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.

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.

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.

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?

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.

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.

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.