NAO warning on NHS outsourcing contract with Capita

MPs have raised warnings about procurement issues with a £330m NHS England contract with outsourcer Capita which was designed to achieve a 35% cost saving

The criticism follows a National Audit Office (NAO) report flagging serious failings in the services delivered under the proposed seven-year deal.

NHS England signed the contract with Capita in August 2015 for the delivery of primary care support services. NHS England aimed to reduce its costs by 35% from the first year of the contract and provide a high-quality and standardised service. Capita expected to make a loss of £64 m in the first two years of the contract, which it planned to recoup in later years.

It planned to reduce the cost of operating the service by 69%, from £77m in 2014-15 to £24m by 2021-22 (year seven of the contract). Its bid involved reducing the number of staff from 1,390 at the start of the contract to 314 by March 2018.

The NAO’s report found that NHS England and Capita misunderstood the risks involved, resulting in services to 39,000 GPs, dentists, opticians and pharmacists that were a long way below an acceptable standard.

Its investigation showed NHS England’s decision to contract with Capita both to run existing services but also simultaneously to transform those services, was high risk. Capita was incentivised through the contract to close existing services to minimise its losses but the interaction between running, closing and transforming services was more complex than Capita or NHS England had anticipated.

The NAO report stated: ‘This was a complex first generation outsourcing. NHS England lacked adequate data on the volume and cost of the services before the contract was awarded, and there were no consistent measures of performance.’

Performance issues emerged in 2016 shortly after Capita started closing primary care support offices and making other changes to the service. Capita acknowledges that it made performance issues worse by continuing to close support offices in summer 2016 even though it was aware the customer service centre was struggling to meet demand at that time.

NHS England was contractually unable to stop Capita's aggressive office closure programme, even though it was having a harmful impact on service delivery and, in some cases, potentially put patients at risk of serious harm.

The NAO said users continue to experience poor delivery, noting seven severe service failures in February 2018. A number of organisations have contributed to underperformance as Capita relies on other organisations to provide some services.

NHS England has made savings, in line with expectations, of £60m in the first two years of the contract, as the financial risk of increased costs sits with Capita who have made a £125m loss over this period.

To date, NHS England has deducted £5.3m from payments to Capita as penalties for poor performance but it expects it may have to pay up to £3m in compensation to primary care providers. The NAO found that two and a half years into the contract basic principles are still not agreed, which limits NHS England’s ability to hold Capita to account. NHS England and Capita have still not agreed how to calculate 11 performance measures, and how these data should be used to calculate payments owed to Capita for delivering the services.

The NAO is now recommending that NHS England should determine whether all current services within the contract are best delivered through that contract or should be taken in-house by NHS England.

It also made a number of suggestions to ensure government learns the lessons of the procurement failures. These include setting realistic but challenging expectations by developing an understanding of what is wanted and at what cost before the procurement, and making sure when services are being contracted for the first time, that sufficient time is allowed to collect data on existing services and determine the service specifications.

The NAO said government should risk assess the likelihood of bidders being able to deliver their promises and challenge the targets and assumptions of bidders. This should include benchmarking bidders on their capability to deliver their promises, such as by examining past performance. There should also be sufficient modelling to understand the contractor’s cost drivers and incentives.

Amyas Morse, the head of the NAO, said: ‘Neither NHS England nor Capita fully understood the complexity and variation of the services being outsourced. As a result, both parties misjudged the scale and nature of the risk in outsourcing these services.

‘While NHS England has achieved financial savings and some services have now improved, value for money is about more than just cost reduction. It is deeply unsatisfactory that, two and a half years into the contract, NHS England and Capita have not yet reached the level of partnership working required to make a contract like this work effectively.’

Commenting on the NAO’s findings Meg Hillier, chair of the public accounts committee, said: ‘Trying to slash costs by more than a third at the same time as implementing a raft of modernisation measures was over-ambitious, disruptive for thousands of doctors, dentists, opticians and pharmacists and potentially put patients at risk of serious harm.

‘Neither NHS England nor Capita properly understood the scale of the challenge before agreeing the contract and are still in dispute over future payments.

‘Yet again this is poor contracting by government with one of its major suppliers and it must learn lessons.’

NAO report NHS England’s management of the primary care support services contract with Capita

Report by Pat Sweet


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