1 Establishing a joint venture with
Dr Foster Ltd
1. The Department established the Information Centre
as a Special Health Authority with the statutory duty to collect,
analyse and disseminate data for the NHS in the fields of health
and social care. In April 2005, the Information Centre was expected
to accelerate the use, analysis and distribution of health and
social care information. From an early stage in the Department's
conception of the Information Centre the Department believed that
the Information Centre would lack the necessary commercial skills
to quickly develop and market information products.[2]
It determined that the most effective way to obtain these skills
was through a commercial relationship with the private sector.
2. The idea of a partnership was conceived after
a meeting in late 2004, when the Department believed that Dr Foster
Ltd was the leading health informatics company.[3]
During this meeting the Department had been impressed with the
vision for the better use of information in the NHS presented
by the Chief Executive of Dr Foster Ltd.[4]
3. The use of joint ventures in both the public and
private sectors is increasing. Organisations see joint ventures
as a way to bring together skills and resources to achieve objectives
they might not have been able to achieve alone.[5]
In this case, the Department saw the joint venture with Dr Foster
Ltd as a commercial opportunity to improve the use of information
by creating a marketing arm for the Information Centre and bringing
in the skills that its predecessor organisations lacked.[6]
The Department also believed the joint venture would boost the
overall information market in the NHS, which it considers to be
under-developed.[7]
4. Treasury guidance on the formation of joint ventures
states that consideration should be given to whether a joint venture
is the best way to meet the public sector's requirements.[8]
The Department contends that it did consider a number of options
before it decided to proceed with the joint venture, as evidenced
by the fact that these options were briefly outlined in the business
case for the deal. Options included: investing additional money
and staff for developing skills and expertise in-house; entering
into contracts with private sector organisations; or 'do nothing'.[9]
The National Audit Office's review found that these alternative
options were not considered in any detail and were quickly dismissed.[10]
5. The Treasury's guidance on forming joint ventures
also states that the best way to ensure that the public sector
demonstrates value for money is through a call to competition.
In the case of this joint venture, however, there were no calls
for expressions of interest to identify possible partners other
than Dr Foster Ltd.[11]
The Department's position was that it considered tendering but
chose not to because the market analysis carried out by its advisor's
had determined that none of the other potential partners had the
skills or profile to compete with Dr Foster Ltd.[12]
The Department's advisors reached this conclusion by carrying
out desktop-based research and without entering into discussions
with any of Dr Foster Ltd's potential competitors.[13]
6. Prior to their going ahead with the joint venture,
the National Audit Office advised the Department and the Information
Centre that there were risks relating to the potential breaching
of State Aid legislation.[14]
As a result, the Department sought legal advice which suggested
that State Aid rules were unlikely to have been breached because
the Department had acted as a market investor for the acquisition.
The Department went ahead with the joint venture on the basis
of this advice.[15] The
market investor principle may be open to challenge, however, particularly
as the Information Centre paid between 33% and 53% more for its
share than the advisor's highest indicative valuation.[16]
7. At the outset there was an urgency to complete
the deal with Dr Foster Ltd, and in negotiating the joint venture
the roles and responsibilities of the Department's advisors were
sometimes confused.[17]
The Department paid Dr Foster £50,000 to provide advice on
establishing commercial relationships with the private sector,
even though it had already entered into exclusive discussions
with them about the terms of such an association.[18]
The Department also commissioned the same advisors to help define
the specification and options for working with the private sector
and to advise on negotiations with Dr Foster Ltd regarding the
terms of the joint venture.[19]
2 C&AG's Report, para 1.4 & 1.8 Back
3
C&AG's Report, Figure 1; Ev 18 Back
4
Qq 17-18, 160; C&AG's Report, paras 1.8-1.9 Back
5
C&AG's Report, para 1.12 Back
6
Q 18 Back
7
Q 85 Back
8
A Guidance Note for Public Sector Bodies forming Joint Venture
Companies with the Private Sector, HM Treasury Guidance prepared
by Partnerships UK, December 2001 Back
9
Qq 19-20 Back
10
C&AG's Report, para 1.19 Back
11
C&AG's Report, summary para 15; Article 87 (1) of the EC Treaty
contains a general prohibition on aid granted by a Member State
which distorts competition by favouring certain undertakings or
the production of goods to the extent that the aid affects trade
between Member States. Back
12
Qq 2, 22, 99, 102, 106 Back
13
Qq 152-154, 158 and note to question 78 Back
14
C&AG's Report, para 1.5 Back
15
Q 48 Back
16
Q 107; C&AG's Report, summary para 24, para 1.44 and Figure
7 Back
17
Q 49; C&AG's Report, summary para 25 Back
18
Qq 11-14 Back
19
Q 49; C&AG's Report, paras 1.26, 1.32 Back
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