G4S: the lessons for Procurement

 

 

 

Pre-opening ceremony, G4S dominated the London2012 Olympics news, and there has been much comment on the reasons why it failed to meet the contracted-for volume of security personnel, with demands for retribution against the company.  Talk has ranged from contract penalty clauses through to the stringing-up of the CEO (well, not quite).  There’ll undoubtedly be an enquiry of some sort after the Games, but here are some thoughts on the lessons that procurement practitioners can take from the case.

The showboating Home Affairs Select Committee lambasting of G4S’ CEO Nick Buckles was, frankly, laughable in its staged vitriol, and exposed some MPs ignorance of business outside of Parliament.  The challenge to Buckles to agree to waive the £57m management fee was naivety beyond belief.  It appeared to be a surprise to some on the committee that the CEO and his team are in business in order to grow revenue and margin.  It’s what they’re paid to do. Despite its rank failure to supply what was required, the last time I checked, G4S wasn’t a registered charity.

And to listen to some commentators, you’d think that somehow the CEO falling on his sword will put things right.

It’s common knowledge now that the Home Secretary took advice to increase the security around the Olympics after the English city riots in 2011 (I’ve heard it tripled the value of the G4S contract), leading to LOCOG having to renegotiate the contract with G4S at a time when the company was already embedded as a sponsor/partner for the Games.  There was evidently nowhere else for LOCOG to go.  Although G4S would have enjoyed relational power and time pressure as negotiating leverage, they were eventually persuaded to commit to larger staff numbers.

In addition to the demand management problem caused by a somewhat panicked government, it strikes me that are two fundamental procurement issues in play worth exploring here;-

  1. The possible failure to understand the full range of interests of both parties sufficiently and deeply enough, and then act upon that knowledge, both in terms of contract negotiations and programme planning;
  2. A ‘contracting mindset’ that fails to take into account a thorough pre-contract assessment of supplier capability and capacity, and post-contract relationship management to assure successful implementation and zero value leakage from the contract.

Let’s look at both in turn.

Interests

We can hardly claim to be privy to all the details of the G4S case, but a general point is worth making: whether the ‘deal’ is for outsourced or straight-forward ‘sourced’ services, how many buying organisations’ apparent pre-contract assessment of the interests of both parties would pass close scrutiny?

‘Buyers’ (be them politicians or, in the G4S case, LOCOG) have only themselves to blame if they fail to make a through and dispassionate assessment of the business, professional and personal interests of those involved in the relationship. It is worse still if they believed their own hype about collaboration and ‘partnering’ regardless of supplier performance.

We recently worked with one client that had identified and implemented sixty ‘value levers’ each of which is considered, from the perspective of both the company and the supplier, ahead of and during important negotiations. That’s a hell of a lot of preparation and, although there are no guarantees of success, it generally pays off as the supplier often fails to match the effort and attention to detail.

The Contract mindset

There seems to me to be an obsession amongst many procurement practitioners that it’s all about the contract; that somehow if we can only negotiate the best contract possible, a successful outcome will be assured.  The relationship approach to the supplier is contractual, not relational, and it leads to suppliers focusing on what is in the contract, not the customer experience.

As a rule, the intensity of buyer examination of a supplier’s capability and capacity to deliver the specified services must be commensurate with the level of risk and opportunity associated with those services being provided. We’ve been hearing for years that security at London 2012 is, as we procurement types would put it, ‘core’ and so it must surely have warranted the most forensic examination of the supplier’s capacity to deliver.

Establishing effective security for the Olympics was never simply a procurement sourcing decision; it was (and, at the time of writing, is) fundamental to the success of the games.

What is certain is that LOCOG (whether it did or not) should have been all over G4S ‘like a rash’ in the two years before the opening ceremony, repeatedly testing the supplier’s capacity to deliver.  As some might suggest, this is not micro-managing; it is due diligence borne of a real intention to ensure everything contracted-for is delivered, on time and to specification.  To those people who suggest that G4S is a ‘grown-up’ company with an established reputation, whose promises should have been taken on trust; remind me next time you’re sourcing components and systems for the passenger jet I’m taking my family on holiday on.

This contract-centric approach all too frequently results in programme and cost overruns and/or failure to supply.  I’d describe it as a sometimes ‘hope for the best’ approach. Last week, there was even one senior politician who suggested that we shouldn’t expect suppliers to deliver what’s in typical public sector contracts!

Research into customer-supplier negotiations undertaken by Vantage in the USA in 2009 suggested that the actual value realised from the average contract on implementation is 54%. In other words, it can be expected that almost half of what contract for won’t be delivered in line with expectations.  Imagine if 46% of the components on that airliner failed to work all of the time….

On something as critical as Olympics security, the idea that such intensive scrutiny is somehow optional is risible.  Any service provided by suppliers that can directly and severely impact the experience of the citizen customer is, by definition, ‘critical’ and that a ‘hope for the best’ approach simply isn’t good enough.  It’s akin to ‘self regulation’ which has had shown time and again to be ineffective in assuring compliance with the letter and spirit of the acceptable practice and, of course, even the law.

So what are the lessons for Procurement?

Firstly, negotiation success is 90% about ‘conditioning’ and preparation; the ‘hard hours’ in the negotiating process.  Success is far less about charismatic ‘big-hitters’ with their stripes and political clout. All the status, charisma and influencing skills won’t get you out of jail if you’ve failed to prepare properly.  Witness some politicians’ sabre-rattling mention of suppliers being ‘blacklisted’ for future contracts by government departments.  It’s nonsense and won’t be enforced.

Buying organisations must diligently pursue a deep understanding of the interests of all parties to any significant contract, and then document them. This demands not a half-hour brainstorming session the day before negotiations commence, but a long-term forensic assessment involving supplier visits, relationship power profiling, interest-mapping, concession-trading strategies; coupled with a well-planned conditioning plan.

Secondly, practitioners must take a whole-life/whole-relationship view of the supplier, as oppose to contract-by-contract engagement.  G4S is a long-established (even dominant) provider of security services to the United Kingdom public sector. The whole relationship with government should have been leveraged from the outset, not just for commercial reasons, but to secure the constant attention of the senior management.  Of course, we don’t know precisely what due diligence did take place, and perhaps it was of an intensive nature for a time. What the recent furore surrounding the contract tells us, is whatever it was, it didn’t prove sufficient.

Generally speaking, with important supplier relationships, it is mostly about what happens post-contract that determines whether you get everything you contracted-for, and whether the relationship is truly delivering value and the desired innovation you aspire to secure.

Experience tells us that you all too often don’t get what you contracted for; instead, you get what you actively manage through to a successful conclusion.  A half-hearted or ‘hope for the best’ strategy is no strategy worth its name.

If you intend to realise 100% of the contract and relationship value, then skilled SRM practitioners are a necessary investment.  Let G4S be a warning to us all.

by David Atkinson

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