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Items from 2015

Procurement Fraud

Fraud in Procurement: not as uncommon as you think

We have been reading a report on procurement fraud which states that XXX (the organisation) Risk Management Policy was seven years out of date and DOES NOT RECOGNISE PROCUREMENT AS AN AREA REQUIRING SPECIAL ATTENTION.



 XXX (the organisation) does not have adequate measures in place to prevent fraud and corruption in its procurement activities
 Mr XX (the offender) had corrupt relationships with business associates which enabled him to fraudulently obtain benefits for himself and others totalling $490,267.50 from projects he managed over a six year period
 Weaknesses in XXX financial controls and poor supervision of Mr XX underpinned his corrupt behaviour
 Mr XX maintained a covert relationship with an engineering consultant
 There were no written contracts between XXX and each consultant and contractor
 Mr XX circumvented his limited delegated authority
 Mr XX pleaded guilty to 10 counts of corruption and got four years imprisonment

If you are in a senior procurement position in your organisation please ask the question ‘What do we do to manage our procurement risks, including the potential for fraud? You could take a relatively low cost approach using Procurisk. You may be amazed that the above situation could arise BUT IT DID! Try Procurisk for free.

Please contact our Managing Director, Brian Farrington, if a confidential discussion would be helpful. In the first instance drop him an email to the email address shown below.

Dr Brian Farrington PhD MSc BSc (Econ) FCIPS
Managing Director
Brian Farrington Ltd
Rainford Hall
Crank
St Helens
Merseyside
WA11 7RP

Tel 01744 20698
Email: b.farrington@brianfarrington.com

www.brianfarrington.com
www.procurisk.com

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Who Evaluates the Evaluator?

Tender Evaluation: - the wrong way

 There is a potential risk scenario if Contractor's tenders are not read and evaluated very carefully. We have evaluated complex tenders and been a part of the evaluation panel. Sometimes we are the only people who read the whole tender. The client's reasoning is that they have 'experts' in particular fields, such as Health & Safety.

Accordingly, the tender response is 'split up' among different people. Not unnaturally, tender evaluation is not their strongest point and they have not been trained in the skill. They miss 'qualifying' words.

Only yesterday we read a tender that included the magic words 'We have a plethora of technical experience in this area'. Do they? It wouldn't be unreasonable to expect detailed evidence of the experience, but none was forthcoming.

The risk is that someone now scores the response as 'Excellent' when there is no evidence that the answer warrants anything but 'Poor'. In another situation it was vital that contract mobilisation occurred to enable a prompt start to a project. The tender wording amounted to, "We confirm that we will mobilise in such a way that the contract start will not be delayed".

The skilled evaluator is now wanting the evidence of the mobilisation plan, who is accountable and what needs mobilising. The plan was sketchy to say the least, omitting the fact that personnel had to be recruited in the open market.

So, was the statement a misrepresentation and if so how should that have been scored? Upon matters such as this, court cases have arisen when the project has failed. We could give countless other examples. Procurement should lead the tender evaluation process and ensure that risks are covered off in the process. Procurement should insist that the evaluation panel has the necessary training. If the risk materialises because of a flawed tender evaluation, the cost and reputational damage for the organisation can be exorbitant.

Our Managing Director, Brian Farrington, would welcome discussing this subject with our readers.

Please send an email to b.farrington@brianfarrington.com in the first instance. We look forward to hearing from you.

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Change

Procurement in the Vanguard of Change

 'Our procurement is in the vanguard of change and we are highly respected in our business'.

This positive statement from the Director of Procurement in an international business caught our attention. What are the risks of being in the vanguard of change? Potentially, there are many, each requiring a unique approach and the ability to convince many stakeholders that they are part of the change.

Changing the source of supply is a challenge. We know this from personal experience. A good example was our retention to locate suppliers in Vietnam for a French organisation who required 'local content' when bidding in the Far East.

We found suppliers and arranged for items to be supplied for quality testing. The first objection was the Quality Manager who immediately said that anything from Vietnam would be rubbish, or words to that effect! Needless to say, the items were approved and the relationship was a success. In a related context there are powerful reasons why some people don't want to change suppliers.

One reason is fraudulent activity. This is an emotive subject in the context of procurement. Why? There are some organisations who delegate procurement decisions to the most unlikely people who are demotivated to manage the risks. Who monitors the delegated decisions?

It may rest with Internal Audit to do so. That may be unfortunate if Internal Audit don't know the 'tricks of the trade'. We have trained Internal Audit teams when they were contemplating audits of procurement. Our task has been to persuade them that procurement audits are far more than conducting a tick list. It is the interpretation of actions that will reveal good or poor practice. Our risk modelling tool PROCURISK is a tremendous asset for Internal Audit and procurement specialists. It will positively support change and assist in developing mitigation strategies.Why not try it for Free

Our Managing Director, Brian Farrington welcomes a discussion on this and related subjects. In the first instance please contact him by email at b.farrington@brianfarrington.com

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Dis-jointed Ventures

Are Local Authority Trading Companies or Joint Ventures as joined up as they should be?

We have been researching the background to public sector bodies who either have created or are in the process of creating Local Authority Trading Companies or Joint Ventures.

Because of the Freedom of Information Act there is a lot of data in the public domain. Some of this data includes Business Cases and Options Appraisals. It is not uncommon for procurement to be included in the plans for innovative thinking.

We have seen one business case where it was said in lay persons language that procurement had not performed.

THERE IS A RISK GONE UNNOTICED IN THE PAST!

It raises many questions, not least 'Why was it not known that procurement wasn't performing?' Did the Procurement Manager not know? Did those to whom they reported not know? Was there no reporting of actual performance? Were there no KPIs on Procurement?

Above all, it may be asked did anyone care? Harsh comments? We don't think so.

Procurement should be subjected to a rigorous and methodical risk assessment on a regular basis. We have the electronic tool to do this. It is PROCURISK.

There is an emphasis in many organisations on the cost of purchases, given that value for money is a prerequisite. Co-incidentally we are advising on a high-value project. When the tender prices are available it will cross our mind about the contingency provision included in the Contractor's price. Will it be visible? Not if it isn't requested, it won't.

What happens if the contingencies do not arise? The buyer will pay for the contingency provision and the Contractor's profit will be enhanced. That is what will happen. Procurement is in the risk business. It must identify the risks and find strategic and practical ways of mitigating those risks. Senior management should have the confidence that this is being done professionally and effectively. Is it where you are?

Our Managing Director welcomes a discussion on this and wider subjects. In the first instance please send an email to b.farrington@brianfarrington.com

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Caveat Emptor - watch this space?

We have predicted that the new 2015 Public Contracts Regulations will give rise to an embarrassment of claims for wrongful award of contracts by the public sector.

Meantime, another high profile case has been in the Technology and Construction Court.

The judgment is available on BAILII, see Bristol Missing Link Ltd v Bristol City Council [2015] EWHC 876 (TCC).

  • The claimant, BMLL, challenges the procurement of a significant contract for domestic violence and abuse support services in Bristol.
  • BMLL are the incumbent provider of the services.
  • The outcome of the tender process was that BMLL failed to win the contract and that the Council would award it to another tenderer, Refuge.
  • BMLL challenged under the Public Contracts Regulations 2006 and after a hearing in March 2015 the "automatic stay" would remain.
  • It's likely that a full trial will take place in June 2015. The case, once again, raises issues about the manner in which Councils conduct tender evaluation.

We've 3 comments to make. We've been selective and urge procurement colleagues to discuss the implications with stakeholders, internal audit and legal services.

A good starting point is a statement by McClosky J (Resource (NI):

“I interpose here the observation that, under the current statutory and jurisprudential regime, meetings of contract procurement evaluation panels are something considerably greater than merely formal events.

They are solemn exercises of critical importance to economic operators and the public and must be designed, constructed and transacted in such a manner to ensure that full effect is given to the overarching procurement rules and principles.” (Our emphasis)

The judgment includes:

‘Although the Council said that they would inform the tenderers of the result of the competition in early December 2014, it was not until 8 January 2015 that BMLL were informed that their tender had been unsuccessful’.

Comment #1

Experience suggests that it isn't an uncommon situation for a Council to be oblivious to the business implications of their delay. In the case being discussed there were massive TUPE implications.

There are tender evaluation and moderation issues in this case. The judgement includes:

‘Thus, for example, we know that the BMLL’s tender on sub-criteria 2.5 was the subject of scores from the individual evaluators of 4, 4, 4, 4, 4 and 3. These were subsequently moderated to an overall score of 3, but no explanation for that result has been provided’.

Comment #2

This raises a general point regarding scoring and moderation. There's nothing that wrong in different evaluators reaching different scores. It's what happens next in the process that's relevant.

There should be a discussion and this should be carefully documented as to why a final score was agreed. This may have happened in this case but it's not yet apparent.

The judgment includes the comment by Mr Justice Coulson:

‘I regard it as potentially unfair for the Council to pick and choose what documents they provide and when, as it suits them’.

Comment #3

No comment is needed!

The judgment also includes :

‘The second difficulty concerns the absence of any evidence from those involved in the tender evaluation process.

The Council’s principal evidence came from Mr Anderson, the Crime and Substance Misuse Service Manager, and the solicitor Ms Nugent.

Neither of them had any involvement at all in the process; certainly their statements do not suggest otherwise.

There were five evaluators, and a sixth person who was named and described as a procurement specialist, who was giving advice and guidance to the Council.

Surprisingly, there is no evidence from her………There has been no explanation as to why those actually involved in the process have not given evidence’.

The take-away:

This judgment should be mandatory reading for procurement specialists and those engaging in tender evaluation.

Our experience, when on the receiving end of tender evaluation decisions (when advising tenderers), is that asking a Council to provide debriefs is difficult.

Varied positions are taken such as:

‘We're too busy.’;

‘We'll write to you.’;

‘We're not obliged to provide the detailed scoring.’

We'll watch, with great interest, the outcome of the trial, assuming it gets to trial.

PS. It is unquestionable that risks potentially abound in the procurement detail.

I'm of the opinion that Procurement must be key decision makers and must have the skills to manage the whole process.

Within your current range of procurements is the potential for disaster.

Action: subject some strategic procurements to scrutiny, starting from the standpoint that if certain events were to materialise what are the implications.

Try the free trial of Procurisk®; there's a good starting point.

Procurisk® enables you to identify and manage all your procurement risks - to use as you see fit; for as long or a little as you want, when you want it, how you want it.

From as little as £75 per month.

I’d love you to try it. Head over there now and take a look.

You’ll see a ‘Try for free’ blue box where you can now access 10 free procurement risk metrics.

Let me know what you think. Does it work? Will it be of use to you? What can we do to make it better?

Your feedback is really welcomed.

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Yeah but no: what's it say in the contract?

This week one of our client’s contacted us with a problem concerning a lease they had with an office leasing organisation.

The questions we were asked included,

  • ‘How can we terminate the lease?’
  • ‘Will we have to pay any costs if we terminate?’
  • ‘How much notice will we have to give if we want to terminate?’

Our answer is predictable in this situation and many others where a contract requires interpretation.

What does it say in the contract?

A number of potential issues now arise.

  • Can our client find the contract?
  • Is there a written contract?
  • Who negotiated the contract?
  • Has it ever been changed and if so, were the changes documented?
  • Was procurement involved in that specific contract or, indeed, any others?
  • What was procurement’s influence, if any?

Here's another example: A marketing contract!

Marketing expenditure in some organisations is surrounded by mystique and is outside the scope of procurement’s influence.

Such was the situation with a pharmaceutical company who organised a product launch for varied VIP’s, including the media and medical profession.

IT WENT WRONG.

No surprises there then. Unfortunately, the entertainment services included a juggler but no one knew that the charges related to the items and number of items being juggled.

The stilt man worked on the height of the stilts!

Duckboards to walk on were extra but it was found out that they were essential when it poured with rain and the guests’ footwear was damaged beyond repair.

Would you want high quality tableware or would you have been happy with cardboard plates and beakers that were actually provided?

The event was an unmitigated disaster for all concerned.

What was in the contract?

It was the service provider’s standard terms and conditions of sale.

They were not read or negotiated, merely accepted on the basis that ‘we have used them before and never had a problem!’


The takeaway:


It is unquestionable that risks potentially abound in the contractual detail.

We are of the opinion that procurement must be key decision makers and must have the skills to draft contracts and negotiate them.

Within your current range of contracts is the potential for disaster.

Why not subject some strategic contracts to scrutiny, starting from the standpoint that if certain events were to materialise what are the contractual remedies provided for. Try the free trial of Procurisk; there's a good starting point.

Procurisk® enables you to identify and manage all your procurement risks - to use as you see fit; for as long or a little as you want, when you want it, how you want it.

From as little as £75 per month.

We’d love you to try it. Head over there now and take a look.

You’ll see a ‘Try for free’ blue box where you can now access 10 free procurement risk metrics.

Please let us know what you think. Does it work? Will it be of use to you? What can we do to make it better?

Your feedback is really welcomed.

Thanks

The Procurisk Customer Success Team

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PROCUREMENT RISK! MOBILISING A CONTRACT - WHO HAS THE RISK?

Why the risk is always with you


When a contract is agreed, most of the time, both parties have the best of intentions. There are potential risks that must be managed. It is procurement's job, with their colleagues in other disciplines to identify the risks and to have in place mitigation strategies. We were involved with an international airline who tendered the cleaning services required at an international airport to turn the aircraft around within a specified time. A new contractor was appointed and they had a brief time to start providing the services. TUPE was involved and, for whatever reason, a large proportion of the staff did not want to transfer to the new contractor. Two days after contract award the contractor was advertising, extensively in the local press ‘Staff urgently required.’ The associated risk now abound!

  • How will the new staff get trained?
  • How long will it take to get them security cleared to work 'air side'?
  • If the supervisory personnel does not transfer, how efficient will the new service be?
  • Who will pay if the aircraft are delayed because of a poor service?

No doubt all these issues were considered at the time the tender was being evaluated, and during any clarifications that took place.


We have a structured procurement risk management solution - Procurisk®. Click  here for a free trial. Contact us if you  wish us to present an in-house briefing on procurement risk management.

A Construction Sector Nightmare!


We accept that our involvement with some clients will always be on an exception basis, typically when there is or has been a major incident. On site construction works usually requires extensive mobilisation actions by the contractor. All these actions will, of course, be set out in the tender documents and will have been carefully assessed by procurement and their colleagues. That should be the plan. In the example we have in mind one of the actions was to procure a new IT system to control the construction works and to purchase the hardware.

Some of our readers will already be filled with dread.

  • Who will, from the buying organisation, interrogate the contractor’s procurement plans?
  • Will procurement be given access to the proposed contract for the contractor’s procurement of the system and hardware?

The nightmare continues with the implications of the contractor’s plant and equipment to site.

  • Does the contractor have the equipment available or, will they hire it?
  • If it is to be hired, who will have ownership of the plant and equipment whilst it is on site?

We ask because if the contractor goes into liquidation, the buying organisation will want ownership of the plant and equipment until the work is complete. We could go on for many pages with this nightmare, but suffice to say that the risks were not identified, mitigated or effectively managed.

Summary

Managing risk, from a procurement point of view, is a skilled task. It requires a structured approach and the logical application of thoughts rooted in dealing with the risks that may arise. Identifying these risks is not a simple matter. The two examples we have given are in specific sectors – where are your potential risks??????

Like to discuss this in more detail - please call +44 (0) 1744 20698 and ask for Ray Gambell. .

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Rainford Hall, Crank, St Helens, United Kingdom, WA11 7RP

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