Granger secures commitment to fund NPfIT

For Richard Granger, NHS IT Director-General, the announcement of the award of three key contracts to deliver the National Programme for IT (NPfIT), provides a vindication of his management of the procurement phase of the programme and hardball negotiation tactics with suppliers on pricing.

Although the extra £2.3 billion pledged to kick-start and fund the national programme up to 2005-06 may sound a lot, in terms of the complexity of the project, the functionality required and the scale of risk involved the figure has long looked inadequate. 

Understandably then, it has been an imperative to stretch this initial investment as far as possible.  However, arguably even more important, has been the need to secure long-term commitment to the programme from both suppliers and the Government.  Both now appear to have been successfully achieved.

Not only are BT and Accenture now contractually committed to delivering specified components of the programme over 7-10 years; but just as vitally the Government, the Treasury and Department of Health are all now also committed to funding the programme for the next ten years – seven years beyond the initial £2.3 billion of funding pledged for the NPfIT.    

Speaking at the Monday press conference to announce the contracts Health Secretary John Reid, addressed the issue head on: “There is funding agreed for the next two years.  The idea that we will go ahead without funding, it is not realistic. The formalities have not yet been gone through, but the political will is there.”

Reid was also unflinching when asked who carried responsibility for the programme. “The Secretary of State will be ultimately responsible.”

Getting such commitment has partly been based on the director-general being able to show he has been able to secure dramatic reductions in prices from suppliers.  In recent weeks bidders have had to repeatedly re-submit and salami-slice their best and final offers (BAFOs). 

One industry source has described the BAFO process as coming to resemble a pantomime, “We keep telling the national programme that’s our BAFO, and they say ‘oh no it isn’t’.” 

E-Health Insider understands that in the case of the London LSP contract, major last-minute cost reductions were secured from BT in the final days before contract announcement.  This seems to have proved decisive in securing the contract for BT.   

Some sources indicate that until the middle of last week the rival IBM-led bid had been the front-runner to win London, but that BT came back last week with a final significant reduction in the price of its bid and was prepared to offer more favourable terms and conditions.

For BT it must seem that Christmas has come early with the win of both the £620m National Application Service Provider (NASP) contract and the £996m Local Service Provider (LSP) contract for London.  But success has come at an eye-wateringly tight price.

On the national ‘Data Spine’ contract for instance, for £620m BT has committed to provide 50m English citizens with an electronic NHS care record over 10 years.  Put another way this equates to £1.24 per record per year.

Similarly it is also striking that the LSP contract for the North East of England, covering roughly the same population, but with lower numbers of GPs and without the concentration of teaching hospitals London has, was priced at £1,099m, compared to £966m for London.  This means that the London LSP contract came in at £103m less than the contract awarded for the North East. 

So why has BT apparently gone so far on price?  The simple answer is that for many of the technology and consultancy firms priming consortia the NPfIT is just another big IT project, albeit a particularly complex and large one.  For BT success in the NPfIT appears to have been deemed critical to the company’s future strategic development.  Similarly, Accenture seems to have identified health as a critical business for its future.

In BT’s case the national programme appears to offer a unique opportunity to move up the technology value chain, to become a complex technologies and IT services firm.  This view was spelt out by Ben Verwaayen, BT’s Chief Executive Officer, in a press statement: "These wins are BT’s biggest ever, and evidence of the new face of BT truly emerging. This is BT taking on world class competition on its own territory and winning."   

Just how far this ambition extends, and the organisation’s appetite to take on further keenly priced contracts, commercial terms and major implementation risks will be interesting to watch in the next wave of contract awards.  BT is currently on the final short-list of bidders for the North West region.

In fact the next wave of contract awards now looks particularly interesting all round.  Will IBM, unsuccessful on the NASP and London, slash costs and go all out for the North West contract?  Initial indications suggest that a radical overhaul of its proposed solution is even now underway.

How important to Cerner is it to secure major contracts from the NPfIT?  Will failure in both London and the North East mean that it now takes a different view on the pricing and value of its software?

Similarly, what of iSOFT?  Will initial success being bid as part of the Accenture Alliance in the North east now provide it with the platform for further wins in wave two? 

How about PlexusCare Alliance being led by EDS/Logica CMG?  Will recent adverse publicity for EDS on its Inland Revenue and Child Support Agency contracts impact on prospects? 

And what about IDX, also rumoured to have gone a long way on prices?  Already successful in London, as part of the BT LSP bid, can IDX, now being bid by Fujitsu for both the North West and South, pull off what would be nothing short of a coup by being chosen for further regions? 

That all these questions are now in play over the next few weeks would again seem to vindicate Granger’s approach to procurement.   Key firms, including IBM, EDS, CSC, Fujitsu and Cerner, now know that the second wave of LSP contracts represent their last chance to win contracts in the NHS of this scale for a decade.