UnitingCare Partnership contract Contents

1The contract collapse

1.On the basis of a report by the Comptroller and Auditor General, we took evidence from NHS England, NHS Improvement, the Cambridgeshire and Peterborough Clinical Commissioning Group (the CCG), Cambridge University Hospitals NHS Foundation Trust and Cambridgeshire and Peterborough NHS Foundation Trust about the collapse of the UnitingCare Partnership contract in Cambridgeshire and Peterborough.1

2.In November 2014, the CCG awarded a five-year contract to provide older people’s and adult community services in Cambridgeshire and Peterborough. It wanted to address a funding shortfall, of £250 million in the five years to 2018–19, by contracting with one provider to design a more integrated service that would provide better outcomes for patients while making efficiencies through reduced hospital admissions. The successful bidder, with a bid of £726 million, was UnitingCare Partnership, a limited liability partnership of two local trusts, Cambridge University Hospitals NHS Foundation Trust and Cambridgeshire and Peterborough NHS Foundation Trust. UnitingCare Partnership subcontracted with a range of bodies, including the two trusts themselves, other NHS providers and private sector and voluntary organisations. The contract began in April 2015 but was terminated in December that year after only eight months, because of a failure to reach agreement on contract cost.2

The CCG’s commissioning responsibility

3.We asked the CCG why it had decided to contract out the commissioning of services to a third party, given that the commissioning of services is the role of the CCG itself. The CCG explained it had hoped that by commissioning one organisation for all of the services, that the organisation would find ways of integrating pathways of care to get the best outcomes, which the CCG had failed to do until that point.3 The CCG acknowledged that it had tried to outsource the responsibility for transforming care pathways. It accepted now that CCGs should not outsource difficult decisions that they should be taking themselves, and that the commissioner is responsible for the NHS services for their local populations.4 The CCG confirmed that it believes it is now able to fulfil the commissioning role and is investing in developing the organisation to be fit for purpose to do so.5

4.The CCG explained that, following the contract’s collapse, it has developed relationships with providers so that they now collectively own the risks and challenges in the system, “rather than seeking to transfer that risk back and forth across the commissioner-provider divide.”6 We noted that this shared risk management will be particularly important in developing and implementing the sustainability and transformation plans, for which the CCG is the lead organisation.7 We challenged NHS England and the CCG about why it was necessary to set up complicated arrangements to deliver these services.8 NHS England told us that there may, on an exceptional basis, be a need to bring separate organisations together as a shared endeavour again in future. It also told us it has identified seven lessons to learn from this particular procurement before any similar arrangements are put in place:9 We summarise how it described those lessons to us as follows:

i)Design the service properly from the outset, rather than developing it during the procurement;

ii)Insist on transparency from legacy providers, including open book access to cost data;

iii)Increase the NHS’s commercial capability so that basic mistakes can be avoided;

iv)Get complete clarity about the role of external advisers and how their individual inputs should be brought together into coherent advice;

v)Do not change the terms of the procurement part way through the process

vi)Do not go live until all issues between commissioners and providers are resolved; and

vii)NHS England and NHS Improvement should work better together, rather than regulating in organisational silos.

Bidding for the contract

5.We asked why the CCG had set its budget for the contract at £752 million. The CCG explained that a budget of this level would create the efficiency savings it needed to close the CCG’s budget shortfall. The CCG told us that it had based it on its existing spending and on efficiencies being delivered in other parts of the country. It agreed that its budget did reflect the financial pressures it was under but it told us that it thought the budget had been planned alongside the new service model.10 We asked the CCG and the trusts whether it had been reasonable to expect to make a 10% efficiency gain over the five years of the contract. The trusts explained that their expected savings had been based on projects that had been tried elsewhere, just not all together and not on this scale. The CCG commented “In retrospect, I think that that [the 10% efficiency gain] may well have been a flawed expectation”. NHS England took the view that as the contract was terminated after only a few months, nobody could know whether the expectation of savings due over five years had been realistic.11

6.UnitingCare Partnership submitted a bid of £726 million, which was considerably cheaper than other bids.12 The trusts both wanted to win the contract: Cambridgeshire and Peterborough NHS Foundation Trust was concerned about the viability of its other services if it did not win the contract, but told us that it believed its bid to be appropriate, based on the limited available data.13 Cambridge University Hospitals NHS Foundation Trust told us that it had bid primarily because it wanted to look after the local population better in the right part of the hospital and to reduce disruption in secondary elective care, planned surgery and tertiary services.14 We asked whether adequate contingency had been built into the bid given that there was uncertainty about costs, or whether UnitingCare Partnership had effectively bought the contract, hoping to make good any deficit through later contract renegotiation. The trusts denied that they had deliberately undercut other bidders.15

7.Despite its bid of £726 million, UnitingCare Partnership’s business case assumed that it would receive more than 20% above that amount in additional funding from the CCG over the five year life of the contract.16 Both trusts told us that they had assumed they would be able to negotiate more income after signing the contract because of gaps in cost data and in the service specification.17 The trusts had a specific agreement that the CCG would update the contract value to reflect actual spending in 2014–15. But both trusts accepted that they had not informed the CCG that they had assumed so much additional income in their business case. The CCG confirmed that it was not aware of the trusts’ expectations for additional income above the bid price.18

8.The CCG told us that it had challenged UnitingCare Partnership’s bid price, and asked it to confirm that it could provide the services for that sum.19 At the time of the procurement, the Cambridge University Hospitals NHS Foundation Trust’s deficit was not as large and clear to the CCG as it became shortly after the contract was awarded.20 NHS England commented that it will be issuing a checklist from October this year for any CCG embarking on such a project. This will look at four areas, including whether the provider is actually capable of managing the contract and the risk involved.21

Starting the contract without resolving all the issues

9.There were a large number of unresolved issues about the cost and scope of the contract when the CCG chose UnitingCare Partnership as its preferred bidder in October 2014. The contract began in April 2015, but only one month later UnitingCare Partnership requested £34 million of extra funding for the first year.22 Cambridgeshire and Peterborough NHS Foundation Trust told us that they had faced great pressure to press ahead to start addressing the financial constraints, to improve patient care and to give greater certainty to the 1,200 staff who would transfer to a new employer under the contract. The trust agreed that in retrospect it would have been better to resolve the outstanding issues before signing the contract.23

10.The CCG accepts that it did not have an adequate understanding of the costs of service provision from Cambridgeshire Community Services NHS Trust before the contract had started. It told us that it had thought that the money it paid the trust covered the costs, whereas that was not actually the case, commenting that “… so there was an unknown cost, post-transaction [when the contract was signed], that was a surprise”.24 The trusts also told us that the full costs of the services being provided were not known when they signed the contract.25 There were a significant number of areas where the information wasn’t clear so they had sought either specific agreements or conditions in the contract. This uncertainty meant that both trusts expected to be able to negotiate further over the contract price.26

11.One of the most significant cost issues outstanding was the VAT liability arising from the UnitingCare Partnership arrangements. As a limited liability partnership, UnitingCare Partnership was not itself an NHS body and so fell outside the NHS VAT arrangements. This meant that its subcontractors could not recover VAT on services they provided to UnitingCare Partnership as they had done when those services had been provided directly to the CCG.27 Cambridgeshire and Peterborough NHS Foundation Trust told us it sought advice on whether VAT would be payable given that the partnership was formed from NHS trusts but that the answer from HM Revenue & Customs was not clear.28 The CCG subsequently stated that the Trust had received advice on the potential VAT liability in October 2014, before the contract was signed, although HM Revenue & Customs did not make a formal decision until December 2015.29 The trusts did not factor the potential VAT cost into their bid price, but told us that they had managed the risk through discussing this with the CCG.30 The CCG had not factored the cost in either, but acknowledged that it should have made absolutely explicit in the tender documents that it expected the provider to pay any VAT liability.31 NHS England pointed out that the VAT rules are quite complicated but stated that this issue should have been resolved before the contract started.32

Impact of the contract’s collapse

12.Local health services in Cambridgeshire already faced significant financial challenges before 2015, but the collapse of the UnitingCare Partnership contract has worsened the finances of the local health economy.33 After only eight months of the contract, UnitingCare Partnership had already spent £16 million more than the CCG had agreed to pay it, a position which forced it to terminate the contract. The partner trusts and the CCG shared the costs of the contract’s collapse but doing so has worsened their financial positions.34 UnitingCare Partnership’s business plan estimated that the new services would create £178 million of savings by 2020. In addition, the CCG told us that patients had really endorsed a more joined-up model for older people’s and adult community services.35 But the potential benefits of the UnitingCare Partnership model did not materialise before the contract collapsed.36

13.The CCG could not say exactly how much it is paying for its older people’s and adult community services now. But it estimated that for the current year it is paying more than it would have done at UnitingCare Partnership’s bid price, but less this year than the Partnership would have ultimately wanted.37 Despite paying more than the contract value, the CCG has not been able to bring in all of the model’s planned services for 2016–17 because it cannot now afford to commission them itself.38 The CCG now needs to establish how to make the efficiencies it needs to get its finances back on track. The CCG told us that it is having to look across all of its services to work out how it can live within its resources, and is cutting its cloth accordingly. As part of this it will continue to redesign its services for older people and adults in the community and it is trying to accelerate these changes. However, there are some concerns about the continued viability of services such as the minor injury unit in South East Cambridgeshire. The CCG is looking to find different models of provision for urgent care as part of its sustainability and transformation plans.39

2 C&AG’s Report, paras 1–4 and summary para 1

22 C&AG’s Report, para 11, 14

27 C&AG’s Report, summary, para 4

29 Cambridgeshire and Peterborough CCG, (UCP0003)

33 Qq 169, 188–193, C&AG’s Report, summary paras 1, 16

34 Qq 188, 189; C&AG’s Report, paras 15–16

36 C&AG’s Report, para 16

38 Q 201, C&AG’s Report, paras 16, 1.17

© Parliamentary copyright 2015

14 November 2016