Supermarket sweep it is not

Each year the government spends some £150bn buying goods and services, from pencils to PCs to primary schools. This is no mad trolley dash, though. The government’s duty to the public and to taxpayers is find and procure high quality, value for money goods and services with this massive sum. The problem, as we see it, is the government fails to do this. It doesn’t get the sort of bang for its buck it should.

The giant that is the NHS
The single biggest area of expenditure for the government is the NHS, costing about £100bn a year to run. About £30bn of that is from outside agencies, which means the NHS accounts for one fifth of the government’s total procurement bill. Therefore getting the right deal in the health service is vital to the government getting it right overall.

A major area of expenditure is the private finance initiative. Over the last few years, the NHS has benefited from a massive hospital building and refurbishment programme, the biggest ever seen in a western health system.  Most of these state-of the-art buildings gracing our towns and cities were built under the PFI. What’s more, after the planning and bidding has finished, almost all facilities have been built on time and on budget: an achievement traditional procurement could never conceivably have managed. When there have been added costs, it has been the private sector that has shouldered the burden, not the taxpayer.

In previous bouts of building, hospitals were shown off by proud politicians as examples of their contribution to Britain’s infrastructure. All too often, these gleaming edifices soon crumbled as little or no thought had been given to maintaining them in the long term. Indeed, this was one of the reasons why the recent programme of building and modernisation was so badly needed.

Maintaining buildings
Under the PFI, contracts generally stipulate long-term maintenance for the hospitals, with contractors only being paid the full amount if they maintain them in a proper condition throughout the 25 or 30-year length of the contract. But for all it has to offer, the government has not made proper use of the PFI.

A recent CBI report, ‘Buying the best for the NHS: ensuring smarter capital procurement’, examined 40 major hospital projects – those with a value over £100m. It revealed that the relics of old-style public sector procurement, such as a failure to put a price on delay and poor planning, have held back the PFI’s full potential to deliver for patients. Extra costs caused by avoidable delays in the procurement process – not the construction – have added an average bill of £2.4million, or more than one per cent of capital value, to these projects. The estimate is that the extra burden is at least £100million, costs which end up on the NHS’s balance sheet.

Money for healthcare
With the likely overruns of ongoing projects, the overall figure could exceed £120million on these projects alone. These are resources that could be used on front-line healthcare. Indeed, the financial estimate, based on the cost of employing architects, project managers and other staff while delays are resolved, is a conservative one. It excludes costs incurred by the Department of Health and to unsuccessful bidders, delays before bidding starts and the impact of overruns in numerous small-scale NHS PFI projects.

The CBI has set out a number of recommendations to improve health procurement and secure better value for money. Before any major purchase begins, healthcare trusts should conduct a comprehensive health needs analysis in the area in which a facility is to be built. This must include an examination of existing facilities, gaps in provision, financial factors and views of all relevant stakeholders. It must take account of developments in technology and specialisation, and national policies such as payment by results and the patient choice agenda.

Consultation at the beginning of projects should be as wide-ranging as possible and take account of the views of all sections of the community so special interests do not take over schemes. The government and the NHS should also give consideration to the ways in which patients’ representatives could be kept involved as the procurement process progresses. For example, a ‘consumer advocate’, whose role would be to highlight and speak in favour of patients’ interests, could attend major meetings of public and private sector project teams.
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Fighting delays
Significant delays to major projects are damaging and costly. Major health PFI projects are delayed by an average of 21 months on top of the 18-month timescale recommended for these projects by the government. This clearly isn’t good enough. This problem can be combated by setting a clear and realistic procurement timetable for each project. This should include individual commitments for the amount of time it will take to reach preferred bidder status and financial close. The timetable should be set after expressions of interest have been sought. It should be calculated according to the complexity of the scheme and agreed by all key stakeholders, including bidders. There must also be effective sanctions if agreed timeframes are not respected.

Finding the right partner
Ensuring effective partnerships is central to any major project. The government, the NHS and the independent sector should examine collectively new ways to ensure these develop in the procurement stage of every major capital project, while ensuring a level playing field between bidders. Models that tie the NHS, contractors and other stakeholders together with equal incentives for success should be encouraged.

To help better partnership working, the government and the NHS should investigate creating a mediation process, designed to investigate informally procurement delays, help resolve disputes between parties and ensure a level playing field. While the parties would still have recourse to the legal avenues available under competition and procurement law, such a process would help to bring both consortia and the public sector back into partnership where it has broken down.

In the new climate of funding the NHS faces, particularly after 2008, it is essential every new purchase of facilities and services represents value for money. Any bids for major capital projects should be assessed on this, not just on price. This should include a wide variety of components that contribute to quality and efficiency. Procuring authorities should not be afraid to award contracts to bids higher in price than others but which provide better value for money. They should also place an emphasis on innovation by ensuring it is weighted strongly in bid evaluation criteria, and by making project specifications outcome rather than input-led. There must be flexibility built in for the future. Given technology’s likely effect on healthcare provision and the impact of policies such as payment by results, the government and the NHS should encourage procurement models that promote flexibility of service provision and critical care.

National Procurement Academy
Procurement skills need to be improved. The government and the NHS should ensure procurement professionals are properly trained and retained, and that key decision makers have the experience they need. Therefore, the government should establish a national procurement academy to formalise training for procurement professionals. All key members of public sector project teams should undergo similar training. Those trained by the academy could form a cadre of health procurement specialists who work on successive projects, gathering experience as they go.

Case studies of good practice in public sector procurement should be compiled and made easily available via a website to those undertaking major capital schemes. They should also include lessons learnt from international procurement methods. And finally, unnecessary bureaucracy must be cut out. At the moment, in some areas of health procurement, there are stages of the process that could be rationalised. The pre-qualification questionnaire, for instance, is lengthy, contains very basic details and adds time and cost to each scheme.

A potential way ahead has been shown in NHS commodity purchasing, where the PQQ stage has been streamlined significantly. The NHS Supplier Information Database minimises replication of effort at the pre-qualification stage for the benefit of suppliers and the public sector. Details about suppliers are held centrally and can only be accessed by authorised personnel engaged in NHS purchasing activity. Bidders update the information annually. A similar scheme for complex procurements could streamline the pre-qualification process and ensure much of the information in the PQQ has to be submitted only once. Information about financial standing, currently a key part of the PQQ, could also be held centrally on the database.

It is inevitable that issues of technical capability that are specific to a particular project will exist and that bidders will therefore have to submit additional information to supplement that held on a database. But such a database would be a considerable step forward in cutting down the length of the procurement process and avoiding delays.

Issues remaining
The private sector, through the PFI, has delivered more facilities and services on time and to budget than the old system of public design and construction ever did. Yet most within the industry would acknowledge that problems remain. Trusts and the government must face up to financial realities of schemes early in the process, and avoid time-wasting, expensive reviews. They must look to streamline procurement processes, improve professionalism, consult more widely and ensure better partnership working. Delays and extra costs have a direct impact on health outcomes for people up and down the country. Especially at the present time, the public sector must raise its game and make more of what effective procurement processes can offer.

 

Further information:
www.cbi.org.uk

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