2.8 We also visited the three projects that had undertaken a market test: Norfolk and Norwich University Hospital, Sussex Partnership NHS Trust and Queen Elizabeth Hospital, Greenwich. All three projects had run competitive market tests from which they had identified benefits. It is not possible to draw wide ranging conclusions from just three market tests but these initial experiences provide early support to the Government's position that market testing offers the opportunity for increased competition and value for money for the taxpayer. There were, however, certain issues which could affect the value for money of these three initial market tests:
■ Sussex Partnership NHS Trust had decided to bring the soft FM services in-house at a cost of £981,000, saving £156,000 over the incumbent's tender, and £61,000 over the cheapest alternative. However the risks associated with taking the service in-house, such as, wage rate risk, redundancy cost and staff retention issues, had not been fully evaluated by the Authority and therefore it is difficult to make an overall assessment of the outcome in terms of value for money.
■ Norfolk and Norwich University Hospital was in a position to limit the amount of the supplier's rising costs that could be passed on to the Trust following a market testing because of a contract clause which caps any price increase. As a result the Trust achieved a one per cent reduction in the contract price after the market testing exercise. Whilst the price cap was useful to the Trust achieving a positive value for money outcome from their market test process and will limit the cost inflation risk arising from future market tests, it is difficult to judge the overall value for money of this arrangement as it is not known what, if any, additional price the Trust paid in the original PFI deal for the price cap.
12 | Case Study: Department of Health ERIC (Estates Returns Information Collection) |
Background | |
■ The Department of Health (DoH) ERIC system is available only to public sector bodies e.g. NHS Trusts. | |
■ ERIC is the most visible and potentially voluminous data source currently available to public sector departments. | |
■ All NHS Trusts are required to submit ERIC returns. | |
Issues in using ERIC | |
■ The DoH PFu observed that local 'benchmarking clubs'1 would be a preferable way for the public sector to obtain comparable information. However, 'benchmarking club' information is currently not generally available for the collating and sharing of data. | |
■ ERIC data often cannot be taken at face value and has to be readjusted to take into account variations such as regional price differences and service specifications. | |
■ PFI projects are only a small proportion of the ERIC data set. | |
■ DoH have no current plans to adapt the data collection process in order to provide more useful information for future PFI project benchmarking exercises. This would not be cost effective given the significant resources needed compared with the number of times PFI hospitals would need to access the database for benchmarking data. | |
Source: ARUP interview with DoH | |
NOTE 1 Benchmarking clubs act as forums where members can share information and develop good practice. They may also carry out their own benchmarking of their members to obtain date to populate databases for their members to use. | |
■ The outcome of the market test at the Queen Elizabeth Hospital, Greenwich, resulted in the incumbent winning based on a better quality bid that was marginally cheaper than the next best alternative. In this deal the incumbent had a 'right to match' clause whereby it was given the opportunity to match the best market test bid. The benefit of this type of arrangement is that authorities can secure the best price offered by bidders whilst retaining their existing supplier with whom they have established a relationship; but there are risks in that alternative contractors may lack an incentive to bid if their price can be matched. In this case however, three alternative suppliers had bid despite the contractual clause.