Reviewer's dilemma

It is hard to be a thesis examiner of a PhD student whose supervisor is not only known to you but also is your contact point with an agency that is funding your project. The situation gets infinitely trickier, if the thesis leaves a lot to be desired both technically and the way it is presented and I don't mean language here. Well, we are sitting with this beautifully bound thesis and wondering how to write what I must but in a way that is not offensive. Any suggestions?