Sunday, 30 March 2014

Calculating total acquisition costs: the case of the aircraft carrier.

Every good procurement person knows you should calculate Total Acquisition Costs and they need to be included within the business justification. But whose responsibility is it to identify all the potential costs and factor those into the business case and options appraisal? Equally, whose responsibility is it to identify the various dependencies which will impact on a successful delivery?

For example, when Northern Ireland recognised the need for a better Dublin to Belfast train, it was quite late in the day they discovered the platform in Belfast's new station in the centre of the City was too short to accommodate the train and many of the bridges en route too low for the train to go under - that leads to significant extra costs, which add to the costs of the procurement.

As much as that may seem impossible to believe the MOD appear to have given us another example, had it been two days later you may well have suspected an April Fool.

Aircraft carriers are big cost, in this case the budget cost has now risen from £800m to £6.2bn, yes, billion. But aircraft carriers don't just stay at sea. In this case the idea was that the carrier should be based at Portsmouth. Unfortunately the new carrier won't fit into Portsmouth harbour. To make the hole fit the ship £40m needs to be spent on dredging a new 30 foot deep channel. Fine, but then we discover that the dredging can't be carried out more than a year in advance because the harbour would silt up again - hold on a sec., does that mean that dredging, at £40m isn't a 'one-off' cost but a running cost?Who picks up that tab? In addition to the dredging, the jetty needs to be strengthened. Then there are concerns about the demand on the local electricity supply when the carrier is in port - can the network handle the demand or will additional investment be required there too?

How on earth could Procurement have been expected to know those costs? I think most would agree they wouldn't. But then someone has to ask the questions about dependencies and costs, and if Procurement don't ask those questions, we can't assume anyone else will.

Friday, 28 March 2014

PSNI dysfunctional procurement strategy: A case study or 'who done it' mystery?

Two years ago I discussed the PSNI's procurement of temporary staff, many of whom had just retired from jobs in the same organisation. This week the Northern Ireland Assembly's PAC published its inquiry report - ten recommendations of which seven relate to procurement. The 'case' should be of interest to all those organisations which make use of Agency staff. 

Those with an interest in procurement strategy as opposed to public policy could look at the Inquiry slightly differently. Is this one of the few situations where there is evidence of a procurement approach actually working in opposition to the intended outcome of the legislation? Cynically, was a procurement approach requested which would satisfy the PSNI's (Police Service of Northern Ireland) objective of 'getting round' the need for changing the personnel? Put slightly differently, was this an 'intended strategy' to match objectives set for procurement or an example of poor procurement?

First, some background. The transformation of the make-up of the police was one of the core commitments of the Good Friday (Northern Ireland Peace) Agreement. Basically there was a desire to have a smaller police service (a peace dividend) and more balance in the mix of Protestant/Roman Catholic police officers. Former RUC (Royal Ulster Constabulary - the old police service) officers were given the option of early retirement while a parallel recruitment campaign was put in place to balance the make-up of the new PSNI ). But the procurement approach resulted in more than 1,000 retired RUC officers, 19% of those who took early retirement, being brought back as agency workers to the new PSNI. £106m was spent between 2004 and 2012 on these Agency staff who had just left the RUC. Had those offices been reemployed directly by PSNI they would have had to repay their severance lump sum, which was not the case if they were hired as Agency staff.

Yet again, there was a lack of competitive tendering (you may also find Peter Smith's post today on a similar issue at MOD of interest). The service delivery commenced in 2002 but the competitive tendering was only in 2008. There had been a legacy contract in place for permanent staff which had a throughput of £2m per year, but a variation on that contract to include 'temps' led to a spend of £44m over four years.

Tuesday, 25 March 2014

Do you need to know how much is lost to fraud?

Last night's Panorama programme on 'The Great NHS Robbery' and the related press stories appear to have created quite a stir. The NHS is now criticised for not knowing how much it loses due to fraud even though Full Fact question the very basis of the figures quoted. Naturally, my own interest lay in the passing reference to procurement fraud by Jim Gee, one of the main contributors, and Director of Counter fraud services, BDO LLP and Visiting Professor and Chair of the Centre for Counter fraud studies at University of Portsmouth.

If you don't get a chance to see the programme, the basis appears to be The Financial Cost of Healthcare Fraud 2014 report, said to be the outcome of 15 years research!

Let's first acknowledge that the Panorama programme, the Report and the surrounding media reports have usefully raised awareness that fraud is a big issue and a waste of scarce resources. Let's also acknowledge that fraud is on the increase and the reduction in forensic public sector auditing is unlikely  to hasten a demise of fraudulent activities.

But it is a nonsense for Mr Gee to say the NHS "needed to carry out a proper assessment of how much it was losing" or, as paragraph 1.2 of the report, states:
The measurement of losses to fraud (and error) is an essential first step to successful action. Once the extent of fraud losses is known then they can be treated like any other business cost – something to be reduced and minimised in the best interest of the financial health and stability of the organisation concerned. It becomes possible to go beyond reacting to unforeseen individual instances of fraud and to include plans to pre-empt and minimise fraud losses in business plans.
"Essential"? Why? What purpose would that serve? It is not at all essential to have measurement of fraud before you can treat the causes of fraud and put in place preventative measures. At best, knowing the cost of fraud, helps the business justification for taking preventative steps.

Sunday, 23 March 2014

Allegations of procurement fraud at Police Federation have lessons for all

Confidence in the police is probably at an all time low as a result of Plebgate, behaviour of undercover officers, hidden union bank accounts, Hillsborough, 'stop and search', and the failure to get any form of closure for the Lawrence family. The last thing the 'Peeler's Union' want is more damage to its reputation through a scandal of questionable procurement practices. Yet, 'Fraud squad investigates police union boss over charity deal' screamed out of today's Sunday Times.

Those implicated claim to be innocent yet they will now be paying a high personal price, whether or not the allegations are proved.

There is little doubt there was a lack of good judgement by those concerned. I don't think that lack of good judgement is solely with the specific individuals under investigation, I think a lack of good judgement was exhibited by all those concerned with the oversight of the Federation. They could have stopped the 'questionable' procurement - isn't that what oversight is supposed to include? It is my interpretation of the Bribery Act that they also failed to put in place processes to prevent bribery in procurement - had they done so, there wouldn't have been the opportunity to engage in the 'questionable' activities.

A QC representing the individual under the spotlight, acknowledges that appropriate procedures hadn't been followed. Contracts were rushed through in the absence of competition and awarded to friends who appear to have charged excessive fees. Advice from the charity's lawyer and auditor was ignored. There was also an absence of due diligence in the award.

This is a complete and utter mess yet I think it is far from unique. I believe too many organisations needlessly leave themselves and their staff open to allegations of impropriety, partly believing it will never happen to them, partly through complacency, partly through naivety.

How vulnerable is your organisation? How vulnerable are you?

Thursday, 20 March 2014

Celebrating GO Excellence in Public Procurement Awards 2014/15

Last night it was my pleasure to be at the GO Awards dinner; a great event. I had tried to take and tweet a pic of each of the winners but unfortunately the battery of my Blackberry died and I'd left my recharger in the room - sorry.

Although I had been one of the judges, we had worked in two groups, so the some of the Awards were surprises to me. In fact many of the Awards were surprises to me. Not because I hadn't actively participated in the judging but because there were so many good entries my memory had been clouded - many of the runners-up could have won in a different year. Yes, the quality of public procurement, assuming the entry submissions were telling the truth, was very high. Many of the entries exemplified excellence in procurement, not just public procurement, excellence in procurement, regardless of the sector.

Crossrail in partnership with LUL (for two of the entries), absolutely cleaned up, and to crown it all, their Procurement Director, Martin Rowark, won the Outstanding Contribution Award. As I implied, it is interesting that the categories were judged by two different groups of judges and they came through so strongly. I would encourage them to publish their case studies on their own website.

Nevertheless, I sincerely hope the good folk at BiP come up with some pragmatic way of sharing all the case study entries - it would be really sad if they just remained on judges memory sticks. I don't know how they will do it, but to me a series of YouTube type things followed up with Q&As using social media would be really useful. Indeed, is there any reason why those shortlisted couldn't post their own YouTube stories on their own websites? Anyway, I don't think it is my place to share the IP here.

Wednesday, 19 March 2014

2014 Budget and procurement priorities

All eyes were on the Chancellor's Budget Statement today but not one mention of procurement. Should we read anything read into that? I doubt it.

We also had more views on what are procurement priorities for 2014 - this time from Hackett. I'm unable to access the report but there was enough in the WSJ to give us the core message, namely, cost reduction/avoidance has dropped to 4th place (I'm afraid I don't know what #3 is, but rolling into:
#1 is expanding spend influence, and
#2 is tapping into supplier innovation.
Other key messages from Hackett are the need to focus transformation on rebalancing supply risks, recalibrating procurement technology and tools, and reinventing procurement's value proposition.

Not a great surprise yet the more astute will realise this doesn't say "snap" with the priorities stated at eWorld Purchasing & Supply. There the big concern highlighted by two separate pieces of research appeared to be addressing the deficit - the procurement skills deficit.

Like the Budget Statement, I don't think we need to read anything into this lack of consensus - like most research, and the Crimea and Scottish independence votes, it depends on who were asked, the environment in which they were asked, when they were asked and how the questions were put.  As I have frequently argued, asking CPOs, in isolation, is unlikely to provide the most reliable answer on what organisations need to focus on.

By way of bringing both the Budget Statement and procurement's priorities together, I think this YouTube is relevant and entertaining - the key messages are clear. If you compare the YouTube messages with what many say about procurement priorities there is some similarity. While we frequently chant a single mantra of cost reduction, we shouldn't be shackled to that, the trick is what's important to the key stakeholders, and primarily the CEO, and not what CPO enjoy. Nevertheless, enjoy the YouTube. I'm off to celebrate the GO Awards and the success of some procurement which has made a difference.

Monday, 17 March 2014

CLG Committee report on Local Government Procurement: Almost deja vu but more ce la vie

Given the Crimea crisis and mystery of flight MH370 it would be understandable if the release of the CLG Committee's report into local government procurement failed to catch your attention. 70 written submissions, 7 oral evidence sessions and a 70 page report - consipracy theorists could have a field day. But sadly, there is little for find within the mysteries of the Committee interpretation of the evidence and their recommendations. To me this was a missed opportunity but hardly surprising if you have read my posts on the CLG inquiry and the Committee failed to heed my initial suggestions of where to look

There are some thing worth holding on to:
We conclude that local authorities' focus on meeting the needs of local communities requires councils to retain control over their procurement operations. Local freedom and flexibility would be lost if they were compelled to adopt a centralised model of procurement such as that adopted by central government in its Crown Commercial Service.
That is unlikely to be welcomed by CCS who then have the problem of addressing the following recommendation with little in return:
 We recommend that the Cabinet Office dedicate resources for building procurement capacity in local government and for ensuring that lessons learnt in central government are translated into effective council action where appropriate. 

I do not recall how many times I have heard that councils do not need any more guidance on procurement - it was a regular area of consensus on conference platforms. So I'm sure many will be delighted that the main recommendations appear to congregate around the production of more guidance. The Committee may feel satisfied that guidance will be drafted, consulted upon, endorsed, published and then training will be delivered on it. That should get us past the next election and just in time for the next round.

But the Committee really need to ask why a comprehensive catalogue wasn't provided of the guidance produced since the original National Procurement Strategy - there's a very long list. If they had studied the catalogue they would then realise that it is not the absence of guidance which is to blame but conflicting political priorities sending out mixed messages, and a lack of embedding change.

I think local government can rest easy, the bogey of compulsion has been laid to rest, the report smacks of deja vu and normal service can be resumed. Ce la vie.

Friday, 14 March 2014

Hodge should demand even deeper transparency on public procurement decision making

I am a great admirer of Margaret Hodge's forensic examination of public procurement - she seems to have honed the skill of extracting the information others don't seem able to. So I read with interest today's the report in the Guardian which claims she has suggested the DWP may be on the verge of meltdown major contracts and has called for greater transparency.

The article is definitely worth a read, particularly if you are a public sector procurement practitioner who "simply have to up their game and get a grip" - a sentiment which Francis Maude seemed to agree with in his parallel interview on Radio 4's Today programme (start to listen around 2:21).

Hodge appears to be calling for greater transparency on contract management, particularly with major contracts. Personally I think that falls short of what is needed. I think, for major contracts, we should see greater transparency on the pre-award decision making and options appraisal. Let me explain.

Thursday, 13 March 2014

Are 21 Crown Representatives an indictment or a solution?

The 4 March announcement of an additional six Crown Representatives means the UK government are relying on a cohort of 21 part-timers to address, what the Financial Times refers to as, Whitehall's "insufficient civil servants with the commercial skills to [manage outsourcing contracts]".

Now let's be clear, outsourcing is not remotely new and there has been major outsourcing in the public sector for many years, but the most recent trend probably dates back to CCT of the 80s. So, let's  say the UK public sector has 25 years of outsourcing yet are not perceived to have developed sufficient skills! How can that be?

Right at the core of Gateway Reviews, PRINCE2 and MSP methodologies are questions relating to whether the client has the skills in place to effectively deliver the project/programme. So how on earth did so many of these 'problem' projects navigate the QA' system without demonstration of the required skills? Is this indicative of a deficiency in the systems as well as the people?

Bill Crothers, the Chief Procurement Officer, justifies the Crown Representatives by saying:
Our Crown Representatives are bringing in top business acumen into Whitehall - our procurement reforms saved £3.8 billion last year and we want to go even further.
The problem is that we just can't differentiate between the savings which are directly attributable to Crown Representatives and those which are attributable to the cohort of commercial senior civil servants. Having said that, I'm sure there are some senior civil servants going through the appraisal system at the present time, claiming that much of the savings the CPO cites are solely attributable to them.

Monday, 10 March 2014

Is the NHS suffering from procurement Tinnitus?

Tinnitus: Is a term that describes any sound a person can hear from inside their body rather than from an outside source.
Today, I read in the Financial Times two parallel reports on the same page, one with the headline "NHS prepares £1.2 bn outsourcing deals", and the other adjacent report with the headline "Bidders pull out of elderly services contest" (sadly the web versions have different titles).

You may also recall that last month I discussed the poor stakeholder management associated with and how the communications strategy needed to be improved. One of the big issues relating to patients concerns with is the fear that their health records will be accessible to the private sector. The notion that £1.2 bn of NHS 'pioneer contracts' for scandal-hit Staffordshire, along with Stoke on Trent, will be let for all cancer and end-of-life treatment for children and adults is unlikely to reduce those fears. How will private sector providers be able to deliver the services without access to the records? Yet, nowhere in the reports is that risk mentioned.

However, that shouldn't be the NHS main issue. Perhaps they need to consider how the lessons from the parallel report on what looks like a failed procurement exercise in Cambridgeshire will be learnt. It is reported that in Cambridgeshire and Peterborough a contract for elderly care, yes, something similar to the Staffs and Stoke-on-Trent contract, has suffered from providers opting out. Serco, Northamptonshire Healthcare Foundation Trust, Capita and Circle are all reported to have withdrawn, supposedly due to the gap in what the Trust are prepared to pay and what the providers think it will cost. Are the providers who have withdrawn correct or the three remaining providers and the Trust right?

Tuesday, 4 March 2014

@eWorldForum Purchasing & Supply March 2014

Today I attended the latest eWorld Purchasing & Supply conference. With practitioners facing difficulties gaining approval to attend any training, eWorld is particularly good value as there are no delegate fees with the costs are covered by event (and delegate) sponsors. There is of course variable quality in the content, some chaotic catering arrangements and the usual logistical nightmare of racing up and down lifts in the QE11, but in general, you can expect a well organised, useful and informative event.

I'm not going to give a blow by blow account of the day, but merely hope to share some nuggets which I found of particular interest.

The Opening Keynote was by Andrew Bartolini, Chief Research Officer at Ardent. Now I am generally very sceptical of research which draws on CPOs giving their view of the procurement world (if you want a copy of my 2009 paper in International Journal of Public Sector Management explaining why, let me know) but setting that aside Andrew shared some useful insights which I think will be of interest to many:

  1. The number one challenge facing CPOs is accessing staff/talent (57% of respondents);
  2. There is an emerging definition for 'spend under management' as '% total spend under influence' - I'm not comfortable with that as it leaves me asking "then what's the definition of 'influence'?"
  3. Best in class CPOs achieve >85% spend under management, while the average CPO only achieves 63.6%;
  4. Contract compliant spend, averages at 60.7%;
  5. Best in class have 2014 savings targets of 7.8% while the average have a negligibly lower target  of 7.7%.
In a separate keynote, Dr Jonathan Betts (Director, Science Warehouse) shared some of his research which appeared to generally validate Bartolini's claimed that:

Monday, 3 March 2014

Proposed changes at CIPS need further clarification

If you're a CIPS member, I suspect, like me, you received an email consulting on proposed changes to the Royal Charter. The changes would mean the creation of a new grade, 'Chartered Member', and replacing the 'P' for 'Purchasing' in CIPS with 'P' for 'Procurement'.

I have no problem with changing the name - 'Purchasing' is too limited in its scope and no longer reflects the profession.

I have argued for the introduction of Chartered Member status for many years, indeed I recall advocating it when I was on Council back in 1998/2000! However, although I am in favour I would like to understand how all this fits together:

  1. How does this link with the whole discussion on CIPS Licence? Has the Licence now been dropped? If the Licence is still alive and kicking, will external stakeholders understand the difference? Will becoming 'Chartered' also require completion of the Licence? 
  2. The 'academic route' is a bit vague. What sort of postgraduate qualification will be deemed acceptable? Will it have to include Purchasing/Procurement specialisms?
  3. Given that FCIPS is considered the highest grade of membership, will FCIPS be contingent upon also being a Chartered Member? Would it not be very confusing for external stakeholders if someone held "the highest level of membership" yet wasn't Chartered? 
  4. Is the intention that members will be charged different rates or additional fees to gain Chartered Member? - that should have been made clear.
  5. Is there going to be a review of the CPD system, for example, the current system, as I understand it, has Silver and Gold, can you be 'MCIPS Chartered with Silver CPD? I think there needs to be some clarity as to what CPD requirement needs to be met to become Chartered?
So I voted 'Yes'  and 'Yes' but I hope I haven't voted for something that ends up being shaped in a way, which, had I known, I would definitely have voted 'No'!