Supplier Management – Lloyds and Deloitte find you can’t outsource reputational risk

There's an interesting row brewing up, with supplier management implications, as staff at a centre handling complaints to Lloyds TSB bank about mis-selling of PPI (insurance) were apparently encouraged to be less than helpful to claimants. Whatever the rights and wrongs of this, the supplier and supply chain implications are interesting as Lloyds outsourced the running of the centres to three firms, one being Deloitte, who then outsourced recruitment and initial training of the 1300 staff at their centre to another firm, Momenta.

Deloitte lost the contract last month, and Lloyds claimed that this was because they identified problems.

"Earlier this year we became aware of issues at a PPI complaints handling centre called Royal Mint Court in central London. This site was operated for us by a third party supplier Deloitte. Following further investigations we took immediate action, and in May concluded our contract with Deloitte and moved to a new supplier."

So, well done Lloyds TSB, you might say. But hang on a minute. Deloitte originally issued a statement, saying:

"Deloitte's role was to process PPI mis-selling complaints from Lloyds Banking Group (LBG) customers who were sold policies by the bank, in accordance with the bank's policies and procedures. We cannot, however, comment upon the specifics of this matter due to reasons of client confidentiality."

But it later elaborated to defend its handling of the process, presumably once it saw what Lloyds said.

"In processing claims in accordance with those bank policies and procedures, we provided a high level of service throughout the period. However in May, Lloyds decided to move from three suppliers to two and we received notification of their intention to conclude our contract in May. To our knowledge the conclusion of the contract is unrelated to matters reported in recent press articles," Deloitte said.

Interesting. So did Lloyds not tell Deloitte that the problem was why they were losing the contract? That would seem to be poor practice. Although there's no obligation to tell a supplier why they're being sacked, one would usually feel you owe that to a firm in return for their efforts - and to keep them motivated in case you want to work with them again.

Or perhaps Lloyds did tell someone at Deloitte, who then decided to keep it to themselves - perhaps because it was embarrassing. I've known situations where an account manager will tell their bosses they've lost a contract or bid on price grounds when the real reason has been quality or service - but the account manager doesn't want to say that internally! So that's far from impossible in this case.

Anyway, the two firms' accounts certainly don't stack up. I'm also surprised to hear that Deloitte's operate in this market actually, but the more noteworthy point for procurement concerns risk transfer in outsourcing or indeed any significant contract.

Whatever theoretical risk transfer Lloyds - and indeed Deloitte in using the recruitment firm - may have undertaken, ultimately responsibility rests with the customer facing firm. If Lloyds' guidance to their providers, or processes, were faulty and their suppliers were just following orders, then Lloyds are to blame. If suppliers did not follow proper process as defined by Lloyds, then Lloyds should have managed the suppliers and contracts better.

You can't escape that ultimate accountability in situations like this, although of course in this case, all three firms will no doubt be feeling a bit sore today.

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First Voice

  1. PlanBee:

    Said it once I’ve said it a thousand times, you cant outsource risk

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