Bad Procurement: A Roundup of Recent Procurement Scandals

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Procurement scandals haven’t been a priority coverage area on Spend Matters, but that may change soon. Monday's Afternoon Coffee column covered the news, broken by the New York Post, that the chief procurement officer for New York City’s Metropolitan Transportation Authority (MTA) has been fired for allegedly soliciting bribes from a contractor. There is of course a “lady friend” involved in this saga too, but I’ve gotten ahead of myself.

According to the New York Post, Angel Barbosa was “fired and escorted from his desk by security on March 8.” Barbosa is now under investigation for reportedly asking for “favors” from accounting firm KPMG in exchange for securing big contracts. He has also been accused of upgrading his colleague/girlfriend’s position and salary.

The case may be serious enough to be brought to the Manhattan District Attorney’s Office or federal investigators — though it is worth keeping in mind that this is the New York Post, after all, with its penchant for the dramatic. Nevertheless, this news made us wonder how the allegations compare to other procurement-related scandals in the past.

Here is a roundup of recent scandals, some more salacious than others. Thanks are due to Peter Smith, managing editor of Spend Matters UK/Europe, for pointing his U.S. colleagues’ attention to many of these stories.

The United States Navy

 Termed by the Washington Post as “perhaps the worst national-security breach of its kind to hit the Navy since the end of the Cold War,” the Fat Leonard scandal got its name from the 350-pound Malaysian citizen Leonard Glenn Francis, who bribed U.S. Navy officers with cash, lavish dinners and — of course — prostitutes in exchange for classified information such as ship and submarine movements. Fat Leonard then used the information to overcharge the Navy significantly for services.

The Land Lease Scam

 For five years, Chesapeake Energy and SandRidge Energy conspired in rigging bids for purchasing land leases in northwest Oklahoma. Investors who sold oil and natural gas land leases to the companies claimed that they agreed not to compete, driving prices down.

Last March, Chesapeake chief executive Aubrey McClendon was indicted on charges of bid rigging and died the next day in a single-vehicle crash.

The Dorm Painting Contract

Last September, as a new class of eager 18-year-olds moved into their dorm rooms at the University of Buffalo, Dean Yerry, a former maintenance supervisor at the university, was arrested for giving two dormitory painting contracts worth $1 million to a friend in exchange for $100,000. The friend was not a professional commercial painter and failed to file monthly payroll records required for state contracts, causing the scheme to be discovered.

The National Health Service

Louise Tomkins, who had been a senior manager at the National Health Service (NHS) in England, submitted fraudulent invoices for more than a year to pocket roughly £200,000 for the purchasing of thoroughbred horses and stud farm upkeep.

Yard rental became titanium caps. Stables became psychological assessments for breast cancer patients. Vet fees became conference facilities. And so on. The ruse was discovered only when Tomkins changed jobs and her successor found suspicious invoices for medical photography services.

Tomkins was forced to sell all but four of her horses to repay the stolen money.

The “Incompetence Scandal”

As Peter Smith put it, “There are crooked scandals and then there are incompetence scandals.” This one belongs under the latter category. The short of it is that the U.K. government is paying two U.S. companies £100 million as part of a settlement due to a botched £6.1 billion nuclear decommissioning contract.

The U.K.’s Nuclear Decommissioning Authority’s contract involved dismantling 12 nuclear sites around the U.K. Energy Solutions, one of the losing bidders, claimed that a scoring mechanism was changed late in the tender process and that bids were evaluated in an inconsistent manner. Now the tendering process for dismantling the 12 sites will have to be started anew.

The National Health Service (Again)

Peter Lewis, formerly an NHS official, was sentenced in January to three and a half years in prison for accepting £80,000 in bribes in exchange for awarding an IT contract that was worth nearly £1 million in the first year.

Two instances a pattern do not make, but for our readers’ amusement I’ll point out that Lewis had been investigated earlier for favoring an HR company that employed a woman he was having an affair with. Who knew fraud could be so romantic?

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