Huge NHS Procurement Outsourcing – OJEU Ad Published

The Department of Health published an OJEU advertisement on December 24th (!) for the replacement of the NHS Supply Chain DHL contract. Communications are usually issued by government departments on Christmas Eve when someone doesn’t want anyone to know about it, but that surely is not the reason here? Odd though.

Looking at the value, this is one of the largest procurement outsourcing exercises ever undertaken. Now arguably, it is just replacing the DHL Supply Chain contract, but the intent here is we believe to go deeper into real procurement activity.

The structure is the “towers” concept we wrote about here, with procurement of goods and services within 11 spend categories or lots across the NHS being in effect outsourced to providers who will act as the procurement agent for that category – such as Ward Based Consumables or Cardio-vascular, Radiology, Audiology and Pain Management. The  “Office Environment” category has been given to Crown Commercial Service without competition, so ten lots will be competed here in two tranches.  No single supplier can win more than three lots.

We have a sense of unease about this programme. For a start, at some point, the mainstream media are going to pick up on the fact that this is £190 million (according to the OJEU)  that is going to be paid potentially to the private sector (although public bodies can and might bid). But that is not £190M being spent on actual goods and services for the NHS, but just on paying salaries, overheads and profits to private firms (or possibly public bodies) for them to carry out buying activities for the NHS.

There are then questions around capability; these contracts are for 3 years with 2 optional one-year extensions. At the end of this, the NHS will have no more procurement capability than it does now, that will all still reside with the providers, and it may prove difficult to construct a competitive market for the next round of tenders. We’re not sure how this stacks up with government Chief Commercial Officer Gareth Rhys Williams’ moves to build serious procurement and commercial capability within the public sector.

Finally, our understanding is that the contracts that these suppliers put in place will not be mandated across the NHS. With positive procurement developments such as the Shelford Group acting in a more coordinated manner, and organisations such as the Countess of Chester Trust procurement operation putting in place frameworks based on a deep understanding of NHS needs, there is a danger that this could become a huge white elephant. Might we spend £190M letting contracts nobody uses? And do the key procurement stakeholders in the NHS buy into this strategy? We have our doubts.

This is also just a hugely complex procurement programme, and the DH has limited experience in running anything of this complexity. The contracting authority is the NHS Business Services Authority (BSA) in Newcastle – good luck to them! With a new Commercial Director  for the DH being recruited as we speak, an individual who will be the boss of the architect of this strategy (Jin Sahota – whose LinkedIn profile still does not mention DH!), we still put the likelihood of this contract coming to fruition at no better than 50:50.

Treasury very nearly refused to sign off the DHL deal back in 2006 - one particular OGC senior manager took a very principled stand against the flaws in that contracting process, but his bosses eventually caved in under political pressure. The process would probably have been ruled illegal if it had been challenged. What will happen this time, we wonder, with much more potential for unhappy bidders across the ten towers? Purely on the mechanics of the process, the BSA will have to be on top of their game.

And we will no doubt come back to this again …

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Voices (4)

  1. James Saunders:

    If NHS Supply Chain continues to refuse sensible price increases following the recent decline in sterling then the Towers might not have as many products to procure if and when they eventually take over.
    The NHS is on the brink of collapse with the Red Cross now called in to help alleviate the capacity crisis. The Red Cross!
    This is arguably not the time to embark on such an important infrastructure redesign for a service that is breaking right now

  2. Trevor Black:

    I am the very proud owner of a portable DVD player which I won as a result of winning Supply Managment’s letter of the month shortly after the previous contract was awarded. I had taken exception to Patricia Hewitt the then Health Secretary on the Today programme justifying the contract award based on “cost savings”. The award winning in-house service bid compliantly and on the basis of delivering everything directly to the wards. DHL submitted a bid based delivery to the hospital entrance. The costs of distributing the DHL deliveries to the wards were not considered but would be an additional cost to the relevant NHS Trust. I was disgusted with the dishonesty and that the contract award had been based purely for political reasons.

  3. Final Furlong:

    The proof will be in the pudding, but, as we know, there have been too many chefs working on this, and with many of the key ingredients clearly missing. A recipe for disaster.

    By the time they’ve got the new towers baked-in, and the providers have had their first taste of trying to deliver in a devolved market, other relevant teams (like the core BSA BAU team, Tim Brigg’s GIRFT team, NHSE’s new 50 person clinical procurement team…) working with trusts (like Shelford, and the South coast collaboration) will have delivered many of the projected savings.

    Jin Sahota remains something of a mystery to many in the NHS procurement community. Rumour has it that, at a supplier briefing event (to potential category tower providers), he proudly declared that, as SRO, he had ratified the tower model within a few weeks of arriving in the Department of Health – by comparing it to what he had drawn on a single piece of paper. “So it must be right” he said. A master chef, clearly, as he demonstrated little concern for those who would eventually be force-fed this concoction.

    This extraordinary confidence might be explained in the information below which states that Cabinet Office pays him a whopping £200,000 salary. (A much higher salary than Pat Mills, to whom he reports.) I imagine that this would stick in the throat of many NHS procurement leaders.

  4. Sam Unkim:

    Doubling down, on the original stupidity, of outsourcing procurement to DHL

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