Tag Archive for: Public sector

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When in Rome – watch out for potholes!

When I lecture on Bad Buying, as I do at the Skema business school in Lille, I ask the students to think about what sort of procurement related fraud or corruption is particularly difficult to protect against or detect – and why. Certainly right up there in the top three examples is the supply of goods or services that deliberately and maliciously don’t meet the quality level or specification agreed between supplier and buyer.

So the supplier substitutes an inferior product (or service, although more often this is seen with supply of goods) that costs less to provide, meaning the supplier makes additional profit margin and the buyer potentially suffers from the lower quality provided. It may not cause a major issue for the  buyer – but in some cases, it certainly does.

A case included in the Bad Buying book covered oil supply.  “In March 2015, a case going back to the 1990s finally came to the courts. Global trading giant Glencore was ordered to pay $40 million to OMV Petrom SA (a large oil company, headquartered in Romania), by a UK court, for shipping oil of a lower quality than it was supposed to be to the firm in the 1990s.

Bloomberg reported that Marc Rich & Co., which went on to become Glencore International AG, sold about 32 shipments to Romanian state firms from 1993 to 1996. But this was cheaper crude oil blends than the specification that had been promised. The seller falsified documents to support the fraud, which made it some $40.1 million, according to evidence in court. The fraud only came to light when a former trader from Glencore split the beans to Petex, the firm that had organised the oil importing process”.

This case showed how difficult such frauds can be to detect, as the client here actually didn’t notice anything amiss.  One barrel or tanker of oil looks very much like another!  But a recent case demonstrated an interesting twist on this. The danger for the supplier is obviously that the client spots the deception. So how about bribing the buyer(s) to turn a blind eye to what is going on?

That appears to be what has happened in Rome. The Vatican celebrates a Jubilee next year – it will be the 1,700th anniversary of the Council of Nicaea (325 AD), and I’m sure we can all see just how important it is to celebrate that in 2025. So Rome is preparing for millions of visitors and is trying to tidy up its somewhat run-down and chaotic infrastructure. Residents have been complaining about potholes in the roads for some time, and even when they were ‘repaired’ somehow the problems seemed to re-occur very quickly.

The cause seems to be a group of allegedly crooked city officials and road workers, conspiring in league with a dodgy supplier who provided substandard asphalt for the road repairs, material that crumbled far too quickly. Raids on the Rome city hall recently searched for documents that police claim show the firm paid kickbacks to officials to win contracts worth 100 million euros.  

The firm also offered jobs to the children of officials, it is claimed, and the inferior quality material meant potholes reopened at the first sight of rain. There are other interesting procurement aspects too. As The Times reported, investigators ‘believe that the man behind the firm set up front companies to allow corrupt officials to pick a different winner to successive tenders to give the appearance of legality’. That’s clever, because of course the same firm winning this sort of contract over and over again would eventually arouse suspicion.

So how can we guard against this sort of behaviour? In terms of checking quality of supply, you would hope that a good procurement organisation would be doing some sort of quality checks on the actual material. And not just asking the supplier to send a sample, but going out and looking at what was actually being used and doing some ‘live’ product sampling. 

In terms of avoiding the bribery aspect, there are a number of risk management options here. Not keeping procurement people in the same job for too long to make it harder for them to develop corrupt relationships with suppliers is one. Making sure multiple people are involved with supplier selection decisions and indeed in ongoing supplier management is another.

However, even that might not be enough if you have an organisation that becomes corrupted endemically. We saw in the case of the Fat Leonard / US Navy scandal, when you get to the point where even those who are supposed to investigate whistleblower complaints have been bribed themselves by the supplier, corruption can expand and run unchecked for some considerable time. So investigators will want to look at just how many Roman officials were corrupt. Was it just one or two – or was this a case where the rot spread more widely?

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Musk to address US government spending – what fun awaits!

In the legendary Philip Green review of 2010, the new UK Prime Minister David Cameron asked the retail entrepreneur to take a look at government procurement. Some years later, the rumour spread that Cameron actually wanted the Philip Green who was CEO of United Utilities (and later chairman of Carillion when it went under) to carry out the work – but his staff asked the wrong Philip Green!

Anyway, the TopShop leader looked at government procurement and came up with stunning recommendations – data was poor, buyers paid different prices and government should centralise more. All the usual stuff. He also invited some senior civil servants to his private suite at a 5-star hotel in order to complain to them that some government staff were spending £100 a night on hotel rooms in London…

The other rumour was that his final report was so unprofessional, another bunch of civil servants had to rush off and convert it into something presentable at the last minute before his presentation to Cameron. You can still see it now here, and it is pretty shoddy work. This sort of thing: “We found the following variations in price for laptops: Highest price: £2,000 Lowest price: £353 Differential: 82%.”

So might they have been different laptops, I wonder?  There was no mention of specifications here.  His solution was “government should buy direct from a multinational manufacturer’. Well, yes, that should do it.  And London hotel costs varied from £77 a night to £117.  Shocking!  He suggested mandating video conferencing.

To be fair, Crown Commercial Services and others in government procurement have got better at looking at markets and choosing the best procurement option and of course Green was correct to point out some failings.

But all this came to mind on reading that Elon Musk has been appointed to lead a new ‘Department of Government Efficiency’ in the US.  This will be the immovable object of US government procurement process and regulation against the unstoppable force of Elon Musk’s ego and self-regard. It has the potential to be hilarious (if you’re not too close to it, anyway).

Trump said in a statement that Musk and co-leader Vivek Ramaswamy (another entrepreneur and previous Presidential candidate who has some VERY odd views) “will pave the way for my Administration to dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies.”  The new body won’t be a government agency but will ‘create an entrepreneurial approach to government never seen before’. Their appointment is only until July 2026, which is also interesting, as it means everyone knows they only have to resist the duo for 18 months and they will be gone …

How will this play out for Musk and his mate? To begin with, lots of people are no doubt pouring over the detail of every contract he has ever signed with government, in SpaceX or elsewhere, looking for ‘inefficiencies’.  They will find that ‘waste and fraud’ exists but is much harder to root out than they think.

In the procurement space, then they will come up against all the usual barriers to saving money quickly, including long-term contracts that can’t just be re-negotiated, the need to run lengthy competitive processes or get sued by annoyed potential suppliers, lack of skills and resource in government procurement… and if he brings in external support to help (the Department has no staff currently), he’ll get castigated for ‘wasting money’ on consultants.  

So for instance he could reduce the ‘bureaucracy’ of procurement by getting rid of all the rules and processes around supporting smaller or minority-owned firms. But the biggest group that benefits from that in the US is probably military veterans, so presumably that wouldn’t go down well with Trump supporters.

He could cut through the regulations and give buyers more discretion, or even allow more non-competitive procurement processes. But for every supplier that benefits from a direct-award type contract, there are usually several who don’t like it. Watch out for a boom in legal challenges if this is a route he takes.

He might genuinely save money by simply stopping spend in certain areas. No new laptops or  consultancy contracts for the next 12 months, that sort of thing. That works, until another Trump favourite complains to the President that they can’t implement their new policies because they can’t engage McKinsey to help. Or buy a laptop.

Anyway, maybe I’ll be surprised and the two of them will turn out to be thoughtful, innovative and effective reformers of US government spending / acquisition / procurement. It’s going to be ‘fun’ watching from afar, anyway.

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Can politics learn from the ethics of procurement?

The headlines in the UK have been dominated in recent days about whether it is acceptable for politicians to receive gifts and hospitality from political donors. The new Labour government has come under fire for taking money to buy clothing as well as accepting tickets to Taylor Swift concerts and football matches. Looking at it from a procurement perspective, I’ve spotted three major fallacies in how Ministers have defended their actions.

Fallacy 1 – “Well it’s within the rules”. 

The obvious answer here is that “well, the rules are wrong.”  And once your party is in charge, or if you are the new CPO / head of procurement function, you have an opportunity to change the rules. So Labour people accepted these gifts when they were the opposition and no-one noticed too much. But wouldn’t it have been great if the Prime Minister had announced a major “clean up politics” initiative in his first weeks in power? You’re in charge now people, you can make the rules based on what is ethically right.

Fallacy 2 – “It’s OK as long as I declare it”.

No, it is not.

I discovered this issue when I joined the civil service way back in the 1990s. I was told by my team that there was a register of gifts and hospitality, and that made everything OK. As long as things were registered, it was all fine.

The counter to that is pretty obvious. If I registered a two-week holiday in the Seychelles paid for by a current supplier, or my category manager accepted a gift of a Rolex from a firm that is going to bid on the forthcoming major tender, is that OK? Of course not. The other problem with the “register” concept is that it often is an “after the event” process. In other words, I’ve already been to the Seychelles and my category manager is already proudly showing off his new watch before anything is public or able to be approved.

So that was the immediate change I was able to make in my civil service role. Staff would need to ask permission before accepting anything – if their boss or I said “yes”, then it could be recorded in the register. But you ask permission before you do or accept anything. Incidentally, I do believe that sometimes corporate hospitality can be justified as a way of building relationships at a senior level, maybe with a key strategic supplier,. If Bill Gates was in the UK and invited my software category manager to join him for a lunch, I’d absolutely say yes.  Or if I’d travelled to Brittany to inspect a new dairy and talk to the owners (as I did at Mars, at our corporate expense), then I’m not going to refuse a quick steak frites lunch in the local café!

Fallacy 3 – “I am incorruptible, so it doesn’t matter what I accept”. 

You will hear this a lot, usually from senior people, particularly if you try and tighten up an ethics policy. They are respected and respectable people, they are affluent, and of course they would not give a supplier a contract merely because they were entertained at the Cup Final or got a Harrods hamper at Christmas.

There are a number of problems with this. Firstly, it is exactly what a genuinely corrupt person would say if challenged. If I was actually giving a supplier contracts unfairly, or facilitating them being paid a higher price than the market dictates, and receiving bribes in return, then that is how I would respond if challenged.

Secondly, even if you don’t feel consciously that you now owe the supplier something, and you haven’t been asked for anything in return, you are now obligated. That is a basic aspect of human psychology, proven in experiments.

“Since gifts represent our desire to build or cement a relationship, they also require some form of reciprocation. Contemporary sociologist Dimitri Mortelmans argues that gift giving creates a “debt-balance”, so to prevent ill feelings gifts must be repaid creating a cycle of gift giving”.

It is why gift-giving is a key element in many communities, probably going back to pre-historic times. You exchange gifts with the neighbouring tribe, you are less likely to kill each other. That’s the positive side; but in a business context, it means I feel somewhat obliged to you when it comes to marking that latest tender.

So do Lord Ali and other gift-givers want something in return from Labour? Possibly not – perhaps they just like the people and the Party. But if they do want something, it is clear that there will be powerful people now who feel some obligation because of gifts. That is just human nature. I would be less nervous actually if all gifts were given to the Party, which can then decide whether the PM’s spectacles or Bridget Phillipson’s party is a good use of funds. But the personal nature of these gifts feels risky.

I also wonder whether one problem is that few people work in “proper” companies before they get into politics. If Labour had a few more ex Martians or Marks and Spencers veterans on board, they might be more sensitive to these issues.

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Grenfell Tower Inquiry Phase 2 Report – Just Terrible

I’ve generally stayed away from writing about the Grenfell fire tragedy. It just seemed too serious and horrible an issue to be talking about “bad buying” and technical procurement issues. What the victims went through is just unimaginable.

The Phase 2 report from the Inquiry was released recently and it is quite rightly highly critical of quite a range of people and organisations. Companies in the sector that provided materials used in the building; the architects and designers; the local authority and housing managers; central government civil servants; then-Minister Eric Pickles; the London fire brigade… they all bear some responsibility for what happened. Wider failures in building regulations and fire safety also contributed.

CIPS (the Chartered Institute of Procurement and Supply) contributed strongly to the Inquiry, initially chairing the Procurement Working Group as part of the Hackitt Review of building regulation and fire safety (leading to the Building a Safer Future report).  What became clear, CIPS says, is “there were many examples of poor commercial practices in the years leading up to the fire, focusing on price and margin at the expense of safety.”

I often hear complaints that public procurement is “all about price and nothing else”. I always push back on that and say that in my experience, price or even total cost is always an evaluation factor, but the vast majority of procurement exercises also consider other non-cost factors, which have serious weighting in the evaluation model. But it is probably fair to say that some parts of the construction procurement world have not exactly been at the leading edge of good practice thinking.

That seemed evident from the report, where too many decisions were made simply to save money rather than through a proper consideration of all the true “value for money” factors. And if a value for money model doesn’t include looking at the chances of killing people, then it should. This is from the Phase 2 executive summary report. (TMO is the “tenant management organisation” that was responsible for Grenfell).

“Although Rydon’s tender was judged to be the most competitive, it still exceeded the TMO’s budget. As a result, although the TMO had received advice from its lawyers that it would be improper to do so, it entered into discussions with Rydon before the procurement process had been completed leading to an agreement that, if Rydon were awarded the contract, it would reduce its price to an acceptable level”.

Illegal, bad practice, and of course led to Rydon, the principal contractor on the tower refurb, being focused very firmly on cost minimisation.

It was also shocking to see that the firms involved, including those that had basically lied about the products they were supplying, or had hidden test results, continued to win public sector work after Grenfell.

The Guardian reported that “about £250m in public deals have been made in the past five years with corporations involved in the high-rise’s refurbishment, according to searches of public contracts by the outsourcing data firm Tussell for the Guardian. They include companies currently or formerly owned by Saint-Gobain, which made the combustible Celotex insulation used on the tower, and Rydon, the main contractor for the works”.

Now the new UK (excluding Scotland) Procurement Act includes what are in theory stronger provisions to allow firms to be barred from public procurement competitions. The Prime Minister told Parliament that he wanted to ban the firms involved here. “This government will write to all companies found by the inquiry to have been part of these horrific failings as the first step to stopping them being awarded government contracts,” Starmer pledged.

That doesn’t seem as strong as you might expect, but no doubt there will be process that must be followed if we want to avoid legal challenge from those suppliers. I’ve been somewhat cynical about the chances of the new “debarment regime” in the Act really being effective, but I sincerely hope I’m wrong and these firms are kicked out of public business for a very long time.

It is difficult for individuals within large organisations to speak up sometimes. We can all get caught up in the corporate “groupthink” and perhaps misplaced loyalty.  (Look at all the people in the Post Office who knew the Horizon system was dodgy and that postmasters were being treated appallingly, but said nothing).  Grenfell shows how terrible the consequences of that sort of behaviour can be. So if your firm is expecting you to lie or deceive others about the chances of your product killing people, then perhaps you really should say something.

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A Walk Through HS2

It is a while since I wrote about the UK’s infinite rail transport money pit, also known as HS2. When I first started criticising it years ago, based on my view that the business case was a con (having seen many dodgy public sector business cases over the years and even having helped write a few), I got some comments on Twitter and LinkedIn saying it would all be a great success and I was being ridiculous when I predicted it would cost over £100 billion. I did think it might get completed for that much, I should say.

Anyway, a couple of weeks ago, two retired CPOs and I went for a 10 mile stroll in the Chilterns in a persistent drizzle. But I saw a badger close up for the first time in 40 years!  I also saw rather a lot of the HS2 works as our route crossed that swathe of land twice. The second time, we had to divert a few hundred yards and use a road bridge going over the works.

But as we approached the first crossing, our path was diverted for a few hundred yards, and then we were directed to a gatepost with high wire all around it. This was the HS2 works, all fenced off of course. At the gate, we were greeted by a chap in high-vis gear.  He nodded and said something into his walkie-talkie. We saw another chap a couple of hundred yards away, at the top of a slope, who presumably checked that no high-speed bulldozers were heading our way over the hill.

Hi-Vis 2 then gave Hi-Vis 1 permission to let us cross. We walked about 100 years across the site, mainly across rough gravel roadway, to another gate manned by Hi-Vis 3. He opened his gate and ushered us into a passage way about 2 metres wide with 3 metre high wire fencing each side. We followed this for another couple of hundred yards, before meeting Hi-Vis 4, who opened another gate which led into more wire-edged walkway.  We asked him how many people he’d seen that morning. “Just you three,” he said. It was noon by now.

So four people employed as far as we could see just to help walkers get across 100 yards of construction site.  Were those posts manned 24 hours a day, we wondered? If each guy is paid lets say £30K a year, the construction firm no doubt charges the tax payer at least twice that. So on a single shift, that’s a quarter of a million a year. If there is 24 hour cover, we’re talking a million a year.

Surely there must be better options. A simple crossing with some warning lights maybe?  Or just one person as an escort? I know it is a cliché but this felt like “health and safety gone mad”.  When we look at the relative costs of capital investment sin the UK, we wonder why it costs us so much more than other European countries, let alone China, India and so on.

Well, this sort of approach partly explains things. And I come back to one of my original fears about HS2. Who actually had a vested interest in getting the best possible value for money? Not the civil servants in Whitehall and the executives running the HS2 company,  who get promoted and bigger salaries if they “control” a bigger budget. Not the hordes of consultants and advisers to HS2, whose fees look more reasonable if the construction firms charge more. And certainly not the first-tier suppliers themselves.

In the greater HS2 scheme of things, four poor guys standing around doing absolutely nothing for hours, days, weeks on end (mind-numbingly boring work, by the way) just doesn’t matter. And that sums up some of the problems with the whole scheme.

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My Manifesto for Public Procurement

I commented recently on the major UK political parties’ manifestos in terms of their procurement ideas, and literally thousands of readers – well, one or two – said “so what would you do then, smart-ar**?”

So here we go.

A Public Procurement Manifesto from the Peter Smith Party

The UK public sector spends over £300 billion a year with third party suppliers – although different definitions of “third-party spend” give somewhat different numbers.  That is £6,000 for every adult in the country, every year. Suppliers are also central to every aspect of public services, from provision of tanks and ships for our country’s defence to medical and social care, from administering benefits to building schools or roads.

So the first priority here must always be to obtain excellent value for money for the taxpayer  – buying the most appropriate goods and services to support effective management of all the country’s public organisations.

Unfortunately, the Conservative government has been responsible for some of the biggest fiascos and wastes of public money that we have even seen, such as HS2, the PPE scandal, Ajax armoured cars that literally deafened the troops inside them, awarding contracts to ferry companies that did not have any ships, or the Carillion disaster, which jeopardized numerous NHS projects.  

Much (but not all) of this has been down to political failings, but procurement officials must play their part too if we are to improve the situation. There have been some positive developments in recent years in terms of procurement capability, in central government in particular, but we need to see more focus on spreading that capability across local government, the NHS, education, police and all government bodies.

Procurement related fraud and corruption has also increased under the Tories’ watch. In 2022 Britain slumped to its lowest-ever international ranking in the independent Transparency International’s global Corruption Perceptions Index (CPI). There needs to be more focus on transparency and competition – the first of those is addressed somewhat in the new Procurement Act, the second imperative is not.

And value for money is about a lot more than “getting a good deal”, or finding the lowest possible price for an item. Public procurement and the way it is carried out is relevant to many different goals, from fighting against corruption to supporting exciting new businesses.

So I will address this be delivering on key themes in terms of how this massive amount of public money is spent every year.  I have 3 key goals for public procurement. As well as delivering on the core value for money promise, we will use these billions of taxpayers’ money  to:

  1. Drive economic growth for the UK
  2. Release cash to invest in better services
  3. Fight against corruption and fraud

Let’s look at the broad objectives my party will pursue under each of those headings.  

1. Drive economic growth for the UK – we will:

  • Encourage and provide early opportunities for innovative young UK businesses.
  • Introduce a programme to identify and support “critical national industries”, including how they can be helped through public procurement.
  • Drive carbon reduction with a stronger approach to public sector supplier requirements.
  • Use government procurement and spend to support charities, CICs, social enterprises, SMEs and minority owned businesses, and make “social value” more relevant locally.

2. Release cash to invest in services – we will:

  • Drive more competition for contracts, with potential to save billions (as the NAO has independently identified).
  • Reduce spend on consultancy services by 50% (including managing risk of “leakage”).
  • Identify and take action where public sector suppliers are making clearly excessive margins.
  • Conduct a thorough review of major capital programmes, particularly HS2, to identify the failings of last decade and the way forward. 
  • Introduce a sceptical “NAO type review” process BEFORE major programmes are started.
  • We will hold an open competition titled “how do we sort out defence competition”? The best response will win £100,000 and a seat on the MOD main Board.

3. Fight against corruption and fraud – we will:

  • Investigate the PPE contracting process.
  • Appoint a “Procurement Ombudsperson” to improve relationships between suppliers and government buyers and to handle complaints, whistleblowing, etc.
  • Introduce stronger safeguards against conflicts of interest.

If you really want further detail… here we go

  1. Drive economic growth for the UK

Encourage and provide early opportunities for innovative young UK businesses

We will launch an innovation programme that gives start-ups the opportunity to “pitch” their offering to government, with the promise that they will be awarded some sort of contract if they are amongst the “winners”. That should be possible under the new UK procurement legislation if handled properly.  The programme would be supported by publicity and promotional opportunities for the participating firms.

Programme to identify and support “critical national industries” including through procurement

The pandemic identified goods and services that really should have some domestic providers within the supply landscape. Proper analysis needs to take place to determine critical areas of weakness, which could range from PPE to complex electronic components. Appropriate actions can then follow, which might take the form of grants, targeted procurement with a UK focus or even government-backed start-ups.

Drive carbon reduction with a stronger approach to public sector supplier requirements

Firms bidding to win large government contracts already have to provide carbon reduction plans. But they only have to show a plan with achievement of a 2050 target – a long way away. So an intermediate (2035?) target should be introduced and the current threshold for this applying reduced to bring more contracts and firms into the policy.

Support charities, CICs, social enterprises, SMEs and minority owned businesses

The long-standing SME spend target simply has not worked. Indeed, it is a classic example of the many Tory policies that were both badly designed, and then not implemented properly. We will replace that with a much more carefully constructed programme and KPIs that focus on a wider range of “deserving cases” in terms of suppliers; businesses with a social purpose, minority owned firms, social enterprises and charities – as well as smaller firms, particularly innovative start-ups. But we will not lose sight of the value for money issue, so  “social value” weighting will be capped at 15% in procurement exercises, at least until proper academic research analyses performance to date of this initiative.

2.         Release cash to invest in services

Drive more competition for contracts, with potential to save billions (as per NAO report)

Competition for major government contracts has decreased under the Tory government. Lack of competition means the taxpayer gets worse deals from suppliers and is also an indicator of corruption. There have been too many examples of contracts being given “to your mates” in recent years – if there is no competitive process, this often suggests some nepotism or favouritism even if we are not looking at outright fraud.

Competition also drives suppliers to give government the best deal. The National Audit Office (NAO) in a July 2023 report showed that 72% of large contracts were bought through frameworks (which restrict or eliminate competition) in 2021-22 compared to 43% in 2018-19. NAO estimates that lack of competition has cost the taxpayer £4 – £7.7 billion per year. So our new policies will drive government bodies into using proper competition in all but the most unusual situations. Use of frameworks and of collaborative buying organisations, including Crown Commercial Services, will be reduced, by legislation if necessary.  Single-supplier frameworks will be banned and non-competitive call-offs controlled more actively, with disciplinary action for transgressors.  

Reduce spend on consultancy services by 50% (including managing risk of “leakage”)

Consultancy spend has risen dramatically in recent years. Some of that is down to lack of skills in the public sector, some is because of the unhealthily close relationship between the big firms, Ministers and senior civil and public servants. Much tighter rules on consultancy frameworks will be introduced and the CCS framework re-tendered with a proper focus on value this time around. 

Labour and the Conservatives have announced that spend will be reduced by 50% through tighter controls on expenditure. But there will need to be close management of “leakage” – consulting spend must not be re-classified as “interim staff” or “managed services” – if that is to succeed. That is what happened when the Tories tried to implement a similar policy in 2010, a policy that initially had some success but quickly dissipated.  

Identify and take action where public sector suppliers are making clearly excessive margins

There is nothing wrong with good suppliers making decent profits from supplying the public sector. However, there comes a point where excessive profit margins indicate a “failed market” and action needs to be taken. For instance, one firm that supplies software to the NHS – and the NHS is virtually its only customer – made £45 million profit last year on a turnover of £70 million, a margin of over 50%. Coincidentally the same firm has become a huge donor to the Conservatives.  That cannot be right on several counts. Such examples will be identified and targeted negotiations will take place to reduce margins to reasonable level and free up cash for spending on key services.

Review of major programmes particularly HS2 to identify failings of last decade and way forward

This is a very important step towards making sure the UK spends public money wisely.  We cannot make progress with the capital investment the country needs if we do not spend the money needed wisely and effectively. We will also publish the review into the Nuclear Decommissioning Agency  procurement fiasco with Bechtel that cost the taxpayer over £100 million. It has been supressed for five years now.

Introduce a sceptical “NAO type review” process BEFORE major programmes are started.

The National Aduit Office does great work in explaining why billions of pounds have been wasted. The problem is that it’s too late by then to do anything, and the lessons learnt become lessons forgotten very quickly. We will introduce an independent, transparent review process (by NAO or equivalent body) to examine all programme plans before money starts to be spent. We will introduce legislation so that government cannot commit to initiatives before they have been validated.

We will hold an open competition titled, “How do we sort out defence procurement”? The best response will win £100,000 and a seat on the MOD main Board.

Frankly, I do not know how to sort out defence procurement. Perhaps someone out there does.

3.         Fight against corruption and fraud

Investigation into PPE contracting process

Labour has announced this and we agree – it is a necessary investigation into the many billions of public money was wasted on PPE during the pandemic. We need to identify the reasons behind this huge loss to the public purse, identify where corruption played its part and look to recover money wherever possible from crooked and incompetent suppliers.

Appointment of “procurement Ombudsperson” to handle complaints, whistleblowing, etc.

Countries such as Canada have appointed an ombudsman whose role is to act as a neutral and independent arbitrator that helps resolve contracting disputes between businesses and government bodies.  Such a role can help improve the competence of procurement but also acts as a bulwark against corruption and fraud in public procurement.

Conflicts of interest

We have seen a worrying growth in “conflicts of interest” affecting public procurement during the Tory government. That is not just friends of Ministers being awarded PPE contracts; it covers MPs and Ministers getting too close to government suppliers and taking up lucrative roles whilst they are in office or immediately on their departure. The same applies to senior public and civil servants, and MOD is probably the major area of concern where conflicts of interest are endemic and ongoing. But other areas such as senior tech roles in the NHS are of increasing concern. We cannot have a situation where the best route for a supplier to win contracts is to quietly promise senior decision-makers in the public sector jobs later if they favour the firms now. That is happening too regularly today.

Vote Peter Smith!

June 2024

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PPE and the UK taxpayer get burnt (again)

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

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

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

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

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

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

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

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

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The Minister for Public Procurement Speaks!

Yes, as we’re into the UK election campaign now, articles for the next few weeks may well have a political theme I’m afraid.

Alex Burghart has been in his role for 18 months, which given the turnover in the “UK Minister for Public Procurement” role over the previous few years is a positive. He is a teacher and academic by background, with a PhD in History, who then became a political adviser. So no business experience, but a clever guy, clearly. He spoke at the Procurex National event in Liverpool last month, and his speech is now up on the Cabinet Office website. So first of all, let’s give him credit for showing up and also to Procurex for getting him to attend. Let’s have a look at some of his comments on the new UK public procurement regulations, due to come in to force in October, with my comments on various of his remarks.

“And at the heart of this is ensuring more transparency than ever before, so that we’re spending taxpayers’ money in a way that can be properly scrutinised”.

Rather oddly, that is about all he says in terms of transparency, which is actually one of the biggest changes in the Regulations, with a host of new requirements for buyers. I’m in favour of more transparency but I do worry about the workload burden for already stretched organisations.

“A new duty will require any contracting authority to consider SMEs, to take account of their unique challenges, and we have introduced 30-day payment terms on a broader range of contracts, in response to what SMEs asked us to do”.

“Consider” SMEs does not of course mean using them. I’ve written many times before about the daft SME target for government spend and indeed I do not really see why we support SMEs rather than social enterprises, minority owned firms, local firms, innovative start-ups… The answer is political of course.  So we’ll see whether the Act has any impact on public procurement SME spend – I have my doubts.

“We’re also creating a new central digital platform for suppliers to register and store their details, so that they can be used for multiple bids, and enable them to see all the opportunities in one place”.

Yes, good idea, Sally Collier and I proposed this in 2009 when I was working in government. But given the track record of government developing new platforms, I’ve got my fingers crossed for this one.

“It puts a requirement on public bodies to provide feedback on bids, giving you greater consistency of feedback, helping you shape your next bid”.

This is one of a couple of rather odd or misleading statements from Burghart. There has been a requirement to provide feedback for as long as I can remember and indeed, there are some concerns that the new requirements may lead to less useful feedback. But we’ll have to see how that pans out. Not new or radical though in any sense.

“We are making value for money a core part of our process – ensuring that all contracting authorities must place value for money at the forefront of all procurement activities”.

So what were we basing our procurement decisions on up to now? It seems odd, particularly for a party that has been in charge for 14 years, to suggest that public procurement hasn’t been based on value for money up to now!  But it has, this is just nonsense, unless I’m missing something.

But, perhaps most importantly, we are also going to create a register, accessible to all public sector organisations, that will list suppliers who must – or may – be excluded from contracts.

This is clearly NOT the most important aspect of the new regulations. (I would say that the flexibility to design new procurement processes, which he didn’t really mention, and the transparency rules are the most important).  It is to be welcomed, but benefits will be limited and the proof will be in the implementation. I will be amazed if there are more than a handful – literally – of suppliers on this list by the end of 2025, let’s say. It is well-meaning but will prove very difficult to implement.

A new National Security Unit for procurement in the Cabinet Office will review suppliers for potential risk to our national security in a way never achieved before. It will also conduct investigations and make debarment recommendations to Ministers alongside the Procurement Review Unit, which will do the same for other exclusion grounds.

That sounds good but again let’s see if it actually has any real effect.

Not a bad speech then, all in all, but assuming there isn’t a miracle on July 4th, the Tories will be blaming Labour for “not implementing the new regulations properly” if it all proves to be a disappointment. Burghart has what looks like a very safe seat, even with the predicted swings, so he may well still be around to comment anyway. Indeed, he might be Leader of the Opposition the way things are going.

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Labour Wants to Use “PFI” – Please Be Careful!

As we’re into the election period in the UK, the Labour Party is promising capital investment (in roads for instance) but saying that much of the money will apparently come from the private sector. This has brought back memories of the previous “Private Finance Initiative”, which was actually invented by the conservatives under John Major in the early 1990s but was enthusiastically embraced by Labour after 1997 when Tony Blair won the election.

I was procurement director at the Department for Work and Pensions for two and a half years, 1995-7, serving when Labour came into power, and was involved in some large PFI projects, including new construction programmes and some IT initiatives. Then in the noughties, I was consulting in government and held a couple of interim commercial director posts where PFI or similar initiatives were relevant too, including the ID Card programme.

So speaking from the inside, I can say that there were a number of positive aspects to PFI, despite later criticism. Having a single entity responsible for the financing, construction and then maintenance of a new hospital for instance created a clarity of purpose and an interest in whole-life costs. However, there were some less positive aspects which Labour must avoid if it is to make a success of PFI Mark 2 (or Mark 3, or wherever we are up to now).

In the past, some dubious financial engineering was definitely encouraged to get projects through the business case process. The comparisons were generally made in terms of the basic cost of the building in the case of construction projects. So PFI projects were often compared using “cost per square metre” metric, as the ongoing PFI charges overt the contract period were often based on that as the charging “unit”. That figure included the cost of capital, the construction cost and probably the basic infrastructure maintenance. It would then be looked it against the “public sector comparator”, i.e. what it would cost the government to provide the same facilities.

I actually sat in meetings where the PFI adviser (more on that later) said to a supplier, “the public sector comparator is marginally lower than your figure – you need to improve that”. Now that sounds like good negotiation, but the twist was this. The contract usually included a whole list of ongoing activities where the buyer would be locked into using the PFI supplier. And these were rarely included in that value for money comparison. So suppliers were encouraged to make their money on these extras, often around ongoing supply of goods or services, and keep their base charges low to get through the business case process.

The other way of making the contract attractive for the provider was to make it longer. Hence ridiculous 60 year contract periods, with guaranteed price increases of course, which again circumvented the business case issue as the comparisons would rarely look that far into the future.

So this is why seemingly trivial services or one-off type activities ended up costing schools and hospitals a fortune.  “Another school had to pay £302 for a socket, five times the cost of the equipment it wanted to plug in”, as the Daily Telegraph said in one report. This wasn’t an accident or bad negotiation – this was because the payment mechanisms were constructed deliberately to make the basic occupation charges look lower, with the provider making their money from these ‘extras’.

That would improve the apparent business case; then later on the occupier gets hit with unexpectedly high charges. It represented a conspiracy really between all the parties to make these projects happen, and arguably was a failure of finance and procurement across many organisations while these deals were being done; or at least a failure to stand up to pressure from other quarters and point out loudly the problems that were being stored up for the future.  I will take some credit though – one of the (probably few) good things I did in my DSS job was refuse to allow catering, cleaning and security to be included in one large property PFI deal we did, because I was concerned about future lock in for decades. That probably saved millions.

The other very dodgy aspect of “old PFI” was the role of Partnerships UK (PUK) in all this.  From 2000 onwards, Treasury promoted the use of PUK’s services – at extortionate consulting rates – for advice to public sector clients on particularly the commercial and financial elements of PFI deals. If you didn’t pay your three grand a day for a PUK adviser, you wouldn’t get your project approved by Treasury, was the feeling.

Yet PUK was 49% government owned, and 51% owned by the banks! That was a clear conflict of interest there in terms of PUK’s enthusiasm for PFI deals which made huge profits for those same banks. And the politicians – and even some top civil servants – were probably looking forward to their nice non-exec roles with the same organisations once they retired.

So Labour needs to take care here if it wants to bring back PFI-type ideas. It needs considerable commercial and procurement expertise on the government side of the table – and it must make sure the people who are supposedly representing the taxpayer in those discussion really do have our interests at heart, and are not feathering their own nests.   

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Guildford Council “Fraud” – WTF?!

After writing last week about competence in UK local government, as if by magic, a case of alleged fraud in a council very close to my home popped into view the other day.

Now several of my local councils haven’t been doing very well in recent years in terms of looking after taxpayers money. The Tory council in Surrey Heath, where I live, now ousted by the LibDems, bought well over £100 million worth of commercial property in Camberley right at the top of the market, and is now sitting on a loss in asset value of £50 million or so. Woking council, a few miles to the east, has basically gone bust after property deals and investments that make Surrey Heath’s look minor.

And now Guildford, to the south-east, has published a report into what is an alleged fraud and is at best a prime example of Bad Buying in its housing department. Two employees have been suspended and five agency workers had their contracts terminated.

The report to the Council by Jeanette McGarry of SOLACE, (the society of local government CEOs), is good but focused more on the governance issues rather than the procurement events. That may be because the matter is with the police now and an arrest was made in March, so precise details of the core issues may be sub judice.

But basically, a contractor working on the council’s housing stock was paid far more than the original contract value (which is not disputed) and also there was a possibility (as the report says),

  1. That work may have been ordered when it wasn’t necessary;
  2. That work may have been ordered, invoiced and paid for when it was not completed at all or;
  3. Not to a satisfactory standard;
  4. That duplicate invoices may have been submitted and paid for the same work;
  5. That works may have been ordered and undertaken that were not the responsibility of the Council.

Back in 2022, the council agreed to spend £24.5 to update its housing stock. But there were no in-house surveyors and doesn’t appear to have been much in the way of internal procurement either, as “Several agency staff were appointed and were able to appoint housing repair and maintenance contractors”.

A three-year contract for £2.4 million was agreed for EICR (electrical installation condition reports) testing and inspection to Seville Developments Ltd, “under direct award” via a framework. This was apparently achieved under the Council’s procurement process and “was found to be compliant”. I’d like to know more about how a direct award of that size could be acceptable, and if there was no competition within the framework, but the report does not go into that.

But the council realised in 2023 that expenditure had reached £18.9 million with Seville, with no authorisation or action taken such as contract variation. At this time, “the Corporate Procurement Team was staffed solely by temporary officers and there is evidence that an officer identified the unauthorised expenditure and raised this with the Housing client but did not escalate the matter”.  

Whistleblowing concerns were raised in 2023, and the staff suspensions and terminations took place in September 23, and in March 24 “An arrest was made by the South East Regional Organised Crime Unit”.

If we look at the anti-fraud measures outlined in my Bad Buying book, we can see a number of flaws in the Guildford process. There will I suspect be questions around the lack of transparency in supplier selection. Then we have the issues on signing off work – was that power too concentrated? Perhaps the biggest question is how on earth invoices that exceeded the contract value by £16 million got signed off and paid – that entire budget control process at Guildford must have been absolutely pathetic.

But an interesting point which is not one I really covered in the book is this dependence on contractors and temporary staff. To have a procurement team that is entirely “temporary officers” brings obvious dangers. It is not that contractors are necessarily crooks, but they cannot have the knowledge of the organisation and the internal relationships that are vital when things go wrong or strange events occur.

I also don’t understand why if Guildford was so short of staff, they didn’t call on Orbis for help. Orbis is the shared service organisation, hosted by Surrey County Council, that runs procurement for Surrey, East Sussex, and Brighton councils, and does a pretty good job. Surely they could have assisted Guildford if the council there couldn’t find its own procurement staff?

Anyway, another case study for “Bad Buying 2”!

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