The National Audit Office has criticised the Information Centre for striking a £12m deal without going out to tender to create Dr Foster Intelligence – a joint venture designed to provide healthcare information.

The NAO said: “The Department of Health and the Information Centre (IC) could not demonstrate to the National Audit Office’s satisfaction that they had achieved value for money in establishing Dr Foster Intelligence, a joint venture between the Information Centre and a private sector company Dr Foster LLP. This is primarily because they did not go out to tender to encourage fair competition.”

Head of the National Audit Office Sir John Bourn underlined the point saying: “Bringing together the best of the public and private sector has clear benefits in improving the quality of public sector services. But in such cases attention must be paid to protecting government spending and value for money for the taxpayer.

“By taking the decision not to carry out a formal competitive tender process in this instance, the department cannot demonstrate that the joint venture was the best structure to meet its needs or that it represents good value for money.”

The Department of Health and the IC are unrepentant however. In their response to the NAO they stand by their view that Dr Foster was the right strategic choice as a partner for the joint venture, based on the market analysis and due diligence carried out before and during the negotiation of the deal and Dr Foster Intelligence’s subsequent performance.

They acknowledge the case for competitive tendering but say they believe it would not have produced a different outcome in this instance.

The NAO report, however, says that before the deal was completed two companies wrote to the IC expressing concerns about the joint venture following an article in the Guardian. They were concerned that they had not been given the opportunity to show they could have delivered the requirements of the joint venture.

The NAO concludes: “We consider there is a real risk that this joint venture may result in a less competitive health informatics market, certainly over the three years of the agreement.

“Whilst the IC has now taken steps to try to ensure there is equal and fair access to data and that future procurement of services is subject to competition, other providers consider that Dr Foster Intelligence has ‘first mover advantage’ and are not convinced therefore that there can be a level playing field.”

The NAO also criticises the amount paid to set up the joint venture. It says: “Although the department believes it acted as a market investor in negotiating a realistic price, we calculate that the IC paid between 33 and 53 per cent more than the advisor’s highest indicative valuation based solely on the acknowledged strategic premium of between £2.5 and £4 million.

“As the joint venture does not deliver any direct or measurable services to the IC, it is an investment in a private company for which the IC paid a strategic premium without gaining a controlling interest.

"The only measurable benefit is a 50 per cent share of any future profits. Whilst the Information Centre maintains that there will be other benefits, which may be measurable over time, no baseline exists for January 2006 against which the quantum of these benefits can be measured.”

Again, the department and the IC defended their actions. In a joint statement after the publication of the report they said: “Although still in its infancy the joint venture has achieved a number of successes since its creation. Furthermore there is evidence that the venture has stimulated the health information market as was one of the original goals of this venture.

“The department and the IC are committed to the development and growth of the informatics field and believe that the Dr Foster Intelligence venture is a positive addition to the sectors offering.”