Our investigation into MOD contract hits The Times

We are in the Times today, page 17  (thanks to Michael Savage, Political Correspondent)  with our investigation into the MOD Alix Partners contract where the day rates are over £5K (including success fee). It’s behind a paywall unfortunately but here are a couple of extracts.

"Industry experts criticised the deal, saying that the fees were unusually high and that the failure to advertise the contract might have led to an unnecessarily high bill for the taxpayer…. AlixPartners was awarded the contract in February. Despite the fees, a spokesman for the MoD said that the company had offered a “substantial discount” compared with its normal rates."

It’s interesting that this represented a “substantial discount”. My goodness, I think I need to be working for Alix Partners.

"Procurement experts were surprised that AlixPartners, which apparently has no history of MoD work, was given the contract. A ministry official said that it was chosen for its “unique competence and experience in business turnarounds”. Peter Smith, the former president of the Chartered Institute of Purchasing and Supply and the founder of spendmatters.co.uk, said that the MoD had handed out “top of the market rates”.

“Even under the last Government, when consulting spend was in total much higher, it was unusual to see day rates of £3,000, let alone £5,000 plus,” he said. “If the consultants are working full-time, that’s equivalent to comfortably over £1 million a year, which seems excessive.”

Another interesting point in Savage’s report was this, from MOD.

“It was agreed across Whitehall, including by the Cabinet Office.”

That seems to directly contradict the statement I got from the Cabinet Office, which suggested Cabinet Office didn’t know anything about this – at least till we brought it to their attention. This was the Cabinet Office statement to us:

“For some reason this contract between MoD and Alix partners fell outside of the normal Cabinet Office - ERG approvals process, where all such consultancy engagements..  require Minister for the Cabinet Office and Chief Procurement Officer review and approval…”

So did Cabinet Office know about it or not? Interesting... we may have to ask a few more questions.

Let’s now analyse the MOD’s comment to us.

“Alix Partners is providing specialist assistance in negotiations with industrial suppliers to deliver significant savings across defence within very tight timescales and overall is expected to save hundreds of millions of pounds. Overall the MoD has delivered dramatic savings to its consultancy expenditure and it is now a tenth of what it was five years ago.”

So, their first suggestion is that paying £5K a day is OK because Alix are saving them lots of money via these negotiations with other suppliers.  Well, on that basis of rewarding consultants, I, and pretty much every other procurement consultant in the world, would be very, very rich. There’s nothing wrong with some sort of linkage between performance and reward for consultants – indeed, our book recommends it – but it is far too simplistic to say “they’re saving me loads of dosh so it doesn’t matter what ridiculous day rate we pay them”.  And of course, we have no idea what Alix are actually doing, or whether the “savings” are real (see many other examples of claimed public sector savings that evaporate when held up to proper scrutiny).

MOD’s second argument (hinted at in the “very tight timescales” comment above and more explicit in previous correspondence) is that the urgency of the requirement meant they didn’t have to run a proper competition. Well, the EU regulations define pretty well when you can use urgency as a reason for going outside the normal process, and we’re talking natural disaster type events. Not “we’re in a bit of a hurry”.  And if MOD had used an existing framework, they could have put a legal contract in place in around 4 weeks – my understanding is that the process with Alix took at least that long. No excuse whatsoever.

Finally, the argument that it’s OK because MOD has reduced consulting expenditure. That is totally irrelevant to both the legality and the value of THIS contract. It’s like saying, “I’m spending less on travel overall this year so when my firm sends me to London I can stay at the Ritz and eat at Le Gavroche”.  A reduced budget does not mean you can break the policy rules or that you can ignore VFM on the money you still have available to spend. Indeed, there’s an argument that if MOD have less to spend on consultants in total, they should be even more diligent about getting the very best value – something that didn’t seem to occur to them here.

Voices (3)

  1. Elephant in the room:

    Last week I received an email telling me about something called ‘tracker’ which seems to show total government spend to what I guess is end of July. Pasted in below you can see we’ve managed to spend a whopping £146bn so far this year which by some simple math points to an out turn this year of £250bn. Now I think last years public sector spend was £235bn so that means 6% more!

    Perhaps we need more of these Alix super heroes becuase everyone else seems to be spending more – looks a lot like business as usual in public sector procurement! Maybe you should start a sweep on this years spend outturn and see how effective our new approach to public procurement really is.

    With a total spend so far from January 2011 of £146,003,754,510.17 – it is anyone’s game!
    So who has spent what?
    Central Government £99,389,430,852.30
    Local Government £15,682,819,570.67
    Emergency Services £78,629,500.56
    Non-Departmental Public Bodies £3,114,832,048.07
    NHS £27,738,042,538.57

  2. UnionSteve:

    This sounds like it might be an abuse of the MOD’s FATS contract system. In order to give the appearance of reduced spend on consultants (External Assistance), they have been rebadging work as Technical Support, avoiding usual procurement rules. FATS spend has gone up from around £6M to almost £300m pa in the last couple of years – mirroring the reduction in declared EA spend. Questions have been raised and FATS has been the subject of an audit. Watch this space. And ask more questions if the audit turns into a whitewash.

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