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Editor's blog Monday 28 March 2011: Exclusive - DH ignored tendering best practice in funding new research unit

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Would it surprise you to learn that the Department of Health had a non-competitive process to let a former member of its staff set up a new research body, and guaranteed it funding for three financial years?

Welcome to The Centre For Health Service Economics and Organisation, based at Nuffield College in the University of Oxford.  In the words of Montague Withnail, "ah, Oxford!" (It also has a presence in the DH's slightly less romantic Skipton House building in London.)

Its director is former DH chief economist Professor Barry McCormick, and its mission"to establish an independent analytical resource to focus on the macro health policy challenges of today, and to develop the capacity and capability of the system to face such challenges in the future" is very laudable stuff.

Less laudably, Health Policy Insight can reveal that the DH funded the Centre's creation for a three-year period in the absence of any competitive process.

This decision by senior DH figures is particularly absurd when a plethora of bodies could have made a highly credible base or bid for this work.

LSE, LSHTM, HSMC, CMPO, YHEC, to give just a few obvious acronyms.

And that is not even to mention the equally obvious Kings Fund or Nuffield Trust.

The civil service's accepted best practice procedure is that where a procurement's value exceeds £100,000 in total, an Official Journal of the European Union tender is appropriate.

The total annual value of the DH funding of the Centre is over £450,000, yet no OJEU tender was done. It could not have been: even had CHSEO actually existed at the time of deciding the funding, it would clearly have been too small to be a candidate for an OJEU tender.

Un-learned lessons
You might reasonably have thought that the DH would not be too keen to let uncontested contracts, after being roundly criticised for its behaviour over the Dr Foster Intelligence joint venture by both the Pubic Accounts Committee and the National Audit Office.

Now obviously, the DH is a wonderful, wonderful department; full of fabulous, fab-u-lous senior people.

And these senior DH people would never do anything that they knew to be wrong.

Coincidentally, I did happen to ask a civil service friend who knows the senior Whitehall ropes if there were any workarounds in a hypothetical case where (to choose an example totally at random) a department might know to whom they fancied giving some work - which of course is not in any way what has happened here.

A single tender action
This person told me that in her view, there is a way to do that, which is known as a 'single tender action'. (The phrase aches with irony, doesn't it?)

Single tender actions can be justified in two main ways.

The first would be to rely on a case that the urgency of timescale justifies having not procurement - which is clearly not a viable argument in this case. The Centre has been in existence for some time now; yet has published nothing and it is unclear whether they have yet finished any work. The analytical and reflective econometric evaluation field has (quite rightly) got long timescales. But obviously, M' Learned Friends, this has not been what has happened here.

The second would be to rely on a case that the area of endeavour in question is so specialised that there could be no proper market and only one logical candidate - which, as I have pointed out above, is scarcely a defensible argument in this instance. Where it has, dear legal eagles, clearly not happened at all.

Either way, a Permanent Secretary's written permission would be required.

The expectation in both of these instances, my friend added, would be that even if organisations felt they had grounds to take legal action against a government department for hypothetical anti-competitive procurement, they would be deterred from so doing since that department would then in future hypothetically blacklist the complainant from future hypothetical awards or re-awards of contracts for work.

The FOI questions that DH chose to answer
My questions, and the DH's partial answers, follow below.

1. Please confirm whether former chief economist / director, Office Of The Chief Analyst Professor Barry McCormick is still an employee of DH.

Professor Barry McCormick is no longer an employee of the Department of Health.

2. Please confirm whether the DH funds a policy unit run by Professor McCormick based at Nuffield College, University Of Oxford.  If so, how much per annum does DH fund this unit and in return for what services? Does this unit receive funding from any other body?  What guarantees has the DH offered this unit over future funding?

The Department of Health does provide funding for the Centre for Health Services Economics and Organisation hosted by the University of Oxford.  The Department will provide £1.35million in total, excluding VAT, spread over the three years 2010/11, 2011/12, 2012/13.  No guarantees have been offered for funding in future years and the Centre is free to derive income from other sources.

The functions of the Centre are to:

• Undertake macro-economic measurement and analysis of the health sector;
• Undertake selected macro-analysis of local health economies;
• Bring the best and most recent research insights to bear on policy issues;
• Provide an economic bureau to offer analysis for NHS institutions, such as acute trusts, the NHS Commissioning Board, primary care trusts, strategic health authorise and GP consortia seeking to develop or implement policy;
• Provide a centre where analysts in the Department may come on secondment to enhance their analytical skills, both by taking courses and by working on projects;
• Provide an environment where PhD and post-doctoral fellows might work with professional civil service analysts to nurture interest in health sector analysis;
• Provide economic skills sufficient to develop the application of economics within the Department and its Arms-Length Bodies;
• Set out an analysis of the requirements for timely research activity with genuine impact on policy; and
• Consider models of bringing together academics with civil servants to produce efficient, high quality papers on evolving policy issues.

3. Please confirm whether DH undertook any process to allow other bodies to bid for this work, and if not, the reasons why; and
4. Please confirm whether peer review, value-for-money assessment and other normal scrutiny was part of the process leading to the establishment and funding of this unit, and if not, the reasons why.

The Department of Health developed proposals for a Centre for Health Service Economics and Organisation in order to meet a number of interlinked requirements:

• The need for a setting in which Departmental analysts can enhance their skills through secondment opportunities;
• The need to bring the depth and intensity of research-embedded analytical work to bear on the development of policy at the early stages of policy making and not just subsequently in the form of evaluation and commentary;
• The need for a strongly macro-economic perspective in the analytical support for policy development and linked to that, the need to build that perspective into the thinking of health economists as they learn their craft; and
• The need for an environment in which academics and researchers and policy analysts can work together to mutual benefit and in so doing help to develop an approach to joint working that is both efficient and productive.

At the time that these proposals were being developed, Professor McCormick indicated a willingness to lead the new organisation on his retirement from the Department.  Given the centrality to the project of bringing together the policy and analytical perspectives, and the Department’s need to use the Centre as a means of developing the skills and knowledge of its own analysts, it was agreed that the Centre should be set up with Professor McCormick as its Director.

The Department discussed the location of the Centre with a number of potential partners.  An evaluation of options was conducted by Departmental officials.  These officials were located in a different division of the Department to Professor McCormick.  This evaluation considered value-for-money, the research environment, sustainability and NHS relationships.

5. Please confirm whether any research, evaluation or any other work from this unit will be put into the public domain.

The Centre will place work into the public domain.

The unanswered FOI questions
So now, let's have a look at what questions they did not answer.

Q2. Sub-question: Does this unit receive funding from any other body?

No answer is given by DH.

Q3. Please confirm whether DH undertook any process to allow other bodies to bid for this work, and if not, the reasons why; and
Q4. Please confirm whether peer review, value-for-money assessment and other normal scrutiny was part of the process leading to the establishment and funding of this unit, and if not, the reasons why.

No answer is given by DH. A comment is made that "an evaluation of options (was) conducted by Departmental officials ... considered value-for-money". Which is not what the questions asked, at all.

So it's been sent back for them to try again.

We will, as ever, keep you informed.