Tag Archive for: Specification

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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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Manipulating the specification for procurement fraud

One of the more creative ways of committing procurement-related fraud is by the manipulation of specifications. It requires a little more skill than simply bribing a decision maker to choose your firm  or over-invoicing a client and hoping no-one notices, but it can be very effective.  The basic approach is that during the process to select a supplier or suppliers, a key person or people in the buying organisation make sure the specification favours strongly one particular supplier that they want to win the contract.

It is by definition a fraud that requires internal involvement, although often the supplier that wins the contract will be aware of it. Indeed, usually the supplier will be paying some sort of bribe or ‘thankyou’ to their internal accomplice(s). But sometimes, the supplier who benefits is not aware of what is going on, and sometimes the internal protagonist might not even get anything personally out of it. They may even feel they are doing the right thing for the organisation – “I know that Smith and Co are the best firm to do this consulting work, so I just want to make sure nothing goes wrong in the procurement process and they do win it”.

But I would argue this is still corruption if the specification is maniplated away from what would be the ‘best’ for the buying organistion, even if that is ‘just’ corruption of the process rather than corruption for personal gain. Bidding firms often spot this. They will read a specification and think “that has been written to favour our main competitor”.  Often they don’t bid on that basis, and the level of competition is reduced.  There have been many allegations of this practice in the defence sector for example over the years, and this is from the Bad Buying book.

‘One case where corruption was allegedly involved is the long-running saga of the Indian government helicopter contract with AgustaWestland, worth some $466 million. India terminated the contract after accusations that the firm – owned by Finmeccanica of Italy – bribed officials. The Indian government said in 2014 they “terminated with immediate effect the agreement that was signed with AgustaWestland International Ltd (AWIL) on 8 February 2010 for the supply of 12 VVIP/VIP helicopters on grounds of breach of the pre-contract integrity pact and the agreement by AWIL.”

The allegations surrounded manipulation of the specifications, with suggestions that the company had used middle-men to bribe Indian officials to win the 2010 contract. The allegation was that a defence ministry specification insisting its new helicopters should be capable of flying at 6,000 metres altitude was cut to benefit AgustaWestland’.

Actually one of the worst examples I saw of this was when a consultant was repeatedly used by local authorities to help develop the specification for a particular fairly specialist service – he often worked on the procurement as well. Oddly enough, his specifications always seemed to favour one particular supplier, the same one that the consultant regularly worked for in the periods between his work on the buy-side! All the other suppliers knew this and generally didn’t bother bidding if they saw he was involved with the procurement.

Another interesting example popped up recently. The State of Oklahoma in the USA decided to give all its schoolkids a copy of the Bible. But rather oddly, the specification included the requirement that the bible must also include certain US historical documents, such as the Constitution and the Declaration of Independence. Funnily enough, the only version of the Bible that has these additions is what is known as the “God bless the USA bible”, produced with the endorsement of Donald Trump for which he gets a cut of the revenue. It’s a luxury item, bound in leather and sells for the ridiculous amount of $60. A standard bible can be acquired for a fraction of that.

Critics alleged that Oklahoma leaders are keen Trump supporters and deliberately manipulated the specification. However, whether or not that was true, there was good news this week. The state amended its request for 55,000 school Bibles, so other versions can be state approved. The request was altered, removing some of those onerous requirements, a victory for “good buying”!  

So remember how important a good and fair specification is, and if you want a strong competition, try and make sure it isn’t too obviously tilted in favour of one bidder. Unless you want it to be, of course …

(Footnote – you might expect me as a Humanist to be against forcing kids to read the Bible. But actually, I cannot think of anything more likely to make young people feel negative about religion and maybe help them make up their own minds about their beliefs and how they want to live their lives!)

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Coldplay go Legal – Dodgy Specifications Involved!

In recent weeks, it feels like I have been writing about pretty serious topics here – HS2, social value, fraud, failures in local government procurement in the UK and the like. So a story I saw recently was attractive as a topic because it wasn’t a matter of life, death or wasted taxpayer money. It was however (allegedly) about a waste of multi-millionaire rock star money. It was also an illustration of a key point that is forgotten surprisgly often when we’re writing specifications and talking to suppliers.

The band Coldplay has gone through an interesting critical trajectory. The hip and trendy NME made A Rush of Blood to the Head album of the year in 2002; but over the years, many started seeing them as purveyors of somewhat dull, middle-aged music. I’ve always thought they were fine songwriters although recent material is a little MOR for my tastes. But what no-one can deny is the level of their success – over 100 million albums sold and still the 14th most listened to band on Spotify today.

For some 22 years, their manager was Dave Holmes. Little is known about him, but more is coming out now as he and the band are busily suing each other. He started legal action in the summer, claiming £10 million from Coldplay in commission on earnings that (he sasy) they have not paid him. But the counter-case from the band is looking for £14 million from him, saying that he has wasted millions of their money. 

And this is where it gets Bad Buying interesting. Much of the claim is around preparation for the huge global Music of the Spheres tour, for which Holmes held ultimate responsibility. By the way, that tour took $617.8 million in ticket sales alone. (Ever thought you are in the wrong business?)  The band claims that costs escalated  and say that equipment was not suitable or was bought at inflated prices. As the Times reported;

Examples in the claim are eye-watering. They include, “16 bespoke stage pylons” for lighting and video that, it allegedly soon became apparent, would be unjustifiably expensive to even use. However, it was too late — €10.6 million had already been chucked at the pylons.

A “visual project known as Jet Screen” was commissioned for $9.7 million, with a huge chunk of that cost, the band claim, personally authorised by Holmes. The problem was that … the dimensions given to the manufacturers for the Jet Screen were wrong — and it was too big. It was only used for ten concerts in Buenos Aires.

Yes, it’s another “Irish government printer” faulty specification story!  In the Bad Buying book, we have the case study of the Irish government buying a state of the art printing machine that simply did not physically fit into the building that was supposed to house it. That was a reminder that sometimes getting the specification right is not a matter of highly complex technology or difficult outcome-based definitions – it can be as basic as the physical measurements!

The Times draws a parallel with the classic Stonehenge scene in the best comedy film of all time, Spinal Tap, where the band commission a model to use on stage – and when it is delivered, it turns out to be tiny. But in this case, the Jet Screen was just too big.

Holmes is also accused of not opening “the shared online Dropbox which contained the designs for the Music of the Spheres Tour at any time between August 2020 and February 2022”.  Rock and roll madness right there! More interesting is his relationship with Live Nation, the promoters of the tour. Holmes had taken loans from Live Nation at what look like preferential terms and the band say he owed some £27.5 million when he was negotiating terms for the tour with the firm. This, say Coldplay, was an inherent conflict of interest, and if those facts are acccurate, that does have some validity in my opinion. It is an interesting situation without a doubt – I certainly wouldn’t want one of my procurement managers negotiating with a supplier if she owed them money.

So we’ll see what happens next. And just remember, if you’re buying anything in the equipment line, just make sure you know how big you really want it to be! Many elements of the specification may be much more complex in many situations, but let’s face it – size really does matter.

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The Worst Tank in the World?

(This picture is not the Ajax vehicle we’re discussing here of course. It is my photograph of one of the earliest tanks ever made, now in the Museum of Lincolnshire Life in Lincoln, the city where the world’s very first tank was designed, in a meeting room at the White Hart hotel).

The story of the Ajax armoured fighting vehicles (small tanks, if you like), bought for the British Army from US defence firm General Dynamics, looks like it will be a lengthy case study if I do produce a follow up to my first Bad Buying book.

Wasting a fortune as in this case is by no means a unique occurrence for the military, and we have seen similar disasters in many countries, as equipment turns out to be far more expensive than planned or fails to provide the capability that was desired. Sometimes, both of those failings are present. 

In the case of Ajax, the General Dynamics solution was chosen in 2010 and the contract agreed in 2014. The first vehicles should have been delivered in 2017, and the first British Army squadron should have been using them by mid-2019. However, problems emerged during testing. For instance, the vehicles were so noisy that crews were required to wear noise cancelling headphones and be checked for hearing loss at the end of operations.

The Times reported expert opinion that problems with Ajax were so serious, the government should consider cancelling the £5.5 billion deal to buy 589 of the vehicles. So far, the vehicles have cost £3.2 billion despite only 14 being delivered — all without a turret and of odd sizes.  A leaked report by the Government’s own Infrastructure and Projects Authority, which reports to the Cabinet Office, says that the problems with the Ajax vehicle do not seem to be manageable or resolvable within the agreed costs and timescale.

Recently it was revealed that trials of the Ajax armoured vehicle were halted from November 2020 to March 2021. Then trials were paused again in mid-June on “health and safety grounds” amid concerns that mitigation measures put in place to protect soldiers — including ear defenders — were not sufficient.  Excessive vibration and noise meant crews suffered from nausea, swollen joints and tinnitus, and soldiers were only allowed 105 minutes inside the vehicle, with a maximum speed of 20 mph (32 km/h).

Not very good in a real-life conflict, really. “Could you stop shooting at us, we have to let our chaps out for a bit of a rest now, they’ve been in there almost 2 hours!”  Amazingly, suspension issues also mean that the turrets could not fire while the vehicle was moving, and vehicles were unable to reverse over obstacles more than 20 cm high. I think even my Kia could manage that – we’re getting into the territory of “you have to laugh really, or you would cry”.

Another element of the Ajax story which would be amusing if the whole programme weren’t such a huge waste of public money came last week when the public announcement of the latest problems was made during the England versus Germany football match! Talk about timing a bad news story to avoid public focus.

Tobias Ellwood, chairman of the defence select committee, said that the vehicle’s weight had ballooned to 42 tonnes after many redesigns. It was now “heavier than any tank during the Second World War”, he said.  Some observers have suggested senior officers in the army may have hidden the extent of the problem over recent months to prevent it being axed as part of the government’s Integrated Defence Review.

But there is some debate about the underlying causes of this fiasco. There are claims that there was a “anyone but BAE Systems” view in the military when the supplier was being chosen.  Private Eye and The Times also suggested that General Dynamics just said “yes” to everything the Army wanted, without really being able to provide it. “They went to General Dynamics and said ‘Can you do it?’ and they said yes”.

But others see the fault sitting with the military, with the specification being continually changed and made more complex over the years, leading to that issue with the weight of the vehicle, as Ellwood pointed out.

Bernard Gray, who was Chief of Defence Material from 2011-16, has published some interesting comments on Twitter recently.  He suggests that the initial contract was fine, which might be understandable as his team must have been very involved in that phase. But changes to the specification driven by the Army after contract signature, on what should have been a fixed price, fixed spec contract, are behind the problems, he suggests. Gray said this;  “I don’t think that’s true if the product was not fit for purpose. The problem was, how much had MoD deviated from the 2014 contract by 2019… that’s what we need to explore”.

If that diagnosis is correct, it may prove hard to recover money from General Dynamics. If the firm has simply done what it was asked or required to do by the customer, we can hardly blame it if the end product doesn’t work.

Another thread on Twitter related to the decision by the Australian army not to select the Ajax product. Apparently, that was because when they took up references from the British army in 2019, they were told to avoid it.

It is all a huge mess anyway, not just financially but also operationally, as this is a pretty essential and fundamental piece of kit for our soldiers. As usual, the taxpayer takes the hit, and as usual we will never find out exactly who should carry the can for this in the military, civilian MOD or political worlds, or indeed on the supply side. Will anybody get fired? You must be joking. Strangely enough, it always seems impossible to place the responsibility for Bad Buying in the public sector on anyone in particular.  

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Six Days to Bad Buying Publication … Irish Printers, Easter Eggs and Contracting with Friends

Bad Buying: How Organisations Waste Billions through Failures, Frauds and F*ck-ups hits the virtual shops and bookshelves next Thursday the 8th (you can order it here) so in the next five days, I’ll take you briefly through the chapters of the book.  Literally thousands of people (well, one at least) asked to see the contents page so here it is, at the end of this article.

Chapter 1 looks at specifications. And I’m sorry to play to stereotypes (and my wonderful “boss” at Penguin is Irish) but my favourite story is the Irish government buying super high-tech digital printing equipment – only to find that the machinery was too big to fit into the Dublin parliament building where it was going to be housed. Take the roof off, that’s the answer… Which just goes to show, that while specifications for complex IT programmes or mega-construction projects can be a problem, sometimes the basics (like dimensions) can catch us out.

But we can also under-specify, trying to save money but in a manner that causes problems or doesn’t deliver real value. There is a theory for instance that the Titanic sank because of cheap iron rivets that weren’t up to the job. And one of my early successes as a young procurement manager was paying more than I could have got away with in order to get innovative Easter Egg packaging designs from my suppliers. Within a couple of years, those new products helped Mars go from having no presence in that market at all, to selling millions of eggs and being a market leader  – yes, it’s the famous Milky Way Rocket Carton!

In the book, we then move on to understanding the market and choosing suppliers. That takes us into dodgy social media practices, the Rowntrees historical cocoa market wipe-out, and the problems when you give contracts to your friends. I know, you would never do that… Anyway, more tomorrow, and here is the contents list.

PART 1:  FAILURE

1. Getting the Specification Right: Irish printers, Easter- egg rockets and Aussie train toilets

2. Understanding the Market: Cocoa beans, fake followers and rehabilitating offenders

3. Choosing Suppliers: Dodgy T-shirts, working with mates and banking fiascos

4. Don’t Get Too Dependent: Seat covers, hospital rip-offs and bigger isn’t always better

Bad Buying Award  – Schlitz Beer

5. How to Negotiate: Charlie Hurley, missile interceptors and consultants’ lunches

6. Understanding Incentives: Cultivating coca, Dutch traffic jams and Birmingham call centres

7. How Not to Be Stupid (particularly if you’re a politician): Misplaced airports, imaginary ferries and Indian offsets

Bad Buying Award  – NHS National IT Programme (NPfIT)

8. Trust No One (at least not suppliers): Lulu the dog, French concert halls and US Navy ships

9. Coping with Change: Technology disasters, fried- chicken shortages and Crossrail delays

10. What’s the Risk?: The wrong fish, Japanese earthquakes and running bears

Bad Buying Award – Berlin Brandenburg (not yet an) Airport

11. The Joys of Contract Management: Bollards, Xmas parties and big IT overspends

PART 2: FRAUD & CORRUPTION

12. The Fundamentals of Fraud: Power stations, hotel bills and the greyhound-racing mafia

13. Who Am I Really Buying From?: Marine hoses, Indian brewers and the ’Ndrangheta

14. Fixing the Supplier Selection: Canadian politics, working with Mum and painting the NHS

Bad Buying Award – Fat Leonard and the US Navy

15. What Am I Really Buying?: Bomb detection, Frenchified kiwi fruit and spaceship resilience

16. Spending Someone Else’s Money: Florida dogs, owl jars and sex lairs

17. What Am I Paying For?: Pricey potatoes, horse semen and shops in Wolverhampton

18. Politics and Fraud: Ski-jumping, bribing dictators and Austrian promises

Bad Buying Award – Petrobas and Odebrecht

19. Preventing Fraud: Collusion, checking and commitments

PART 3: HOW TO AVOID THE F** K-UPS

20. Ten Principles for Good Buying

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