Under a new approach to procurement, value for money rather than price will determine who is awarded contracts

Upon election, David Cameron declared that his “great passion” was to build a big society that finds new and innovative models of public service delivery. To achieve this, he has called for “nothing less than a wholesale change in attitude” in public service procurement. Cabinet office minister Francis Maude has confirmed this change: “People both within the government and outside have understood that it is a new world, that things are being done differently, there are different values, and a different culture.” The new government is promising a radical root and branch reform of the procurement process that puts value and quality at the heart of contracting decisions.

This approach runs deeper than political posturing. It comes from a recognition that declining public sector productivity and the pressing need to cut public spending requires government to rediscover real value. It is even more important and pressing in a time of economic constraint when it requires even greater courage to see through.

Value is defined economically through a simple equation of quality over price. In the old thinking, there was a “good enough” approach to quality, which meant that contract awards came down to price. The pitfalls in this attitude to procurement are shown in the well-documented problems with the NHS programme for IT.

Whilst the mindset that puts price over quality is still present in some parts of the public sector, it is clear that this attitude is increasingly unacceptable in the coalition’s new value-based approach to procurement. There is a growing consensus around where we will find the value that the government seeks. This consensus stems from study after study which has shown that the vast majority of innovation comes from new entrants to a sector, rather than old incumbents doing things the old way.

The IT sector provides instructive examples of successful innovations originating from a stream of new entrants. Yet the sector also provides one of the most pertinent examples of the dangers of the old mindset. It was from the IT sector that the damaging philosophy of “nobody got sacked for buying IBM” originated. The irony is that all those who bought IBM lumbered their organisations with expensive, clunky and redundant technology. As a result, all eventually did get sacked in favour of new and innovative, albeit smaller technologies.

Why is this important for the NHS? Over the last two decades, the NHS has begun to undergo a transition from the monopoly provider of healthcare services to financier and commissioner. This march towards greater patient choice through diversity and decentralistion in public service provision looks set to accelerate. It is now accepted that independent and voluntary sector organisations have a key role to play in delivering NHS services. This recognition, combined with the goalition government’s twin stated aims of reducing the deficit and rolling back the state, will result in an increasingly provider blind approach.

This changing landscape will require NHS commissioners to conduct increasing numbers of public sector procurement processes in the years ahead. The question facing these commissioners is what does best practice procurement look like in the new world of coalition government? Old solutions led to current problems. Failure to get value for money from government spending led to the largest deficit in the industrialised world. Failure to recognise that value is quality combined with price led to companies winning bids on the perception that they were cheapest, only for government to face the true cost later in the contract period as they received mediocre quality offerings. It is this understanding of the root cause of declining public sector productivity that has led the new political leadership to insist on new models of procurement.

Of course, like all arguments, this could be seen as a self-interested one. It’s true that Circle - an employee-owned social enterprise that forms the largest partnership of clinicians in Europe - is a new entrant to the healthcare sector that has grown as a result of the tentative extension of choice to NHS patients. But against powerful incumbents, new entrants like Circle can only attract patients if they offer better value. Take our new facility in Bath. The first Norman Foster hospital in the world. Hospitality services designed by the team that brought Mandarin Oriental into the UK. Food delivered in partnership with Daylesford Organic - prepared daily by a chef from a Michelin-starred restaurant. All available to every NHS patient at tariff prices. Or consider what we have done in our Nottingham day-surgery hospital with over 1,000 NHS seconded staff. A 22 per cent productivity gain in a single year. Patient outcomes improved to four times the national target, 99.6 per cent patient satisfaction, 90 per cent staff satisfaction.

This is the type of patient experience, clinical outcomes and productivity gains that are possible at tariff prices. But the old mindset still presents significant barriers to entry that make it difficult for innovative providers to enter and deliver new value. So the challenge for NHS commissioners and purchasers is to prioritise long-term value ahead of short-term cost calculations. This will require re-envisioning the role of public servants in public service procurement - away from initial price arbiter and towards long-term value creator. It will need dedication to erode the barriers to new entrants - barriers that hold people on the frontline in the NHS back from providing the services they know are best for their patients. It calls for commitment to proactively spreading the net more widely in search of innovation and latent talent. And it will also require political and service leaders to make sure that purchasers and commissioners are both permitted and incentivised to adopt these new behaviours.

The new leadership has made up its mind. It is time for our public servants to follow. The NHS does not have a tradition of outsourcing and procurement processes on the scale of other public services. We can use this lack of legacy to break free from the same tired practices, and to become a show case for the procurement processes the government demands and needs.

Ali Parsa: the NHS must learn to put quality ahead of price