Craig Barratt and colleagues look at contract management issues facing commissioners and providers, and offer practical tips on negotiation that can help keep potentially tense relationships amicable.

Negotiating the standard NHS contract is a vital task for commissioners and providers alike. With less money and a rapidly changing commissioning landscape, managing contractual performance poses a significant challenge. Becoming familiar with the new format of the 2012-13 contract, which now covers all services, is an added pressure on teams as it goes to the wire in these final weeks of negotiation.

The NHS is no stranger to targets and the 2012-13 contract is no different, with the setting of benchmarks and the management of performance against them.

The 18-week referral to treatment target is likely to remain a challenge. The last year has seen a 16 per cent rise in hospital beds being occupied by people who do not need an acute bed, at an estimated cost of £500,000 per day, largely due to delayed discharges as a result of pressure in social care and community services. There is potential for financial penalties to be levied on providers, which risks further reducing funding to deal with the issue.

The effective management of information flows is central to avoiding unnecessary disputes around 18 weeks. For providers, this means continuous close monitoring of capacity levels.

Crucially, the ability for commissioners to request a capacity review where it was felt likely a provider would breach the 18-week target has been removed from the 2012-13 contract. Managing information flows will be more crucial than ever if providers are to avoid financial penalties.

Avoiding disputes

Although commissioners can no longer be compelled to take part in formal capacity reviews, they do still have obligations to manage external demand. Commissioners and providers should maintain open lines of communication between them to avoid any potential disputes over financial adjustments and preserve patient choice.

In previous years, the setting of realistic and robust activity plans was a key part of the management of activity and referrals under the contract. However, the mechanisms in the contract for managing activity and referrals have been changed significantly for 2012-13 in response to the 2011 Cooperation and Competition Panel report on patient choice.

Activity plans are now indicative only and guidance states firmly that they cannot be used to constrain patient choice and/or cap activity levels. Commissioners must notify providers of their activity planning assumptions (APAs) – a set of assumptions about how the provider will manage activity and referrals. Activity management plans may only be used to address APA breaches and not the activity plan itself.

Managing compliance with APA will, therefore, be an important issue for providers, particularly as the commissioner does not have to agree APAs with the provider and the consequences of breach of an activity management plan could still include financial adjustments.

All of this will require excellent information management and reporting structures. Commissioners are likely to be stretched over the coming year in terms of contract management resources given clustering requirements and staff turnover.

Implementing effective data monitoring systems and processes (using the information requirements in the contract) within both providers and commissioners will help avoid disputes, which inevitably take up valuable time and resources.

The contract provides several opportunities for commissioners and providers to agree local targets. Although this provides some welcome (albeit limited) local flexibility, locally agreed targets must not contradict nationally mandated targets.

For example, any locally agreed targets in relation to C difficile levels should not overlap with, or contradict, the nationally mandated targets in the contract. Where there is such a contradiction, disputes will follow and especially where financial penalties are proposed.

Clarity in contractual obligations is essential and the drafting of locally agreed targets is no different. Targets should be clear, specific and capable of measurement. Any financial adjustments imposed for breaching the targets should represent a genuine pre-estimate of the losses that would be suffered. Without such clarity, disputes between the parties are almost inevitable.

These clauses are not mechanisms to reduce income and expenditure but rather a tool to change practice and improve quality. With the focus of using the contract to its full extent, finance directors will need to manage risk from sanctions through delivery of targets rather than negotiations.


Engagement with patients and the public (including overview and scrutiny committees and local involvement networks) is essential when decommissioning services. Decisions must be clinically led and justified on quality as well as financial grounds.

This said, they must also be founded on a partnership between commissioner and provider. Shifting deficits benefits no one.

Such discussion should not be reserved for contract negotiation but should be part of an ongoing dialogue between providers and commissioners with clinicians and patients at the heart of the process.

Where services are decommissioned in-year, during the term of the contract, the contract will be terminated for a particular service. The contract expressly allows this and includes obligations on both parties following partial termination.

Where patients who were receiving decommissioned services remain “in the system”, providers should bear in mind their obligations under the contract, which include either ceasing to treat these patients immediately, or transferring or discharging them in accordance with good clinical practice.

Ideally, where there is partial termination and decommissioning under the contract, the commissioner and provider should discuss and agree a plan of action for treatment or transfer or discharge of any remaining patients and, if appropriate, document this in a variation to the contract.

Providers in particular should bear in mind the impact of decommissioning services on targets, including indicative activity plans, which may need to be adjusted to reflect the removal of the service and/or any continuing treatment of remaining patients. In addition, commissioners will need to review APAs in place to ensure the impact on the management of activity is reflected.

Where such adjustments are not made and the contract varied, there may be a risk of breach of APA by the provider against outdated assumptions, which in turn could lead to financial adjustments by the commissioner as part of the activity management plan.

Where the provider agrees to continue to treat any remaining patients in line with good clinical practice, it may also need to consider the impact of this on its achievement of the 18-week target and seek to agree varying the contract with the commissioner.