- November 8, 2012
The procurement of public services from the private sector was back in the news today, with the publication of a report by the National Audit Office (NAO) into the selection of Circle Health to run Hinchingbrooke Hospital (or more accurately, hold a ten year operating franchise for Hinchingbrooke Health Care NHS Trust). I have to declare a personal interest here, since I live in Cambridgeshire and Hinchingbrooke is my local hospital.
The report lead to a brief item on the Today programme (you can hear it here at 1.12.05) between the seemingly ubiquitous Chair of the Public Accounts Committee, Margaret Hodge MP, and the co-founder of Circle health, Ali Parsa. To my surprise, on this occasion I found myself partly agreeing with both of them.
Mrs Hodge argued that the commissioners of services could not simply take it on trust that a provider could deliver the services for the price they had bid, even when that price requires unprecedented savings, on the basis that the risk of failure lies with the provider. The franchise is effectively a payment by results contract, since Circle will earn no money over the ten-year life of the franchise, unless the Trust achieves a surplus under its management.
But that it makes it more important, not less, that the risks of failure are fully assessed and commissioners take a realistic view of what can be achieved. Because if the costs of failure are high, the risk is also high that the provider will walk away from the contract if they cannot deliver it. Whatever the contract terms, a provider can walk away and is quite likely to do so if the costs of continuing (financial and reputational) outweigh the benefits.
This is not a new problem, but it is becoming ever more important as contracts get bigger, more complex and require more risk taking by providers. We have just written a more considered piece on this issue which you can read here.
But my sympathies lay with Mr Parsa when he argued that it was too early to judge that Circle will fail to deliver on the franchise agreement. The BBC’s opening to the story was that Circle have “failed to cut the deficit” (after six months!), and Mrs Hodge argued that although it was “early days” if they were not taking the “low hanging fruit” then there must be concerns about the viability of savings in the longer term”
But as Mr Parsa argued, this was a bit like judging whether Mo Farah would win the 10,000m after the first 1,000, and it may be that the low hanging fruit are higher up the tree than anyone thought. It is true that the contract is behind schedule in financial terms, but most providers will tell you that the early months of a contract are often the worst, when they have to cope both with the transition to the new contract and with conditions on the ground that do not always reflect what they thought was the case – however good their due diligence.
The NAO could of course reasonably argue that their report is about how risks are assessed in awarding franchises and contracts of this kind, not about whether the contract will ultimately succeed – indeed they conclude that “we have concerns about the winning bid for the franchise because most of the projected savings occur in the later years of the contract [my italics], and about how the risks associated with this were taken into account in the contract award decision.”
But Mrs Hodge seemed to be making a broader judgment on my radio this morning, as are the media, and I thought Mr Parsa was right to argue that, to mis-quote Zhou Enlai, it was “too early to say”.
However we are not as a nation noted for our patience in judging whether a new policy or project is working, as any politician or policy maker will tell you.
- November 7, 2012
Welcome to the blog of ATQ Consultants. We are a new start-up but we have an embarrassing number of years’ experience between us working in the public sector, as advisors to the public sector, and in a variety of other roles which sit at the boundaries between the public and private sectors.
We have just launched our website but wanted to have a blog as well where we can offer views and comments on issues which interest us and about which we (hopefully) have some relevant knowledge and experience. More importantly, we want others to have the opportunity to add their own views and comments, and no doubt challenge and disagree with us.