Tag Archive for: Procurement process

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Supercomputer – Not Very Super Procurement

We started the New Year with an expensive error made in UK government procurement. Atos, the large French technology firm, were paid £25 million after the firm complained about the decision to award Microsoft the £850 million contract for a new Meteorological Office super-computer. Most of the cash was paid by the government’s Department for Business Energy and Industrial Strategy with the Met Office itself stumping up the rest.The language is often the same when this sort of case drops into the public domain. No-one is to blame. “There was no admission of liability”, said the government here.

That begs the question of course – why pay £25 million if you didn’t do anything wrong? Clearly, the government’s legal advisers must have thought there was a very high probability that Atos would have won if the case had come in front of a judge, and might have been awarded substantially more in damages.

The best description of the dispute I found is on The Register website. A fairly technical and technological issue around the specification of the computer and the solution proposed by Atos led to the French firm receiving a score of 0/5 for several evaluation questions and their bid being declared in effect “non-compliant”.  Then, as the Register reported, “It was also alleged the government was “disproportionate” in ruling its bid non-compliant without seeking further clarification on the architectural equivalence of the Atos system”.

Eliminating a serious bidder on a complex specification issue is rarely a good idea in my experience. You need to be absolutely sure the bid really does not meet your spec, and I would certainly have wanted “further clarification” from Atos before I took the drastic step of kicking them out of the competition. Poor judgement at the very least on the buy-side. Or maybe somebody just didn’t want Atos to win and was looking for an excuse to disqualify them (yes, that does happen…) 

There was then an interesting debate on Twitter about the case too. Duncan Jones, the highly respected expert who led who led the procurement practice at research firm Forrester until he “retired” last year, was rather angry about this money ending up with Atos. If a company is on the wrong end of a bad piece of procurement by a private sector firm, the disappointed bidder doesn’t get recompensed, he said. So why should it be different in the public sector, with our money going straight into the profits of Atos (and others).

It is a fair point. But my argument is that you must have some way for bidders to highlight when there has been incompetent or even corrupt public sector procurement. And if they have lost millions because of that, why shouldn’t they be able to get something back? Otherwise I do think we would see more nepotism and even criminality in public procurement, with politicians, advisers and public officials acting in their own interests rather than those of the taxpayer. If the procurement rules did not have the “teeth “ provided by bidders’ right to challenge decisions, I think we would see lots of cases that would make the UK pandemic PPE procurement experience look like a model of probity and effectiveness!  

However, I think Duncan made a fair point about how much compensation should be payable in cases like this. Working out “loss of profit” is an inexact art, and many suppliers make very low margin on big government contracts. So £25 million does sound on the generous side; but as I say, the lawyers must have felt the amount could have been a lot more if the dispute has continued.

At the early stages of development of the new UK Procurement Bill, I seem to remember that there were some major changes proposed around supplier challenges, compensation and so on. Introducing the scope for a less legalistic dispute resolution process was one idea I liked (some countries have a “procurement ombudsman” which is an interesting idea), alongside less scope for big supplier pay-outs. The proposals seemed interesting, but I believe most of those have gone now from the draft legislation, and the Bill is not going to drastically change the current situation. 

Finally though, the point to remember is this. If an unhappy potential supplier ends up being paid lots of money, it is ALWAYS because there has been a failure in the procurement process. Don’t blame the supplier – look at what went wrong on the buyer side. In the case of this Met Office supercomputer, it may have been something rather complex around the specification. But it was still a failure, another case of Bad Buying, and one that has cost us £25 million.

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What’s In Store for Bad Buying in 2023?

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

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

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

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

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

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

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

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

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

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

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

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

There was major “Bad Buying” fraud case in the media last week. Perhaps the most surprising element of the story was that the offences were discovered in 2013, and related to some years before that, yet the case only came to court in 2022. Did it take than long to gather evidence? Is the Crown Prosecution Service really working on that sort of timescale? It’s a concerning issue in itself.

But back to the case and I’m afraid it was a “classic” fraud, a pretty basic case of an internal decision maker colluding with suppliers in return for payment. At Southwark Crown Court, Noel Corry, a former electrical and automation manager at Coca-Cola Enterprises Ltd (CCE), pleaded guilty to five counts of corruption and was sentenced to 20 months in prison, suspended for 21 months, plus 200 hours of unpaid work.

He accepted cash bribes, free tickets to events as well as sponsorship for his local football club, Droylsden FC near Manchester. A total of £1.5m was paid by Boulting Group Limited (now trading as WABGS Limited), Tritec Systems Limited, and Electron Systems Limited. The firms that paid the bribes were also fined – the first time the Met has prosecuted firms for failing to prevent bribery. That sets an interesting and good precedent. WABGS Limited was fined £500,000 – between 2007-13 the company benefited from contracts with CCE worth over £13m. Tritec Systems and Electron Systems were each fined £70,000 plus costs. Individuals at those firms also received suspended sentences.

Part of Corry’s job  was choosing suppliers to carry out work. Over some years, he favoured certain firms in return for cash payments. He could spend up to £50K without others getting involved, so I assume he made lots of small payments or contract awards to these firms.  “The court previously heard how Corry was given bribes through payments for “bogus” contracts for Coca-Cola, in which work was never carried out, or had Coca-Cola pay more than the actual amount charged for real work and was sent the difference”, as the Shropshire Star reported.

But in 2011, the firm changed the policy and the professional procurement team started getting more involved and a more structured process was implemented (hooray!)  They started getting suspicious as some firms changed their bids late in the process, and suspected that someone on the inside was tipping off firms about competing bids. That led to discovery of evidence which eventually led to prosecution. (Tip – if you’re committing fraud, don’t have a spreadsheet on your laptop called “Slush”)!

It’s all rather sad in some sense – of course it is good that he was caught, but his wife divorced him and their son has mental health issues now, according to the reports. And Corry eventually repaid £1.7 million to CCE.  So if you are ever tempted, just remember that it probably will ruin your life.

What are the lessons here for organisations? Well, I gave 7 key anti-fraud principles in the Bad Buying book, and several are relevant to this case – proper supplier selection processes, for example. But perhaps the most pertinent is this principle (taken from the book).

“Opportunities for collusion between suppliers, and between suppliers and buyers, must be minimized – Many frauds rely on collusion between buyer (or budget holder) and seller, so reducing the opportunity of this reduces the chances of fraud. Organizations should ensure there is always more than one person involved with any major purchase and in signing- off work with suppliers. Moving staff regularly is another option, so there is less time for the relationship, and perhaps the fraudulent plans, to mature. Some organizations have a policy that no one in a decision-making buying role will  stay for more than three years in that same job role, for this very reason.

It is not just professional buyers (procurement staff) to whom this applies. Indeed, it can be stakeholders such as budget holders or service users who by the nature of what is being bought find themselves getting too close to suppliers. I once discovered that my firm’s major IT equipment supplier was sponsoring our internal IT budget holder’s expensive car- racing hobby!

It may be very innocent, but when a marketing or IT manager makes it clear they don’t want professional procurement or finance colleagues involved in ‘their’ relationship with a key supplier, that can be a warning sign that it isn’t totally innocent. Organizations should look at discouraging closeness that goes beyond the need to work well with a supplier to get a job done. This should influence the organization’s policy on hospitality, gifts and entertainment, which should be clear and should err on the side of caution”.

So well done to CCE for eventually discovering this, but a better policy would have perhaps made it less likely in the first place. And if you work for a large organisation that allows budget holders to spend thousands without anyone else being involved, I can pretty much guarantee that one or more of your colleagues is committing exactly this type of fraud at this very moment.

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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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Money No Object! UK Government Invites Proposals from Consulting Firms

(I asked CCS if they wanted to comment on this article and they said no).

The Crown Commercial Service (CCS) is the central buying organisation for the UK government – particularly used by central departments, although any other public body (councils, hospitals, universities etc.) can use their contracts and frameworks too. It does some good work and employs a lot of hard working, smart procurement people. But sometimes it gets it badly wrong, as it has with the new management consulting procurement process.

Bids from potential suppliers are now in for the latest iteration of their Management Consultancy Framework, MCF3 as it is known. It is split into 10 Lots, ranging through general “business”, functional areas including procurement, and high-level topics such as “strategy”. Suppliers can bid for all or any of the Lots.

I have looked at the way the Lots and evaluation process are structured, and the way it is designed looks at first sight very strange. However, if you believe that it is aimed at meeting four key objectives, then it is quite sensible. Those objectives do not, unfortunately, include “delivering value for the taxpayer”.  

Instead, they appear to be:

  1. Make sure the big firms (McKinsey,  Deloitte, BCG, PWC etc) win a place on the more “strategic” Lots 2, 3 and 4 for strategy, finance and transformation work.  Why is it essential that these firms are successful?  Simply because Ministers and senior civil servants want to use those firms, and CCS itself relies on the commission it gets from sales through its frameworks to fund itself. If they weren’t available via CCS, budget holders would find another way to engage those firms and CCS would lose revenue.  
  2. Make sure those firms get onto the framework without having to offer particularly competitive prices, so they will be happy to put senior people onto government work without worrying about the rates.  
  3. Ensure that there are a large number of “SMEs” (smaller firms) who win a place on the MCF. Ministers can then supposedly support the small business agenda and announce that “over 50% of the firms selected are small firms”.
  4. But also make sure there is no need for any government department to actually use any of these small, lower cost firms.

So if these are indeed the objectives, how has CCS given itself the best chance of achieving this?

A Dodgy Price Evaluation

The way price is evaluated is a major factor here. So Lot 1 is general “business”, and up to 75 suppliers will be appointed to this Lot. Here, when the bidders “price” is evaluated, it is weighted at 90% of the total marks available. But the other 10% is just a tick box to say you will deliver the services (which is odd in itself – why would I be bidding otherwise?)

Price is calculated as the median of the prices offered for the 6 grades, from junior consultant up to Partner level. So basically, this is purely a price selection. The cheapest firms, which will be small firms that few of us will have ever heard of, will win a place. And because no-one has heard of them, and (in some cases at least) they are not very good, which is why they are cheap, they won’t be used much. But CCS and Ministers will have lots of SMEs on the list to boast about.

So then how does CCS make sure that the big firms succeed? For Lots 2, 3 and 4, price is only weighted at 10% of the total marks.  The rest come from essay-type questions in which the firms have to show extensive capability. There is plenty of scope for some flexibility in the marking too, and given the low weighting, price barely matters.   I would bet my mortgage that the “usual suspects” will all win places here.  

But just to make sure that those firms don’t have to worry about not making enough money, the price on which marking is based is not calculated as the average (the mean) of the 6 grades, which would seem to be a logical approach, or a weighted average rate based on likely frequency of use of each grade. Instead, it is the average of just two grades, the two “middle” ones (senior consultant and principal consultant / associate director). Actually, that would seem to be the same as the “median” price which is how Lot 1 is defined – it is not clear why different terminology is used.

So that means you don’t have to worry much about the price you put in for Partner. There is one more constraint in that for each grade, the price must be between 10 and 50% lower than the grade above.  But that isn’t too much of a hardship – for instance, you could put in this bid:

FIRM A

Partner                               £6000 a day

Director                              £3000

Principal consultant        £1500

Senior consultant             £1300

Consultant                          £1150

Analyst                                £1000

Your score would be based on the average of £1300 and £1500, so that is £1400, which is probably not too out of line with many bids. But once you win a contract, you can legitimately put your Partners in at £6K a day!

This is an “Illegal” Evaluation Methodology

There is also a technical/legal issue here, in that your evaluation score could be the same as another bid that puts in much lower rates for the top two grades (or indeed the lowest two), as long as you offer the same rates for those two in the middle. That seems to break fundamental rules of public procurement, that you have to make “value” your selection factor and you have to show you have a “fair” process.  So Firm B (below) scores fewer points in the evaluation than firm A, even though their pricing is much better value overall!

FIRM B

Partner                               £2000 a day

Director                              £1750

Principal consultant        £1500

Senior consultant             £1320

Consultant                          £900

Analyst                                £600

I can think of no reason why the average of the 6 grades has not been used – other than to help the big firms charge a fortune for their Partners. Unless I’ve missed something here, it feels like either a real error or there is something odd going on. I’m not a conspiracy theorist, but you do sometimes wonder if there is some sort of plan for certain firms to suck as much money as possible out of the public purse at the moment?   

This is the Argos Catalogue, not a “Framework”

Finally, there is another somewhat technical issue, in that users of the framework who want to choose a supplier for an individual project should (to be legally compliant) in most cases invite all the suppliers listed in the Lot to bid. But if you have to ask 75 firms (Lot 1) or even 30 firms (Lots 2 to 6 ) to put in proposals, that is quite a workload to manage and evaluate.

So I suspect CCS assumes that many users will just choose their favourites from the list, even if this technically breaks the regulations. We’re going back to the old days when I worked in government in the 1990s and that was how frameworks were generally used. Budget holders just picked their favourites from a preferred supplier list. The approach didn’t deliver value for money for the taxpayer then, and it doesn’t now.

But again, having such extensive lists of suppliers ensures that there is plenty of choice on the framework for users, so CCS maximises its own revenues. I’m afraid that looks like a major driver here, along with keeping Ministers, budget holders and the big firms happy.

What Does the Lord Think?

I do also wonder what Lord Agnew, the Cabinet Office Minister, thinks of this, or if he is even aware of what is going on. It was Agnew who wrote to senior civil  servants last September telling them to “rein in spending on consultants” and that Whitehall was being “infantilised” by their over-use. 

But when you see headlines in a year or two about “firms charging £6K a day for consultants”, you know why. Basically, the government, through Crown Commercial Service, has designed its procurement process to allow that. This is all very disappointing, given the undoubted talent of the people in CCS involved in this exercise.

PS  Buying consulting services based on a “day rate” model is almost always the wrong way to do it, anyway. More on that another day.

PPS There is no mention of “social value” in the tender either.

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Should Badly-Treated Suppliers Receive Millions? Green Paper Wrestles with a Tricky Issue

Just before the end of 2020, the UK government issued a Green Paper on the future of public procurement regulations post Brexit. I know, it sounds dull, but before you stop reading, this matters to every taxpayer and citizen in the UK. The government spends some £300 Billion of our money every year with suppliers, so getting that right has a huge impact in terms of value for money, the economy, as well as the services provided to UK citizens.

One of the themes in the Paper is around proposed changes to the way that unhappy bidders can complain about and challenge procurement decisions.  Without going into all the gory details here, pretty much everyone involved would agree that the current process is slow, cumbersome, and often leaves the bidders feeling unhappy. It can be a real problem for the buyer, even if they haven’t done anything wrong.

So this is an area where change is needed. But has the Green Paper got it right?

One controversial proposal is to cap the damages that a bidder can receive to one and half times the bidding costs plus legal fees, except in some exceptional circumstances. Critics of that idea say it will greatly reduce the incentive for a supplier to challenge, even when there has been bad or unfair procurement.

I have very mixed feelings on this issue, and there are some tricky balances here. In my Bad Buying book, I tell the story of a disastrous Nuclear Decommissioning Agency (NDA)  contract.

“The case involved a 2016 legal challenge by Energy Solutions Ltd., the incumbent supplier for a huge contract to clean up de-commissioned UK nuclear power stations. They lost the tender … to a Babcock Fluor consortium (CFP).  But there were a number of mistakes made during the procurement process.

One related to “pass / fail thresholds”; areas where the NDA defined up-front that failure to meet certain conditions would lead to instant disqualification for the bidder. However, once bids were scored, it became clear that one supplier had failed to meet the threshold. But instead of chucking them out of the competition, the NDA decided to let them stay. Now this may all seem a little technical, but it is clearly unfair; and public procurement regulations really don’t like unfair buying processes”.

You can’t change your mind about the rules once you get into the buying process.  As the judge said, after a bidder has failed to meet a defined threshold, you can’t ask “was that threshold Requirement really that important?”, arrive at the conclusion that it was not, and then use that conclusion to justify increasing the score to a higher one than the content merited (or to justify failing to disqualify that bidder)”.

To disguise the failure of one bidding firm, the NDA team also adjusted original scores given to the bidders during the marking process. But they failed to provide any audit trail or justification for these changes, a fact that became obvious through the trial.

The judge found that the procurement did break the rules – an unsurprising outcome because it was one of the most blatantly unfair, incompetent tender evaluation processes I have ever seen.  The NDA agreed  to pay the firm (and their consortium partners Bechtel) around £100 million to settle the legal claim for their loss of profit on the contract. And an inquiry into the fiasco still hasn’t appeared, unfortunately.

Now that doesn’t really seem like a fair solution for the UK taxpayer, however bad the procurement process was. £100 million is a lot of money! But equally, firms should have the right to recover something – and probably more than 1.5 times bid costs – if they miss out on a contract because of incompetent, unfair or illegal procurement.

The failure to publish the report into the NDA affair is another common problem. In another case, Virgin Health received a settlement rumoured to be in the millions because of a botched procurement run by six clinical commissioning groups (CCGs) in Surrey, Surrey County Council (my home county) and NHS England. But the settlement and case details were subject to a non-disclosure agreement, so we never found out what happened, and that means other contracting authorities cannot learn from the expensive mistake.

So that was “Millions out of the health service and into the pockets of billionaire Richard Branson” – at least that is how some saw it, although Virgin defended their action.  Again, I would support the right of firms to challenge and get some reward if they are truly victims. But more thought probably needs to go into the Green Paper recommendations, and I would also make it compulsory for both parties to disclose full details of the challenge publicly. No more of these Bad Buying cover-ups please.

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Tomorrow is Bad Buying Publication Day – But It’s About “Good Buying” too!

It’s tomorrow!  Just over 18 months since I started writing Bad Buying – How Organisations Waste Billions Through Failures, Frauds, and F*ck-ups, it will hit the shops and virtual shops tomorrow.

And right on time, a new example of what might be Bad Buying with serious public consequences has hit the headlines, with pharmaceutical firm Roche telling the UK National Health Service that it can’t supply kits for Covid and other testing purposes.  

This is apparently because of a problem Roche has experienced with a new warehouse, but that is rather vague. Has the firm lost physical stock in the transfer? Has some sort of automated equipment broken down? Or is it systems issue, as it so often the case these days?  In any case, it would be surprising if Roche didn’t have a supplier of some sort to share the blame. Then there is the question of why the NHS appears to be so reliant on one supplier for such crucial items, but we’ll come back to all that another day.

Back to the book. After chapters describing failures and frauds, with dozens of case studies to illustrate the points, the final chapter provides “ten principles for good buying”.  As the book is aimed at a wide range of managers and professionals, not just procurement experts, those of you who proudly wear the MCIPS badge may find some of these a little obvious.

For instance, For everything you buy, consider how that item or spend category contributes towards strategic goals, and conduct buying appropriately.

Well of course. But how many CEOs, CFOs or indeed budget holding managers generally really understand that?  (One of my wilder thoughts is that procurement leaders might buy a copy of the book for each of their senior internal stakeholders… well, you can live in hope!)  The need for good data is another reasonably “obvious” principle.

But there are couple of principles that may be more thought-provoking, even for the procurement world. And the final one is perhaps the most important of all  – Everyone who plays a role in the buying process must be appropriately knowledgeable and skilled to get the most out of your suppliers.  

As I say, “From the technologist who specifies the new IT system to the accounts clerk who checks invoice payments, from the CEO who gives consulting contracts to her friends to the regional manager who fails to manage a difficult services supplier in his region, a large organisation will have thousands of staff involved in what I’ve called the buying process.  Indeed, every time someone in your organisation talks to someone in a supplier organisation, the conversation is potentially part of the negotiation process – and sometimes, it can be a critical part”. 

I think having a good procurement function has even given some organisations a false sense of security, with CEO’s thinking, “we must be OK, our procurement director has won awards and her team is involved in most of what we buy”. But even the best procurement function won’t save you from disaster if others have no idea what they are doing, which is why the book is aimed at that wider audience, whilst I hope still having enough serious content to appeal to the professionals!   

So, if you haven’t ordered yet, check out the links here. (In fact, one friend tells me his book arrived yesterday). There is also a podcast now (“Peter Smith’s Bad Buying podcast”) and the first two episodes, around 15-20 minutes each, 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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Want Some Cheap Consulting? How the Big Firms Game the Supplier Selection Processs

Psssttt! Wanna buy a cheap consultant? Top quality, only £20 a day. Or, tell you what, you can have some for a tenner if you like. Yeah. Just £10 a day!

The UK’s central government procurement arm, Crown Commercial Services, has various frameworks in place that enable users to select and engage from a list of management consulting firms.  So how was it that the rate card for the different levels of consultants on certain “lots” includes the bargain rate of £10 a day for a junior consultant from one of the world’s very biggest and most highly regarded strategic consulting firms? Or how about the same rate for a junior and only £30 a day for a senior consultant from one of the big four audit / consulting giants?

What’s going on here? Well, it is almost certainly related to how the firms “gamed” the evaluation process in order to win a place on the framework list of approved suppliers. CCS has had some unhappy experiences with consulting frameworks, including having to pull an entire exercise in 2017 when it became clear that the big firms weren’t going to make it onto the list!

Generally, when price is evaluated in the tender (along with quality and other service factors), the buyer asks for day rates for the different levels of consultant – perhaps junior, senior, manager, director, partner. Then there is some sort of adding up process, maybe weighted to reflect different likely use of the different levels, to arrive at an overall cost.

So let’s suppose your rates are something like this,

Junior                    £1000

Senior                   £1200

Manager              £1400

Director                £1800

Partner                 £2400

Let’s also suppose that the buyer is weighting each at 20% to arrive at a composite average rate – in our case here, that would be £1560 per day.

I might worry as a bidding firm that such a number could be on the high side. So how can I adjust that, without actually reducing my profit margins (and hitting my £600K a year partner’s salary)? Well, we are unlikely to be putting many Partner level people into these projects, particularly for government work. So we can take a bit of a hit on that rate. And as for juniors – well, let’s just work on the basis that when the Department for Internal Affairs comes looking for a proposal, we’ll say we haven’t got any available. Let’s face it, clients don’t really want the graduate trainees who can barely run a spreadsheet anyway.

But we might want to up the middle levels a bit to recover the lost margin on Partners, as that is where we really will be supplying people. So how about this?

Junior                    £0 (free!!)

Senior                   £1300

Manager              £1500

Director                £1800

Partner                 £2000

Our average rate now is £1320. That’s a 15% improvement in overall pricing and a lot more marks when it comes to the evaluation. And in reality, the likely revenues if anything might be a touch higher.

So why did CCS allow this to happen in this particular case? Well, it might have been difficult to stop – you can reject “unfeasibly low” bids under EU procurement regulations but the overall prices aren’t unfeasible. And of course CCS desperately wanted these firms on their list, so users will access the contract and CCS will make their margin, which funds the organisation.

Maybe all this doesn’t really matter, but it is worth remembering the lengths and the creativity that the partners in these firms will go to in order to protect their £500,000 – £1 million+ annual salaries. But do think carefully about your evaluation process if you want to avoid this sort of game-playing.

Finally, if you want to hear more interesting stories about buying professional services, positive and negative, I’m a keynote speaker at a (free) virtual conference on that topic organised by Matrix MM on Tuesday next week, 21st July. More details here!

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