The Parliamentary and Health Service Ombudsman was subject to a National Audit Office investigation this year after it awarded a former business partner of ombudsman Dame Julie Mellor a six figure contract, HSJ can reveal.

The NAO confirmed that the £120,000 contract was one of several procurement deals it scrutinised during the probe, which the PHSO’s annual report indicates revealed “significant failings in procurement policy, practice and effectiveness”.

A series of internal emails and papers from the ombudsman’s office, seen by HSJ, show the contract was awarded in April 2013 to Rosemary Jackson Consulting, a firm directed by Rosemary Jackson, who operates as a sole trader.

Records lodged with Companies House show Dame Julie Mellor was in 1998 a founding director and company secretary of Jackson Mellor, a firm Ms Jackson directed.

Julie Mellor

The PHSO said there was ‘no justification for excluding Julie Mellor from the process’

The business changed its name to Jackson Leadership Consultants in 2000 and ceased trading in 2003.

The emails show Dame Julie showed a close interest in the procurement process in which Ms Jackson’s firm was ultimately awarded a contract.

An email from PHSO procurement officer Chris Jones on 7 March refers to a business case for the contract “which has been amended to reflect Julie’s previous feedback”.

A week later, he told potential bidders in an email: “Dame Julie Mellor DBE would be pleased to discuss the requirement with potential bidders by telephone before the tender response deadline.”

On 21 March, the PHSO’s head of procurement, Ros Page, referred to Dame Julie’s interest in assessing the way each tender was assessed.

“I wouldn’t ordinarily expect [Dame Julie] to review the evaluation methodology but Julie had mentioned… that she would like to do so.”

A copy of the tender evaluation report, seen by HSJ, confirms that Dame Julie was part of a four strong panel that considered tenders for the contract.

It says Dame Julie had “noted she had previously worked with Rosemary Jackson” but that “no conflicts were declared”.

“The panel agreed that while this would be borne in mind during the evaluation, there was no justification for excluding Julie… from the process,” it added.

HSJ understands that concerns about the way the contract was awarded were raised with the NAO when the extent of Dame Julie’s business relationship and former partnership with Ms Jackson, which had not been declared to the panel, became known.

These sparked a probe by the NAO, which refused to sign off the PHSO’s accounts until the investigation was complete.

A spokesperson for the office said: “Auditors from the NAO have investigated the concerns and put their findings into a report.”

Although the ombudsman’s accounts have now been signed off, its internal audit committee is yet to consider the NAO’s report.

The PHSO said in a statement: “In the course of their audit work with us, our external auditors have specifically reviewed some of our procurements and have assured us that no actual conflicts of interest existed.”

It added that, with the help of its external and internal auditors, the PHSO had identified four areas for “governance and management improvement” last year, including procurement. These were “covered fully” in the governance statement of the PHSO’s 2013-14 accounts, it said.

The governance statement in the accounts says: “Experiences during the year highlighted significant failings in procurement policy, practice and effectiveness. For example, we had no policy or guidance on conflicts of interest in procurement.”

It adds: “Where policies were in place, practice was inadequate on business cases, contract management and focus on value for money. Concentration on documenting and ensuring compliance with our procurement code was not sufficiently robust.”

The PHSO’s statement to HSJ concludes: “We are committed to being open and transparent and will publish all relevant information regarding the operation of our procurement processes and our corresponding management actions in due course when they have been considered by the audit Committee and our board.”