Are Suppliers Ripping Off the Government? Arguments from Our Procurement Pub Debate

We promised to look in more detail at the arguments for and against at our recent pub debate with procurement software firm Basware – the motion being that “this house believes major suppliers are still ripping off the government and taxpayers”. (Result and overview here!)

So let’s take the arguments "for" first of all - that suppliers are indeed ripping off the government.

Allan Watton referred to stats from the Aberdeen Group and the Standish Group that suggest more than 50% of outsourcing arrangements between public and private sector are wildly over budget and not delivering the outcomes required.  73% of IT projects are failing, even with a definition of failure that is pretty extreme – a project that is running at over twice the budget or is taking twice the expected time to implement.

Other research reports have identified billions wasted on PFI (private finance) projects because of “inadequate and inappropriate supplier performance”. The National Audit Office has identified many examples of poor supplier performance, for instance with IT systems delivered without testing and with capability that just did not match the requirements.

The Best Practice Group (Watton’s advisory firm) has experience of over 500 commercial relationships and has seen many supplier failures although there are also many bad clients who do not know what they want. But recent court rulings have defined better the responsibility of expert providers. If a firm presents itself as expert in its field, it has a duty of responsibility to the client. So a firm can’t just hope that the buyer’s ignorance will let them off the hook – it has a duty to explain to the client what they are going to do, what they won’t do, what the risks are and so on.

Government therefore needs to build in these duty of care and expert responsibility issues into contracting. Often it will make sense to contract separately for advice and delivery – you can get deeper insight and better due diligence that way . Suppliers must warn buyers if things are going wrong, but too often they don’t.

Watton finished with a joke – what is the difference between an IT salesman and a second hand car dealer? At least the car salesman knows he’s lying!

Peter Smith then picked up on these and other issues when he spoke in favour of the motion. He also pointed out a long list of supplier failure and bad behaviour, starting with those occasions where it was literally criminal behaviour, such as the Serco /G4S tagging scandal.

Sometimes the driver of the supplier behaviour seems to be pure greed. The recent reports of pharmaceutical firms putting the price of generic drugs up hundreds of percent once they become “generic” and not subject to negotiation would appear to be a case in point. A few years ago, Spend Matters exposed the fees being paid by MOD to Alix Partners for consulting advice (ironically around how to save money on contracting); not only did the firm make £5000 a person-day in fees, they were contractually  allowed to charge for staff lunches too!

But it is not always criminality or greed. We have those cases where poor supplier performance and delivery led to major losses for public sector buyers.  The failure of multiple outsourcing ventures in local government, including the IBM deal in Somerset and the BT contract in Cornwall, were examples of this.

So this “ripping off” also applies where it is a lack of competence from the supplier. There is a long history of suppliers over-promising and then failing to deliver. Even if that is not overtly criminal or driven by greed, the end result is the same – the taxpayer loses out. And the escalation of private sector salaries is one driver for this desire to sell at all costs. We see CEOs of firms, some of whom  are not creating shareholder value, paying themselves millions. This is true across many sectors and many suppliers to government.

Of course, the buy side has to take some responsibility too. And not all suppliers act in this way at all times. But too often, we are still seeing the supply side not giving the public sector good value for money and performance.

(We will be back with the arguments against the motion shortly)!

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