NHS deals to become Whitehall yardstick

The low prices and rapid procurement timetable of the £2.3bn NHS National Programme for IT bidding process is likely to set a precedent for future government technology deals.

But experts say there are dangers if supplier profits are screwed down too tightly.

According to figures seen by Computing, initial bids for the contract to implement the National Programme in the South of England ranged from £1.7bn to £2.3bn, for a deal that was finally signed at £896m with the Fujitsu Alliance.

So not only were the National Programme deals brokered in record time - under 12 months, as opposed to the more usual two-year timeslot for European Journal procurements - but the negotiation process also routinely cut initial bids by half by the time the deal was signed.

Risk loading

A large amount of the costs cut out of the bids, in one case as much as £700m, was 'risk loading'- contingency built into deals to cover potential problems, according to sources close to the negotiations.

Roger Barber, senior consultant at outsourcing advisors Morgan Chambers, says the danger is that if there are issues with delivery at a later date, suppliers could have funding problems trying to cope.

While low-cost deals look good for the taxpayer, there are dangers of cutting supplier margins too fine, he says.

'If a deal is too good to be true then it may well be too good to be true,' he said.

'In general, government departments have little sympathy for suppliers but there is the risk that their profit margin will be eroded so much that the service will suffer at some stage. There is a possibility that the National Programme's negotiating stance could be replicated in other government departments, but with the contingent risk that the deal negotiated isn't actually a truly profitable one for the provider.'

Independent intermediary

There could be a role for an independent intermediary or a modification of the existing Gateway review monitoring process to assess the impact of a deal on the provider, says Barber.

'None of the Gateway process focuses on where the provider will win something out of the contract. NHS IT director general Richard Granger is experienced and he will have taken these points on board, but in another department there could be a less experienced team who could force through an otherwise unbalanced deal,' he said.

The IT industry expects the NHS negotiations to set a precedent for other government deals.

'The model Richard Granger has put in place will almost undoubtedly become the standard for future public sector deals in terms of terms and conditions, price, and timescales,' said one leading industry figure.

Another senior source said: 'Timescales will be shorter and there will be an expectation of suppliers' commitment in terms of the number of people working on a deal, for example, because government now knows what can be done.'

But the public sector could be caught out once the commercial market recovers, says Nick Kalisperas, public sector programme manager at supplier trade body Intellect.

'The public sector is in a strong position at the moment and can drive exceptionally hard bargains,' he said.

'But the danger is that when the private sector market makes a recovery the government could have alienated a significant proportion of the supplier community, to the extent they won't bid again when the deals come up for re-tender, and that has potentially serious ramifications,' said Kalisperas.

'There is also the danger that the public sector gets the wrong people working on these projects as senior staff are transferred onto potentially more profitable private sector deals.'

Contract success

Tola Sargeant, analyst at Ovum Holway, says the impact of the NHS deals on government procurement will depend on the success of the recent contracts.

'Depending on how things go, and if there is success or clear indications of success in two to three years, it will encourage government to drive a harder bargain,' she said.

'We are already seeing that with some of larger negotiations government is doing with likes of Oracle and Microsoft - trying to get the scale of the negotiation recognised in the price.'