Examination of Witnesses (Questins 40-59)
CABINET OFFICE,
DEPARTMENT OF
HEALTH & HM PRISON
SERVICE
12 DECEMBER 2007
Q40 Dr Pugh: They were persuaded.
Mr Coates: But the tender for
shared services in the NHS covers the entire NHS and any NHS body
can join SBS without a tender process.
Q41 Dr Pugh: What would have happened
if NHS Professionals said, "No, we want to go with a private
institution that does shared services for us rather than SBS"?
Mr Coates: There have been many
trusts who have made investment decisions since SBS have been
operating and decided not to move across, and there are also trusts—
Q42 Dr Pugh: NHS Professionals do
not quite have the same freedom as a foundation trust, do they?
Mr Coates: No, they do not.
Q43 Dr Pugh: Migration costs—I
looked at diagram 7 which is on page 18, and clearly the more
these go up the less profit everybody will make all round and,
encouragingly, as you project towards the future and you get more
and more institutions joining, the migration costs, for some bizarre
reason, go down even though the actual cost, if you have got more
and more people signing up, have gone up; is that optimism?
Mr Coates: I cannot explain the
individual lines in this because they were agreed independently
with the NAO. I hesitate to say that probably the number of customers
or clients joining flattens out over time so that has caused a
flattening of the numbers.
Q44 Dr Pugh: Why would that be?
Mr Coates: Because we will generate
fewer numbers of clients on a per annum basis over time.
Q45 Dr Pugh: But you are hoping to
generate more numbers, are you not, to stay in profit?
Mr Coates: Yes, but our curve
is bound to go in that way.
Q46 Dr Pugh: At some point you have
got nearly everybody signed up and no further customers coming
in?
Mr Coates: We have to be realistic
about this.
Q47 Dr Pugh: So the projection for
2010-11 indicates that you are not expecting many people to sign
on then, and fewer the following year, and even fewer the following
year, and so on?
Mr Coates: I am afraid I do not
know the genesis of those individual numbers.
Q48 Dr Pugh: Right. The profitable
enterprise depends very substantially upon the use of services
in India, do they not, 40%?
Mr Coates: They do.
Q49 Dr Pugh: If that is the case,
and you find you are not hitting that magic £250 million
figure, the temptation must be to make greater use of services
in India because that reduces your overheads?
Mr Coates: That is right. We have
already agreed to an increase in service levels in India. When
the tenders were accepted from Xansa the cap was 40% and it has
now moved to 60%.
Q50 Dr Pugh: Right, so when push
comes to shove you have no objection to moving more of those services
across to India?
Mr Coates: We have discussed them
with clients and the clients agree that they are happy for the
service to be provided in India, yes.
Q51 Dr Pugh: Are clients in a position
to judge whether they are?
Mr Coates: Yes they are because
they talk about what services are going to be provided from India
and whether they are content that that happens.
Q52 Dr Pugh: They might be deterred
if you said that 80% of the services were to be provided in India?
Mr Coates: There may be some,
but there are things you cannot transfer to India and things we
would not want to transfer to India.
Q53 Dr Pugh: For example?
Mr Coates: You cannot transfer
the postroom, for instance, and you cannot transfer—
Q54 Dr Pugh: Right, but then as you
move more and more on to electronic invoicing the postroom becomes
more redundant, does it not?
Mr Coates: Yes absolutely.
Q55 Dr Pugh: The software being used
predominantly is an Oracle package which is bespoke and adjusted
for need. Are you fairly confident that in years to come, should
Oracle want more money than you are prepared to pay or it affects
substantially your overheads, that you can find an alternative
supplier?
Mr Coates: The contract we have
with Oracle covers the entire NHS and it runs for ten years with
a five-year option to extend at the same price as the ten-year
term so we have got it until 2017.
Q56 Dr Pugh: Just two shorter questions
really now. There is a high cost of processing at the moment compared
with some private shared services, and I think you have owned
up to that and that is fair enough, and the explanation for that
is there are an awful lot of small invoices within the NHS and
that is an explanation of why you have not hit some of your anticipated
figures. Did you not know that?
Mr Coates: We were aware of it
at the time, yes, but it is the business of the NHS and we have
to work with the NHS to—
Q57 Dr Pugh: But in terms of your
business plan, you knew exactly that that was going to happen
and therefore you cannot use that as an excuse afterwards as a
reason for why things have gone wrong.
Mr Coates: I think the number
of low-level invoices relates to the cost per transaction rather
than the property business itself. That generates a high unit
cost compared to the best in the markets.
Q58 Dr Pugh: My last question is
I read some of the horrible phrases, that there has been a step
change—I hate that phrase—in the robustness of processes,
and basically that means that some invoices are not being fielded
as accurately or as efficiently as they might be, and in fact
some invoices are being paid almost by dead weight without being
authorised and so on. What is your perception, and I would like
you to be as candid as possible here, of the current robustness
of the invoicing systems within the NHS outside of shared services?
Mr Coates: In what context? I
am not trying to evade the question.
Q59 Dr Pugh: I am saying if there
has been a step change in the robustness of processes you are
really saying by implication that the current way of processing
invoices in the NHS is pretty dire.
Mr Coates: The use of payable
orders that are matching to orders at the time they are placed
is relatively low in the NHS, but I think the way forward for
that is trying to move to electronic invoicing as much we can
as quickly as we can.
Dr Pugh: Thank you.
Chairman: John Pugh and myself were particularly
struck by the amount of work being transferred to India. We thought
it would be a strange reversal of fortune and an irony if ever
increasing amounts of our Civil Service were transferred to India!
In any event, Keith Hill.
| 
