Report identifies ‘serious concerns’ about governance and procedural weaknesses in the awarding of a Managed Facilities Services contract at Whipps Cross University Hospital NHS Trust

Here’s a story we didn’t pick up on in November last year, but the lessons are still highly appropriate for NHS boards.

A report setting out the appointed auditor’s ‘serious concerns’ about governance and procedural weaknesses in the awarding of a Managed Facilities Services (MFS) contract at Whipps Cross University Hospital NHS Trust (the Trust) was issued on 18 November 2008. The report, issued under Section 8 of the Audit Commission Act (commonly known as a public interest report) shows that the Trust failed to have adequate arrangements in place to ensure that it achieved value for money from this transaction.

Under the terms of this contract, signed in April 2006, the Trust contracted with a private sector supplier to outsource the management, servicing and replacement of NHS equipment in Theatres and Radiology, for a period of 12 years. As part of this contract, the Trust sold equipment with a book value of around GBP 3 million – GBP 3.5 million, received an initial payment of GBP 7.1 million (plus VAT) and committed to pay charges of GPB 3.2 million per annum for 12 years.

The report’s key findings were:

– The contract procurement, evaluation and approval process was undertaken over an inappropriately short timescale due to a misguided expectation that the contract would result in an accounting gain.
– The Trust’s selection of an ‘accelerated restricted’ procurement process was poorly judged, and it is highly questionable whether the Trust complied with EU rules around negotiation with bidders.
– The tender evaluation and shortlisting process was based on insufficient information, and was poorly documented.
– The Trust did not have adequate arrangements to ensure that the contract represented adequate value for money.
– The Trust has since reassessed the contract and believes that, whilst resulting in some operational improvements, it does not represent value for money.
– The GBP 7.1 million valuation of assets sold to the private sector supplier was significantly overstated.
– The Board did not have the skills or experience to understand and adequately challenge the risks associated with this complex transaction and placed too much reliance on the assurances provided by members of the executive team.
– The Board approved the MFS contract subject to SHA approval, but this was never provided unconditionally nor was there clarity on either side around what level of approval was required.
– The Board did not understand the role of external advisors relied upon in the approval process and as a consequence drew an inappropriate level of assurance from their involvement, even where the advisors’ limitations in scope were clearly set out in terms of reference.
– Significant contract amendments and side letters were negotiated after the contracts without Board approval, and the contract itself was backdated.

Download a copy of the report here.

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