Wednesday, 18 January 2017

Procurement Fraud on the increase - you are vulnerable too

The 2016/17 Global Fraud and Risk Report by Kroll has just been published and it indicates an increase for 17% to 26% in 'vendor, supplier or procurement fraud'.

We've been discussing procurement fraud for some time and only yesterday Spendmatters' Peter Smith raised the question of why those involved risk their careers and potential jail sentences for such low returns. I think the answer to Peter's question is not only greed but the probability that the perpetrators will not be caught and the easy of completion.

What I have often come across are processes which are so fundamentally weak and lacking in robustness that I remain amazed how organisations are not more aware of the significant risks they face - are they in denial or just unaware?

The reality is that no organisation can have zero risk of supplier, vendor or procurement fraud but all can certainly take steps to reduce vulnerability - you may find my whitepaper of interest.

The publication of Kroll's Report provides an opportunity for those in procurement to highlight this risk, ask how it is being addressed corporately, and take the lead in developing a robust approach. Let's remember that the Bribery Act places a responsibility on organisations to prevent fraud - that's not passive but about being proactive in identifying vulnerabilities and taking steps to reduce the risks.

Tuesday, 17 January 2017

NI Executive Daft Procurement Strategy leak

Amongst documents which have come to light as part of the conspiracy to undermine the Northern Ireland Executive was a Strictly Confidential Draft, trail blazing, Procurement Strategy. What will surprise the wider Procurement community is that the Strategy was developed in anticipation of the Brexit result and freedoms from the constraints of EU procurement legislation. The introduction makes the claim that the Strategy is innovative in aiming to both disturb and confuse the market so that the Procurement function can ensure best use of 'relative' power-sharing and be held up as an exemplar across the world - opposition cynics allege this justification was no more than a ruse to secure speaking opportunities at exotic locations!

 The key aspects of the strategy are:
  • Disaggregation of spend so that wider benchmarking of prices is possible and, in parallel, provide an opportunity to improve the negotiation skills of local buyers;
  • A shift from digital procurement solutions to paper-based in the hope that micro-businesses will be able to take on global competitors who have become reliant on bidding through eProcurement solutions;
  • Use of collusive bidding clauses to ensure that market dialogue opportunities are maximised; 
  • A shift to 'highest bid wins' in keeping with the wider NI Executive's Value for Money approach;
  • To take some of the heat out of the heavily criticised RHI, green energy scheme, the feasibility of an Orange Supplier of the Year will be tested - this is not as bizarre as it sounds since, in recent times, the Health Minister issued a diktat that biscuits would be replaced with satsumas for departmental meetings.    
Given that the NI Executive has now crumbled we may never know whether the Strategy would have delivered the anticipated benefits - time will tell though whether others adopt a similar approach.

Friday, 6 January 2017

Pirates of the Specification

Buying ships shouldn't be such a big deal if you've a legacy of being one of the great naval nations of the world; you'd have had experience of buying ships to cope with the ice of the Antarctic and the dealing with the Pirates of the Caribbean. Therefore, for many it will have come as a surprise that £1bn of warships are breaking down in the Gulf since the water is too warm, leaving crews vulnerable!!!

The contractors claim the MOD didn't tell them about that particular potential usage, even though the UK has been engaged in flighting there since 1990, if I am correct, and in truth we could go back centuries. Have the MOD locked themselves into a strategy which requires a portfolio of ships which can only be used in restricted climates?  If that was the case, the old news stories of warships being redeployed from various parts of the globe to potential conflict areas will be no more, for the simple reason they wouldn't work.

Setting that aside, now it looks as if a refit of these particular Destroyers will be necessary.  

I assume the courts will have to decide who picks up the cost but already it looks as though the contractor is trying to escape liability by resorting to the technical specification set out by the MOD - in other words Rolls Royce complied with the letter of the specification so it's not their fault: 
Are the conditions experienced in the Gulf in line with that specification? No, they’re not. So the equipment is having to operate in far more arduous conditions than were initially required (Tomas Leahy of Rolls Royce).
I assume we will hear eventually if the MOD used a solely technical specification, but this must serve as a warning to all those who do that using a solely technical specification shifts the burden of functionality to the buyer. To me there will always be a basic need for technical specifications but they need to be accompanied with functional and performance specifications; and when a service is involved, outcome specifications.  It certainly looks, at face value, as if the MOD set aside the functional and performance aspects, and, if that is the case, why?

But there's another question here, what about all the talk of supplier partnerships and innovation transfer - was that a one-way street from the MOD to the market without reciprocation? The relationship between the MOD and its strategic partners now looks as if it has suffered a major set-back and will take some time to recover.

To me there is one lesson for all procurement professionals here: never resort solely to a tec spec.

Sunday, 1 January 2017

Another misreading of relative power in buyer/supplier negotiations

Once more we learn of what looks like another misreading of relative power in buyer/supplier relationships; this time M&S.

There's no need to retell the whole story which was published in today's Sunday Times, but it appears M&S, by pursing a responsible sourcing strategy, reduced its potential supply base and therefore ease of switching suppliers. Then, in response to the weakening exchange rate following the Brexit vote, refused to work with suppliers in addressing their cost increases, but instead said they were going to consolidate the supply base, therefore exerting power over suppliers yet reducing suppliers long-term 'skin in the game'. Then, facing potential loss of supplies (relative supplier power) have now had to backtrack on their earlier assertion and accept supplier price rises.

Not only has M&S lost face in this foray they have needlessly sacrificed supplier goodwill and trust, and quite possibly lost credibility in their narrow interpretation of responsible sourcing.

I do not understand why procurement strategists appear to spend insufficient time thinking through potential scenarios and likely supplier responses; they would benefit a lot from game theory by considering "how might our suppliers respond". M&S don't seem to have thought through potential outcomes prior to pursuing any of the above approaches.  'Power' appears to be viewed solely as one-way and risks dismissed.

As we start 2017 I doubt this will be the only example of misreading power in buyer/supplier relationships - why is that; why are we so poor at learning lessons for others?

Thursday, 29 December 2016

Barcodes in the NHS - I'm mystified, tell me I'm wrong.

"Barcodes are going to be used in the NHS" has been a headline story on the TV today and in the press.  Now I've had more than my fair share of NHS treatment over the years and I completely support harnessing the potential of barcode use.

I'd also like a barcode to be issued to me the moment I enter the A&E carpark, yes the carpark, and that then tracks how long it takes until I leave with a hopefully a smiley face - shouldn't waiting time be reported from the time I arrive on site, shouldn't there be something which sets aside hospital carparking fees when the cause has been NHS queuing inefficiency?

However, back to the real world, what struck me with the TV coverage of the story was that the practitioners were not emphasising patient tracking, risk management and accountability, but stock control! Stock control?

I am absolutely mystified, that after so many 'cost down' initiatives in the NHS, we are being led to believe that it is only now barcodes are being piloted in stock control. Let's remember barcodes were introduced in the 1970s. The news coverage suggests a pilot NOT a rollout, mind you.

I would really like to be reassured that basic good practice stock control and purchasing, including the use of barcodes, has been practiced for years and that the news coverage is misleading?  I'd like to understand, and have a darn good explanation why barcodes haven't been used and I'd like someone to explain why the potential cost benefits have been missed?  If the news coverage is correct, and barcodes are not widely used, I would like to understand the NHS strategy for Innovation transfer? In fact, could someone explain to me who will give an explantation why the Government's 2008 white paper on innovation doesn't seem to have been performance managed?

Monday, 26 December 2016

It's time for a review of the impact of procurement legislation

Today The Times reported that the Ministry of Defence takes bribery and corruption very seriously and has made dozens of allegations about bribery and corruption in supply chains.   Now, I ask you, which organisation is going to admit it doesn't take bribery and corruption seriously?

However, often when I meet with 'procurement leaders' and make reference to the Modern Slavery Act, and/or the Bribery Act, I don't get the impression either of those pieces of legislation are taken that seriously at all. Indeed, I am often left with feeling nothing is really happening there.

Perhaps, as a profession, it is time to take stock and ask what difference these types of legislation actually have on the procurement community.  Are we fooling ourselves?

Surely if the profession is committed to the spirit of the legislation it would make sense to lead an impact assessment to establish 'so what?'.  Commitment to the spirit of the legislation isn't enough.  I suggest we need performance management, and yes, sanctions on those within the profession - I have to think long and hard to recall any 'naming, shaming and being struck off' - are we fooling ourselves that all is rosy.

Wednesday, 21 December 2016

Why did government and Deloitte agree to 6 months of no bids?

While I can understand the annoyance of #10 over a leaked paper on its approach to managing Brexit, I have struggled all day to understand why the UK Government and Deloitte have agreed to a six-month no bidding period as a consequence - is this not must a lose-lose agreement?

Let's set aside the leaking of the document and whether or not Deloitte had any control over its arrival in The Times, was it a validate assessment of the UKs preparedness? There used to be a hackneyed saying about 'speaking the truth onto power', if the assessment was correct, maybe the government needed to hear.  If the assessment was flawed, why take any action at all?

Then we come to the issue of the six-month separation. The suggestion is that the government may not suffer as a result of Deloitte not bidding. But what if Deloitte had a particularly smart way of answering a problem which the government is faced with over the next six months - aren't the government 'cutting off their nose to spite their face'?  How does that stack up against the pursuit of value for money?

Alternatively, if a bidder, just any bidder, deliberately opted out of bidding and signalled that intention to its competitors, isn't very close to distorting the market.  What if you turned that on its head and the buyer said, "we've removed one of the competition"?

What if the outcome is that the government have trouble getting bidders? Wouldn't that put the government at a disadvantage in trying to get its work done; assuming the work needed done in the first place.

Then again, how would all this agreement to no bidding sit within the EU procurement rules? Assuming the government exerted some pressure on Deloitte to arrive at such an odd settlement, is that remotely compatible with the existing principles of the Market?

So how will this manifest itself over the next six months?  Have Deloitte's voluntarily agreed to a six month blacklisting period during which they will not be invited to bid?  If they are awarded a contract by mistake, will it be set aside? What will the memo to departments setting out the current position say?