NHS Cost Improvement Programmes – Why they don’t apply to Outsourced FM

This is a plea to NHS Trusts considering FM procurement exercises.

A cursory search of search engines will show you that NHS Cost Improvement Programmes (CIPs) are “strategic plans adopted by Trusts to reduce expenditure, generate income and increase overall efficiency”.

Of course, this is a simple and worthy aspiration… ensuring the highest proportion of the NHS’ purse is dedicated to providing the highest quality healthcare outcomes for patients has to be a good idea.  Nobody, or certainly nobody I’ve ever met, would say this is an incorrect focus for Trusts.

So, although the strategic intent of the initiative is not in question, the application and delivery of it – and the genuine application of strategic rationale – often can be. 

It is still common for CIPs to find their way into NHS FM procurement commercial structures – presumably under the notion of “if these cost reductions are enforced on us, we need to enforce them on our supply chain”.

The result… please provide me a price for delivering these services in this environment and, even when nothing changes to either of those inputs, reduce your price in the second year of the contract.  How and, I suppose, why, would service providers do that?

The outsourced healthcare FM market is enormously mature. That is to say that many Trusts have outsourced their FM services for a considerable amount of time and through a number of iterations of contract with different suppliers.  Given the remaining fundamental principle that FM is delivered by people, it is difficult (impossible) to see how different iterations of contract, let alone different contract years within the same contract, can identify and realise increasing efficiency.

The result is, generally, one of two things. Either they increase their price from the outset on the basis that a reduction in subsequent years gets them back to where they would have started.  Or the service providers suck it up, reduce their price in year two (and again in subsequent years) and in doing so their profitability.

Both approaches cause problems.  In the first, the Trust has got exactly the opposite of what they implemented the measure for… a higher cost initial service.  In the second approach, standards will likely reduce.  Either because the service provider will have to lose resource from the contract or because their profit margins are reduced and management focus on the contract reduces and changes.

FM providers are less likely to go with the first of these approaches as they are simply less likely to win the bid.  In the second, the “partnership” is likely to be headed for failure either because service standards slip or because interest in the contract does.  Either way it leads to a less than transparent contract relationship and that can’t be good for anyone.

Of course, all this ignores the fundamental point of the original procurement process.  They will have achieved the “best” price that their quality criteria demands.  The importance the Trust places on the cost element of the bid is reflected in the evaluation criteria and the market test to find the right price point at that stage.

For the sake of the credibility and sustainable future of outsourced FM in the healthcare sector, set the business case up properly to establish the strategic rationale for the procurement, make sure everyone knows what it’s going to deliver and, whatever you do, please avoid passing CIPs to service providers as mandated commercial terms of contracts.  It doesn’t work. https://cadaema.com/