Conclusions and recommendations
1. By failing to advertise the deal or hold
a competition, the Department and Information Centre let it appear
that the joint venture offered an advantage to one company at
the expense of others.
The Department and Information Centre did not follow Treasury
Guidance on joint ventures, nor did they comply with public sector
procurement guidelines. The Department should remind its non-departmental
bodies and Commercial Directorate that best practice is to advertise
such opportunities appropriately, and to offer health informatics
work to open competition. The Information Centre should commission
the Office for Public Sector Information to check whether there
is reasonable parity of access to data by health informatics companies.
2. Without an open competition, the Information
Centre cannot demonstrate that it paid the best price for its
50% share of the joint venture, as there are no tenders or other
benchmarks for comparison.
The Department and its subsidiary bodies should always consider
a competitive bidding process as the best way of demonstrating
value for money. In the absence of potential competitors, the
Department and its subsidiary bodies should seek appropriate benchmarks.
To improve transparency and accountability, the Information Centre
should obtain an independent valuation of their investment in
the joint venture as at March 2007 and periodically update it.
3. In developing the joint venture deal, the
Department's Commercial Directorate did not follow established
good practice in public sector procurement.
The application of business skills and experience to the management
of NHS procurement can bring a number of benefits, but the Directorate
needs to be aware of the need for transparency and full accountability
in the use of public funds.
4. The cost of professional advice on the
joint venture (Dr Foster Intelligence) increased from an initial
estimate and contract for £284,000 to between £1.75
and £2.5 million on a £12 million investment.
The increase in costs reflected the need for additional advice
and due diligence required to demonstrate that Dr Foster Ltd met
the requirements of the Information Centre. The Department should
remind its Commercial Directorate and subsidiary bodies of the
need for good financial discipline in contracting for advice.
In particular where costs increase above the agreed contract price,
or there is significant expansion of work priced at hourly rates,
contracts should be re-evaluated and if necessary re-tendered.
5. The Department and Information Centre could
have reduced the need to rely so heavily on professional advice
by making use of wider government experience on forming public
private partnerships.
For example, the Department of Trade and Industry provide advice
on state aid, and its Shareholder Executive on forming joint ventures
or investing in companies. The Department should make its subsidiary
bodies aware of the availability and the advantages of seeking
such advice when forming relevant public private partnerships.
6. It is unclear what benefits the Information
Centre will receive from the joint venture. The
Information Centre did not specify what services it should receive
from the joint venture, nor was there any baseline valuation or
key performance indicators established at the outset against which
to measure benefits. Whilst some indicators have since been introduced,
these do not explicitly link to the Information Centre's objectives
or show the benefit of the public sector intervention to an already
successful company. The Information Centre should strengthen their
indicators of value of the joint venture to meeting the Information
Centres' objectives, and clarify what benefits they expect.
7. In the first year the joint venture made
a loss of £2.8 million compared with the expectation that
it would make a small profit. The Information
Centre should use its position on the board of the joint venture
to assess the underlying and reported financial performance of
Dr Foster Intelligence, so as to challenge any potential understatement
or suppression of profit during the term of the joint venture,
which would diminish the Department's return on its investment.
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