An ambitious outsourcing service launched by NHS Employers has been scrapped in light of dismal levels of interest from trusts and the Department of Health’s decision to tender NHS Jobs.

NHS Employers director Sian Thomas, who came up with the plans to turn the organisation into a membership body offering human resources services such as pay reviews, is on long term sick leave.

At a time when the NHS has to find major savings, seeking additional investment in HR was always going to be a struggle

Launching the service last October, Ms Thomas told HSJ that NHS Employers aimed to attract 200 trusts, social care organisations or charities by March. But the NHS Confederation - NHS Employers’ parent body - said only 17 signed up to the service, with a further nine expressing an interest.

HSJ has been told that worries over the poor response were exacerbated by concerns in the DH over NHS Employers’ proposed new structure.

It is claimed the DH perceived the risk of problems if NHS Employers became both an agent of the DH and a membership organisation. A DH source denied it looked unfavourably on the membership model.

Matters came to a head when the DH announced earlier this month it was inviting bids from organisations interested in delivering the NHS Jobs website, which NHS Employers had planned to provide free of charge as part of the membership model.

NHS Employers has already invested £2.2m on the membership model and has committed to spending a further £1.2m over the next two years.

Steve Barnett, chief executive of the NHS Confederation, told HSJ: “It was decided not to progress the member model at this time, in view of the Department of Health’s decision to tender NHS Jobs and taking into account the difficult financial conditions that the NHS is operating in.”

HSJ has been told the confederation’s unwillingness to support the scheme led to a clash between the board and senior members of NHS Employers, including Ms Thomas.

Following the decision, the confederation’s trustees commissioned auditors PKF to review the model and how it was managed.

The problems have also accelerated changes to the governance structure of the NHS Confederation, with more non-executive directors being appointed and several executive directors stepping down.

Healthcare People Management Association president Kelvin Cheatle said: “The NHS Employers subscription service was well intentioned and could have been successful as its services would have offered added value to many NHS organisations.

“Unfortunately, the timing hasn’t proved to be great. At a time when the NHS has to find major savings - and many of them from back office functions - seeking additional investment in HR and related services was always going to be an uphill struggle.

“Most trusts are seeking more for less from their HR and corporate support functions, examining shared services and outsourcing as cost saving measures.”

The service would have provided recruitment processes, criminal records bureau checks, health and wellbeing services and pay and pension reviews.

Ms Thomas had claimed the service, supported by Capita, would save trusts “many millions” and potentially halve the time taken to recruit new candidates to the NHS.

But HSJ understands many smaller trusts felt that the upfront cost of £35,000 to join the service was too great, despite the potential for longer term savings. Others did not think the model was a suitable fit for non-acute organisations.

Health Foundation chief executive and former NHS Confederation chief executive Stephen Thornton said the situation risked further damaging perceptions of NHS managers and their ability to control finances.

NHS Employers was established five years ago to negotiate pay contracts on behalf of the DH. It has grown considerably and in 2008-09 accounted for £17.6m of the confederation’s £30m income. Virtually all of Employers’ income comes from the DH.

The DH is yet to renew the contract it holds with NHS Employers for the coming financial year. A spokeswoman said: “We are renegotiating our contract with NHS Employers and hope to conclude this in the next few days. In light of recent developments we are seeking reassurances about its governance before that process is completed.”

She added: “NHS Jobs is a separate issue.” The tender was a legal requirement, she said.

Managers in Partnership chief executive Jon Restell said NHS Employers provided a vital role aiding negotiations between trade unions and the DH.

He said: “They’ve tried a business venture and it hasn’t quite come off. I don’t think that changes the core of what they’re supposed to do.”

He said further proof was needed that outsourcing would save money. He said: “They hit the mood of the times, people are looking for savings, we just need the evidence to support it.”