Buyer beware! Bad procurement can scupper a project

Peter Smith, author of a new book on procurement and its intersections with every stage of the project process, has a simple message: get it wrong and you may well fail.

Anyone who has worked as a project management or procurement professional will know that there is considerable overlap between the two areas. Major construction and infrastructure projects will almost always have multiple third-party suppliers involved, and managing those organisations is a key aspect of project management. Significant technology projects similarly rely on suppliers; it is a brave organisation that undertakes a major systems installation without help from experts outside their own employee base.

My career has been in procurement, but I have been intimately involved in many large projects, from construction PFIs and the government’s ID card programme in the public sector, to technology programmes and new product launches in the private sector. So, as I researched my new book, Bad Buying: How organisations waste billions through failures, frauds and f*ck-ups, I was not surprised to see the extent to which the two topics are demonstrably intertwined in many of the major disasters I discuss.

Take Berlin’s Brandenburg Airport – first proposed in 1991, with construction starting in 2006 and finally opening at the end of October 2020. It is now operational, just 10 years behind schedule and €5bn (some 200 per cent) over budget. When you unpick what went wrong, there were clear failures in programme management. Politicians decided that they could run both the programme and the airport themselves rather than bringing in expert operators. That was the first error, I’d argue. Some key internal players proved not to be qualified for their tasks; for instance, Alfredo di Mauro, who designed the fire safety system, was not a qualified engineer but a draughtsman. Cost estimates were constantly unrealistic, the fire protection system was faulty, there were no ticket counters and the escalators didn’t work. At one point, the authorities reportedly considered employing 700 fire spotters to keep a look-out for fires around the airport.

But procurement played its part in the fiasco too. Fraud and corruption were discovered, with bribes being demanded in return for contracts. One airport executive was sentenced to three and a half years in prison for allowing a key contractor to claim unjustified additional payments, in return for a €150,000 bribe. Indeed, there are suggestions that many additional invoices were approved for payment to suppliers, without much questioning or checking, which may indicate more endemic corruption.

Risk is another issue in many cases of bad buying. For instance, I’d argue that changing a major supplier needs to be addressed as a project in its own right, particularly if that supplier plays a key delivery role in your business. We saw how this issue could affect a business in 2018, when KFC changed its logistics supplier in the UK, moving from Bidvest to DHL.

Shortly after that handover, KFC shops stopped receiving deliveries of chicken and had to close, prompting some customers to call the police to complain. There were rumours that trucks had got caught up in a huge traffic jam (which seemed unlikely to be the main cause), and The Guardian reported that a new cold storage depot had not been registered and could have been closed down for breaching safety rules. Other theories – including a surprisingly good analysis in The Sun – suggested that the new supplier’s systems and operations just weren’t up to the job, which seemed a more likely explanation. But in any case, the ‘project’ of changing supplier was certainly badly managed and had a significant cost to KFC.

Another intersection between the disciplines comes in costing major programmes. There is an interesting ongoing legal case in Paris, where Jean Nouvel, a celebrated architect, is taking action against the owners of the Philharmonie de Paris, the new concert hall he designed, while the same owners take action against him for overspending. In 2007, Nouvel was contracted to build the auditorium for €119m, but the owners have estimated the final cost to have come in at €328m. The regional state auditor puts the figure even higher, at €534m. Nouvel claims that everyone knew that the real cost would be much higher than his bid, but he had to play the game to get the project approved. “This is pretty usual in France in public tenders for cultural projects,” he said. His lawyer argues that Nouvel is being unfairly blamed for failures in project management.

Do we see this sort of thing happening on other programmes? Would HS2 have been approved initially if the cost had been presented as £100bn rather than £30bn? It’s a sensitive issue, but it seems that the supplier side and the buying/programme management side sometimes have a vested interest in getting the work approved and started, while tacitly accepting that the costs will escalate later.

In any case, there is no doubt that the two disciplines of procurement and project management will always have a close working relationship. While either one going wrong can lead to problems, in most cases, the real disasters come when there are failures in both.

Peter Smith has previously been procurement director for Dun & Bradstreet Europe, the Department of Social Security and NatWest Group. He is a fellow and ex-president of the Chartered Institute of Procurement and Supply. Bad Buying (Penguin) is his third book on procurement