Accenture feels the squeeze on NHS contracts

Accenture, the international consulting firm that holds two local service provider (LSPs) contracts for the NHS, has reported lower margins in its latest financial results citing problems with the contracts as a major reason for the decrease. The company also revealed that it is discussing alternative deployment plans with the NHS.

News of the difficulties in Accenture’s second quarter of its financial year is accompanied by a warning that the firm expects to carry on making losses on the NHS contracts into the next financial year, albeit at a lower level.

Accenture followed up the results with a strong affirmation its commitment to the NHS and determination to see the work through. A spokeswoman told E-Health Insider: “Our current priority is to deliver the deployment plan but we are in discussions with the client to agree alternative deployment plans.” No further details of these possible alternatives were given, the spokeswoman explained, as the discussion were still in hand.

The accounts state that gross margin (revenues less cost of services, as a percentage of net revenues) for the whole of Accenture was 30%, compared with 33.0% for the second quarter of fiscal 2004 [the previous financial year].

Accenture’s spokesperson said: "Based on agreeing to the alternative deployment plans currently under discussion, we expect aggregate losses on the NHS contracts for this fiscal year could be from $110-$150 million, and client financing and other assets attributable to this client could total $400-$460 million by the end of this fiscal year.

"Based on agreeing to these deployment plans, we currently expect contract losses to continue in fiscal 2006, but at levels less than those expected for this fiscal year. I want to emphasize that we are taking appropriate actions, including placing a senior leadership partner on the engagement, cost-management, and discussing the alternative deployment schedules. As we accelerate deployment, we expect these contracts to turn the corner in fiscal year 2007 and to achieve expected profitability over the remainder of their terms."

Analysts, Atlantic Equities, commented: "Investors are highly sensitive to issues with mega-contracts following EDS’s woes with the US Navy. The NHS problems are on a smaller scale yet are still highly concerning and require further investigation."

Atlantic Equities attributes the problems to failures down the line from Accenture itself.

The analysts’ notes advise: "The longer term investment thesis is intact, yet shorter term outperformance now looks unlikely until investors gain more confidence that the NHS project will not deteriorate further."

Reports from the regions covered by Accenture as an LSP – the north-east and eastern regions of England – suggest that the firm is well-respected on the ground.

North-east cluster regional implementation director, Martyn Forrest, told E-Health Insider in an interview in December: "They are like a breath of fresh air; they are a very hard-working, very committed organisation who really want to deliver. We’ve had our ups and downs – that’s the nature of the beast – but on the whole I’ve been very impressed with their professional approach and their willingness and determination to succeed."

Accenture’s spokeswoman said: "We have deployed four patient care systems across NHS trusts which currently support 1.5 m patients and 2500 NHS staff."

"We will not be deflected from the job in hand by the requirements for public reporting," she said.