“Bringing together the best of the public and private sector has clear benefits in improving the quality of public sector services. But in such cases attention must be paid to protecting government spending and value for money for the taxpayer. By taking the decision not to carry out a formal competitive tender process in this instance, the Department cannot demonstrate that the joint venture was the best structure to meet its needs or that it represents good value for money.
Head of the National Audit Office Sir John Bourn, 6 February 2007
The Department of Health and the Information Centre could not demonstrate to the National Audit Office’s satisfaction that they had achieved value for money in establishing Dr Foster Intelligence, a joint venture between the Information Centre and a private sector company Dr Foster LLP. This is primarily because they did not go out to tender to encourage fair competition.
The Department of Health established the Information Centre in April 2005 to centralise the collection and dissemination of information across the NHS. The Department recognised the need to use this information to develop information products and services, which would encourage senior, strategic NHS staff to make effective use of information. On the basis of negotiations through 2005, and Ministerial approval, the formation of a joint venture company ‘Dr Foster Intelligence’ was announced by the Secretary of State for Health in February 2006.
Prior to establishing the Information Centre the Department started exclusive discussions with Dr Foster Ltd, a private company already successful in health data dissemination. The Department believed the need to improve the use of information needed to be addressed urgently, to support the health reform agenda, and considered that a commercial partnership between the Information Centre and Dr Foster Ltd was the best way forward, capitalising on Dr Foster Ltd’s prior success in this field. In July 2005, the Department handed over responsibility to the Information Centre for concluding negotiations of the joint venture.
Today’s report looked at the rationale and terms of the joint venture, and whether the amount paid for the joint venture provided value for money for the public sector. The Department and the wider Government are increasing their use of joint ventures and the NAO wishes to disseminate the learning from negotiating this deal.
The report concludes that, in the absence of a fair competitive tender process in this instance the Information Centre had no fair comparisons or benchmarks to demonstrate that the joint venture with Dr Foster Ltd was the best structure to meet its needs, or that it represented good value for money.
The Department did not hold any discussions with other private health informatics companies to determine their interest or ability to deliver the aims of the joint venture. The report shows that there were companies providing similar services to Dr Foster Ltd already working in the UK, and in other European countries. However, on the basis of the market analysis it had commissioned, the Department believed that Dr Foster Ltd clearly represented the best possible prospect for a joint venture partner for the Information Centre in the UK or in Europe.
Treasury’s guidance on the formation of joint ventures suggests that competition is likely to be the best, and in some cases the only way to test the market and establish a justifiable price for the public sector’s contribution to a joint venture. However, based on advice, the Department and the Information Centre were satisfied that the joint venture was the best option, and that Dr Foster Ltd was the most appropriate partner. There were no calls for expressions of interest to identify other possible partners.
The Information Centre paid £12 million in cash for a 50 per cent share of the joint venture. This price included an acknowledged strategic premium of between £2.5 million and £4 million, and was higher than their financial advisers’ indicative valuation of the share. The Department also spent more than £1.7 million on professional fees, £50,000 of which was paid to Dr Foster Ltd for advice about the establishment of the Information Centre and a possible relationship with the private sector. The report also raises concerns about the Department’s decision to pay Dr Foster Ltd for advice when it had already entered discussions about a partnership.
The Department and the Information Centre stand by their view that, on the basis of market analysis, Dr Foster Ltd clearly represented the best possible prospect for a joint venture, given the benefits they were seeking to attain. The Department and the Information Centre are also clear that, throughout the process of establishing the joint venture with Dr Foster they acted on advice given by its Commercial Directorate and legal and professional advisers. It is also the Department and Information Centre view that the joint venture was not primarily about financial gain, but designed to harness private sector dynamism, efficiency and effectiveness to public sector expertise in the health informatics field.
Among the NAO’s recommendations are that the Department of Health, and all government departments, should ensure that all future public-private partnerships are advertised appropriately within the European Union. It should also maintain a competitive bidding process or, in the absence of appropriate competitors, set adequate benchmarks to measure value for money.
The Information Centre should ensure that all future services are procured competitively. It should take any necessary steps to ensure a level playing field in health informatics, consulting with appropriate companies which are competitors of Dr Foster Intelligence to understand the reasons underlying any unwillingness to bid for work.
ISBN: 9780102944266 [Buy from TSO]
HC: 151 2006-2007