At a time of immense struggle for many householders to pay bills and put food on the table, a report by the National Audit Office (NAO) reveals that the Ministry of Defence (MOD) have wasted  £50m on eight Chinook  helicopters that have never flown as a result of “one of the most incompetent procurements of all time”.

The major difficulty has arisen because the MoD forgot that it sometimes rains in the UK (especially during the summer months) and did not include in the contract a clause that would provide access to the source codes for the highly complex software. Without the source code, RAF specialists were unable to check whether the adapted helicopters passed Britain’s strict airworthiness criteria.

The helicopter manufacturer, Boeing has refused to hand over the codes as they are under no contractual obligation. Although this is a very basic mistake made by the MoD, it is an important lesson for all of us to ensure that we obtain the source code and enter into an Escrow Agreement especially with the credit cruch chewing up many IT companies.

The above is the latest image of a new recycled helicopter selling for only £520.00 with state of the art onboard computer technology. The owner may also give free access to the source code!

The report, blames 15 years of poor decision making for the disaster, which has cost  £422million, or around  £52million per aircraft. That is five times what it would have cost to buy the eight aircraft the RAF eventually ended up with. 

Tim Burr, the head of the NAO, said the episode showed the importance of 'timely decision-making, understanding requirements and proceeding purposefully to the solution'.

On 16 May 2008, the High Court in London delivered the second part of a double legal blow to the London Borough of Brent (Brent) in relation to its attempts to establish an 'in house' mutual insurance company and to purchase insurance from it.

Not only has Brent been found to have acted ultra vires in establishing the mutual (notwithstanding its broad 'well being' powers), but it has also been found liable in damages to a rival insurer which had lost out to the mutual in a competitive tender to provide insurance services to Brent.

The following is a very useful article written by Anna Sweeney, from Walker Morris Solicitors.

Over the last couple of weeks especially, we have been reading, seeing and hearing how very careful and detailed planning and research of other major construction projects around the world ensured that the new heathrow terminal 5 would open on time and to budget. Whilst this was generally achieved and the Queen was not left waiting to cut the ribbon, the operational commencement of the flagship building has been nothing but disastrous with the usual occurrences of cancelled flights and lost luggage.

Just 24 hours before the operational opening, BAA were forced to suspend plans to fingerprint domestic travellers after confusion over the legality of the scheme. What is so mind boggling is that despite the huge amount of money spent on the project, no one remembered to call the Information Commissioner much earlier to find out whether the “count them all in, count them all out” multi-million biometric system would be lawful under the Data Protection Act.

It is a huge public relations disaster for the airport authorities to postpone using the system and for them to now suggest that they will work closely with the ICO and other relevant authorities and agree the best approach going forward.

The plan was to introduce new finger printing technology because T5 will use a single departure lounge for international and domestic passengers (cynics suggest that this was done to increase BAA’s retail sales and save on constructions costs). The ICO however now wants BAA to explain why fingerprinting is needed at all, pointing out that photographs are less intrusive, and are used at other BAA airports which have a single lounge for all passengers.

This is an important reminder to all of us, as the use and sometimes misuse of personal data is becoming one of the most important aspects in any project, be it construction or IT related. It is a point which needs careful attention at the right time, otherwise like BAA, you may find your clever and expensive ideas being put on hold in the cargo bay!

Fraud in the UK seems to be increasing with more than £1 billion worth of fraud cases coming to Court in 2007, the highest level since 1995. Government agencies were the primary target, losing more than £800 million with financial institutions and commercial businesses losing a combined amount of £61 million by comparison.  

Over the last two weeks, reports suggest that a buyer for supermarket Sainsbury's has been arrested over claims he took backhanders to the tune of £3 million from a potato supplier, and police are investigating  allegations of contract fraud at Metronet. 

So-called procurement, or contract, fraud is probably the least visible and most costly. That's largely because it's frequently a hidden byproduct of seemingly legitimate transactions, often taking place between an organization and supposedly legitimate supplier.

What's more, the organisations victimized by this kind of fraud often don't report it and choose to settle privately with the alleged culprits involved. Kickbacks, collusion between contracted suppliers, price rigging and over-specification are examples where public sector organisations can be exposed tofraud by their suppliers. Supplier fraud will affect project costs, delay project timescales and can jeopardise a project’s viability. 

Undertaking checks at Pre-Qualifications stage is now no longer sufficient to protect the organization as procurement is becoming more complex and the fraudsters are also evolving and becoming more sophisticated.  

Below are a few suggestions on what you might be able to do to reduce the likelihood of procurement fraud:  

Organisations need to gain more comprehensive information about staff working in supplier organisations. Readers are aware that for above threshold contracts, there are provisions to mandatory exclude suppliers who have been involved in fraud or corruption. However smaller scale contracts can also involve elements of fraud and organisations need to monitor and extend internal anti-fraud procedures into supplier’s functions.  

It is very important (easier said than done) to have a well resourced and specialist procurement team which have a good understanding of market dynamics. Procurement professionals with an expertise in particular markets can provide organisations with sound pricing knowledge, market intelligence and negotiation skills. 

Carry out routine checks and this does not merely mean that you follow the trainee procurement officer who arrives in a new car two weeks after starting work. To take a pro-active approach to potential fraud requires organisations to think outside the box.  

CIPFA PIN would be very interested to hear from organisations who may have been victims of fraud or from any members who would be interested in attending a special one day training event in this area.

Politicians and experts are lining up to warn the public that a downturn in the economy has started and the next couple of years could dramatically change what we have got used to over the last several years. The conservative leader this week warned of a "global food crunch" as the era of abundant food supplies draws to an end.  

Over the last couple of weeks, we have all personally seen our weekly shopping bills increasing and the shopping trolley is not as full as before. With utility bills increasing spectacularly, the big question is how we respond to this individually and collectively.  

When we learned to drive many years ago, back in the age of standard rear wheel drive, we were taught to “turn into the skid” because our natural instincts to turn away only made matters worse. In a recession, management’s reflexes suffer the same problem -- at the very time executives and directors should be carefully aiming their staff and information technology (IT) to make their organisations more productive, they often cut indiscriminately.

This usually creates more costs and problems later.  Research shows that organisations with well-targeted IT investments and motivated staff who are well trained outperform their peers. Just this week, local authorities denied charges that they were not committed to providing training to produce the transport planners and engineers of the future. If this situation continues, due to the shortages of trained staff coming out of alternative routes, authorities will have a major problem as to how they continue to provide these necessary services in the future. 

So what do you do?  

Understand your “IT cost of goods.” Many organisations do not know how much IT is embedded in their services or what impact it has. Before cutting, understand the bigger picture. Many procurement teams have done a lot of work recently to identify spend patterns ibn their organisation – the issue now is to intelligently use the data gathered to determine the future direction of the organisation.  

Be aware of the health of the IT organization. IT expense should remain a steady percentage of overall expenditure. As IT is used to automate other parts of the business and lower total cost, IT itself should be increasing as a larger piece of a smaller overall expense budget.  

Use the downturn to find and train the very best talent. Having productive teams will help the organisation get through the hard times. Sometimes, of course, cutting is unavoidable. In that case, you must still have a team that can recommend to management what can be cut and what can't be touched. You must be sure you are cutting the right things and investing in the right things. 

What you are doing is to make sure that the economic downturn does not cripple your organisation in ways that will limit your organisation’s future performance!

This week is the school half term holidays in many parts of the UK, and it appears that the government is trying to sneak in some bad news for our children whilst they supposedly enjoy their week away eating burgers and spending their money at the local shopping mall.

Whilst, the lucky ones may indeed have been bitten by a real mosquito on a tropical island, it seems that today, an electronic mosquito can also “bite” a child at the local corner shop.  

If anyone like me (until yesterday) were not sure why children were running away from their local shop without spending anything (no baseball bat or hoodies in sight) - the answer is the use of “Mosquito” device which emits a high-pitched sound to disperse teenagers. Despite a campaign called "Buzz off", led by the children's commissioner for England and backed by groups including civil liberties group Liberty, calling for Mosquito’s to be banned, the Government is in no hurry to prohibit their use. 

Another report out today reveals that all 14-year-old children in England will have their personal details and exam results placed on an electronic database for life. This means that colleges and prospective employers will be able to access students’ records online to check on their qualifications. Under the terms of the scheme all children will keep their individual number throughout their adult lives.  

The new database known as MIAP (Managing Information Across Partners) equivalent to a car chassis number has filled parents and human rights campaigners (but not the Information Commissioner) with horror at the prospect of “big brother” keeping an eye on little Tommy or T1666 for the rest of his live.

With the recent track record of government IT disasters and security lapses, one wonders where or in whose hands all this information will end up. One thing is for sure now, surveillance society is now real and any child who does not spend his or her five hours on culture every week (another headline story) and that does not include playing computer games will be tracked down and bitten by a mosquito!

On 24^th Janurary 2004, in the case of C-532/06 - Lianakis and Others v. Dimos Alexandroupolis and Others, the European Court of Justice (ECJ) handed down a preliminary reference from Greece clarifying two important points relating to the obligations of contracting authorities in relation to award criteria:

1.  A contracting authority cannot apply weightings and sub-criteria to award criteria set out in tender documentation unless those weightings or sub-criteria have been previously brought to the tenderers’ attention; and

2.  A contracting authority cannot take account of a tenderer’s experience, manpower, equipment or ability to perform the contract by an anticipated deadline as part of the award criteria. Such criteria can only be taken into account at pre-qualification stage.

Background to the case

• Tenderer’s proven experience;
• Tenderer’s manpower and equipment; and
• Tenderer’s ability to complete the project by the anticipated deadline, together with its commitments and professional agenda.

• Tenderer’s proven experience (60%) - evaluated by reference to the value of projects previously completed e.g.:

1. between €500,000 and €1 million = 6 points;
2. between €1 million and €1.5 million = 12 points
3. ... (up to a max score of 60 points for experience on projects worth over €12 million)

• Tenderer’s manpower and equipment (20%) - evaluated by reference to the size of the teams proposed for the project e.g.:

1. 1-5 persons = 2 points
2. 6-10 persons = 4 points
3. ... (up to a max score of 20 points for a team of 45 persons or more)

• Tenderer’s ability to complete the project by the anticipated deadline (20%) - evaluated by reference to the value of current commitments e.g.:

1. Current work worth less than €15,000 = 20 points
2. Current work between €15,000 and €60,000 = 18 points
3. Current work between €60,000 and €100,000 = 16 points
4. ... (down to a min score of 0 points for work worth more than €1.5 million)

ECJ Ruling

The ECJ concluded that while the Services Directive did not in theory preclude the examination of the tenderers’ suitability and the awarding of a contract from taking place simultaneously, the two procedures are nevertheless distinct and are governed by different rules. It affirmed the basic principle that qualitative selection criteria are to be evaluated on the basis of economic and financial standing and technical capability whereas award criteria are limited to the lowest price or most economically advantageous tender.

The evaluation of the most economically advantageous tender excludes criteria linked to evaluating a tenderer’s ability to perform the contract.

The ECJ concluded that by evaluating criteria linked to the experience, qualifications and ability to properly perform the contract, the Greek contracting authority had erroneously laid down award criteria which were more appropriately characterised as criteria for qualitative selection.On the point of whether the contracting authority is permitted to subsequently set down weighting factors and sub-criteria in respect of published award criteria, it found that the procurement rules require that tenderers are made aware at the time they prepare their tenders of the existence and scope of all elements taken into account by a contracting authority in identifying the economically most advantageous offer as well as their relevant importance.

Moreover, contracting authorities are bound to place tenderers on an equal footing throughout the tender procedure by adequately publishing the criteria and conditions governing the award of a contract.

Accordingly, the ECJ concluded that a contracting authority cannot subsequently apply weighting rules or sub-criteria in respect of published award criteria which it has not previously brought to the tenderers’ attention in the tender documents.

Impact

This is a very important case as I often get asked to comment on similar cases. The judgment acts as a useful reminder of the importance of ensuring that the criteria for awarding contracts are carefully considered at the start of the procurement process and communicated to bidders.  It also reminds us of the necessary separation between the qualitative assessment and award criteria to determine who has submitted the most economically advantageous tender.  

Other CasesThe European Commission has decided to refer Italy to the European Court of Justice over the procurement of waste management services by the city of Contigliano.

The case concerns the direct award of waste management services by the Municipality of Contigliano in Lazio to a public-owned limited liability company, namely A.M.A. Servizi S.r.l., of which the town of Contigliano owns 0,5% of the capital. Italy maintains that the award of this contract of services to A.M.A. Servizi S.r.l., by the Municipality of Contigliano, is excluded from the application of EC public procurement rules since A.M.A. Servizi is an "in-house" structure of the awarding entity as set out in the case-law of the European Court of Justice.The Commission considers that the conditions required by the ECJ case-law for the application of the "in-house" exception are not met in this case. First of all, the powers entrusted to the Municipality of Contigliano as a minority owner are insufficient to confer on the latter a control which is similar to the one exercised over its own departments. Secondly, the undertaking is active in the market and it carries out a significant part of its activities with parties other than its controlling entities.

Further Details: http://ec.europa.eu/community_law/index_en.htmSupply

Supply of software between public-law bodies

The Commission has decided to refer Germany to the European Court of Justice over a contract for the supply of a software application that was concluded directly between two public-law bodies responsible for data processing services for the use of municipalities without conducting a competitive tendering procedure. Under the contested contract, the Anstalt für Kommunale Datenverarbeitung in Bayern (AKDB) had to furnish vehicle-licensing software, developed for use by municipalities in Bavaria, to Datenzentrale Baden-Württemberg, which intended to use it in its data centres serving the municipalities of Baden-Württemberg.

The Commission has been made aware of the contract by private undertakings offering comparable software products for municipalities. As a contracting authority, the Datenzentrale has to comply with the Internal Market rules on public procurement when it awards a supply contract to a third party even if that party is itself a public-law body subject to public procurement law. Since AKDB is acting as contractor under a purchase contract for pecuniary interest, the Datenzentrale would have been obliged to award the contract as a public supply contract in a competitive tendering procedure complying with EU Directives on public procurement, ensuring transparency and equal access for suppliers in the Internal Market.

Further Details: http://ec.europa.eu/community_law/index_en.htm     

1      Email and internet were still the domain of the few. Today eProcurement and eSourcing are two of the most important aspects of procurement. Without these, procurement departments would come to a grind. 

 2.  Centrralised Procurement Arrived.  In 1998, even top purchasing departments processed purchase orders. Today, purchasing departments aim to centralize the supplier selection process, not transactions, which are delegated to end users or outsourced. 

3.  Procurement grabbed more spend.  Today when procurement departments deliver results, management find out about it and appreciate how procurement can positively bring about efficiencies (well sometimes). 

 4.  Social Responsibility is becoming a top priority and no longer a matter for the “greens”.  Today, public sector directors are more aware of the need to ensure ethical and sustainable purchasing to avoid media scandals and get better performance rating.  Management counts on procurement staff more than ever to buy from diverse suppliers, make environmentally-conscious decisions, and do business ethically. 

5.  There is now greater scrutiny of where the money goes and how there can be greater efficiencies in how money will be spent in the future.  With the potential of smart  purchasing widely known, senior management more strictly  hold their purchasing departments accountable for results. Long gone are the days when poor buying could be hidden in some obscure cost code which even the most agile auditor could never find.

 6.  Strategic Sourcing went DIY.  In the '90's, strategic sourcing was done mostly by consulting firms hired to  help companies reduce spend.  Today, all organisations have their own corporate procurement strategy. 

7.  Supplier Roles Expanded.  In 1998, there was talk about "partnering" with suppliers.  Today, there's action. Top procurement departments actively develop their suppliers and look to the supply base for ideas, better performance and innovation. Just look at the number of Meet the Buyer Events held in your local region.  

8.  Global Sourcing went mainstream.  Ten years ago, only the very progressive public sector organisations were searching abroad for suppliers. Now EU procurement is  a must for relevant contracts. Staff now enjoy looking for the right CPV code!

9.  Head of Strategic Procurement.  They now exist and sit on senior management groups. We are now seeing big fat procurement salaries and it will not be too long before it breaks the £100K barrrier. We deserve it!

10.  The Supply Chain is now recognized.  In the last decade,  organisations more closely analyzed the way material flows into, through, and out of the organization.