were based on a ‘cost plus’ model. So, you might agree to pay your builders all their costs, plus 20 per cent on top.

But you can see the incentivization problem here. Not only does the firm have no incentive to buy bricks as cheaply as possible, but they actually have an incentive to spend more on material and to make the work go on as long as possible, as they recover all those  costs back, plus 20 per cent on top of that! You could put a cap on the profit / overhead element, but that doesn’t fully address the incentivization issue on the materials or labour”.

Anyway, it is right that the government takes its time and applies all the skills it has at its disposal to get these contracts right. We’ve got blasé about large amounts of money being spent through the pandemic, but this is £5 billion we’re talking about. (“A billion here, a billion there… pretty soon you’re talking real money”, as the phrase goes).

I’d also hope that best practice contract and supplier management principles are going to be adopted here too. But that’s another whole story …

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