research-report-96-coming-clean-contractual-and-procurement-practices.doc

Full time managers financed by the private sector

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full-time managers, financed by the private sector consortium, has from the outset represented the firms in their relationship with HospitalE. Tendering The problem for HospitalE, as with other NHS trusts wishing to engage a PFI contract, is that the costs of bidding for these mega-contracts are considerable and make it difficult for a client organisation to generate a desirable level of competition. As Broadbent et al.’s (2000: 33) early study of PFIs argued, ‘the reliance on competition as a basis for achieving value-for-money is somewhat optimistic’. Bidding organisations (consortia of firms) had to submit highly detailed plans, as well as details of financial and legal arrangements. HospitalE in turn had to spend significant sums of money to verify and compare bids, with surprisingly limited transfers of knowledge and expertise from other parts of the NHS, as noted in other studies (Grimshaw et al., 2002). Fee basis The overarching PFI agreement was originally signed as a 35-year contract. There is a fixed monthly tariff with around £20-25 million for domestic services, plus adjustments (ad hoc supplements or deductions) for additional service requests and quality of services. 61
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COMING CLEAN: CONTRACTUAL AND PROCUREMENT PRACTICES Ten years after the opening of the new buildings, CleanC was required to renegotiate the contract in order to win a further ten years. This process, conducted in 2011-12 and described as a ‘benchmark test’, was entirely internal with no outside bidders invited. HospitalE prepared for the negotiations by commissioning an independent benchmarking report to provide it leverage in arguing for cost reductions. Also, a major corporate acquisition in 2011 expanded the raft of services provided by CleanC to the Trust to include the estates management services previously delivered by the company it had acquired. Monitoring of the contract Monitoring of the contract for cleaning services has come under intense scrutiny recently due in part to a deterioration of HospitalE’s financial status. While CleanC’s stock price has doubled over the last five years, HospitalE was required to put into place a two-year recovery plan from January 2014 (with the help of McKinsey) following a Monitor-PwC enquiry into its short and long-term finances. 14 A key problem cited in the evaluation was HospitalE’s long-term PFI deal and the essentially ringfenced rising cost structure at a time when all NHS Trusts are required under the coalition government’s austerity spending plans to find cost savings - estimated 4% year-on-year, 17% cumulative during 2011-12 to 2014-15 (NAO, 2012). Renewal of the contract in 2011 involved a change from an output-based specification to the NHS ‘gold standard’ National Specifications for Cleanliness, which sets risk categories as low, medium, high and very high with guidelines on frequencies. CleanC was tasked with redeploying labour from low to high priority areas while also finding £350,000 cost savings.
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