NAO slams NHS over handling of £800m contract

The National Audit Office (NAO) has published a scathing report into the design and procurement of a proposed five-year £800m contract to deliver NHS services in Cambridgeshire and Peterborough, which collapsed after just eight months because it ran into financial difficulties, after £8.9m had been spent on setting it up

In November 2014, following a competitive tender process, Cambridgeshire and Peterborough clinical commissioning group (CCG) awarded a five-year contract to provide older people’s and adult community services. The aim was to provide a new kind of ‘joined-up’ care integrating hospital and community care and mental health services.

The successful bidder was UnitingCare Partnership LLP, a limited liability partnership, set up to fulfil the requirements of the contract. The partners in the organisation were Cambridge University Hospitals NHS Foundation Trust and Cambridgeshire and Peterborough NHS Foundation Trust. UnitingCare Partnership then subcontracted with a range of bodies to provide the services, including the two trusts themselves, other NHS providers and a number of other private sector and voluntary organisations.

UnitingCare Partnership’s business case set out total estimated net savings of £178m to the local health economy by 2020, mostly by reducing inappropriate emergency hospital admissions and emergency attendances.

Its bid was for a contract costing £726m over five years, with a budget of £152m in the first year. The contract value reduced over the following four years because it was assumed that the new model of working would result in efficiency savings.

The audit watchdog said this figure was 3.5% below the CCG’s maximum contract price of £752m, which all the other shortlisted bidders matched, despite increasing demand for services. It suggested the Partnership had come in below tender as a ‘tactical’ decision to win business.

It also found that there were significant difficulties for bidders in pricing their bids accurately due to serious limitations in the available data, which lacked detail on the number of patients or the precise scope of the services to be provided.

The contract went live in April 2015 but was terminated in December that year after only eight months. This was because of a failure to reach agreement on contract cost. The NAO says the termination led to unfunded costs totalling at least £16m, shared between the two trust partners in UnitingCare Partnership and the CCG.

The NAO’s report identified a number of issues. The trusts chose a limited liability partnership to meet the CCG’s requirement for contracting with a single entity, but neither UnitingCare Partnership nor the CCG made proper arrangements to fund the ensuing VAT liability.

NHS subcontractors were no longer able to recover VAT on the services provided to UnitingCare Partnership that had previously been recovered when they provided the same services to the CCG. The Partnership had not factored these additional costs into its contract price.

The contract included an estimated 10% cost reduction over the five-year life of the contract, and included a £10m transformation sum to help redesign the service, which NAO analysis suggested other bidders thought optimistic. The CCG told the NAO that it expected the provider to invest its own funds up front to assist with service transformation, but this was not a requirement in the contract, and UnitingCare Partnership disagreed with this expectation.

The audit watchdog said the final contractual terms left the CCG exposed to significant unintended risks and potential costs, and there was a large number of outstanding cost and clarification issues when the CCG chose UnitingCare Partnership as its preferred bidder in October 2014. While the Partnership listed 71 separate items, the CCG claimed the figure was lower.

Reflecting these cost issues, UnitingCare Partnership expected to negotiate more than 20% additional funding from the CCG than its original bid price as outstanding clarifications were settled. One month into the contract, while still continuing to negotiate on cost clarifications, UnitingCare Partnership requested £34mof extra funding for the first year, some 21% more than the contract price for that year.

In early December 2015, UnitingCare Partnership was forced to terminate the contract when the CCG informed it that no further advance funding was available. NHS England and Monitor, the regulator for foundation trusts, mediated to allocate the £16m of unfunded costs that had been incurred between the CCG and the partner trusts. The CCG agreed to pay approximately 50% of the costs, and the two trusts each paid approximately 25%.

The NAO is critical of the oversight role played by Monitor and NHS England, pointing out that because UnitingCare Partnership was a limited liability partnership and a separate legal entity it was subject to company law and was not regulated by Monitor. Monitor’s approach to risk-assessing new transactions led it to consider the implications of the contract for only one of the two trusts comprising the partnership, Cambridgeshire and Peterborough NHS Foundation Trust.

NHS England had very limited involvement in the procurement until the contract failure. Since the termination, NHS England has paused similar contracts while undertaking its own review of what went wrong and now plans to develop an assurance framework for similar procurements in future.

Neither the Department of Health, nor NHS England, nor Monitor was responsible for holding a holistic view of the contract, or assessing whether the anticipated benefits would merit continued support, according to the NAO which put the wasted cost to the NHS of the contract set-up and bidder costs at £8.9m.

Once the contract ended, the CCG immediately took on direct commissioning of the services but at significantly higher cost than the contract value. UnitingCare Partnership had only just started to reconfigure its services, so the anticipated efficiencies had not yet materialised.

As a result of the current cost of the services, and the impact of the additional costs it incurred to protect community providers when the contract failed, the CCG has been unable to implement all of the service changes it had planned to make in 2016-17.

Amyas Morse, NAO head, said: ‘This contract was innovative and ambitious but ultimately an unsuccessful venture, which failed for financial reasons which could, and should, have been foreseen. It had the strong potential to join together all bodies in the local health economy and to deliver better patient care. However, limited oversight and a lack of commercial expertise led to problems that quickly became insurmountable.’

NAO’s report, Investigation into the collapse of the UnitingCare Partnership contract in Cambridgeshire and Peterborough, is here.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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