CEO steps down at Circle Healthcare – and how on earth did they get through the PQQ?

In the heat of the budget and West Coast Rail last week, the announcement that Ali Parsa, the founder and Chief Executive of Circle Healthcare, has stepped down as CEO and become a non-executive didn’t get as much focus as it might have.

Circle are running the first National Health Service hospital to be “outsourced” to the private sector – Hinchingbrooke in Cambridgeshire. We featured here various claims he made about procurement savings – and whilst some of the performance metrics seem to be moving in the right direction, the early financial results weren’t great.

Ali has a number of external interests and now will be able to spend more time fulfilling his passion for social entrepreneurship”,  says the press release. Given his replacement, Steve Melton , is an existing manager stepping up on an interim basis, this doesn’t look very well planned, so there is a suspicion he was pushed by the Board. But the main point for today is this. How on earth did Circle win the Hinchingbrooke  contract?

Back in around 2002, I wrote a guidance note that became Office of Government Commerce guidance for the public sector on the financial evaluation of suppliers. In that, we moved away from the old, very black and white measures the public sector tended to use at the time – such as “you can’t win a contract that is more than 30% of your current turnover”. We suggested a more nuanced approach, looking at financial parameters in the round and considering each contract and supplier on its own merits.

So I’m not in favour of rejecting suppliers for the sake of marginally poor financial ratios. But the first set of public full year Circle accounts which came out in May 2012, are pretty shocking. Circle floated the firm on AIM in June 2011 to raise capital, having previously burnt their way through funding provided by private equity.

When the competition for Hinchingbrooke started, the contracting authority presumably had a set of the private company’s accounts to consider. Circle were made preferred bidder in November 2010, although they didn’t start delivery until February 2012.

So looking at the figures here for calendar years 2010 – and 2011 – it’s hard to see how you could feel comfortable awarding the contract to this business given the lack of financial robustness and stability.

2010 (£’000)

2011 (£’000)

Change

Group revenue

74,607

76,472

(2.4)%

Operating loss

(18,546)

(34,716)

46.6%

EBITDA before exceptional items*

(13,633)

(15,441)

11.7%

Total operating loss before exceptional items*

(17,133)

(19,649)

12.8%

Loss and total comprehensive loss for the financial year

(32,311)

(39,405)

18%

Net assets / (liabilities)

26,184

(5,223)

 

At the end of 2010, we were looking at a company that had lost £39M in that year and had net liabilities of £5M. The company then raised a further £50M in 2011, but burnt through half of that by the end of the year.  This year (2012) they’re still making losses in the first half, but have raised yet more cash by issuing additional equity.

But go back to 2010. I’d love to know how Circle made it through that PQQ financial assessment – loss making, weak balance sheet, intention to float but not proven. Somebody on the contracting side was looking at them with a VERY forgiving eye!

The next key moment for Circle is the re-tender for the Nottingham NHS Treatment Centre, which they currently run, and the final tenders are currently being evaluated there.  And whilst we don’t offer investment advice here, we might use an old-fashioned phrase in terms of investing in Circle  – “not one for widows and orphans”!

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Comments

  • eSourcingSensei:

    Wouldn’t it be great if we were able to be a “fly on the wall” and see first hand what criteria (finacial) is being reviewed during the PQQ.

    I have not seen anything so am commenting “blind” but I would suggest either the right questions are not being asked or if they are maybe they are not being analysed and evelauated correctly.

    With the tool sets that are available to government to assess this type of data after conducting a PQQ or in my language a RFI, it really should become second nature.

    Having said that with the numbers you have shown above it would seem just so very obvious that this company were in a financial decline and would probably not be suitable to be tendering for the NHS contracts, so obvious in fact that I don’t think it was so much that the eye was forgiving but that the glasses were “Rose Tinted”

    Sensei

  • Final Furlong:

    Was there a PQQ process (or even a competition?)

  • Craig:

    The competition was run by NHS East of England. FOIA request, anyone?

  • Chris C:

    Is there a typo in the title?

    • Sam Unkim:

      Nah Chris
      It was a
      Perhaps Quixotic Questionaire

  • Dan:

    If they were made preferred bidder in Novermber 2010, wouldn’t they have been using 2009 accounts?

  • Sam Unkim:

    Perhaps this helps

    http://socialinvestigations.blogspot.co.uk/2014/03/the-house-of-circle.html

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