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How bad procurement can scupper a project

Blog posted by: Peter Smith, 08 Jan 2021.

Putting Out Fire

Anyone who has worked in project management or procurement will know that there is considerable overlap between the two areas. Major construction and infrastructure projects will almost always have multiple third-party suppliers, 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 external experts.

My career has been in procurement, but I have been 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, I was not surprised to see the extent to which the two topics are intertwined in many major disasters.

Take Berlin’s Brandenburg Airport. First proposed in 1991, the airport began construction in 2006 and finally opened in 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.

Fraud, corruption and fire-spotters

Politicians decided that they could run both the programme and the airport themselves rather than bringing in expert operators. Some key internal players proved not to be qualified for their tasks. 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 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.

Chicken shortage

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. We saw how this issue could affect a business in 2018, when KFC changed its UK logistics supplier from Bidvest to DHL.

Shortly after handover, KFC shops stopped receiving deliveries of chicken and had to close. There were rumours that trucks had got caught up in a huge traffic jam, 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 suggested that the new supplier’s systems and operations just weren’t up to the job, which seemed a more likely explanation. In any case, the project of changing supplier was certainly badly managed and had a significant cost to KFC.

Are tender estimates just ‘playing the game’?

Another intersection between the disciplines comes in costing major programmes. In Paris, Jean Nouvel, a celebrated architect, is taking legal 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 estimate the final cost at €328m. The regional state auditor puts the figure 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. Nouvel’s lawyer argues his client is being unfairly blamed for failures in project management.

Do we see this 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.

A VERSION OF THIS ARTICLE APPEARS IN THE WINTER 2020 EDITION OF PROJECT JOURNAL, AN EXCLUSIVE BENEFIT APM MEMBERSDOWNLOAD THE DIGITAL ISSUE NOW (🔒).

About the Aurthor

Peter Smith has worked as procurement director at 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, 2020) is his third book on procurement.

 

Channel website: https://www.apm.org.uk/

Original article link: https://www.apm.org.uk/blog/how-bad-procurement-can-scupper-a-project/

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