Olympics G4S contract – a good illustration of contract management risk

It was quite a coincidence that we were featuring contract management and the importance of assessing risk and opportunity last week just as the story around the Olympic security problems broke. And thanks for all the interesting and insightful comments last week on that subject  - we'll feature some of them later this week when we come back to it.

Initially, I expected G4S to push back with some strong rebuttals when the story first broke  – “we told the Government months ago and they didn’t listen” sort of thing. But that really hasn’t happened, so it does look like a supplier problem lies at its core.

But it raises a key issue in terms of the risk management element of contract management. We said in our last post that risk, along with opportunity, are the key drivers for contract management. Assessment of risk is vital to identify the level of effort and resource that goes into managing suppliers and contracts – and what nature that input takes of course.

G4S announce Games security problems are resolved

Now, I’m sure that LOCOG and / or the Home Office will have identified the risk of G4S failing to provide enough security personnel through their risk analysis process.  But let’s assume that until recently, G4S told them everything was fine. The key question is this.

How much do you interfere in a supplier’s business, and how closely do you monitor your suppliers’ performance – particularly when the area in question is not the direct delivery of goods or services to you?

That’s the tricky area here. The area of failure for G4S (allegedly) is in the recruitment, accreditation and training of personnel – which all come before the actual delivery of service to the customer.

We don’t know of course how much monitoring has gone on. But this problem suggests that the contract and risk management assessment should have looked at all the steps that form the supplier’s process, on which final delivery is dependent. And if the risk is great enough, then tight monitoring of the supplier may well be necessary, every step of the way.

Maybe in procurement we’ve got too fond of our output and outcome based contracting philosophies. Leave the detail to the supplier, just specify and manage the final output. Great if it works. But sometimes we need to understand how the supplier is getting to the output, and satisfy ourselves they know what they’re doing.

I remember being told that the highly successful implementation of Oyster Cards for the London Underground was down to one key factor. Transport for London did NOT just “let the supplier get on with it”. They monitored and managed the supplier at a level of detail that the supplier found pretty onerous.  But the end result was a project delivered to time and budget, that worked from day one.

One other Olympics point related to risk. Was the choice of a single supplier for the security requirement sensible? Maybe it was initially, but once the requirement grew so much, you wonder whether that might have been a good point at which to pursue a dual or multiple source approach? I know it’s easy to be wise after the event, but sometimes the basics we were all taught at procurement nursery school turn out to be based on some fundamental  truths – don’t put all your eggs in one basket, spread your risk, don’t get locked in to one supplier...

So, perhaps after this episode we’ll see a lot more micro-management of suppliers in critical projects, and perhaps less sole-sourcing? And might this even mark the high-water mark for public sector outsourcing? I doubt it, but we’ll return to that thought another day.

PS  We’ll also return to Jeremy Hunt’s insightful comments about contract management later this week when our slight hysteria has subsided....

Voices (12)

  1. Alrich:

    Good point being made in the article about managing contracts – particularly important for public sector outsourcing (ie if you didn’t outsource it, you’d be able to manage every jot and tittle, but if you do outsource it, you need some similar management control – you can’t leave it all to the contractor and hope it will all come right on the day). Locog is lucky enough to be able to call on the army to help out, but that’s not possible with other public sector contracts (compare the problems over care homes where what’s left of local authority supply steps in when there’s a care home firm collapse). How can you insure against failure? What is the back-up? Should the contractor pay for that back-up? RJ makes a good point, that it looks as if there are some penalty clauses imposing responsibility on G4S – but I guess we’ll know more after the sports are over and the contract is picked over by the politicians and the press. Some of the legal issues I deal with here (albeit rather sketchily not knowing the details of the contract) http://alrich.wordpress.com/2012/07/21/can-g4s-keep-its-olympics-money/

  2. Final Furlong:

    I found out today that a team leader (in a key area of the G4S security delivery model) had to travel to 3 different suppliers across London to obtain important documents before they could commence their job. Seems that G4S have outsourced (sub-contracted) much themselves, and haven’t played the key role (expected) in joining-up the dots as a ‘prime’ or ‘integrator’…

  3. eSourcingSensei:

    Hi

    Firstly it really does appear from the outside that there were no review stages put in place during the YEARS leading up to the Olympic Games – G4S should have faced periodic reviews to ensure compliance to the required time-line at least on a quarterly basis – I think th eissues would have been identified by someone much earlier on

    Secondly and far far more worrying, this is a company that are in strong contention to manage local Police forces. My friends within the force are already working in some of the most difficult coditions and are now witnessing this complete debarcle from a company that may one day end up managing them.

    I wonder if this complete mess up will eliminate them from particpation in bids for the management of the Police forces, certainly if a company had made such a bad job of a contract for the company I previously worked for there would be extreme doubt over their particpation in further key contracts

    Sensei

  4. stephen ashcroft:

    Join us at a fictitious review of the security contract outcome for the 2012 London Olympics.

    Q. Why wasn’t the Minister informed about the problems now known?
    A. Well, to be frank, who wants to give a Minister bad news? It could threaten our future career and possible honours award.

    Q. Who is accountable for the failure?
    A. No one! It has been a team effort and everyone has done their best to manage emerging events. Under the circumstances it is difficult to know what else could be done.

    Q. Who prepared the Pre-Qualification Questionnaire that was submitted
    by potential security advertisers?
    A. That was a team effort consisting of a specialist procurement team.

    Q. Did they have experience of such complex contract?
    A. They had worked on other contracts.

    Q. Was legal advice taken on the content of the contract?
    A. Yes, we were satisfied that all the risks had been covered.

    Q. Was there a project risk register, updated on a regular basis?
    A. We did discuss risks from time to time.

    Q. Is Locog subject to the freedom of Information Act?
    A. No

    Q. Why?
    A. The procurement does not fall within the EU Procurement regime.

    Q. But Locog are spending public money, aren’t they?
    A. Not strictly speaking.

    Q. Who evaluated the tender from G4S?
    A. It was a team effort.

    Q. What due diligence was done to check that G4S would meet their contractual Obligation?
    A. They are a large from and have > £500 Million of public sector work and in any case we has somewhat limited resources.

    Q. Who was accountable for Contract Management?
    A. This was a team effort.

    Q. Have regular audits taken place at G4S to check actual progress against contractual milestone?
    A. There have been regular reports to Locog.

    Q. How much money has been spent on Contract Management?
    A. They budget reporting does not show this figure.

    Q. Who will pay all the costs of the Armed Forces and Police who are covering the shortfall in security personnel?
    A. We are current checking the limit of liability clause in the contract.

    Q. Why did you adopt a single source strategy for security provision?
    A. That was deemed the most cost effective.

    Q. We understand that G4S appointed staff have not arrived at key sites in the numbers required. Is that time?
    A. There are reasons for the non-arrival and these are confidential.

    Q. Will you be making the G4S contract available to the public?
    A. No

    Q. Why?
    A. It involves national security.

    Q. What will be learned from the reported debacle?
    A. We will give serious consideration to al points raised.

    Q. It is a complete shambles isn’t it?
    A. It is an isolated situation, a one-off if you like. The Olympics only occur once in most people’s lifetime and life moves on.

    Q. Will G4S continue with other government contracts?
    A. That is not in our domain to answer.

    Q. Will contract set-off be used to recover additional expenditure?
    A. At some stage that may be discussed.

  5. Bex:

    given this debacle, am I the only one thinking that BBC’s 2012 is a real fly on the wall documentary?

    (Editor’s note – see our post later this afternoon)!

  6. Little Acorn:

    When I’ve been travelling recently, over the last 6-12 months , I’ve noticed more and more G4S branded people around. We know that success breeds success, could it be that winning the Olympics contract has helped G4S win others and they’ve seriously over stretched themselves? And, has the longer-term contracts meant that they took the eye of the extremely big Olympic ball?

    Does anyone know if they were awarded the contract as a sole supplier or a prime contractor? I understand that the contractors for some of the other contracts are using sub-contractors to augment their service provision.

  7. Mary Wildsmith:

    Throughout the project, there should have been a comprehensive risk register review carried out as part of the joint governance – all risks, whichever party owned them. G4S would have reported regularly to the project board on progress towards the final deliverable (total number of staff to be recruited and trained, number achieved, number outstanding etc), then the fact that they were not on track at any point would have been highlighted.

    Customers cannot afford to transfer risks which impact their reputation to a supplier and then forget about them because if the risk becomes an issue the customer HAS to step in, but is on the back foot if he has only just been made aware of the facts

    I am delivering training on risk management next week and am using this situation as a live example

  8. David Orr:

    In Somerset County Council’s contract management of IBM/SW1, there was the “light touch” regulation that has cost us all so dear since 2008 (Note to all politicians: EVERYTHING IS DIFFERENT NOW).

    When the “thin client” (low overhead) Somerset County Council contract management team was formed, there was no IT expertise on the team at all, despite a contract with a savvy US multinational supplier IBM and a programme of “transformation” (how I hate that word now) based upon a big IT SAP system, new CRM and a new web site.

    When asked shouldn’t there be some sort of IT expertise for oversight, IT strategy & information assurance, the answer was (I kid not): “IBM is a world class IT company, so there is no need to have IT expertise on the contract management team”. The rest is a disastrous history with costs for the poor and getting poorer taxpayer exceeding savings by around £50m (at the last count).

    A recent Information Commissioners Office audit of Somerset County Council (after several self-reported incidents) states:

    “In view of previously reported breaches and possible ICO enforcement actions, it is recommended that SCC review the existing risk assessment process to determine if Data Protection & Information Governance risks are being properly recognised”………”Any data loss by IBM could be of great impact and it is therefore recommended that SCC review the current reporting system to ensure that any major security breach by its data processor (SW1) be reported immediately to a nominated SCC Manager”.

    “Light touch” or “Self Regulation” rarely works: Banking (LIMORE/LIBOR), Insurance (Equitable Life), Farepak, Energy cartel “market”, Rail fares etc).

    You are pitting the legitimate pursuit of profit by a commercial enterprise against a level of social self-enlightenment that will never exist.

    If you believe in regulated markets and enterprise, then you cannot tolerate rigged or dysfunctional markets. Bad capitalism undermines the whole concept!

    Whether key long-term sectors of National strategic infrastructure importance, typically with 10, 25 or even 50 year investment cycles, such as water, energy & transport should be be marketised at all is a whole other story…….

    But note this: National Grid are being paid on top of existing income (which should allow for maintenance & replacement on an annual basis already) for new infrastructure at a proposed rate of 7.5%, when the state can borrow at 2.5%!

    PFI is similarly flawed…….

  9. RJ:

    On a slightly different tack, radio reporters this morning were all querying why the government were not imposing “penalty clauses” and stating that G4S were “paying a fine” for their poor performance. Given that, from my understanding of other press reports, G4S appear to be meeting the additional direct costs caused by their failings with no questions, it seems to me that the actual contractual risks have been covered as well as most procurement teams would envisaged. However, the whole debacle shows how the gap between contract negotiation and proactive contract and risk management can lead to a disaster. Looks to me like a classic case of someone negotiating a contract then lobbing it over the fence to the operational management team with little interaction between the two either before or after the event.

    1. RJ:

      On re-reading this post, I realised that I had meant to highlight the media’s apparent ignorance of English contract law preventing “penalty clauses” and to point out that, if G4S is meeting the additional costs it would seem that they are probably complying with both the law and the maximum damages that the contract would realistically have imposed. This all goes to show that the contract itself is not always (or even usually) the best way to manage risks.

  10. Rob:

    Every first-class procurement function should play a major role in ‘setting a supplier up for success’ following the award of a (mission-critical) contract.

    History will tell you that Procurement’s early intervention has also ensured that the contract broadly remains the same 18 months later (by when, I understand, statistically, 70% of all contracts have materially changed…)

    I noted that LOCOG has been shortlisted for the ‘Best Contribution to the Reputation of the Procurement Profession’ category in the 2012 SM Awards – but not for the ‘Best Supplier Relationship Management’ category. A lucky escape for the judging panel? Well, nearly.

    I’d like to understand how one of LOCOG’s largest, most high profile, mission-critical contracts (securing the lives of all visitors on the Olympic Park…) was left to determine its own outcomes.

    I wonder, are any of the corporate hospitality contracts missing their delivery targets and milestones? Or how about the merchandising contracts?

Discuss this:

Your email address will not be published. Required fields are marked *