The long-term future of a key pillar of the Government’s modernisation strategy for the NHS depends on what increasingly resembles a game of chicken, now being played out between the National Programme for IT (NPfIT) and the suppliers left in the contract negotiations for the procurement competitions.

Participants in this high-stakes game of poker describe the negotiations as characterised by a ‘macho’ approach, with the NPfIT seeking to secure the best possible deal out of suppliers to deliver 21st century IT for the NHS. In particular, the NPfIT has held the line on extremely tough contractual terms and conditions, requiring huge risk transfer and penalty payments in the event of failure to deliver.

As first reported by E-Health Insider last Friday  one short-listed supplier, Lockheed Martin, has already withdrawn from the procurement competitions entirely. Bound by confidentiality clauses the company isn’t saying why, but E-Health Insider understands that the central issues were risk transfer and penalty clauses.

Lockheed Martin withdrew at the eleventh hour, just four weeks before the NASP (National Application Service Provider) contract and London LSP contract were due to be awarded. It had already successfully completed proof of solution testing on its offering for the data spine under the NASP procurement, and was set to present its Integrated Care Record Service (ICRS) solution for London.

Sources suggest that Lockheed Martin had already made significant concessions in contract negotiations, but these were not matched by any movement on the part of NPfIT negotiators – this lack of reciprocal flexibility in negotiations apparently triggered the US firm’s withdrawal.

One senior industry figure commented: “Lockheed Martin were arguably the most credible NASP bidder, losing them is a mistake and a blow for the programme.”

An experienced NHS IT procurement veteran, meanwhile added: “This is not good news in a very big way.”

The loss of Lockheed Martin from two of the LSP procurements and the NASP procurement also arguably weakens the national programme’s negotiating position. NHS IT director general Richard Granger, is a big project procurement specialist, and has made clear his goal is run competitive procurement competitions all the way to financial closure. For both the London LSP and NASP procurements only IBM and BT now remain.

Another leading executive involved in the LSP procurement process commented: “With Lockheed Martin pulling out some of the power has slipped. If anyone else withdraws it gets sticky.”

Only paying for what works or invoking penalties in the event of failure are both eminently sensible. But demanding that firms sign up to essentially unquantifiable risks is more questionable. One LSP bidder summed up the dilemma: “One of difficulties is that you have to assess risks and you can only really do that once you’ve worked with a geography for some time.”

According to a national programme source, under European procurement regulations, the procurements could continue, even if further withdrawals left just a single bidder standing. But such an eventuality would severely limit the scope for running a competitive procurement down to contract award.

The chief executive of one systems supplier contacted believed that the tough procurement negotiations were having a positive effect: “It’s really focused the major companies’ minds on getting their acts together.”

Several other senior industry figures spoken to by E-Health Insider, however, questioned whether the ‘macho’ style of negotiations will get the best result for the NHS in the long-term. One source stressed that successful projects on the scale of the national programme are “All about partnership and compromise and both sides winning. It has to be a professional procurement but it’s not about screwing the other side.”

He added that the real challenge only comes after contracts are awarded, when partnership and flexibility will be vital to overcome the inevitable unforeseen problems and difficulties that will arise. “But this will be difficult if suppliers already have one and a half hands tied behind their backs.”