Select Committee on Treasury Minutes of Evidence



Examination of Witnesses (Questions 180-199)

MR RICHARD DOUGLAS, DR PETER DRURY, MR ANDREW HOLT AND MR DUNCAN EATON

WEDNESDAY 23 JANUARY 2002

Chairman

  180. Mr Douglas, welcome to the Committee. Please introduce your colleagues.


  (Mr Douglas) I am Richard Douglas. I am Finance Director at the Department of Health. Peter Drury is head of the information policy unit, and other IT matters. Andrew Holt is head of Information Services Group, Department of Health, the main client for OGC within the department for departmental business; and Duncan Eaton, who is chief executive of the Purchasing and Supply Agency.

  181. Thank you for the memorandum that you have submitted. When OGC put their evidence to us, they told us they had been created to lead a wide-ranging programme and to deliver substantial value-for-money improvements. Could you give us some examples, from your spend of 200 million a year, what these improvements are so far?
  (Mr Holt) To clarify, I am responsible for the Department itself. There are about 4,000 to 5,000 staff in the Department; it is relatively small. The impact in the first year or two of the OGC is partly helping us with individual procurements. For example, I have not the capacity to deal with the London property market because I do not have continual contact so, for example, last year they helped us with negotiations. In total, as we told them, the benefit is 4.8 million, about 2.4 per cent of our total spend in the commercial market, which is roughly par for the course, I understand, across government. 2.4 per cent is the sort of improvement in that sort of way but in addition they have instituted things which have a longer term benefit. Going back to the 2.4, that comes from individual initiatives and from our use of their gross-government contracts in areas such as supplies and consultancy, where we can dip into contracts which are done collectively across government, which give us much better rates than a small department can do for itself. Looking a bit more forward, they have instituted a number of processes which will have a longer term benefit—things like the Gateway reviews which we see have a much better founding for our IT planning—and they have also instituted a strong professionalism with the procurement function across government which I think, again, will have long term benefits.

  182. That was not present in your department before?
  (Mr Holt) To give an example, I inherited the procurement activity about two years ago as a responsibility and felt that there were weaknesses and I was able to go to something like the OGC to give me advice on what to do, and that would give me long-term benefit. It is that sort of central capacity they are giving us which I do not think was there in the past.

  183. And that is a benefit to the department?
  (Mr Holt) Yes.

  184. The remit does not extend to the Health Service but are you ensuring that OGC guidance is being used by NHS Estates and the purchasing and supply agencies, or whatever they are now called?
  (Mr Douglas) I think the guidance really splits into two areas; one is the major capital investment which is largely NHS Estates and the private finance team department led, and then there are the wider procurement issues led by the Purchasing and Supply Agency. If I can say a few words about the capital side, we build the guidance from OGC into all our contracts, so we have a standard form of contract that we use, particularly for PFI schemes, and that is built up and consistent with OGC guidance. We have a business case approval process for every single major capital investment, and part of the approval process there is to confirm compliance with OGC guidance. On those major capital schemes, therefore, we have a very vigorous way of ensuring compliance. There is one area where strictly we do not comply with the OGC guidance and that is in Gateway reviews; at the moment we do not have a Gateway review process in the NHS. We have a business case approval process that mirrors it but is not quite the same so that is one area where I think we need to make changes to move in line with the guidance.
  (Mr Eaton) I am chief executive of the Purchasing and Supply Agency which was established almost two years ago, about at the same time as the Office of Government Commerce, and although, as you say, formally we are not part of the OGC structure, one of the things I agreed right at the start with Peter Gershon is that we would work closely together so all their guidance we receive and there is nothing that we have had in guidance terms that either we are not following or have not adapted for our own purposes. We have also got examples of where we have agreed to do things together, for example, the national contract for Vodaphone we did on a joint basis, and the Health Service saved a million pounds as a result of that co-operation. We are at the moment on all our purchasing that I do centrally for the NHS working with OGC to see where there are some similarities where we can do things one for the other, and we are already making decisions. For example, we have agreed from our side we will do a national contract for office and ancillary agency staff, both for OGC and the NHS, so we have a close working relationship.

  185. Do you think there is a case for extending the OGC's remit right across the Health Service?
  (Mr Douglas) This is something we have looked at. I think we have to look at what potential advantages would be of that. The only two that I could see would be if there were some benefit from economies of scale by bringing all the expertise together within one organisation, or if that was the only way of ensuring consistency of application of guidance across government. On the first one the size issue is important. The OGC is relatively young; the NHS market is absolutely enormous; and we would come up with a very large organisation with very widespread responsibilities, and it would be in an area where there is particular expertise around purchasing the NHS. It is different from the type of purchase that is done across the rest of government so I do not think the arguments are that strong in terms of the centre of expertise and size. On the consistency issue and whether everyone applies the guidance and whether we approach procurement consistently across government, I think that is do-able without having organisational changes. I guess my short answer would be that, at the moment, it does not seem to us to be proven.

Mr Mudie

  186. The OGC's work is based on working with you, a collaborative approach. Does that work well in practice?
  (Mr Douglas) Our experience to date has been it has worked well across all the activities we have been involved with. They have worked a great deal with NHS Estates and they have provided staff as well to OGC to do reviews on their behalf. There are a number of examples where we have worked very closely with the OGC on the overall procurement side, so generally, yes, I think it works very well.

  187. Are there any major occasions when you have decided not to accept their advice or their guidance? You say, "The Department has taken account of OGC advice", not "has taken it". It sounds a bit at a distance.
  (Mr Douglas) I think that might just be Civil Service language.

  188. It is usually used in civil service language to mean you do not give a damn.
  (Mr Douglas) I think the one area where I would say we have not at the moment followed the OGC approach is on the use of Gateway reviews in the NHS. We have had long discussions with OGC going back a number of months. Our initial view was that the business case approval process we had mirrored the Gateways almost exactly. It had broadly the same status as Gateways; it provided very rigorous tests; it brought in expert advice in a number of areas. The one point that Peter Gershon said to me a number of times is that the difference is it is not independent from the approval process: that the way the Gateways work in the true sense is you have people totally independent of the process, either the doing or the approving. What we are doing at the moment is combining the Gateway support and the approval and I think that is a very powerful argument. What we have agreed, therefore, is that I will second someone into the OGC probably early next year to work with OGC to devise a Gateway process for the NHS, one we can apply that mirrors exactly the way that OGC work.

  189. You say in your evidence and your memorandum that you operate a devolved form of procurement as well as a central procurement unit with responsibility for overall policy. How do you ensure everything is adopting the best procurement practice? How does that fit in with OGC guidance?
  (Mr Douglas) On the detail of that I will ask Duncan to comment on how we ensure that. We make sure that we have people that are properly trained in the procurement function, first of all. We put a very clear responsibility on the boards of NHS bodies, and they are responsible for ensuring that they will deliver good value for money. They comply with central policies and standards. There is a clear board responsibility there.
  (Mr Eaton) I think that statement probably referred to the Department of Health purchasing particularly but, as far as the NHS is concerned, one of my responsibilities is to centrally purchase those things that are appropriate for the NHS and that is about 2 billion at the moment. The target in my corporate plan is to increase that to just over 3 billion, which is 34 per cent of NHS supply expenditure, and clearly then we have to have mechanisms to engage the NHS, the 500 or so trusts, to make sure our contracts are used and are suitable and appropriate for the NHS, so we have a performance management role to ensure there.
  (Mr Holt) If I can come back, I mentioned a few minutes ago that I asked for OGC advice on a matter; it was precisely that topic. I felt that, when we move away from the central purchasing of IT and estates which is well controlled, evidence was coming through that it was not done very well so I asked for their advice on how to handle this, and they came in with a report which suggested I strengthened the central functions and our regulation of the local units, which I am enacting.

Mr Cousins

  190. Can Mr Eaton just remind me of his figures? You said at the present moment you are responsible for the central purchasing of about 2 billion of NHS purchasing and that will rise to 3 billion?
  (Mr Eaton) Yes.

  191. When it has risen to 3 billion, it will represent 34 per cent of the total?
  (Mr Eaton) Yes.

  192. How do you know whether those are the correct figures? Can you give to the Committee some review or some document that says that this is the optimal situation, when you reach 3 billion?
  (Mr Eaton) I can give you the figures that justify the targets that have been set at this stage. These are the figures in my corporate contract that is agreed with the Secretary of State, and there is a whole range of targets that have been set for the agency against which I will be measured, so those figures are based on current circumstances and there is a lot of information to back those up, and I can certainly supply that to the Committee. The plan is reviewed each year so, if there is evidence that shows that the targets need to change and those figures need to increase or not, then that will be reviewed and the evidence will be put forward to my ministerial advisory board, which then reports into the ministerial side of the Department.

  193. And how can you satisfy yourself, and maybe it is not your job to do so but it must be somebody's responsibility, that the other 7 billion, if my mental arithmetic is up to the test, is being purchased according to the best principles?
  (Mr Eaton) One of my other responsibilities is to performance manage purchasing supply throughout the NHS. That is one of the things we have been establishing. Currently we have had a joint exercise where we established a whole range of performance indicators for NHS trusts in conjunction with the Audit Commission. That information is now coming through from trusts and there will be a report in April of this year, a joint report of the Agency and the Audit Commission, to show how effective or not purchasing supply is throughout the NHS. So I do that by fulfilling my performance management role alongside the performance management of NHS trusts.

  194. I cannot truthfully—I have an interest in health issues; it has a big presence in my constituency—recollect anywhere in the annual reports of the local NHS trusts any reference to purchasing. I would have obviously to go back and confirm that, but—
  (Mr Eaton) One of my responsibilities is to raise the profile of purchasing and supply. That was one of the intentions and why we had a structural change and established the Agency. As with a lot of organisations, purchasing and supply is not necessarily high profile in a number of trusts. One of the advantages, in fact, that I have had in terms of this inquiry of OGC is what Gershon has done to demonstrate within government the benefits of good purchasing and supply, so no, at the moment it is not on a high enough status within many NHS trusts but that is changing, and that is one of my roles of performance manager, to help trusts to do that.

  195. Dr Drury, can I ask you about information systems and their procurement, this was one of the notable causes of difficulty for the last government: that NHS systems could not bear the weight of discovering what were the costs and where they were and how many patients there were and so on, because NHS information systems are a well-known source of difficulty. What are you doing about that?
  (Dr Drury) In the context of this inquiry I am pleased to say that, again, I echo the comments of Mr Eaton—the contributions that have been made by OGC and, indeed, by us to them has resulted in a steady improvement, I think, in the range and specificity of the guidance and the support that is available to NHS organisations. I think one of the other things that needs to be recognised is that the procurement of information and IT very much underpins the way in which the NHS itself is modernising. One of the ways that one can see that happening and getting better value for money out of investments and information and IT is the move towards having greater collaborative procurement, with rather less at the end of the spectrum of small procurements by individual trusts and exploiting, wherever possible, the benefits of having collaborative procurements at a regional level or perhaps a strategic health authority level. Certainly we are working with my colleagues in the NHS Information Authority to make sure that those things that can be best done nationally are done nationally. In that context, as well, I think it is fair to say that we have had some very useful discussions and help and support from OGC which we have interpreted and played into the advice and guidance of NHS organisations to be complied with.

  196. You sound like a minister in an adjournment debate; from one point of view there could be no higher praise! I do not know that that entirely serves the purposes of this Committee and its inquiry, however. I just wonder if—now is not the appropriate moment to go into that any further—you could produce something for us that puts a few numbers on that which has harder information?
  (Dr Drury) Yes.[1]

 

 

Mr Beard

  197. What is the number of PFI projects in the NHS?
  (Mr Douglas) I think we are running now at around 64 major schemes—that is schemes with 20 million or more capital cost within them.

  198. And how many below that?
  (Mr Douglas) We do not keep central records of the smaller schemes.

  199. But you do have some?
  (Mr Douglas) Yes. There will be some that are below that individual trusts are operating below that level.

 


1   See Ev 63-68. Back

 
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