NHS tests outsourcing for logistics

4 August 2004

05 August 2004

The NHS Logistics Authority faces outsourcing after a major Department of Health (DoH) report called for a cull of support service bodies.

The report, Reconfiguring the Department of Health's Arm's Length Bodies, said that "the wider network of arm's length bodies (ALBs) is now too cumbersome" and that the 38 bodies should be reduced to 20.

NHS Estates faces the chop with its facilities and estate management work being farmed out to other bodies.

The report from the DoH's commercial directorate is part of the government's search for cost savings, driven by Sir Peter Gershon's efficiency review, which looked for savings to be ploughed back into front-line services.

In 2003-04, the DoH spent £1.8 billion running ALBs and employed 25,000 people.

The cuts aim to save £500 million and cut more than 6,000 jobs by 2007-08, a quarter of the total.

NHS Logistics was set up in 2000 as a not-for-profit organisation to run warehouses, distribution centres and to deliver healthcare goods across the NHS.

It has a catalogue of around 42,000 items ranging from bandages to medicines and processes over 30 million orders a year.

It cost £65 million to run last year and employs 1,377 people.

By contrast, the role of the NHS Purchasing and Supply Agency (Pasa), which employs 318 staff and cost nearly £21 million to run last year, is to be "reshaped" and likely expanded.

Pasa is also likely to have a say in the future of NHS Logistics as well as run any outsourced logistics deal, according to a commercial directorate spokesman.

He said NHS Logistics would go through a market-testing review lead by the directorate: "There will be discussions with some of the big external logistics companies about what should be done with NHS Logistics.

"I imagine that Pasa would almost certainly be involved, but it is early days yet. Ministers will decide after the market-testing whether it should be run by the private sector as an outsourced operation or whether other alternatives should be looked at."

He gave no timescale for a decision and NHS Logistics would not comment on the report.

At the moment, NHS Logistics outsources some of its operations to companies such as TNT Logistics, with which it signed a five-year, £75 million contract last month.

The DoH report says Pasa "should be able to take on procurement and contracting functions from other bodies".

Other changes to arm's length bodies include an upgrade of the National Programme for Information Technology, an IT procurement programme, to an executive agency. Initially it will be in place for three to five years.

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