Tag Archive for: UK

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Government Procurement Cards – Wasteful or Wonderful?

The focus in the UK public sector is now firmly on cuts, saving money and trying desperately to stay within the chancellor’s ‘financial envelope”.   There have been some signs of a structured approach that could save money in the procurement space, such as this story in The Times about more spend governance in the Home Office.

“An audit of costs, ordered by Yvette Cooper, the home secretary, has found evidence of “excessive spending” on awaydays, public opinion research and contracts handed out by the department to external suppliers. As a result, ministers have demanded personal sign-off of all large expenses in the department and have put some future spending plans on hold”.

The other initiatives that hit the news last week was the freezing of all government ‘Procurement (or purchasing) Cards’. Spend on the Cards has more than quadrupled over the last four years, apparently. As the BBC reported:

“Thousands of taxpayer-funded credit cards will be cancelled under plans to crack down on “wasteful” spending, the government has announced… the government said spending on the cards had quadrupled in the past four years without enough scrutiny.

The Cabinet Office will order departments to freeze almost all of the around 20,000 cards in circulation this week, with a strict new application process aiming to cut the number by 50% …

More than £675m was spent on the cards by central departments and core agencies last year, up from £155m in 2020/21”.

Now any procurement professional reading this knows that ‘procurement cards’ are in reality ‘payment cards’. In themselves, they do not define or dictate a particular procurement route. You might buy by making just one phone call, or run a 6-month long tendering process, and in both cases, ultimately pay with a Card.

So the key aspect (to avoid Bad Buying) is that the decision to make a purchase with a Card must be legitimate and controlled, as in the case of any other purchase. The difficulty is establishing just from the headlines whether this has been the case here. Examples quoted included “£1,200 on luxury coffee pods by one team in two months and more than £1,800 on a “value for money” course”.

At first glance, some of the expenditure does sound dodgy, but really we need to know what the process for approval, sign-off and audit was before we can talk about fraud or incompetence here. And sometimes there are innocent explanations for what sounds odd at first. This is from my Bad Buying book.

“Some years ago, I talked to a logistics manager based in the UK Ministry of Defence’s Head Office. He told me he had not long returned from Afghanistan, where he was working as a logistician in a big military camp there …

We talked about the need for buying processes to be flexible and for buyers and logistics people to be able to react quickly in military situations. The use of the Purchasing Card came up, and he explained there had been a bit of an internal furore when finance had looked at expenditure on the card in use at the Camp. One invoice related to expenditure on a range of golf equipment. That looked very strange, possibly fraudulent.

But it wasn’t. He explained that opportunities for rest and relaxation were limited for the troops in Afghanistan. Not many friendly bars, you couldn’t just go off for a run through the hills or take a trip to the beach. So, someone had the bright idea of buying some golf equipment and rigging up practice nets. Even non-golfers were getting into it, with more expert players offering lessons. The golf kit showed up on the Card bill, and looked odd, but most people would agree it actually was an appropriate and intelligent use of public money.

As a corporate executive, and on behalf of the firm, I’ve bought retirement presents, flowers for staff to celebrate a wedding or birth, strange items to be used on corporate away-days, booze, and many items that would have looked odd on that card bill. But all were justified and for the organisation’s benefit, not mine. Another case saw a government body chastised for spending money at a horseracing venue. But that was explained as the fees for a legitimate business meeting, booked in the hospitality suite on a day when no racing was taking place. Today, horse tracks and football grounds often have good meeting facilities, and can be cheaper than equivalent hotels, so again this might well have been good buying rather than fraud or failure”.

So don’t jump to conclusions when you see headlines about use of Cards. Having said that, it seems sensible and reasonable for the government to be taking a hard look at this. Looking back, we can now see there was precious little management of the civil service going on in the later years of the chaotic Tory government, so a bit more control and scrutiny now is no bad thing.   

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Huge MOD Contract with Rolls Royce – Good Buying or Bad Buying?


The UK Ministry of Defence (MOD) recently announced a significant contract with Rolls-Royce, aimed at ensuring the continued operational readiness and effectiveness of the country’s nuclear submarine fleet. The eight-year Unity contract brings together all elements of research and technology, design, manufacture and in-service support of the nuclear reactors that power the Royal Navy’s fleet of submarines.

The Government’s press release contains a fair amount of hype as you might expect – this contract is not quite as ground-breaking as it at first sounds. It looks like it ‘tidies up’ a number of contracts with the firm, preserving 4000 existing jobs and there may / should be another 1000 by the end of the contract. The contract is worth some £9 billion and there are ‘savings’ claimed of £400 million over 8 years, although clearly we won’t know for some years whether those are real. And of course the process leading to the contract started way before the new Labour government came into power last summer. However, this is an important contract, with some interesting procurement issues thrown up along the way for us to discuss.

At a strategic level, the Unity contract is designed to ensure that the UK’s submarine fleet remains at the cutting edge of naval defence capabilities. (My late father in law was one of the key designers of Britain’s nuclear subs back in the 1960s, by the way). Given the critical role that submarines play in national security, including deterrence and intelligence-gathering functions, it is vital that these vessels are kept in optimal condition. The contract encompasses a wide range of maintenance activities, from routine inspections to major overhauls, enhancing flexibility, the operational availability and longevity of the vessels. Rolls Royce are of course already a key service provider and an established leader in this field – as well as one of relatively few leading edge UK-based defence champions.

Positives for the MOD

So the Unity contract presents several significant advantages for the Ministry of Defence.

1. Enhanced Operational Readiness

One of the primary benefits of the contract should be the enhancement of the operational readiness of the submarine fleet. The contract’s comprehensive scope means that all aspects of submarine maintenance are covered, minimizing the risk of operational downtime.

2. Cost Efficiency

By entering into a long-term contract with Rolls-Royce, the firm should be able to plan and manage resource better, which should translate to cost benefits for MOD. Long-term agreements often result in better pricing and more predictable budgeting, as opposed to ad-hoc maintenance arrangements. Additionally, the contract allows for economies of scale, with Rolls-Royce able to streamline processes and reduce costs over the duration of the agreement. In theory, anyway.

3. Expertise and Technological Advancements

Rolls-Royce’s extensive experience and expertise in submarine systems provide a reliable foundation for the contract. The firm is at the forefront of technological innovation in the defence sector. Through this contract, the MOD should ensure access to competent ongoing service performance AND new cutting-edge technologies and methodologies.

Potential Risks

While the Unity contract offers benefits, there are always risks with any long-term single-supplier-type contract.

  • Dependency on a Single Supplier  – One of the primary risks in all contracts like this where the supply market is limited is the dependency on a single supplier for such critical services. Should Rolls-Royce encounter operational or financial difficulties, the MOD could face significant challenges in ensuring the continuity of submarine maintenance.
  • Supplier complacency  – once any supplier is in possession of a long term contract, they can become complacent. (I know someone who worked in the RR submarine division quite recently, and based on their experience it was not exactly a beacon of dynamic, innovative and diligent work practices).
  • Cost Overruns – Long-term contracts can often result in cost overruns and budget-busting additional work, particularly if the scope of work evolves or unforeseen issues arise (almost inevitable in the case of defence).
  • Technological Obsolescence – The rapid pace of technological advancement in the sector means that there is always a risk of current systems becoming obsolete.
  • Geopolitical Factors  – These can also impact the execution of the contract. Changes in international relations, trade policies, or military priorities could influence the availability of resources or the strategic focus of submarine maintenance efforts.

Conclusion

While Rolls-Royce is known for its innovation, and frankly there probably wasn’t much alternative here, MOD will need to:

  • remain vigilant and ensure that the contracted maintenance work incorporates the latest technologies and best practices;
  • closely monitor expenditures and ensure that the work remains within budget, and that change processes are fair but do not lead to major additional costs for the taxpayer;
  • have contingency plans and alternative suppliers in place as far as possible. MOD must also  remain adaptable and responsive to external influences; and
  • manage the contract and the supplier in a positive, structured, close but not oppressive manner.  

The benefits of the contract, including enhanced operational readiness, cost efficiency, access to technological advancements, and reliable expertise, seem substantial. However, it is equally important for the MOD to be mindful of potential risks such as dependency on a single supplier, cost overruns, technological obsolescence, and geopolitical factors. Good luck!

 

















































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You Get What You Incentivise

Incentivisation is a topic that probably isn’t discussed in procurement as often as it should be. I find it fascinating, as it encompasses a mix of finance, economics, contract law, psychology, low cunning…  How we construct contracts, the success measures we set for suppliers, how we reward their good behaviour or performance and punish the opposite – these all feed into how they behave.

Suppliers generally behave rationally given the incentives they are presented with. In the Bad Buying book, there is a whole chapter on the topic, because I found so many interesting case studies about incentives going wrong.

We see another example in a slightly different context in the UK at the moment, where the dental element of the National Health Service has failed in its core objective – to keep the nation’s teeth in good condition. A BBC investigation in 2022 found that nine out of ten dental practices weren’t accepting new NHS patients.  In some regions, that figure was 98%. That has led to more and more patients turning up at hospitals with terrible dental problems that require urgent treatment – which puts more pressure on over-stretched hospitals of course. Tooth decay is the most common reason for hospital admission of young children, shockingly. And 20,000 adults and 60,000 children were hospitalised last year to have teeth extracted under general anaesthetic. 

There are stories of people pulling out their own teeth, or making homemade dentures, fillings and crowns. We seem to have gone back to Victorian times. And it is all because the contract for dentists incentivises the profession in a manner that has led to that situation. The NHS contract does not pay dentists based on their actual effort, and does not allow them to make what they consider a reasonable income. So they have learnt that treating only private patients will reduce their patient numbers, but overall, the dentist will make more money. More and more practices are taking this view, unfortunately, making totally rational decisions.  

Funding for dentistry has been cut under this government. And one of the incentivisation issues is that the dentists’ contract does not always relate the income they make to the amount of work they do. So, simplifying the problem, their pay is broadly based on a fee for each course of treatment they deliver to an individual. So they receive the same amount whether they do one filling for me or six.

There is a vicious circle here – if people can’t find an NHS dentist easily, by the time they do, they probably do need more work doing, so they are even less attractive for the remaining NHS surgeries.  The current contract actually goes back to the days of the last Labour government, but the Tories have done nothing to address this issue in recent years – until now, when they see it becoming a potential election issue this year.

One solution would be to increase the supply of dentists, which in classic economic terms should drive prices down in the market – pushing more back into NHS work perhaps. But the five-year training scheme means this is impossible in the short or medium term. Another possibility would be forcing dentists to do NHS work for a certain number of years after qualifying, given they benefit from the taxpayer subsidising their training. Neither option has been tried.

Last week, the government announced incentives to encourage more dentists to do NHS work, but the profession doesn’t think this will work. We will see. But devising a contract that incentivises the behaviour the government (and the taxpayer) want to see should surely not be impossible.

However, politicians have struggled with contracts and incentivisation for the medical profession for years. I remember the new GP contract for first line “family doctors” that was agreed by the Labour government back in 2004. My friend who was a GP told me that he and his colleagues were astonished how favourable it was to them. When he first read the letter about his new payments and contract, he honestly did not believe it.

Anyway, I am fortunate to still have an NHS dentist, although I’m also fortunate to be able to afford private additional treatment when I need it. But the current situation is a disgrace. When we see people travelling from the UK to the Ukraine – a country at war – to get dental treatment, you know something has gone badly wrong with the UK situation.

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Care Homes in the UK and Beyond – Bad Buying by Omission

One of the first disasters of the current Covid crisis in the UK was the transfer of thousands of people out of hospitals into nursing and care homes, without checks as to whether they had the virus. That put the focus again on the social care sector, and although most of the staff in homes have conducted themselves with great dedication and bravery since then, many issues remain.

I wrote an article on the topic some 5 years ago – here is an excerpt.

What market presents the biggest single challenge in public sector procurement? It has to be Social Care. A spend category worth some £20 billion a year in terms of local authority third-party spend. A category almost totally outsourced now, where funding is being cut by local authorities as their grants from central government are slashed. That is causing a reduction in supply, which in turn is driving severe problems for the NHS as record numbers of ”bed-blockers” are stuck in hospitals because of the lack of a social care-supported  alternative at home. A market where major providers have gone bust and more are teetering on the brink, with the vultures of private equity waiting in the wings.

Since then , we’ve seen more major providers going bust, and yes, the private equity firms have moved into the sector. Many homes rip off their privately paying residents, charging them far more than they charge those funded by councils who use their negotiating power to beat down prices. Meanwhile, too many staff are badly paid, staff turnover is high, and the quality of care is variable.

But these issues are not restricted to just the UK. In the Observer yesterday, Will Hutton wrote about the private equity sector in general and the care home issue in particular. He described the tragic death in a home in Spain of an 84 year old man, Zoilo Patiño, whose body was found in a locked room 24 hours after he died.

“The subsequent investigation into the management company – DomusVi, which had been contracted to operate the home – showed it had been stripped down to a “fast-food version” of healthcare by years of cuts: there was only one care worker for every 10 residents, with not even the PPE to help cope with a dead body”.

But DomusVi, Spain’s largest care home operator, is actually owned by ICG, a British private equity company. As is usually the way with private equity, the company was refinanced and is loaded up with debt – that leverage being one key way in which private equity makes its money. Stripping out costs, or “increasing efficiency” if we’re being kind, is another route often followed. For instance, Hutton claims that Care UK, backed by Bridgepoint private equity, has reduced staff numbers by a third while doubling the number of beds provided in the homes it operates.

Social care services, including care and nursing home provision, are bought by dozens of local authorities around the UK.  Many do a good job in a difficult situation, but this is a spend category that really cries out for some serious national thinking and strategy. We need to ask whether this is a suitable sector for private equity investment; whether there should be more scrutiny of the financial state of providers; what minimum standards might be imposed; and perhaps how to encourage more local, third sector and diverse suppliers into the market – as well as sorting out the funding of care, which is an issue that goes well beyond procurement.  

But the UK central government has never shown any appetite for this sort of involvement on the procurement front. This is in effect, national “Bad Buying” by omission. Whilst over the years, huge amounts of effort, skill and money have been spent putting together strategies and collaborative approaches to buying stationery (!), energy, cars or laptops, OGC, CCS, YPO and all the other collaborative bodies have shied away from social care, as have the strategists in Cabinet Office, the Department for Local Government (whatever it is called this week) or Treasury. 

Perhaps the promise of a new approach to social care funding will provoke some serious action on the procurement and market side as well. We can only hope so.

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The Chris Grayling Probation Services Farewell Tour Rumbles On ….

The Guardian newspaper reported yesterday: “Ministers are considering renationalising the entire probation service in England and Wales, the Guardian understands, in the latest twist in a long-running saga to unwind Chris Grayling’s disastrous changes to the sector”.

You may not be surprised by that, or shocked to learn that the probation services outsourcing is a case study in my forthcoming book, Bad Buying – How Organisations Waste Billions Through Failures, Frauds and F**k-ups.

The analysis sits in a chapter that looks at failures caused by the buyer failing to understand a market or markets. Or, as in this case, having a foolish belief that entirely new markets can be created by sheer willpower – and throwing some government cash at the private sector, of course.

A bit of history first. The UK government decided in 2013 to outsource much of its probation services work, despite warnings from the well-respected Institute of Government that it would be “highly problematic”. The work included the management and rehabilitation of offenders, combining an element of punishment, such as monitoring the conditions of prisoners’ release, with the desire to reduce re-offending and help the offender make a useful contribution to society.

The UK Ministry of Justice, then under the command of minister Chris Grayling (who, you may also not be surprised to learn, crops up several times in my book), created 21 Community Rehabilitation Companies (CRCs) to manage offenders who posed low or medium risk. In February 2015, the CRCs were transferred to eight, mainly private sector, suppliers working under contracts that were to run to 2021-22.

But the implementation was rushed, there was little of the innovation that was promised from suppliers and 19 of the 21 companies ultimately involved failed to meet targets for reducing the frequency of re-offending. In July 2018, the Ministry announced it would terminate its contracts with CRCs 14 months early, in December 2020.

Suppliers didn’t do well either. The National Audit Office estimated cumulative losses of £294M for the firms if contracts continued to the end date, and Working Links, one of the providers, collapsed into administration in February 2019.  Finally, David Gaulke, by now the Minister in charge, announced in May 2019 that the contracts would not be offered to private firms.

Most probation services were in effect re-nationalised after one of the highest profile UK public sector buying failuresin recent years. At that point, some minor services such as the provision of unpaid work and accredited programmes were to be offered up to the private and voluntary sectors. But that now appears to have been abandoned too.

There were clearly many problems here, but fundamental is the issue of an entirely new “market” being created, without real understanding upfront of what the work involved, what capabilities would be needed by the winning firms, how the right commercial models would be constituted or how competition could be maintained and stimulated. 

“If you build it, he will come”, the tagline from the legendary film Field of Dreams, seems to be how some governments think when it comes to creating markets. And generally, some entities will emerge from the undergrowth, bidding to carry out pretty much whatever government asks them to  – drawn by the potential rewards, of course. But this does not create vibrant, sustainable, successful markets in itself.

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