HP’s summer just keep getting better….

So, Hewlett-Packard, how was your summer?

Lost your CEO in a didn't-actually-have-any-sex scandal, share price crashed, now paid $55 million to the US Government - without any admission of liability I should stress - based on payments made to prime contractors in return for them channelling spend to HP as part of those Primes' large government contracts.

Are we all amazed this goes on?  Or, are we cynics, who sort of assumed this sort of thing happened, and that part of the role of procurement is to try and make sure it doesn't?  But I really don't understand incidentally why the Primes involved are not being hit as well (or perhaps that is in hand) - surely the Prime is even more culpable if they were not acting in the best interest of the customer?

Coming down firmly on the cynic side of the fence, I would be amazed if this wasn't happening in many, possibly most major outsource / prime contractor situations in different countries and across public and private sector.  But the customer, whoever that is, must take much of the blame.

As the customer, you can make it clear in the specifications and the contract exactly how you want the Prime to behave in terms of its supply chain management.  You can stipulate what procurement process you want them to use. You can use the Prime's procurement and supply chain management capability as an evaluation criteria in your selection process (something I've encouraged government clients to do whenever I've had the opportunity).  You can insist on rights to review and audit those processes.  You can stipulate full transparency on all transactions between the Prime and sub-contractors.

Whilst these issues aren't by any means restricted to the public sector, there are an awful lot of large outsource and 'Prime' type contracts around in government.  To my knowledge, many of them haven't taken these precautions, and in such cases, I would not be surprised to find all sorts of kickbacks, hidden volume rebates and so on going on through the supply chain.

I suspect there has historically been a feeling that "we don't want to constrain our Prime; after all, they are experts in their own industry".  And I would agree with that.  But that expertise need not be constrained by the customer insisting that key suppliers operate in a professional, fair and transparent manner in their own supply chains.

This case also suggests that the US False Claims Act and its encouragement of 'whistleblowing' is paying off.  Is this something the UK Government should consider; offer the 'whistleblower' a reward if they expose cases of fraud, overcharging or similar by suppliers to Government?  Sounds like an interesting idea... the campaign starts here!

Finally, a point that both Jason at Spend Matters and I seem to be making increasingly often.  Using technology (eSourcing, auctions etc) in the procurement process has a number of advantages, but one clear benefit is the resulting increase in visibility and transparency of process.  So requiring outsource service providers / prime contractors to use such processes for their major purchases on behalf of the ultimate client - and demonstrate the outcomes - is well worth considering.

First Voice

  1. Guy:

    Alternatively, buy the service not the tin. If you want to oursource your desktop managed service, look for a price per user and compete that in the market. Dont worry what the badge is on the box (although obviously Fujitsu is the best :-)) but worry about the performance of the service you are buying.

    This is the way of cloud computing. There is a comoparable model already out there that has been operating for years, and that is the mobile phone service. Forgetting the handsets, no one cares what brand of network technology and backbone infrastructure that (say) Vodafone use, they only worry about if they can get (and keep) a signal.

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