Public Accounts Committee (PAC) chair Meg Hillier described the UK Trade and Investments (UKTI) contract with PA Consulting as a “fiasco beyond belief” after UKTI auditors reported that poorly documented contract alterations had made it impossible for the organisation to identify whether their consultants had been overcharging them. An assertion that PA Consulting’s CEO Alan Middleton refuted at an intensive hearing subsequent to a National Audit Office (NAO) investigation into the contract, where he denied that there had been any deliberate attempt to mislead UKTI.
So, was this three-year agreement all bad, did anything good come from the contributions that PA Consulting made, and has this been yet another messy breakup between a public sector organisation and their private sector service provider?
Finding the positive in a messy breakup
The blame game is a complicated and fickle web to disentangle. At the point where a relationship is failing, everyone is looking to protect their own position, team or organisation from the reputational and financial costs of having to admit that the mistake may have, at least in part, been theirs. But once the dust has settled and emotions level off it is important to recognise the plusses of a relationship, even one that has ended in dispute.
In the case of PA Consulting and UKTI, there were certainly some plusses to consider. Within the detailed NAO report, but absent from their summary was the statement: “The specialists performed well. For example, in 2015–16, specialists deployed by PA helped support UK exports of more than £6.3bn and helped secure investment into the UK which created or safeguarded 29,010 jobs.” This is not an insignificant benefit.
And it is recognition of the positive side of a relationship which can firstly help to calm the battle stance of both sides, and secondly assist in the considered analysis of where exactly things went wrong elsewhere in the relationship to start the process of learning from the experience.
So, great benefits – but where did it become misaligned?
In 2014 the UKTI entered into an agreement with PA Consulting and Ernst & Young LLP to outsource various services. PA were awarded three out of the five ‘lots’ to offer ‘sector specialist services’ across numerous industries, which included food, health, nuclear and chemical. But issues arose from the outset as last minute changes to the agreement and the charging structure created complications that reportedly were simply not addressed as they should have been. The NAO report described it as follows: “UKTI and PA then agreed to incorporate activity from another contract, thus making a significant change to the specialist services contract. UKTI subsequently pursued, with PA moving to a different charging model – which led to PA sharing and UKTI reviewing actual costs incurred under the contract, which would not have happened under the existing charging model.” And this was reportedly central to the problems that brought the relationship to an end.
By mid-2015, UKTI had realised that something was not aligned correctly, having discovered “inaccuracies in a spreadsheet provided by PA Consulting, as part of negotiating a contract change, that brought into question the basis for charging on the whole contract.” An independent accounting firm, RSM, were commissioned by UKTI to conduct an external investigation. It was reportedly found that PA had “consistently made incorrect and misleading representations relating to £3.9 million of the overheads charged.”
This led to the termination of their agreement in January 2016 and much emotive language being used from those in positions of responsibility. PA Consulting CEO Alan Middleton said: “The consultants in PA who work in the UK public sector do it because they love it, they don’t do it to rip people off.” PAC chair Meg Hillier said: “Most of you involved at the time have been willing to admit incompetence – and yet almost insouciantly. Incompetence that has led to a loss of taxpayer money…”, followed by a description of the whole affair as being a “fiasco beyond belief which we were just completely puzzled by.”
NAO findings
In June 2016 after the NAO’s analysis of the relationship, Amyas Morse, Comptroller & Auditor General of the National Audit Office (NAO), had a more measured, though no more complimentary, comment on the matter: “It is clear that, on this contract, both UKTI and PA have fallen well below the standards expected in managing public money. UKTI should have been in control of the procurement and understood the pricing; PA should have been more transparent in its dealings with UKTI. There are serious lessons to be learned on both sides.”
Key findings of the NAO investigation were as follows:
- UKTI’s governance of the procurement and management of PA was weak.
- UKTI did not maintain the minimum documentation necessary to support a procurement, leaving UKTI exposed to not understanding what it had agreed to.
- It is not clear how the contract was, or was meant to be, priced.
- UKTI and PA agreed to negotiate a significant change to the contract after the bids were submitted and before the contract was awarded.
- UKTI’s handling of the procurement breached good practice and the principles of good procurement in several ways.
- The negotiation on the contract outside of competition led to an increase in both PA’s revenue and its profit from the contract.
- PA should have been more transparent in how it reported its forecast profit to UKTI.
- PA’s bid, rate card and explanations did not make clear the amount of corporate overheads built into its price.
- The separate charge for infrastructure is likely to represent an increase in PA’s profit on the contract which was not clear to UKTI.
- The problems with this contract only emerged due to the tenacity of the UKTI contract managers brought in after the contract had started.
The 10-step successful procurement strategy
We recently wrote an article ‘Outdated Radiotherapy equipment causing deaths; 10 steps to assure successful updating of Radiology and PACS systems’ about the issues the NHS were having in upgrading their radiotherapy equipment and the ten procurements tips that could help them to optimise their purchasing strategy and extend their budget’s effectiveness. The conclusions from that article can easily be adapted to be relevant here:
- Quantify your vision with the help of all relevant stakeholders and ensure all in-house teams and external suppliers fully understand this vision
- Clarify your objectives and clearly articulate them evidencing current standards and how much you wish to improve them by
- Plan the roles and responsibilities of all parties in the relationship, and identify how you might influence them to be motivated to carry out your objectives
- Itemise clear input/output requirements to support your expectations
- Develop key guiding contractual principles that quantify your expectations
- Create robust supplier assessment sorting criteria to cover both practical competencies and consultative expertise
- Conduct early market testing to realign expectations and reclarify your procurement process where necessary
- Move through the method, scoring and shortlisting elements of the procurement process
- Require shortlisted suppliers to conduct pre-contractual scoping to the Terms of Reference you provide them with so that you understand what you will achieve, what you will not, and the compromises you may have to live with
- Ensure that your contractual documentation includes the Terms of Reference and results from the pre-scoping exercise and that your contract terms align with expectations of both parties
Conclusion
So let the PA/UKTI relationship be your guide to important procurement and relationship management lessons learned. That when any party to an agreement demands an urgent change that is either not properly quantified, considered, authorised or agreed with all relevant stakeholders, and you follow through with them, no matter the purity of your intent, you do so at the risk of opening up a whole can of ‘unknowns’ that could impact your relationship somewhere down the line. The extent of the damage this could cause will be determined by the nature of those unknowns, how quickly you identify issues and the strength of the relationship you have built with your service delivery partner.
The safest solution, though, is to recognise the ramifications of such actions, to remember just how it played out for PA and UKTI, to follow the recommendations listed above, and to push back on unqualified or quantified demands no matter their urgency – for the inconvenience of conducting proper due diligence is nothing compared to the disaster potential of not doing so.
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