In December 2015 a five year contract, worth around £800 million between UnitingCare Partnership and Cambridgeshire and Peterborough clinical commissioning group collapsed after only 8 months because it ran into financial difficulties. NAO examined the design, procurement and operation of the contract and the events that led to its termination.

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The National Audit Office (NAO) has today published its report into the collapse of the UnitingCare Partnership contract with Cambridgeshire and Peterborough clinical commissioning group (the CCG) to provide its older people’s and adult community services. The five-year contract, with a total budget of about £0.8 billion, started in April 2015 but collapsed after only eight months because it ran into financial difficulties. The NAO examined the design, procurement and operation of the UnitingCare Partnership contract, and the events that led to its termination.

Today’s report found:

  • The CCG needed to change the way its older people’s and adult community services were provided. The CCG is one of the most financially challenged in the country. Despite recent funding increases it remained more than 3% below its target funding allocation in 2015/16, with significant financial challenges and an ageing population.
  • There was significant support from stakeholders for the contract’s design, which provided a new model of services based around the patient. The approach had strong potential to join together all bodies in the local health economy and to deliver better patient care. Although the successful bidder, UnitingCare Partnership, was only just starting to reconfigure and transform services, stakeholders were encouraged by early progress. The Partnership’s business case set out total estimated net savings of £178 million to the local health economy by 2020, mostly by reducing inappropriate emergency hospital admissions and emergency attendances.
  • The Trusts chose a limited liability partnership to meet the CCG’s requirement for contracting with a single entity, but neither UnitingCare Partnership nor the CCG made proper arrangements to fund the ensuing VAT liability. NHS subcontractors were no longer able to recover VAT on the services provided to UnitingCare Partnership that had previously been recovered when they provided the same services to the CCG. The Partnership had not factored these additional costs into its contract price.
  • The contract included an estimated 10% cost reduction over the five-year life of the contract. Some stakeholders told us that this cost reduction profile was optimistic and that they had concerns about the financial viability of the contract. The contract included a £10 million transformation sum to help redesign the service, but other bidders thought this was insufficient.
  • The final contractual terms left the CCG exposed to significant unintended risks and potential costs. Additional contractual and termination clauses added during contract negotiation passed significant financial risk from the provider to the CCG as the commissioner. The CCG and UnitingCare Partnership differed in their understanding of the extent that the contract clauses allowed UnitingCare Partnership to negotiate additional funding after signing the contract. In addition, gaps in the procurement advice received by the CCG meant that it failed to secure a parent guarantee from UnitingCare Partnership, leaving it more vulnerable if the contract failed.
  • Bidders faced significant difficulties in pricing their bids accurately due to limitations in the available data. For example, it was difficult to determine accurately the number of patients, the precise scope of the services to be provided and the costs of providing services from block contracts, particularly from the incumbent community services provider.
  • The UnitingCare Partnership bid was £726 million, some 3.5% below the CCG’s maximum contract price, despite increasing demand for services. Neither organisation could fully assess whether the contract price was viable due to limitations in the data.
  • There was a large number of outstanding cost and clarification issues when the CCG chose UnitingCare Partnership as its preferred bidder in October 2014. Many items were critical to pricing. Reflecting these cost issues, UnitingCare Partnership expected to negotiate more than 20% additional funding from the CCG than its original bid price as outstanding clarifications were settled.
  • UnitingCare Partnership agreed to begin the contract from April 2015 while continuing to negotiate on cost clarifications. One month into the contract, UnitingCare Partnership requested £34 million of extra funding for the first year, some 21% more than the contract price for that year.
  • In early December 2015, UnitingCare Partnership was forced to terminate the contract when the CCG informed it that no further advance funding was available. NHS England and Monitor[1] mediated to allocate the £16 million of unfunded costs that had been incurred between the CCG and the partner trusts. The CCG agreed to pay approximately 50% of the costs, and the two trusts each paid approximately 25%. The termination of this contract indicates that the health sector may not have learned lessons about assessing and managing risk when working with a private provider, despite the earlier failure of the Hinchingbrooke contract and experience in wider government.
  • Monitor is the regulator for foundation trusts but its remit only covered part of the transaction. UnitingCare Partnership was a limited liability partnership. As a separate legal entity it was subject to company law and was not regulated by Monitor. Monitor’s approach to risk-assessing new transactions led it to consider the implications of the contract for only one of the two trusts comprising the partnership, Cambridgeshire and Peterborough NHS Foundation Trust.
  • UnitingCare Partnership’s actions to limit Cambridgeshire and Peterborough NHS Foundation Trust’s financial liability were an important factor in Monitor’s decision to issue an amber risk rating for the trust’s role in the transaction.
  • NHS England had very limited involvement in the procurement until the contract failure. The contract fell within the CCG’s commissioning responsibility. It did not inform NHS England of the difficulties in resolving the financial gap in the contract until October 2015.Since the termination, NHS England has paused similar contracts while undertaking its own review of what went wrong. It now plans to develop an assurance framework for similar procurements in future.
  • Neither the Department of Health, nor NHS England, nor Monitor was responsible for holding a holistic view of the contract, or assessing whether the anticipated benefits would merit continued support of this innovative approach. The wasted cost to the NHS of the contract set-up and bidder costs was £8.9 million.
  • NHS England’s Five Year Forward View encourages the health sector to use new and more joined up ways of providing care, which may not always align with existing regulatory and oversight arrangements. Without closer joint working or a more holistic view, there are significant risks for the commissioning and providing sectors that individual oversight body decisions will not lead to the best outcomes for patients or for the system as a whole.

“This contract was innovative and ambitious but ultimately an unsuccessful venture, which failed for financial reasons which could, and should, have been foreseen. It had the strong potential to join together all bodies in the local health economy and to deliver better patient care. However, limited oversight and a lack of commercial expertise led to problems that quickly became insurmountable.”

Amyas Morse, head of the National Audit Office


Publication details

Press release

View press release (14 Jul 2016)

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