News focus: Who should carry the can?

29 March 2010

30 March 2010 | Helen Gilbert

When procurement goes wrong is it the board or buyers who are to blame? A culture of clear governance should filter from the top down, writes Helen Gilbert

After senior heads rolled at Northern Ireland Water (NIW) last month, the spotlight was thrown on procurement for all the wrong reasons.

Four members of the NIW board were sacked for errors in purchasing governance around contract awards. Breaches included failures to put contracts out to competitive tender, instances of failing to attain appropriate internal approval, as well as deals running on extensions outside the permitted contract terms.

But in such cases, should board members be culpable for procurement errors? And do CEOs have a responsibility to pay more attention to procurement matters in the first instance?

The views are mixed. Lee Parkinson, director of Parkinson Procurement Solutions, believes it is “vitally important” that executives are held to account.

“After all, that is the single reason why organisations have boards of executives, to uphold governance.”

However, Parkinson warns
that CPOs at European public bodies have a unique role in “keeping things legal”, as well as maintaining good procurement and supply chain management practice.

Subsequently, they can often feel under pressure from senior figures, frustrated by the pace of EU compliant procurement.

“When an organisation allows pressure on CPOs to bend the rules to prevail, then executives at board level should be held to account,” he argues.

“In many cases the attitude to bend the rules is brought about by the culture of the organisation, which is crafted by the executives.”

Ruth Connorton, partner at law firm Eversheds, agrees: “For too long and too often, since there have been procurement people, decisions have been taken out of their hands by senior board members and directors.”

She warns that under the EU Remedies Directive, which came into force in December 2009, aggrieved bidders now have a better chance of overturning purchasing decisions – something senior managers should take note of.

“Previously, if you got procurement wrong the remedies didn’t have much teeth,” she says.

“You could get a damages claim and an injunction and they were few and far between. The way the regulations work shifts the balance and it makes it much easier for someone to bring a challenge.”

Peter Smith, managing director of Procurement Excellence, believes that it is often chief executives or board members who want to break purchasing rules. But he does not believe they should be responsible for “any old error”.

“If a procurement person cocks up – for example a supplier challenges a decision because the evaluation criteria were not fully disclosed – then I wouldn’t expect their director to resign,” he says.

“But if a director is involved and knows about the cause of the error then they should carry the can.”

Sean Rickard, an economist at the Cranfield School of Management, says CEOs should be held to account if they have manipulated decisions or usurped the board’s authority.

Interestingly, Smith believes buyers can raise their profile by ensuring senior managers are aware of the commercial risks associated with purchasing procedures.

“Setting a clear governance framework, monitoring it and letting people know the implications if they break it should be key elements of procurement’s role,” he says.

Meanwhile, Richard Nixon, a procurement consultant for KPMG, believes firms should establish clear governance models and guidelines to be clear about where the buck stops.

“This is to avoid the situation where everyone feels involved but nobody feels accountable,” he says.

“I think it’s incumbent on those in procurement to explain things to CEOs in clear terms so it gains their attention. You have to be able to tell the story in terms they can relate to.”

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