Is the F-35B an "object lesson in the pitfalls of procurement"?

Is it really five years since I last discussed the TAC associated with fighter jets and problems with not getting it right?  Well, regardless of that the Times have now started to reveal the sad story of their investigation into yet another 'flawed' procurement of fighter jets - one commentator says "it is turning into an object lesson in the pitfalls of procurement". Yes, TAC still remain unproven art.

Yesterday's Times had six pages on this 'crime of procurement' and given the long history of implied incompetence of defence procurement globally, I suppose this is an easy target.

While I was immediately drawn to the story with a pejorative attitude towards the procurement when I reflected I wonder if MOD procurement are being fairly criticised.

I do think there are serious flaws if, as is implied, a performance specification wasn't used which would have ensured that Lockheed carry the risk of ensuring vertical take off capability, and that the jets have to open bomb bay doors to compensate for overheating. I think some steps should have been taken to protect against the falling exchange rate, which it is thought will have added over an addition £1Billion. I think it was a mistake not to include the cost of spares from suppliers who could perhaps hide other future profits, after all the MOD will be held hostage to the supplier for the life of the jets. Then there's the decision not to buy a Battlefield Airborne Communication Node (BACN) which will enable secure undetectable communications - let's face it once the enemy knows your position the jet could potentially be up in smoke.

Having said all that, it does strike me that some criticism levelled may not be reasonable.  For example, assuming that there should have been a blank cheque to upgrade the wider MODs protection against cyber attack - you have to have a blueprint with a strategy of getting there but it would be unreasonable to criticise this specific procurement for that strategy.

Yesterday's 'reveal' may only be the first instalment of evidence of a procurement debacle and perhaps the worst is yet to come.   A quick glance at today's diverts attention to the other old favourite, HS2.

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.

T&Cs for Breakfast in Bed

Last week I carried out a very brief comparison of the price of a sirloin steak in a hotel restaurant and also as part of room service - insofar as I could see the only difference was that a 10oz steak was available in the restaurant while only an 8 oz through room service. The price difference was £17.50 as opposed £28 - saving the additional £10.50 at the loss of 2 oz of steak, I asked for the room service steak in the restaurant, but avoided the tray charge.

I then decided to carry out a quick comparison of the price of breakfast in bed in two hotels. By way of context both hotels were household name brands, in the same city, of the same star and giving me the same corporate rate - yes, theoretically they should be same. I can honestly say I have never ordered breakfast in bed with either of the hotels, but this week I noted the prices.

I have always assumed it was quite clear how much Breakfast in Bed would cost. However, for all you procurement legal illegals, can you make a judgment and tell me how much Breakfast in Bed at Hotel A should cost? By way of context, I was on a Bed and Breakfast rate, and prior to reading the T&Cs on the foot of the Order Placing Door Hanger, the headline prices are £10.95 for a Continental Breakfast and £14.95 while a cooked breakfast is £14.95. The T&Cs state:

A £5.00 charge will be applicable to all orders. For guests who have paid for a room package including breakfast, there will be a charge of £6 per room, for room service.... All prices include VAT.

So how what is the extra amount of money I should expect to be billed if I order a cooked breakfast?  Would it be £6, £11, £14.95, £19.95, £20.95, £25.95, or what?

A uniform approach to justice and wasting money

There's something a bit strange going on when departments are wrestling with spending cuts and how to make them, yet a parallel discussion which says "let's spend more".

That's what looks set to be announced next Tuesday when it is decreed that all new prisoners will have to wear prison uniforms for the first two weeks of their 'Porridge'.

While there appear to be a reduction in prisoner privileges there do not appear any means of reducing the fixed costs, therefore the gyms and fancy TV's will still have to be paid for, but a new additional cost of uniforms will have to be added. Previously prisoners carried the cost of their own clothes, now it will be the public purse. I wonder has some costed this change and carried out a cost benefit analysis.

Thinking of the risks:

1. What will happen if all prisoners see this as an opportunity to protest and request that the public pay for clothing beyond the two weeks as an act of protest? How much will that cost?
2. How do you define 'a uniform', is it actually two uniforms (a prisoner could not be expected to wear the same clothes for two weeks?), complete with shoes, socks, etc?
3. What will happen when prisoners demand the right to be consulted on the uniforms?
4. What will happen if this goes to public tender and is won by a clothing provider in say Bangladesh? How will the public sector protect against the low cost manufacturing risks? 

Make or buy train sets

There was a time when every boy (or perhaps his father) wanted his own train set. I had one but it was a torture putting it up, trying to get it to work and then putting it away. I never really found  enjoyment watching a train going round and around and around in circles.

Perhaps the joy was in gaining ownership or putting things together which worked. But imagine the joy which must come if you're a train enthusiast and able to tinker with a real train, not just any train, but the 'big daddy' of them all, 'The Flying Scotsman'.

Perhaps the opportunity to own and tinker with the real 'Flying Scotsman' was just too much a temptation for the National Railway Museum.

Anyway, in 2004 the museum bought the real thing for £2.3m. Then, in 2005 they recognised the need for repairs, which they estimated would take one year and cost £250k. Now, in 2013, the repair work has cost, not £250k but £2.89m. That, in turn, has diverted funds from other areas, and indeed from the wider public purse. The hope is that the 'Flying Scotsman' will be operational in 2015 - that's quite a delay for what was a record breaking locomotive. As part of that journey it is now thought a decision will be taken on whether or not to 'buy' the remaining repair work.

Recently I applauded Liverpool on its decision to call a halt to a procurement which wasn't going to be delivered on time or budget. While I congratulate the National Railway Museum in questioning whether they should outsource the repair work, answers should be sought why a red line hadn't been drawn earlier, why the total costs of repair hadn't been better estimated in 2004, and why a robust 'make/buy' options appraisal wasn't carried out in 2005 regarding the repairs? It would also be useful to make sure that the current make/buy appraisal is robust and risk assessed. Have wider social objectives also been considered, for example, using the repair work as a training scheme or even using volunteer enthusiasts as potential repairers?

But I wonder when make/buy decisions are made, if there is a wider issue - could there be innate bias within our DNA which leads a buyer towards 'buy' and a techie towards 'make'?

Setting that aside, ironically, the 'Flying Scotsman' saga has some resonance with yesterday's blog on Glasgow's George Square revamp. There too a timely options appraisal was absent.

Perhaps there's an even bigger issue though, namely, are procurement specialists even involved in these decisions early enough to make a difference or at all?

Procurement sums up at the House of European History

The EU's House of European History will double its estimated £58m cost to £112m, while its annual running costs are estimated to soar by 80% to £12m per year. Part of the cost increase is said to be the finding of an underground river; were there no historical records of the river? When the underground river was located, were the additional costs fully understood and the business case reviewed prior to continuing to pour money into the project?  These are fairly obvious questions.

However, I think the real scrutiny should be on the calculation of running costs. The previous example of the Scottish Parliament construction suggested that the recurring costs of window cleaning had been unnecessarily increased through a poor design of windows.  But why have the running costs of the House of European History increased so dramatically?  Were they miscalculated at the start?  How many years have they been based on?  What was previously not included that now needs to be included?  An 80% increase on running costs suggests something was seriously wrong, a lack of due diligence, and a lack of scrutiny! We know that good procurement should be concerned with Whole Life Costs, and that capital costs frequently are far exceeded by ongoing revenue costs.  In fact there are plenty of examples of ongoing revenue costs leading to decisions being made that some investments can no longer be sustained.

Either way this is another example of poor cost estimates and/or poor procurement. But it also strikes me as weak project management and risk management. It begs the questions: 'Where will the line be drawn in cost overruns? and 'Who will be accountable for the additional costs?'  It can be assumed that European citizens will pick up the tab for something which the vast majority will never set foot in. Surely, when reviewing EU procurement there has to be scope for exploring a shift of responsibility from the  client having to pick up the tab when their advisers get it wrong. (I have previously discussed the deference given to experts.) 

I think there also needs to be some form of policy shift, particularly when citizens are being faced with austerity and asked to live within their means. Why can't tolerances be set within which projects have to be delivered; if those tolerances are exceeded then there needs to be serious and meaningful expert or political accountability?  Had such a tolerance been set perhaps this history lesson would have stopped once the underground river was located and the burden of an additional 80% of annual running costs laid at the feet of those who got it wrong, as opposed to being passed to the innocent European citizen.

Lessons on eVoting procurement, TAC and failure costs

The long running procurement fiasco of the Irish eVoting machines finally looks as if it has reached an inevitable unhappy conclusion.

By way of background, the Irish government spent €52m on 7,500 machines for eVoting then discovered it could be hacked into.   So 'the kit' has been sitting on the shelves  at a cost of €140k per year - not a great story when you think that the Irish haven't been short of elections, including whether or not to go with austerity measures.

But sitting on shelves wasn't straight forward either. The shed where some (255) of the voting machines were stored became the subject of a planning dispute as no planning approval had been gained for storage in the shed.  The shed in question had been leased for 25 years to store machines which only have a life span of 20 years - so  five years of storage beyond what you would have thought would have been required. The cost of storing those 255 machines therefore had a cost of over €500k.  As if that wasn't bad enough that contract smacked of nepotism.

Of course the public just can't be expected to know how to eVote so an awareness campaign was required.  Two ex-civil servants were contracted to deliver that campaign - they in turn were deemed entitled to €2m of their €5m contract for their costs away back in 2004,

The saga now looks like reaching an end. To the surprise of some, who thought the government would have to pay for their disposal, a tendering exercise has found someone to purchase the machines for €70k.  For the €70k they also get the privilege of also disposing the wasted 1,232 transport trolleys and the 2,142 hand trolleys - 22,387 items of scrap.  You don't have to be a maths whizz to see that there's a shortfall of the in  this procurement.

Lessons for the future worth considering may be:

1. Pilot before a complete procurement;
2. Consider renting if you're piloting;
3. Share risk with the provider;
4. Place the obligation with the provider for making sure the devices are secure and fit for purpose;
5. Be squeaky clean and declare any potential conflict of interest;
6. Don't contract for awareness raising campaigns until you know you need it;
7. ...

We've discussed stupid sourcing in the past.  This looks like a real contender - let's put it to an e-vote!

Background reading:
Sunday Times, News Review of the Week, 'Top Stories from the UK and Ireland', 1 July 2012, p.8.

TAC and the choice of fighter jets

We all know the theory of calculating Total Acquisition Costs but anyone in the real world also knows that when you get down to practice predicting future costs is a bit harder than the theory.

The latest saga in the fighter jet and aircraft carrier saga provides a good case study. Rather than the preferred option being 25% lower,  MOD are now faced with the cost of justifying an increased upfront cost of £1.8bn, as opposed to the previously predicted £400m.  That's quite a difference and I'm sure many of you ask, 'How could your calculations be so far out?'  Getting the predicted figures wrong is understandable but making the wrong choice somewhat harder to justify.

If you were asked to calculate TAC for a fighter jet you may well have done a comparison of the alternatives and really looked at running costs, maintenance costs, etc., but would you have included the additional costs of