Examination of Witnesses (Questions 180
WEDNESDAY 23 JANUARY 2002
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 benefitthings like the Gateway
reviews which we see have a much better founding for our IT planningand
they have also instituted a strong professionalism with the procurement
function across government which I think, again, will have long
182. That was not present in your department
(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.
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
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
(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.
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
(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 truthfullyI have an interest
in health issues; it has a big presence in my constituencyrecollect
anywhere in the annual reports of the local NHS trusts any reference
to purchasing. I would have obviously to go back and confirm that,
(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 Eatonthe
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 ifnow is not the
appropriate moment to go into that any furtheryou could
produce something for us that puts a few numbers on that which
has harder information?
(Dr Drury) Yes.
197. What is the number of PFI projects in the
(Mr Douglas) I think we are running now at around
64 major schemesthat 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
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