Dull old procurement has never been in the news so much, for so many of the wrong reasons. This post introduces a 'box set' of blogs examining the issues, particularly regarding public sector digital and SMEs …
The esteemed legal commentator David Allen Green wrote in his coverage of the last few years of Trump and Brexit shenanigans that 'constitutional law is supposed to be dull' when functioning healthily.
It's the same with procurement. If all is well, it should be boring, almost unseen — perhaps just a few grumbles from buyers and sellers about the hoops to jump through for good governance. Unfortunately all is not well and the humble purchasing process is all over the news with some very serious allegations.
We brought attention to this subject with a serious April Fool, but now it's time to look at the topic in more depth.
Before we dig into digital procurement, and procurement from SMEs, here's the context, with a recap of some of the bigger issues that have emerged:
- The UK Government has procured vast sums without any competitive tender. An investigation by the Financial Times and Spend Network found that £19bn of direct awards have been made, just related to the first year of COVID-19. This continued to escalate long after the initial emergency, despite the National Audit Office warning in its report that this would undermine public trust.
- Many of these large direct award contracts seemed to go to 'odd' suppliers. Remember ministers buying Brexit ferries from a company with no ferries? That sort of thing seems to have been dialled up to 11 now. In the case of vital medical-grade PPE, £108m went to a tiny pest control company with net assets of £18,000. Another £108m went to a modestly-sized confectioner. And another contract, worth £252m, was awarded to an opaque private fund owned through a tax haven. There is no evidence that any of these companies had previously had any experience in supplying PPE. These contract awards are now subject to a Judicial Review.
- A worryingly large number of these direct-award contracts seem to have gone to companies without any experience in the field, or a solid enough business, but that happen to be connected to the governing party via connections with ministers, their advisers, their friends appointed to top jobs, sometimes even through senior civil servants, former (prime) ministers, or through party donations.
- The Government introduced a procurement 'VIP lane' with no formal or open process to apply, and ministers simply able to put in a good word for companies they knew to be fastracked to a contract. The NAO found that suppliers on the VIP list were then almost 10 times more likely to receive contracts than other bidders.
- Favoured companies have a direct informal line to ministers via texts and Whatsapp messages. Other manufacturers (who succeeded in making ventilators) felt that the Prime Minister was prioritising Dyson and JCB (who didn't) because of their support for Brexit. It has now emerged that James Dyson had a direct channel to the PM via text.
- A lot of public sector work is now being bundled up into massive outsourcing contracts and being awarded to global businesses without enough transparency, scrutiny or governance. Among a string of failures and underperformance by some of these major suppliers on critical Covid response projects, it emerged (eventually, after legal pressure forced publication of the contracts) that not only were they awarded without competition, but the usual performance measures and penalty clauses were ommitted from the contracts too.
- The Government has actively sought to avoid transparency and scrutiny for any of these deals. Tenders are too frequently not advertised. Contract award notices are published late, or not at all. In one case, the government blocked PHE from publishing a report revealing the Covid tests government was about to buy weren't fit for purpose — until it had been able to complete the purchase. Now that some of its procurement activity is being subjected to judicial review, ministers have responded by seeking to limit judicial reviews. Facing scrutiny from journalists, the Government set up a central clearing house for politically sensitive FOI requests.
All of this has attracted the attention of Transparency International, a respected global anti-corruption organisation. Their report, published today, covers the period Feb-Nov 2020, and finds "apparent systemic biases in the award of PPE contracts that favoured those with political connections to the party of government in Westminster."
It says 73 Covid-related contracts, worth over £3.7bn had multiple factors that would ordinarily be treated as red flags for corruption. 30 contracts worth over £2.1 billion were awarded to companies with clear direct political connections to the governing party. But more than that, they found that 14 companies, who were given contracts worth over £620m, had only been incorporated in 2020 — and 13 of these were less than 60 days old when handed the contracts.
The scandal is unravelling to such an extent that we're beginning to see a wider pollution of normal ethical practice from the people, organisations and processes who are supposed to be ensuring good governance. It's been found that the head of the Crown Commercial Service was also advising Greensill Capital, and the chair of the government's lobbying watchdog has failed to declare his own lobbying connections.
So, the wider picture is that something is going very wrong in public sector procurement. The fish is rotting from the head, but the stench is spreading everywhere.
That doesn't mean corruption extends low down in government, but that it's very hard for those in public service to push back against the prevailing political will and the pressure from the top.
Let's move from a broad look at the wider context, to looking at the specifics for public sector digital procurement.
For this there isn't as much publicly available reporting in the media to refer to as sources. My methodology has been to talk to past and serving public servants, leaders of multiple suppliers, and procurement experts — to build up a picture of what's been happening beyond my own experience.
What I found here was not at all like the warning signs of corruption as on the high profile issues above — but instead that there are now broad systemic issues which have emerged from the change in culture and expectations from on high.
At this level each player has good intentions, but the effects on them from other parts of the system require them to take sub-optimal actions from the perspective of the whole, the greater good. This then spreads adverse effects to others who in turn have to make sub-optimal moves.
In my view this means that if we make ourselves aware of the system we are all working in, we can effect postive change, even in small ways. There is hope.
So, in this section, what I examine is what is going wrong in the system.
First, it's important to refresh ourselves on the progress that had been made in this area. So much good work was done between 2010 and 2016. First with G-Cloud, then Digital Outcomes and Specialists. Opening up procurement, simplifying the process, reducing the cost, maximising transparency — and linking work to be done directly to the outcomes for users. Focused, hard-working and caring teams at GDS and Crown Commercial Services (CCS) did some great things with setting standards, the Digital Marketplace, the buyer communities and more.
Gradually government became open to working with a new wave of digital suppliers in ways that allowed for smaller pieces of work to be bitten off in each go. This also reduced risk and increased momentum and agility. The fact you could get a project through procurement in under 10 weeks, with relatively lightweight simple paperwork, is something we take for granted now, but it was revolutionary. It made it possible to procurer in smaller batches.
As a consequence, a community of public sector digital SME businesses sprung up in the UK, and they were able to grow in size and maturity. It even began to be a sector that could credibly export its expertise, and win work from other governments abroad.
Then, in 2016, Brexit hit. Suddenly transparency in the UK Government was out of fashion. There was a complete freeze in the headlights for about six months and then normal procurements slowly started again. But there was little appetite for it to be clear exactly what work needed to be done for the magical 'technology solutions' to mitigate the effects of Brexit, or what specifically each thing cost. Added to that, there was little appetite for ministers to actually decide what Brexit was, beyond being red, white and blue. It was a slippery beast that kept changing with each speech, each ministerial direction. That made it impossible for departments to plan ahead, let alone work openly.
This led to a chain of regressions:
- Departments and Arms Length Bodies (ALBs) procured big consultancy/outsourcing firms to provide people instead of outcomes. The requirement would to have bums ready to put on seats at a moment's notice at any point in a two year window for a contract of a few million pounds — instead of procuring clear individual outcomes for users at project sizes accessible to SMEs. This treated suppliers as temp agencies rather than digital agencies. It also distorted the empoyment market, making it hard for smaller suppliers to recruit and retain staff, as the big consultancies were hoovering up people as contractors to fulfil these big new contracts.
- Buyers returned to procuring bespoke digital consultancy and development through G-Cloud where the buyer quietly approaches suppliers rather than posting procurements publicly for suppliers to self-select. This excluded many established SME suppliers (disclosure: Convivio included) who had had their G-Cloud service offerings for agile devlopment removed by CCS when they wanted to push business to the new DOS framework instead.
- There became a dearth of well-sized 'normal' outcomes projects being openly procured on the marketplace, due to these moves, and the additional disruption to budgets and planning for non-Brexit work.
- These disruptions in the market place forced a consolidation of suppliers. Many SME suppliers were suddenly in a very difficult position. The marketplace was quiet, procurements became more of a lottery, cashflow was tight, staffing was hard, the road ahead was very foggy. This led to many well-known suppliers selling their business to large organisations. It even led to some SME suppliers leaving the sector, and others closing down altogether.
- The volume of applications for each procurement increased, but not the quality. Many suppliers became more desperate for work and started bidding on everything going, even where they weren't well-suited and their bid would be low quality. The increasing number of bids, and reducing average quality, had the effect of putting even more pressure on buyers with high numbers of bids for their procurement and a requirement to score fairly.
- The extra time and work now taken to run a procurement led to a reticence to have to do it often, and so to group opportunities into fewer, larger packages, or to do it via G-Cloud and simply invite a limited number of bidders. That fed back into the spiral down. This increasing number of desperate bids on each opportunity also led buyers to construct Skills & Experience questions that were apparently designed to narrowed the field. Unfortunately, they're a fairly blunt instrument. It became increasingly common to have very niche sector-specific requirements for what was to be a very generic digital project, or experience in one arcane specialist piece of tech. The huge traditional consultancies can always pull in a story from a project elsewhere in their 20,000 person business on some niche thing, but an SME has much less chance to do that, even though they may be highly-suited to the actual work that needed to be done.
- Buyers came to view their projects as existing in a smaller sector vertical, rather than in the broad 'public sector digital' space. That belief that each sector, and subsector, is somehow completely different from any other means there is again increasing fragmentation in procurement with more specialist frameworks being set up. For example, the NHS has now set up its own digital procurment framework, for some reason convinced it couldn't use DOS like everyone else. It restricted the number of suppliers that could be on the framework, and set minimum turnover requirements. The result is that it's all massive companies, except for one loose consortium of SMEs that managed to get on. A number of SMEs I respect who have made their name in the digital health space didn't get a look in.
- The market disruption led to artificial competition on price. I've heard from buyers and SMEs that some of the suppliers needing work most urgently have been putting in some crazily low bids to win work. To compete with this, other SMEs are faced with the choice of themselves not winning work, or lowering prices to an extent that they don't make any margin, which means their businesses are not sustainable and able to weather cahsflow challenges. That in turn leads to more attrition and consolidation in the market. Another adverse effect of this is that companies with poor finances are less able to say 'no' to clients, which is a healthy part of a balanced client/supplier relationship that helps avoid some of the worst problems.
This all gradually became the new normal between 2016 and 2020, and was then only amplified when the Covid crisis hit.
G-Cloud, DOS and the Digital Marketplace have their roots in the aspiration of Francis Maude in 2011 of moving government away from big deals with big business that often failed to meet expectations, towards working with small specialised businesses in a more agile way towards clear outcomes for users. That aim would be acheived through simplifying buying processes, working on smaller projects, and having light-touch governance in return for greater transparency.
That mission was gradually being delivered, but since the inflection point of 2016, what has happened instead is the worst of both worlds:
We now have big deals with big business being procured with the simplified buying processes and light-touch governance intended for SMEs, with no transparency.
The global consultancies and outsourcing firms are laughing all the way to their offshore tax havens. It's been boom time for them in the public sector since 2016.
Meanwhile, the nascent UK public sector digital SMEs, which could have been a British success story on the world stage, have been set back 10 years. Many are no longer independent owner-managed businesses, but brands under corporate management. Some have left the sector. Some have closed.
In a later post I'll set out why this is bad for the public sector, and the country, too.
It would be a good service to the UK public interest to reverse this trend, and get back on the path to healthy public sector procurement for digital services — delivering innovation, transparency, good value, meaningful jobs and values-driven client services — as well as paying their taxes, in full, in the UK.
Together, we can make procurement dull again.
Public Sector Procurement in 2021 — Blog Box Set
In the rest of the series we'll explore some of the issues raised in this introductory post in more depth, including digging into the data — and look towards some solutions. I'll publish a new post each day over the coming week.
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The articles published so far in this series are:
- The problems with public sector procurement in 2021 (this article)
- A brief history of government promises to work with SMEs
- Latest data shows that government spend with SMEs continues to fall
- When is a £19billion global conglomorate an SME?
Edited by Joe Baker.