Three Major NHS Trusts Reverse Outsourcing Contracts - What Went Wrong?

It has recently been announced that Nottingham University Hospitals NHS Trust is cancelling its 5-Year TFM outsourcing contract with Carillion after only 2 years of it being operational and bringing services back in-house. They are the latest Trust to do this, following two other similar failed outsourcing contracts: Interserve at nearby Leicester and Sodexo at Brighton. Is there something fundamentally wrong with the concept of outsourcing or was it just badly procured and implemented in these instances?

 In the cases above, it is understood that all three NHS organisations adopted a similar approach:

·        The TAs produced estimated costs for the contracts, apparently without undertaking a prior comprehensive benchmarking of the services which had been tailored to each organisation.

·        The TAs agreed a payment mechanism whereby their fees for managing the procurement exercise would be funded, or partially funded, by a percentage of the subsequent savings achieved.

·        Bid “ceiling prices” and/or aggressive bid price scoring formulae were used to incentivise bidders to submit potentially unsustainably low prices in order to win (or have a chance of winning) the contract.

Not surprisingly, the outcomes have been unsatisfactory for all parties. Any hopes that the contract could be won as a loss-leader and subsequently made profitable through variations have proved to be unfounded. Service levels have deteriorated as contractors have sought to drive through unrealistic efficiencies in order to meet their financial targets and operating margins.

All of these Trusts may have saved £10-20K on the costs of engaging TAs during the procurement process but have surely paid this many times over in legal fees to get themselves out of these contracts – hardly a cost-effective approach or efficient use of public funds. Let alone the impact of underperforming services on the rest of the Trust and its patients or the reputational damage to the contractors involved during the course of the contract.

It doesn't have to be like this. Over the last 25 years we have developed an approach to outsourcing that has met with success on each occasion, not only resulting in contracts that run the course, but with minimal variations over the life of the contract and incumbent contractors keen to retain the business. Yes, there is more cost up-front but over the length of the contract this approach delivers much greater value for money.

Our approach at GK Transformation is to develop an approved Board led Business Case for the procurement exercise, agreeing a “what does success look like” at the end of the process.

Next we would undertake a tailored benchmarking exercise which, if savings were indicated, could be followed by an outsourcing feasibility assessment to assess the potential market response. Only when both of the above steps provide good indication that there are benefits to be realised through going to market, should the Trust commit to a high-risk and expensive strategy of potential outsourced service procurement.

The feasibility stage would be followed by the production of a detailed specification for the service(s) in scope, tailored to the user requirements of the Trust and not an off-the-peg copy of generic, outdated documents. The specification process also needs to capture the key performance measures and how the parties plan to resolve the inevitable issues and challenges that will arise during the contract life cycle and then, ultimately, how such unresolved issues may affect contractual payments.

The best-performing contracts are where all the above are delivered in a spirit of partnership and mutual benefit, working where both parties get their aspirations met: The Trust gets a dependable service at an affordable cost which delivers a reasonable profit to the contractor. This approach will minimise the need for variations over the lifetime of the contract.

Getting it wrong can be very costly, if you are going to go through a procurement exercise – do it properly – talk to us at GK Transformation for a chat through your Trust’s plans and future service aspirations.