The Department of Health ignored procurement guidelines and pursued a ‘back room deal’ on NHS information which was ‘handed to Dr Foster on a plate’, according to a committee of MPs.

Parliament’s Public Accounts Committee (PAC) has today heavily criticised the DH for agreeing a joint venture with health informatics company Dr Foster without putting the deal out to tender or following Treasury guidelines.

In addition the DH is criticised for paying more than it had been advised was the market valuation for its half of the joint venture company created. The PAC report concludes that it is "unclear what benefits the Information Centre will receive from the joint venture".

Today’s PAC report follows a damning report on the deal from the National Audit Office in February.

At the beginning of the month it was announced that the Information Centre’s chief executive, Professor Denise Lievesley, was to leave the job.

In a March interview with E-Health Insider, following February’s highly critical NAO report, Professor Lievesley defended the deal with Dr Foster stating: "There’s an implication that we paid too much for the half share [in Dr Foster Intelligence]. I don’t believe that, but I can’t prove that we didn’t any more than they can prove we did.”

The department’s advisers, KPMG, gave Dr Foster Ltd an indicative valuation of between £10m and £15m. In February 2006, the Information Centre paid Dr Foster £12m for a 50% share of the joint venture company, Dr Foster Intelligence. This was 33%–53% higher than its financial advisers’ indicative valuation of a half share, and included an acknowledged strategic premium of between £2.5m and £4m.

Edward Leigh MP, chairman of the Committee of Public Accounts, today said: "By pursuing its back room deal with Dr Foster LLP, the Department of Health failed in its duty to be open to Parliament and the taxpayer. There was no fair and competitive tendering competition, as laid down in public sector procurement guidelines.

Leigh added that Treasury guidance on joint ventures between public and private sectors was ignored. "Instead, the deal was handed to Dr Foster on a plate."

The chairman of the PAC said that without the competitive pressure inherent in a tender process, it was impossible for the NHS Information Centre, which was given responsibility for concluding the deal, to demonstrate that it paid the best price for its 50% share of the joint venture.

"Certainly, the £12m that it paid, £7.6m of which went straight into the pockets of Dr Foster’s shareholders, was between a half and a third higher than its financial advisers’ evaluation."

In addition the costs of KPMG, the consultants who advised the Information Centre on the deal, rapidly escalated from a figure initially estimated and contracted for £284,000 to between £1.75m and £2.5m, an extremely high figure on a relatively straightforward £12m deal.

Leigh added that while the sums were relatively small in terms of overall NHS expenditure "the principles to which the department paid so little heed are of fundamental importance".

He concluded: "The department and its Information Centre cannot show how investment in this one company, Dr Foster, rather than conducting an open and transparent competition, is to the benefit of the NHS. The seeming degree of favouritism in the choice of company and the haste with which the deal was concluded show a disregard for the rules governing the use of public money.”

Related articles

Two years on

NAO criticises £12m Dr Foster Intelligence deal