NHS Supply Chain's controversial outsourcing contract extended by two years

Will Green is news editor of Supply Management
21 August 2015

NHS Supply Chain has had its controversial contract to provide procurement and logistics services to the health service extended until 2018.

The NHS Business Services Authority (NHSBSA), which oversees the deal, said the extension included a savings target of £150 million by October 2018, on top of an existing savings target of £150 million by March 2016.

The contract with DHL was signed in 2006 with the prospect of £1 billion savings over 10 years. It involved combining the NHS Logistics Authority and parts of the NHS Purchasing and Supply Agency to form NHS Supply Chain.

NHSBSA said the new agreement with DHL included a “revised reward structure where DHL will be incentivised to deliver more value to NHS customers and cost savings to the taxpayer”.

“NHS Supply Chain has to date already achieved savings of £96.5 million against the March 2016 target,” said NHSBSA.

Steven Pink, NHSBSA’s director of change and commercial delivery, said: “This agreement provides a step change in savings delivery for the NHS. We’re really looking forward to working closely with NHS customers, suppliers and DHL to secure the £300 million savings target.”

Nick Gerrard, chief executive at NHS Supply Chain, said: “We have worked hard to ensure that the extension agreement contains what our customers have asked for: more cash releasing savings to be delivered through NHS Supply Chain and greater transparency of our contract which will be achieved through an open book arrangement.”

NHSBSA said other options including not extending the contract and going back out to market, or extending it for a further five years on existing terms were considered. “Following an appraisal of these options, a two-year extension on substantially improved terms for the NHS was evaluated as being the best value option,” said NHSBSA.

Jackie Pomroy, head of supply chain at Portsmouth Hospitals NHS Trust, said there was “cynicism” around the benefits offered by NHS Supply Chain.

“We know when we go and talk to other suppliers directly, we can achieve much better savings,” she said. “Their [NHS Supply Chain’s] pricing is not transparent.”

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