Clever contracts and management consultants: learning from the Cambridgeshire and Peterborough fiasco

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Most people in the NHS will have heard about the Cambridgeshire and Peterborough CCG “older people and community services contract” fiasco.  It is a great illustration of what happens when the rhetoric of commissioning, market testing, competitive tendering and the like, meets the reality of healthcare service provision, financial constraints and service delivery.

For those not already aware of the details, this go-ahead CCG used the NHS Strategic Projects Team (part of the old East of England SHA but now a sort of semi-detached business unit in NHS England) to advise it on setting up an outcomes-based contract for community and older peoples’ services.  It went through a protracted near two-year procurement and tendering exercise, which was won by Uniting Care – a partnership of Cambridgeshire and Peterborough NHS FT and Cambridgeshire University Hospitals NHS FT.  The contract was worth £725 million over five years – with £152 million in the first year.  The CCG and its advisors at the Strategic Project Team proudly announced the deal as the largest, most innovative outcomes-based contract in the NHS.  The contract started in April 2015, and just eight months later the whole deal collapsed.  Uniting Care walked away because the CCG would not agree a variation to contract to pay them an eye-watering £34 million extra in 2015/16 alone (that’s a cool 22% uplift on the agreed price).

So what went wrong?  Well, the CCG’s internal auditors have just completed a report which lays out the rather sorry tale in some detail.  NHS England was forced into commissioning its own investigation which is due for publication soon.   The internal auditors find four main problems.

First, the CCG set the contract envelope for tenders based on what they were already spending, less some ambitious cost improvements.  They didn’t bother to work out what it would actually cost to provide the proposed services and new integrated pathways for older people.  There were concerns right from the outset that the resources were insufficient, and these just weren’t sorted out.

Second, the CCG and their advisors from the Strategic Projects Team did not notice that Uniting Care was a limited liability partnership (LLP) with no so-called “parent company guarantees” from the two NHS FTs which owned it.  That meant they could walk away at any time with no penalty – there was no risk transfer to them at all.  The auditors even say that the CCG should get legal advice on culpability of the Strategic Projects Team and other advisors for this – which could end up in legal proceedings to recover the consequential losses.

Third, one of the NHS FTs had to get approval from Monitor, their regulator, for entering into the contract, and to do this they had to put in a business case for approval.  But the CCG never saw the business case, and no-one compared the assumptions in the contract with those in the business case to spot the gap.  As a condition of business case approval a clause was added to the contract saying that “the parties may agree a contract variation” to cost in 2015/16 – the CCG seems to have taken may to mean there won’t be, while Uniting Care took it to mean there will be!

Fourth, in May 2015 just ONE MONTH after the contract started, Uniting Care submitted a claim for additional costs of £34.3 million in 2015/16 including stuff like a £4.9 million VAT adjustment, £6 million for “acuity”, and £2.1 million for “technical adjustments”.  They wrangled fruitlessly for the next five months, involving NHS England eventually, and the CCG terminated the contract on 3 December 2015.  No-one really knows how much money has been wasted in the whole 30 month saga, not just in fees and costs but also in management time and effort.

There are important lessons in this for the NHS.  Commissioning and contracting processes have not proven much help in securing service reconfiguration, and CCGs might do better just to focus on working collaboratively with providers on service redesign.  Whizzy, outcomes-based contracts create uncertainty, and the apparent transfer of risk is often illusory when the contract falls apart.  Management consultants – including homegrown outfits like the Strategic Projects Team – can be too confident about the cleverness of the procurement they have designed to see that it won’t actually work in practice. It may be that through cases like this, the NHS in England is finally recognising the disbenefits of markets and competition, and the value of unfashionable skills like planning, collaboration, and service redesign.

Finally, it is worth noting that the Strategic Projects Team have previous form.  They have been involved in a series of failed contracting, procurement and acquisition deals in the NHS, not least the ill-fated deal with Circle to take over Hinchingbrooke Hospital.  There was a great Radio 4 documentary about them which makes for interesting listening – not least because the CCG, the Strategic Projects Team, NHS England and others refused to comment.

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Kieran Walshe

Kieran Walshe is Professor of Health Policy and Management at Alliance Manchester Business School, and head of the health management group at Alliance MBS.

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