No one in Sweden can have missed the headlines caused by the Swedish Social Security Agency and their recent IT disaster. As the project deteriorated, causing one headline after the other, the project was forced to be audited by the Swedish National Audit Office whose final report was released on April 6th (More here – in Swedish).
The report is a showcase of what might (and dare I say, often will) go wrong when the power balance between stakeholder, supplier and purchasing is off.
The Audit office has examined four of the Social Security Agencies recent IT-purchases (all quite large and vital to not only the agency as such but to all of their customers, i.e. the population of Sweden) and not only have the Social Security Agency bypassed all regulations regarding government contracts but the audit also found major faults in the purchasing processes as such:
- Low RFP quality, complex yet lacking in specifications
- Too little time give to suppliers in order for them to be able to answer the RFPs in a proper manner
This has led to suppliers declining in participation in the sourcing event.
The audit also found that the purchasing function at the Social Security Agency lacked resources and time to prepare the sourcing event of this magnitude which in turn led to poor quality analysis and reporting regarding which supplier was awarded the contract and why.
Last and not least, the audit found that the power balance between the stakeholder (the IT department) and the purchasing function was so asymmetrical that it could hardly be called a power balance at all. In two of the four projects purchasing chose to bypass all sourcing activity and just call-off consultants on hourly rates on their current frame agreements leading to cost escalation and practically no cost control what so ever. In Computer Sweden auditor Karin Lindell goes as far as saying: There was a WAR between purchasing and IT.
Due to the fact that so few suppliers participated in the sourcing process, suppliers had their ways and in many cases dictated the terms; for instance one supplier was paid three months in advance(!!!!) and contracts were mostly drawn up to make the Social Security Agency responsible for any delays.
As one digs into the details regarding the different projects it gets really scary. For one SAP project (Customer Self Service) two suppliers submitted bids:
IBM – who bid 84 million SEK – and Logica – who offered a price interval of 25 to 46 million SEK (and someone should have pumped the breaks at that very moment). Logica was awarded the contract with the motivation that they had submitted a bid which was substantially lower that IBM and the project was due to be delivered in March 2008.
As of today, the project has not yet been delivered and Logica has invoiced the Social Security Agency 77 million SEK and other suppliers have invoiced the agency 63 million SEK.
That puts the tab at 110 million SEK and running, public procurement has surely seen better days.
April 14, 2009 at 10:18 am
What has happened at the Swedish Social Security Agency can happen anywhere where Purchasing is not a part of the strategic agenda. A lot of money is spent on purchasing goods and services and not having control of this harmful to any orgnanization – not only the Public Sector.
However – since purchasing within the public sector is regulated by law – it is scary to read about this example. Public sector purchasing is not becoming easier over the years. On the contrary – new regulations require much more from the buyer and it is really necessary that the public sector takes this seriously.
All authorities and i.e. municipalities must review how they secure their processes. By reviewing purchasing patterns – i.e. by doing spend analysis – I am sure a lot of taxpayer’s money can be saved. Small projects can save a lot of money.
It is probably better to spend some time on this than to quickly implement crisis budgets in the though times we are currently experiencing. In order to find out how to save money, the spend pattern must be analyzed. And – the way the public sector conduct their everyday sourcing and purchasing must be structured in ways that secure that legal aspects are considered and being respected – every day !
This issue is also identified and stressed by The Swedish National Financial Management Authority in their report ‘Electronic ordering in the goverment sector in Sweden’ ESV 2008:20.