Examination of Witnesses (Questions 240
THURSDAY 8 NOVEMBER 2001
240. Can I ask you, have you done yourself any
work on that issue, on the issue of benefits coming into this?
(Mr Weeks) We commissioned the Centre for Public Services
to carry out a study in relation to the Royal Hospitals in Belfast,
which we are happy to share with the Committee; obviously, they
found it very difficult to properly quantify the impact, because
you cannot necessarily track every individual and see what happens
to their employment history. But were able, using standard economic
models, to identify some impact in terms of benefit payments.
241. You can give us some information on that,
(Mr Weeks) We can. But, obviously, they only carried
out that study in one place, I would not claim that we have carried
out a nationwide study, but maybe somebody should; but perhaps
we are better looking at what we are doing now rather than what
happened in the past. The Department produced their own internal
estimates of how much costs were reduced by, and we would not
dispute that costs have been reduced; we would also say though
you have to look at the impact of that cost-cutting, and we would
say, and the Department acknowledges this, in relation to the
compulsory contracting out, that there was an impact on the quality
of service, and corners were cut, not everywhere, some places
managed to work within the new framework, but overall there was
an impact on quality of service. And you have to look, in a service
like the NHS, not just at efficiency but at effectiveness; simply
having fewer people trying to do the same amount of work may look
more efficient but it is not necessarily effective. So we would
say, benchmarking, yes, and perhaps historically market testing
and contracting out acted as a spur to that, but we do not think
it is a necessary condition of it. And, as has been referred to,
we have been talking to the Department about a benchmarking and
a value for money approach that is not based on contracting out,
and that work is continuing; we hope it will be successful.
242. I can tell you, as somebody who spent a
lot of time in the seventies and eighties on various health authorities,
that benchmarking was not the catalyst for a lot of these changes,
it was actually the inefficiency and the inability of the authorities
and the hospitals actually to run all their services. Contracting
out, particularly for facilities management and specialist equipment
providers, is as old as the NHS itself; what I do not understand
is why there are certain functions that suddenly should not be
subject to those disciplines. Where do you draw the line?
(Mr Weeks) We would dispute the classification that
our colleague from Leeds offered about core and non-core, because
we would define the core as including, I think, a much wider range
of services than perhaps management in Leeds have, and we have
had that debate locally with them.
243. Why did you do that?
(Mr Weeks) Because there are some services that are
integral to the delivery of what the NHS is about, which is delivery
of patient care; and we would say that, the clinical support services,
such as cleaning, portering, security, they are part of delivering
clinical care, they support delivering clinical care. And we believe
that introducing other providers disrupts the delivery of that
service, and we believe the evidence shows it. The only service
that has been properly tested through nationally agreed standards
is cleaning; and when the cleaning audits were carried out, the
facts speak for themselves, a disproportionate number of the ones
that failed were provided by the private sector. Now we believe
that shows that the introduction of the private sector into those
services did not achieve the intended result.
244. You would have to estimate the proportion
overall that was actually provided by the private sector as opposed
to directly from in-house for that to mean anything?
(Mr Weeks) That is what I mean. The private sector
overall provides about 50 per cent of cleaning services in the
NHS. Nobody can give a really accurate estimate because of the
way the information is collected. According to our estimate, which
nobody has challenged, 20 out of 23 of those that failed in the
April 2001 national cleaning standards audit were provided by
the private sector. In my view, that is a disproportionate share,
and much higher than you would expect from their overall representation.
245. I am not quite sure if you misunderstood
me. I do not know why you were so defensive about being described
as a producer interest, it is indeed one of the key interests
in the service, and it is key obviously to have the co-operation
of those who are providing the service in understanding the totality
of it, so that we can provide the best service to the public.
Can I move on then, picking up the point you made, to the gentlemen
from the Trusts. Is then price the only factor, or the key factor,
in determining the (need ?), because quality of service, as Mr
Weeks mentioned, is key, but my point of view is, if you can maintain
quality at less cost then there is an imperative to do so?
(Mr Turner) That was the issue for us in Bradford.
When we let the current contract, it was not the cheapest, it
was not a lot more expensive than its nearest competitor. But
we felt, as an Evaluation Panel, it gave us better value for money,
in terms of what the in-house bid gave for the money that we had
got available, and the innovation that they showed, which, I have
to say, in this case, the private companies did not show. So price
is not the only thing. Clearly, it is one of the issues, but it
cannot be the only one. For me, it is about quality, it is about
service standards, it is about working with the users and it is
about delivering services in a different, innovative way. And
we looked at finance, but we looked at that whole package as well,
and that is what informed the decision for us to actually bring
the services back in-house.
246. So it was a calculation, or estimation,
on your part of the best quality of service for the price you
were paying for it?
(Mr Turner) Yes; and the other thing I would want
to say, in Bradford, my management team, I am just losing one
of them after six years; it has been a consistent management team,
we are in budget and we have managed our affairs well. So this
issue that caused me concern, about having five managers in five
years, for Bradford, is a real issue.
247. Is it the same position, broadly, in Leeds?
(Mr McGuire) I would very much agree. I mentioned
earlier that my experience of outsourcing non-clinical support
services is that ours was one package in Leeds around four or
five years ago, and the contract was not awarded to the lowest
bidder, and the reason that the contract was not awarded to the
lowest bidder was they had concerns about quality. I just jotted
down, as I was thinking about your question there, the evaluation
criteria that we applied, and still do, whether it is a very small
or mediocre capital scheme, with private sector involvement, through
engineering contractors, or the outsourcing of a contract, the
treatment of staff, whether there is partnership. One of the things
that I find lacking in the NHS, as a relative newcomer to the
NHS, is innovation not cost; it is not just cost, it would be
a fool who outsourced a contract based on cost.
248. I would like to ask Mr Rose some questions,
in particular about profit margins of the companies involved in
both competitive tendering and PFI projects. I would be interested
to know what profit margin your companies aim for in those contracts,
whether it is different from PFI and from general contracting
out contracts, and what they generally achieve; and also how that
compares with margins in other sectors, both in (if you know about)
what margins there are for NHS build, the construction companies
that build hospitals, but also in obviously private sector contracts?
(Mr Rose) Chairman, I am afraid, I must disappoint,
because that is information to which I am not privy and cannot
be privy, because it is confidential to the companies concerned,
and indeed to the individual contracts concerned. All I can say
is that we would go in for a reasonable profit and we would not
accept the job on an unacceptable profit level. We do not see
any difference in PFI terms between commercial contracts and public
sector contracts, where they are out to make a modest return for
the investors in the company, which has to be used to fund training,
to fund innovation, to fund development, to try out new services,
because we do not have any other funds to do it with. But we are
not in it to become very rich, because we do have a public sector
commitment. If we go into the Health Service or into local government,
we are there because we want to help to serve the people who get
services, we want to make them better. You would have to ask individual
companies about other profit levels. What I do know is, in relation
to outsourcing of single services, the anecdotal evidence is that
the profit margin is between 1 and 3 per cent, and that anecdotal
figure is a pretty sound one.
249. So contracting out services?
(Mr Rose) Yes, on individual services.
250. And what about for PFI schemes?
(Mr Rose) I do not know; and that is an issue which
is confidential to companies.
251. Would you be able to give the Committee,
to go back to one of those companies and ask them if they would
be able to give us any information, for example, whether it is
higher, lower, about the same, as those ones that you mentioned?
(Mr Rose) I can certainly ask my member companies
to give me what information they feel they can, within broad bands,
and I am sure I can get that information for the Committee.
252. And, generally, is there a problem, because
you were saying there you are involved in these services because
you want to improve ultimately the care that is given to patients
in the NHS; so does that mean there is a problem with making anything
other than absolutely minimal profits, given that you are trying
to provide a service to the NHS?
(Mr Rose) We have to survive in a commercial world,
and therefore there is an element that we have to make a return
which the investors in the company believe is correct for the
work we are putting in; but we are not there to take an excessive
return out, we are interested in patients and the quality. We
therefore are far more flexible than we might be, I suspect, in
big commercial contracts. What you have to remember also is that
we are subject to competition, far more than almost every in-house
service or in-house provider, and we only get the job because
we have put in a bid which the Trust believes is competitive;
that inevitably means less than they would think it would cost
to provide it themselves. I am delighted to hear my colleague
say that they did not in Leeds choose the lowest tender. There
is an anecdotal comment that the best tender in any bid is the
second lowest one, because you can never, ever, plan to be the
second lowest bidder, but you can always plan to be the lowest
one and then you can plan to be the highest one; and I think if
anyone did a little bit of study in a university they would probably
find that it was true, that there is a very good band at that
level. We work, particularly in PFI/PPP contracts, very closely
with the Trust, as a bidder, to make sure that we are providing
what they want us to provide and to show them ways in which we
can provide it better; we then put in a figure which we believe
is the appropriate figure for that, and, inevitably, once we get
to final bidder stage, and preferred bidder, then there are further
negotiations which go on, the Trusts themselves are happy with
the figures they see.
253. You said you did not want to make excessive
profits from these contracts. In creating the contracts, particularly
for PFI schemes, you have to budget for some of the risk transfer
that you are taking, and you have to budget for other things,
for example, that you might have to pay some penalties at some
point, if you do not deliver the service standards. And would
that mean that, if, over a certain period of time, some of those
risks did not actually crop up, that you did not have to use those
budgets you had set aside for risk, you would be donating some
funds back to the NHS, to be sure that you did not make excessive
(Mr Rose) Chairman, I look forward to coming back
to this Committee in ten years' time to give you the answer to
Chairman: And you will still be around. I will
254. I do think your memorandum to the Committee
was very useful on some of these points, and particularly you
listed some of the points in terms of where you have done something
differently from the way the NHS might do it. Things like producing
new technology, in terms of radios for porters. I wonder if you
could, amongst your members, actually give us some more lists
like that, because it was just a couple of examples, and I think
that it might be useful for the Committee to see how differently
the private sector might do things from the NHS?
(Mr Rose) I am very happy to send in a supplementary
memorandum quickly on that.
Julia Drown: Thank you very much.
255. I suspect, actually, Chair, that we know
the answer to Julia's question now, it is just that we will have
it formally in ten years' time. On a more general point, on contracting
out, is it not true, most of your member organisations, that it
has not been, right across the public sector, the gravy train
that was imagined in the 1980s, that actually providing responsible
value for money, responsible public service, has actually been
a lot more complicated than a lot of your member organisations
thought, and that cleaning hospitals, in particular, is not the
same as cleaning a block of offices?
(Mr Rose) Absolutely. There are certain things that
are similar and certain things are very different. Our experience
of CCT was that we wished it would go away, and indeed we said
so publicly in the mid nineties. CCT may well have been, in the
early eighties, a catalyst to start the improvement of services,
but unfortunately it became detrimental to the provision of high
quality services, because there was a fascination, both from the
point of view of Government and the Trusts, with lowest price,
regardless of quality. That was a problem to companies in the
private sector, whose reputation stands on quality rather than
on price, and there were some notable bad experiences of that.
As the services have developed, however, if we take the last ten
years, and particularly the last five years, it has become a very
difficult, highly competitive business, in which only the best
can survive; and the sad thing is that the high profile failures
are normally in relation to companies who are not providing the
high quality of service that we would want, and therefore the
public get a bad feeling about what is going on. Clearly, the
number of providers has decreased; it started off very high, it
is decreasing, they are mainly larger companies who have the ability
to provide the quality and the variety of services which the NHS
demands. What I would say is, it is a very satisfying area to
be in, because when you are providing services for people who
come in, go for operations then go out well, there is a wide variety
of things we have to do across the period that the patient is
in hospital; it is very satisfying to see that patient going out
well, knowing that we have played a part in the recovery, and
hopefully may have speeded it up, because of some of the processes
that we have had in place.
256. Before bringing in some of my other colleagues,
can I ask, Mr Rose, in answer to Julia Drown, you question-mark
profit margins, you talked about commercial confidentiality. I
am sure you understand that, in a sense, this Committee is attempting
to look at the whole question of value for money and some of the
questions we ask really are about us understanding whether the
money we are spending in the NHS has been appropriately used.
Certainly, on the wider PFI issue, we are all wrestling to work
out, in a very complicated sort of formula, whether the public
are getting good value for money for the money we are spending.
Do you feel it would be appropriate to ask people within your
organisation if we could have further information than you have
been able to give us on that issue, knowing as you do that we
do have powers to require further information from witnesses?
We would not wish to exercise those powers, but we may if we need
(Mr Rose) Chairman, I should be horrified if you had
to, and I have already given the commitment that I will go back
to my member companies and get such information as I can, and
I mean that. They will welcome the opportunity to dispel the myths
about the fat cats in the private sector that make vast amounts
of money in providing NHS services; and whether or not it is possible
to do it on an individual contract basis or whether it has to
be banded across a slightly wider set of contracts I do not know,
but I will give you as much information as I can.
Chairman: That is very helpful; thank you.
257. This is a question I think we have really
covered, but we will have a go. What is the relationship between
price and quality; does not the private sector contractor reduce
inputslabour and materialsto preserve profit margins?
(Mr Rose) The short answer is no, to that second part
of the question. There is no connection between price and quality;
there is a connection, however, between price and affordability.
We will go into a contract in the private sector only on the basis
that we know we can deliver the level of quality of service which
the client demands. And PFI contracts in particular are extremely
carefully worded, to make sure that the provider of services knows
exactly what the Service Level Agreement says, the standards of
services to be provided, and indeed the swingeing penalties for
failure to provide it, and the penalties can be exceedingly large,
you can lose your whole day's rate, as a service provider, through
one small failure of unavailability of one ward, in some cases.
Where price comes in is what the Trust can afford. It is easy
to provide services to Rolls-Royce standards, where you really
want a Rover 75 standard; the price differential there is massive.
We will deliver, therefore, the appropriate services within the
price that the Trust sets us, and we will not bid if we do not
believe we can provide the quality of service.
258. I want to believe you, I am sure you are
absolutely sincere in what you say. My personal experience is
very different, both in a local authority and an NHS setting,
where the first thing to go are numbers of staff and then the
ability to . . . In particular, a catering contract that my local
authority has for "meals on wheels"; fantastic meals,
the company can produce much better meals than we did in-house,
the problem is, they have cut the number of people who deliver
them, so people are getting them at six o'clock in the evening.
(Mr Rose) Chairman, that is not an acceptable standard
to us, and I am sure there are reasons why that happens, because
if the contract is properly drawn up then we would lose the contract,
because we delivered out of time, because nobody wants it to be
delivered for afternoon tea or high tea time.
259. These people do not have high tea.
(Mr Rose) You do if you come from north of the border.
We go in to deliver services which are prescribed and we try to
do it in an innovative, high quality way. Of course, there are
going to be bad examples, wherever we go there are bad examples,
and one of the problems about putting forward any good practice
is that you know that somebody will come along and say, well,
it was alright in that case, but in another here is where it went
wrong, or the same company went wrong. I think a lot of the problem
has to do with the procurement capability within Trusts. We are
no longer looking at prescribed CCT procurement where, certainly
from the private sector viewpoint, price was all, we are now looking
at quasi-commercial, indeed fully commercial, procurement; Trust
procurement managers have to be able to draw up contracts that
relate to that, and have to have in place mechanisms within the
contracts to encourage us to deliver quality and to penalise us
when we do not. And that is difficult, because it is a new regime,
and, as is often the case, when the rules change, as they did
when the Labour Party came to power in 1997, there was no budget
to retrain people, in a new way, to do things; and I think the
NHS has coped magnificently with a new set of rules. If we were
doing it in the private sector, we would send people off on training
courses for six months, to make sure they knew the new rules,
but, of course, there is not any money in the NHS to do that,
the procurement managers have done wonderfully well but there
is yet more, where we need to work together to work out that new
method of commercial procurement.