Procurement sounds almost as exciting as accounting to most people. And as a chartered accountant I am certain that people are wrong about the importance of good accounting if we are to have the controls in place to make any organisation work, including government. In the same way I am as sure that transparent, open and accountable procurement policy is vital if three things are to happen.
The first is that government is to buy well.
The second is that it can be ensured that government purchasing is free of corruption,
The third is that there are mechanisms in place to hold the government to account for the purchasing decisions it does make.
In that case the government's announcement on new post-Brexit procurement policy yesterday was important, however unexciting some people might think this issue.
And there are problems. The Fair Tax Mark, which I co-founded and still advise, has spent a lot of time working in this issue because of the importance of keeping tax cheats out of the government supply system. They published a Twitter thread on the issue last night:
Some thoughts on the UK Government's proposals to "transform public procurement", that were published yesterday. (1/n) https://t.co/g6iAmD0aMU
— Fair Tax Mark (@FairTaxMark) December 16, 2020
They raise a number of concerns. In particular, that whilst steps to block companies from the supply chain if they do not have identifiable beneficial ownership are welcome, they then note that:
the clauses on toughening up the exclusion of businesses displaying poor tax conduct are weak in the extreme. Nothing at all on tax avoiders. And a vague commitment to look at exclusion of tax evaders. Which, to be candid, is a no-brainer.
And they add:
So, you may ask, why the difference in approach. Well, some of it definitely relates to the EU Procurement Directive, which is not helpful in the area of tax. But the "Procurement Transformation Advisory Panel" has obviously had a big influence.
And who is on that? They note:
This is a group that includes.... Amazon..... [and which ] refuses to disclose its terms of reference or the minutes of meetings.
What chance of objectivity on tax in that case?
Worrying as this is, and welcome as the Fair Tax Mark's commitment to making a submission to the consultation on this issue also is, another dimension has emerged from The Good Law Project, who are bringing a number of legal actions against the government regarding its cronyism on PPE contracts. As they have noted:
The Government's position in the litigation we are bringing is that no one would have the right to bring a public interest challenge to it giving contracts worth hundreds of millions — or more — to its mates. And that only disaffected bidders can bring challenges. If that's right — and we don't yet know — then there is only one class of potential challenger, failed bidders.
Their belief seems to be that this review of policy is intended to reinforce this claim. If so, and given the costs of bringing the cases, the chance of preventing corruption within procurement processes at the behest of ministers themselves is essentially removed by this new policy. In other words, a platform for corruption is created by removing the opportunity to object to what is happening.
So tax cheats and corrupt ministers and their mates are to have a field day. Was that what ‘bringing back control' was meant to mean? Some always thought so. It seems they may well have been right. I was not convinced at the time, I thought that there was still some integrity in Tory politics. Now, I am not at all sure that there is. The kleptocracy is coming.
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I have to use procurement when purchasing services and goods in my line of work in the public sector.
All I can say about it is that it seems in stark contrast to the way in which human relationships actually work – particularly in how you are supposed to build up good long lasting relationships with suppliers that lead to better services and prices based on certainty over time. As a result a certain cynicism creeps in on both sides.
To me, the whole of public sector procurement is based firmly within the Charles Buchanan rationale of the public sector being untrustworthy, corrupt and inefficient.
I am by no means in favour of a chumocracy as we have seen with this Government but I’ve seen the Procurement Police in my local authority ties us up in knots as we’ve had to deal with finding other suppliers as existing ones have either gone under due to Covid or they simply lied to us to get the contract whist we were using procurement standard practice.
I’ve also seen excellent providers priced out of work by people who are simply crap or by larger orgs who can afford to undercut the smaller operators time after time. It is very hard to go ‘local’ too as many of the smaller providers do not have the time to bid.
All procurement does for me is pass on the faulty ideological thinking (the lack of trust in the public sector) onto those who do the work (mostly the private sector).
My organisation is obsessed with legal challenges from the private sector when procurements are not won. The amount of paperwork it creates is appalling – waivers, explanatory notes etc. But procurement is set up in such a way that it insinuates wrong doing every step of the way and invites people to challenge it (there is money to be made from this as well).
My conclusion is that ‘procurement’ is bullshit. There has to be a better way.
That was an enlightening read, thanks.
Although “buying local” can be done I believe – I remember seeing articles about Preston doing this – but I take your point that the challenges to it are significant.
Well, OK thanks , my comments were based on experience.
My bug bear is I.T. procurement – its a mixture of the buyer not knowing what they really want allied with the sellers making promises that cannot be delivered when the purchaser wants more bang for the buck and adds to the original spec later on in the procurement.
The whole thing ends up being a mess.
PSR
Having seen the procurement system from all sides, that’s a pretty accurate summary of what I’ve experienced with just a touch of hyperbole. Firstly working for an IT supplier, then as a consultant selling services to government or supporting government teams involved in procuring from suppliers. It is immensely bureaucratic and creates distance between the provider and the real buyer and user of the service which is a recipe for gaps and misunderstandings. The cost and complexity rules out smaller and potentially more innovate providers. The exceptions have been where for various reasons, it was possible to establish close working relationships between supplier and the real buyer with a degree of trust on both sides and ability to adapt and change to resolve misunderstandings.
I suspect it does make corruption very difficult, unless as we’ve seen, politicians interfere and over-rule. It is however a very slow, bureaucratic and expensive way of achieving that end. The legal cases that result are partly driven by the huge cost of bidding for significant contracts. I recall getting into trouble for refusing to bid for a major department because the bid alone would have cost £ms and I judged we had little chance.
It has to be possible to do it differently. Making procurement functions be just advisors, getting the real buyers and suppliers working more closely and allowing for a lot more flexibility in contracts would be a start.
Robin
It might make corruption more difficult, but the point is that it is no guarantor of quality and it arguably promotes corruption in the form of plain lying about what the bidder can do against the specification. Firms become good at winning bids and then let you down – often under bidding and then they find they lose money.
Not all sectors are bad – I think the construction industry is particularly crap though – but also I’ve seen problems with those procuring – they just lack the technical knowledge to know what to ask for and get decent prices in.
The door to political corruption will always be open so long as government procurement is based on “what a company says it will do rather than what it has actually done.” The other “open door” is scored tenders where some aspect of the tender has a disproportionately high score and only “insiders” know what the relevant aspect is.
That is succinct and accurate – that is why I favour favouring those whom you have worked with and whom have delivered.
Do you think having a Fair Tax Mark should be a condition for a company that is involved in public procurement?
No, but to reach an equivalent certified standard could be – it is not seeking a monopoly
Isn’t that certified standard just tax compliance with the law as it stands then, with HMRC there to manage that?
At which point, what purpose does the Fair Tax Mark have, other than virtue signalling?
HMRC do not do that, ever
Companies self assess
FTM is an audit – and a pretty rigorous one at that too, as some who have not got it will attest, because by no means everyone who applies succeeds
That’s simply not true.
HMRC can and do look at the tax affairs of companies and will take them to court if they think that tax has been evaded, and even in certain cases of avoidance.
I know this having represented HMRC in a a couple of cases – one which has been running for best part of a decade.
Most companies don’t self-assess either. That is what external audit is for.
How rigourous is the FTM’s audit? Do you go into the company and do a proper revaluation and audit? Or does the FTM just look at the freely available documents such as the register and accounts? The FTM doesn’t seem to have the staff to be able to do anything approaching a proper audit, so why claim that it is rigourous?
With resp[ect, if you think a court case process anything you should not be representing clients
97% of disputes are settled by contract
And external auditors do not audit tax returns
All companies self assess
As to the FTM audit – it goes down to board minutes when necessary, and evidence of actual supplies. Rather more than many audits then
So what process would you use to settle tax disputes if not a legal one?
You do realize that settlements are also legal processes, don’t you?
Data from audited account are used to generate the data for the tax return. Companies don’t simply make it up as they go along. They will take advice from accountants and lawyers as to what they can and can’t do regarding their tax affairs.
Companies don’t self assess.
Board minutes and evidence of actual supplies probably won’t tell you anything about a companies tax affairs. Sounds like the FTM is claiming to be a lot more than is. Which is a sticker a company can put on it’s website to virtue signal. I assume the FTM makes no claims about it’s work so a company could not take legal recourse against it, should they actually not be tax complaint.
I also find it a little funny given that several of the companies that do have FTMs use fairly aggressive tax planning arrangements. Which seem to have been overlooked by the FTM in their haste to get paid.
I don’t actually believe you know anything about tax or accounting
All companies self assess
Only about 5% of companies are audited now
You have not a clue about what you’re writing about
Please don’t call again
Richard,
You aren’t right here.
A company is obliged to have an audit if has a turnover of more that £10.2m, assets of over £5.1m or 50 or more staff.
This means that the vast majority of companies in value, asset and turnover terms are audited. It’s around the 80-90% mark depending on the metric used.
Your logic seems to be that small or dormant companies are just as important to audit as larger ones. Given that 76% of businesses registered on Companies House have one or fewer employees, you might be factually correct that 95% of businesses are not audited, but you are totally missing the point.
Companies that do get audited will use that data for their tax reporting.
As an accountant, you should be well aware of this.
With the greatest of respect, as a chartered accountant with forty years of experience, twenty years in practice, you clearly have not the slightest idea about audit
If you really thank an audit checks the numbers in detail – let alone in detail for tax, you are very seriously deluded
And that is most especially true regarding the tax figure – which is one of the last to be knocked together (I mean knocked together – it is very rough and ready in audited accounts and invariably subject to significant revision the year afterwards)
So I am not missing the point
And as a matter of fact every company self certifies for tax – the auditor does not do it
So very politely, let’s stop the nonsense on this. I do quite emphatically know what I am saying and am 100% certain I am right
Certified by who? HMRC? HM Treasury?
Neither will do that
Hence independent audit
It’s hardly a radical concept
If not HMRC/HMT by who? Civil society?
Would you be happy with a tax standard set up by the Adam Smith Institute or the Taxpayers Alliance?
Yes, if it was open and transparent as to how it was done
And they were as to their funding
All a bit hypocritical coming from someone who has set up their business as an LLP to circumvent rules and potentially avoid tax isn’t it? Your wife clearly does nothing for Tax Research UK – you tacitly admit this by stating she only gets 1% of the profits.
So the only reasons I could imagine for setting up the business as you have are either to make you look like you are not a sole proprietor for the charity grants you get (most charities won’t give grants to sole props or individuals) and/or to pass those tax free grants through to your income as such, rather than through a Ltd where the disbursements would be fully taxable.
The reason for havi8ng an LLP is to ensure that eery penny earned is taxed at my highest marginal tax rate – and all subject to NIC
As for my wife doing nothing – we have only had about a dozen exchanges on TR LLP issues today so far….
Two blogs came directly from her
And why was it set up? Actually to differentiate it from my accounting practice at the request of PI insurers
And for the record, I have never had a tax free grant
So every assumption is wrong, as per usual for a troll
It was interesting in light of the FTM discussion, that you raised the Artic systems case in another recent blog.
Clearly you think that the payment of dividends is wrong in such cases and HMRC also don’t like it which is why they took the case to court.
Yet FTM say they don’t mind such strategies and you can still get a FTM if you adopt them. Even though it’s one of the most common tax and NIC avoidance strategies for companies.
So a company can engage in dividend payments which you and HMRC disapprove of and still get an FTM.
My guess is FTM realised they would lose a lot of potential customers if they marked this strategy down and so just chose to look the other way while tax and NIC was avoided. So much for the worth of a FTM.
I once thought this fine
I still think dividends acceptable as returns over salary – that’s clearly appropriate
FTM followed the GAAR guidance
And that’s there because I specifically asked for it
And I have never had final say at FTM – it has governance structures that decided this was acceptable
That’s what good governance delivers
Questions about commercial confidentiality.
First, is there any democratic justification for commercial confidentiality at all? I can see that people bidding don’t want their rivals to know what they bid, a sort of secret auction. But how does that benefit the public? Surely the public interest is that the amounts bid be open or at least disclosed immediately after a contract is awarded.
Next, surely the public have a right to know the terms and conditions. Except perhaps the narrow case of defence contracts where national security would be at risk on disclosure surely it’s best that we, as the ultimate purchasers, know what we’re buying.
Last, on lobbying. Could lobbying efforts become part of an information bundle, freely available to citizens, each time a public contract is awarded?
I have a simple question on the ‘failed bidders’ for government contracts; if you are a in a sector of business seeking further government contracts, and intend to bid in future, are you likely to go to court, against the government now, in a matter which is undecided and uncertain; especially if you believe that the decision was a result of cronyism? What is the probability of enthusiastic endorsement of court action, and incurring legal costs in the quest?
No chance of almost any claims ever, I would say
Yet I can tell you that the prospect of such challenges by disgruntled failed bidders is often dangled by in our faces by my procurement team – case law included!!!
I believe you
As a challenge to some ex-colleagues who are still in the outsourcing business, I dug out a piece I wrote about 10 years ago about how so many contracts (outsourcing in particular) were in practice lose-lose, whilst people witter on about win-win contracts – and yes they are sometimes possible. I’d not just blame the suppliers who are not in general crooks, and at working level want to do a decent job. You’ve a combination of politicians and pressured senior civil servants who want to do a deal (to get heads and assets off the books and have somebody to blame …), and a supplier who wants to get the business. Both parties invariably massively underestimate the complexity of what is involved, much of which is never fully documented – and changes.
To make it work requires a lot of flexibility and tolerance on both sides – just happens to be lot easier to achieve that by keeping the more complex services in house.
And yes – the construction industry is at the bottom of the league. Strangely unreconstructed compared to say manufacturing where companies don’t survive if they produce a poor quality product and are always late. There is a reason why people prefer Polish plumbers and carpenters…