Performance, Penalties and Fundamentals

The COVID crisis has meant that governments worldwide have had to make spending decisions at levels rarely seen in peace-time and to build infrastructure and services in record time.   In the UK,  building the Nightingale hospitals in weeks was a massive feat of procurement and project management – lauded as “18 Months of Procurement in 2 Weeks”.

As we all go back into lock-down and the furlough scheme is extended to the end of March 2021, it’s perhaps not surprising that the tide of public opinion has turned and the government’s handling of procurement during the COVID crisis is coming in for hostile scrutiny.

Many of the stones thrown have centred around the award of contracts.   The scale of the spending and the speed that they had to be put in place make for eye-catching headlines. Unsurprisingly, it’s becoming a hot political topic.

“The British people are paying the price for the mistakes of the prime minister and the chancellor” said Keir Starmer in Prime Minister’s questions this week – before adding “If they’d given contracts to companies that could deliver, public money would have been saved.”

It was actually a question from the Prime Minister’s own party that drew my attention the topic in September.   As performance of the Test and Trace system came in for criticism, David Davies raised a written question asking: 

“What assessment did the department (of Health and Social Care) make of the performance of bidders for the COVID-19 test and trace contact-tracing contract on previous government contracts?”

A subsequent question on how performance was being managed was again asked by Davies as Sir Patrick Vallance was forced to admit that there was “room for improvement” :

“What performance targets are in place for commercial providers of track and trace functions; what penalties can be imposed for failure to meet those targets; and what penalties have already been imposed for failure to meet those targets?”

Within Helen Whateley’s response was an interesting point:

“Contractual penalties are often unenforceable under English law, so they were not included in test-and-trace contracts with Serco or Sitel.”

The enforceability of contractual penalties is a discussion for lawyers.   But as a procurement professional this statement is jarring.   Almost everything in a contract with a supplier of service is a performance clause and best practice centres on how performance is defined, measured, managed and paid for.

We are perhaps dealing with an extreme example here of a service being put in place at extremely short notice – possibly without clarity of specific requirements at the outset.  

Thankfully in the vast majority of procurement scenarios in business there is the luxury of time to establish the fundamentals.

The Fundamentals of procurement are exactly that – fundamental to ensuring value for money.   They require careful thought:

• Identify the need – if you don’t understand what the ‘need’ is, there is a high risk that the requirements will be awry
• Understand the options available – look outside the market or sector, understand what is possible
• Prioritise relationships – it’s not just about the terms, conditions and service levels.  Whilst these are important, it’s people who will resolve problems and deal with unexpected bumps in the road
• Clearly define the requirements, service levels, how they will be measured and – vitally – how performance will be paid for

We covered the Fundamentals in depth in our Focus on Costs series (Procurement Fundamentals – The Building Blocks) – as we said at the time, if you don’t pay them due attention any direct savings you do make will disappear in a short space of time.    They also help you to avoid avoid difficult questions further down the line.