Tag Archive for: Public procurement

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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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Drive for Efficiency Savings in Government … Again …

Today, the word “historic” is used in the context of a tasty sandwich, or a decent performance by the latest indie band.  But the last few days in the UK has without a doubt deserved that description. It has been probably the most historic week of my adult life anyway.

The political events themselves were significant, with a new Prime Minister chosen and taking up post, and the Conservative Party announcing a huge public spending increase, one that would once have been seen as an extreme “left wing” spending policy. But that was overshadowed by the death of Queen Elizabeth – not surprising given her age but shocking in that her final decline was so swift.

That has left many of us feeling more emotional than we might have expected, and of course our sincere condolences go to her family and friends. She over-performed (by some distance) in her job for 70 years, which is not something many can say.

But soon, the more prosaic but critical economic and social issues the UK faces are going to rise back to the top of the news pages. Can even more government borrowing fund additional spending to offset energy price rises, without subsequent tax rises?  Or can the government find significant “savings” to offset the spending?

In terms of savings, the signals during the recent contest to become Prime Minister were not promising. This was our new PM, Liz Truss: “As prime minister I will run a leaner, more efficient, more focused Whitehall that prioritises the things that really matter to people and is laser-focused on frontline services … There is too much bureaucracy and stale groupthink in Whitehall”.

So just the traditional vague remarks about bureaucracy, “reducing waste” and attacks on “Quangos”. The problem is that the largest “quangos” are organisations such as the DVLA and the Passport Service that provide services the public rely on. We’ve seen the negative reaction when their performance falls; it seems hard to believe that the government can slash the cost of these organisations without major impact on customers.  In another speech, Truss suggested a regional approach to civil service pay. It’s not a daft idea actually, but she withdrew it quickly under challenge, a sign that even many decent ideas run into opposition.

Another frequent and ill-judged suggestion is more centralisation of procurement. I would argue that all this has done over the years is led to more “framework” contracts being put in place by the collaborative procurement bodies. But those organisations have a fundamental conflict of interest between maximising their revenue, versus driving better overall value for the public purse.  Their frameworks are then misused in a manner that certainly does not lead to value – choosing suppliers without competition, for instance.

However, there are ways of saving money, although none of them are easy.  Introduce stringent controls on consulting spend and demand a focus on defined outcomes and competition to choose suppliers every time. Insource some services (children’s social care, for instance) that are failing both financially and performance-wise. Stop messing around with more collaborative procurement in the police service, bite the bullet and move from 43 “county” forces to 9 or 10 regional forces (every Chief Constable knows that the current system is crazy). Cancel HS2. Sort out the increasing unfairness (to private sector workers) of index-linked public sector pensions … and I’m sure there are “savings” in MOD procurement, but better people than me have failed to realise them. 

Indeed, nothing that might release significant benefits will be easy to do.  After over 30 years of efficiency reviews, external experts, CPOs recruited from top private sector firms and so on, there is little in the way of “low hanging fruit” these days.

So Prime Minister Truss and her team will have to think harder and act more radically if they really want to reduce the cost – and improve the effectiveness – of the public sector. I do wish them luck, as a taxpayer, but I’m not holding my breath.

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Good Tender Documents – More Important Than You Might Think

You may have read about the recent UK hospital trust tender that hit the media because of its questions about diversity and transgender issues. It turned out that the questions should not have been included in the document; it was human error rather than anything else.

I recently got involved with another National Health Service tender – we’re talking about a “collaborative buying” framework here, potentially worth hundreds of millions.  A consulting firm I’ve worked with over the years asked me to look at the tender documents, because they could not work out how on earth the buyer could possibly differentiate between the various bidders. Basically, there were no evaluation questions that actually asked the bidders to explain their core technical capability!

I read it and agreed that is was a very odd document.  No selection outcome could possibly have stood up to legal challenge, for a start. Luckily, I knew a senior procurement person in the buying organisation, so I called and explained the issue. A few days later, the tender was pulled. Pure human error again.

I was reminded of these cases during an Oxford POGO session last week. (POGO is a very worthwhile knowledge sharing club – more details here). The topic was capability in public procurement, and there were a number of interesting speakers. But it was Steve Schooner, Professor of Government Procurement Law at the George Washington University Law School in Washington, USA, who brought up the issue of writing tender documents.

Too often that was seen as a pretty unimportant task, but he said (quite correctly) that is a key skill if you want to get the best potential suppliers, the best proposals and ultimately the best outcomes from your procurement and suppliers.

He also said that “no-one should be allowed to write a public sector tender document until they have sat supplier side and responded to a tender”!

I think that is a great idea and maybe should be a core training activity for developing public procurement professionals. Over the last decade or more, I’ve occasionally supported clients who were responding to (usually public sector) tenders. It has given me a lot of insight into what good procurement practice looks like – and more depressingly, what bad practice looks like. I’ve also worked buy-side of course and tried to help buyers to get it right! It is not always easy, but it is always important.

As well as the contribution of this stage in the process in terms of final outcomes, there is another factor to consider. The tender documents you issue are probably the most direct and often the most widely-read manifestation of your procurement function’s competence.  

You can claim to be a world-class team, you can win lots of awards, but if potential suppliers read your tender and think “what a load of old rubbish this is”, then more than anything that will be what informs their view of you. The same often applies with internal stakeholders. If there are non-procurement colleagues involved in a procurement process, and they see that the procurement professional doesn’t know how to produce good material, or (even worse) the stakeholder starts to get calls from frustrated potential suppliers, then this is very bad news for your internal reputation.

Going back to the beginning, I spoke to a senior person involved in the “controversial” case of the diversity questions. We’ve learnt two things, he said. Firstly, we need more and better training for all our staff who are involved in producing tender documents. And secondly, “we need better quality assurance before material goes out of the door”.

Often top procurement executives feel they are too busy to read tender documents, or that it is  a low-value task for someone of their seniority, skills and experience. Below their pay grade, as it were. But if that is your view, just remember – a lousy tender document has the potential to trash your team’s reputation more widely and faster than just about anything else.   

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Fairness in Procurement

Most people see government buying as something rather dull and bureaucratic, but get it wrong and it can cost the taxpayer a fortune.  So everyone should be interested in the new Procurement Bill published last week, which will define the regulations for UK public procurement.  We will have more on that here when I’ve read it properly and also considered what people smarter than me think of it!

One of the key principles of the new regulations is to give buyers more flexibility and freedom. But I do have a fear that could lead to more corruption if it allows crooks (whether politicians or public servants) to run dodgy procurement processes to favour their preferred supplier. However, the new approach will I believe still require contracting authorities to consider basic issues such as “fairness”. That is where a lot of the biggest failures in the past have arisen – such as described in the following extract from the Bad Buying book, describing a particualr case that cost the taxpayer over £100 million because of obvious bias and unfairness in the procurement process.  

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“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, run by contracting authority the Nuclear Decommissioning Authority (NDA) in 2014, 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.

As the judge said in his statement, you cant change your mind about the rules once you get into the buying process.  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 that 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 NDA announced that CFP had won – which promoted the legal challenge. There were other issues too, and the final outcome saw the judge finding in favour of Energy Solutions, and the NDA agreeing to pay the firm (and their consortium partners Bechtel) almost £100 million to settle the legal claim for their loss of profit on the contract.

It is impossible to know what went on behind the scenes in cases like this.  Was it sheer ignorance of the rules? Was someone very senior determined a particular supplier should or should not win the contract? With other failures in previous chapters, a lack of understanding or knowledge caused the problem, but I’m left somewhat baffled here.

Certainly, a number of basic buying principles seemed to be forgotten. Treating bidders fairly is a good principle, whether you work for a government body that must do that legally, or for a private firm. Keeping sensible documentation to explain your decision is vital. That’s so you can explain to bidders why they won, or didn’t, but it is also a basic precaution against corruption and fraud, one that all organisations should take. If no-one can explain logically why my firm won a particular contract, then maybe it was because of the bulging brown envelope I was seen handing over to the senior buyer”.

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Why Doing Public Procurement Properly Matters

The court found this week that Michael Gove, Cabinet Office Minister, broke procurement law when a contract was awarded without competition to Public First, a research and communications agency. As the BBC reported, “The government acted unlawfully when it awarded a £560,000 contract to a firm run by former colleagues of Michael Gove and the PM’s adviser Dominic Cummings, the High Court has ruled”.

This goes back to the Dominic Cummings era in the initial pandemic days of early 202. Some will feel that speed was everything at that point – but it is not like contracting for a series of market research focus groups was a matter of urgent life and death, unlike maybe PPE or ventilator procurement.

But in this case, the court found the contract award appeared to show favouritism as Public First had worked with Gove and Cummings previously, and the judge said this; “The defendant’s failure to consider any other research agency, by reference to experience, expertise, availability or capacity, would lead a fair-minded and informed observer to conclude that there was a real possibility, or a real danger, that the decision-maker was biased.”

One founder of Public First formerly worked as an adviser to Mr Gove and for Mr Cummings, and co-wrote the Conservatives’ 2019 general election manifesto. The other had worked alongside both men in the Department of Education. However, the judge rejected two other claims – that the direct award of the contract was “unnecessary” and that the 6-month contract length was disproportionate. So both sides can claim victory here.

Cummings thinks procurement rules are ridiculous and damaging.  Indeed, many senior people – official, special advisers and politicians – feel that they are bureaucratic and can slow down necessary actions.  There is some truth in that, and some of these people also genuinely believe that their own judgment is quite enough to make decisions on which suppliers can best carry out work.

The problem is that this approach shows at best a considerable degree of arrogance, quite a large degree in some cases. And it would be helpful if everyone understood better exactly why we have rules in public procurement. There are three good reasons.

  • The most obvious perhaps is the danger of fraud and corruption. I doubt very much whether anyone received brown paper envelopes stuffed with cash in this case. But if we don’t have processes, with openness and transparency, then the dangers of that becoming more common will rise.
  • Public procurement processes are also designed to help achieve the best possible outcome for the citizen and taxpayer. Competition is the key driver of that.  We will never know if other firms could have done as good a job as Public First for half or a tenth of the price – or a much better job for the same cost. When you don’t have competition, you can’t look at alternatives and you don’t have competitive pressure in terms of value. Even if the requirement is urgent, some competition, even if limited and rapid, is much better than none.
  • The final point is the least understood driver for proper public procurement – that it encourages healthy markets and successful economies. If firms know they will always have a chance of winning public sector contracts, they are encouraged to invest, to innovate, to provide better service. But if public markets are closed, or corrupt, or based on who you know rather than what you can do, then what is the point of trying to be better? Don’t spend a million in improving your product – spend it on getting an ex-Minister as a “consultant” to open doors, or on “research trips” to California for officials and advisers, or simply on bribes.

The last point is very evident in the countries that have the greatest corruption problems. Why would any start-up bother trying to win public sector work fairly in Venezuela, Somalia or Yemen (choosing three of the back-markers in the Transparency International Corruption Perception index)? You invest in corrupt practices to succeed.

We may think that the UK, US and other developed nations don’t have similar problems, but that would be naïve (read Bad Buying for a few examples…)  So whilst many will dismiss the Public First case as a storm in a £500K teacup, we need to hold politicians and others to account, and continue to emphasise that there are very good reasons for doing public procurement properly.

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Public Procurement in the Pandemic – Is it Who You Know, or What You Know?

Yesterday, The Times published a long article looking at how PPE (personal protective equipment) has been supplied to NHS hospitals and other locations during the pandemic. Unlike most articles on this topic, it presented a rosy picture – well, rosy at least once the Army and Clipper Logistics got involved. Indeed, it could not have been more positive about those two organisations if it had been written by their PR people.

Everything was great – everyone got all the PPE they needed, the famous eBay portal worked fine (it didn’t), and the Army plus Clipper rescued the incompetent NHS procurement system. It is a little surprising to see one part of the public sector dumping so publicly on another, but perhaps that is a foretaste of spending battles to come in the UK government through the recession, battles which the NHS is likely to win over the armed forces. Perhaps the military are getting their retaliation in first?

Anyway, the aspect of the article that grabbed my attention was the revelation that the choice of Clipper was made by Neil Ashworth, “a civilian working in the British Army’s Engineering and Logistics Staff Corps and a former supply chain director at Tesco”.  It is not clear quite how and why Ashworth was involved with the Army but The Times says “It was then that the Ministry of Defence made contact with Mr Ashworth to get the ball rolling. He recommended Clipper, a fast-growing logistics group that specialises in online retail, to his MoD contacts and they told him to recruit the company”. Ashworth then called Tony Mannix, the boss of Clipper Logistics, and off they went.

I suspect Ashworth was also behind the choice of eBay for the PPE portal, based on comments made by Eb Mukhtar, the army reserve logistician who has been the public face (or at least the public name) behind this exercise up to now.

But how did Ashworth choose Clipper? Was there an analysis of alternative options? Is there any audit trail to support that decision? Did anyone ask whether Ashworth personally had any conflicts of interest here?

Now I’m not suggesting for a moment that the team should have taken 3 months to run a formal tendering exercise. Neither do I think that Clipper slipped Ashworth a brown envelope stuffed with currency – his cv is impressive and he clearly knows this area.  But even in these “difficult times”, we need to be on our guard against fraud and corruption in its widest sense. And my definition of “corruption” includes corruption of the proper process.

So even when there is urgency, we need to know that public money is being protected. In this case, we need some transparency about exactly how these decisions were made, and what checks and balances were in place. The same applies to some of the rather odd looking contracts for PPE itself that are emerging.

In my new book, Bad Buying – How organisations waste billions through failures, frauds and f*ck-ups”, (to be published by Penguin Business in October), there are some amazing stories of fraud and corruption. But the sad fact is that it can spread quickly if there are opportunities or process weakness, as it did in the US Navy during the “Fat Leonard” affair. Or as it has in South African public procurement and through their government owned businesses, to the point where the country is close to being declared a “failed state”.   

The reason it spreads like a virus is explained in my book – here is a key excerpt.

“Finally, this matters because it has wider effects beyond the organisations directly involved, as  corruption can distort normal business and even social practices and priorities. For instance, if firms know that bribing government officials is the best way to win public contracts, a firm will focus its resources and efforts into doing that effectively. They will worry less about writing a good bid, developing better products or services or performing the work well. 

The knock-on effect is that decent firms start thinking “what’s the point”?  They either move over to the dark side and start on the bribery route, or withdraw from the market, customer or even country altogether. This can lead to a downward spiral, where supplier performance gets worse and worse, and corruption becomes endemic…”

You might think that we are somehow immune from that unhappy situation in the UK and other developed countries. We are not. If firms start thinking that “who you know” is more important in terms of winning government contracts than “what you can deliver”, then we will be on a very slippery slope. And that’s why we shouldn’t absolve those involved in public procurement during these “difficult times” from the need for process, propriety and transparency.   

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