The true cost of low-value purchases

If the window cleaner for a healthcare organisation drops a squeegee on to the bandaged head of a passing patient who suffers an injury as a result, is this incident covered by the insurance provisions in their contract? Or, is there even a written contract in place?

Procurement strategies inevitably focus on high-value or high-priority projects or on categories with high spending. This is understandable given that risk generally increases as the value of a project rises, either in terms of its price or strategic importance. In addition, there is a greater potential to realise savings across high-spending categories.

But it is essential not to forget the large number of purchases that take place on a daily basis in the NHS, where the value of each purchase falls below the threshold for advertising the contract under EU law.

‘As a result of their low value, the governance surrounding these contracts is often woefully inadequate’

Taken alone, each purchase may seem of little consequence compared with the annual spending of NHS organisations. However, when aggregated, these contracts can make up the largest percentage of an organisation’s spend. This article looks at why the governance of low-value purchases is so important and how you can ensure your organisation effectively deals with such procurements. 

All the small things

These low-value purchases vary enormously. They may include an arrangement with a removal organisation for an office move; ad hoc contracts with a local painter and decorator; a licence for a mobile sandwich stall to come on site each day; or an agreement with a designer to update a website. Each such contract may only cost a few thousand pounds (if that) and, of itself, has very little to offer towards a cost improvement plan.

‘Not having robust processes and contracting arrangements in place can be very costly to an NHS body’

As a result of their low value, the governance surrounding such contracts is often woefully inadequate. Take a look at your own organisation: do you have a database of all such contracts in your organisation and know when they come to an end?

Is your organisation aware of the responsible officer for such contracts and who has authority to enter into “below the threshold” contracts? How many organisations follow their standing orders and invite quotes for all contracts valued over a specified amount? Do you advertise a contract when it may be of wider interest in the EU market or consider advertising on Contracts Finder? How many organisations know what terms govern these contracts?

Low value does not necessarily mean low risk and not having robust processes and contracting arrangements in place can be very costly to an NHS body − in a reputational sense as well as financially, as the following three examples highlight.

Bidding for confidence

Any contract that involves access to, or the handling of, patient data must include robust provisions for the processing and security of it. Such contracts include storage and removal services. Should anything go amiss with the data and there is no contract or an inadequate contract in place, the NHS body is likely to be in breach of data protection law.

Patient confidence will also be shaken if records get into the public domain and you may find yourself facing a large fine from the Information Commissioner. Indeed, the biggest fine imposed by the commissioner was on an NHS trust that used a subcontractor to decommission a stack of old hard drives that were then stolen. The hard drives were full of patient and staff personal details and ended up for sale on eBay. This cost Brighton and Sussex University Hospitals Trust £325,000, as well as the experience of being splashed all over the national press.

No exit strategy

A low-value contract may not stay that way throughout its term if there is insufficient clarity on price. Before entering into any services contract, an NHS organisation must consider its exit arrangements. Take a contract for storage services, where your requirements during the life of the contract will be for the collection, storage and retrieval of items.

‘It is essential to put in place a robust governance procedure to manage the risks of many low-value contracts’

At the end of the contract you will need to recover all your items, which means the bulk transfer of a significant amount of material. If your contract does not address this and the contractor applies the standard arrangements that operated over the life of the contract, you may find you cannot get your material back without incurring significant delay and very high additional costs for return.

These costs can run into hundreds of thousands of pounds, which immediately puts the contract over the EU threshold for advertising in the Official Journal of the European Community. It is not just a costly mistake for an NHS service provider but also means it is in breach of procurement law.

Access all areas

Finally, for any contract where staff of the contractor may come into contact with patients, it is very important to ensure that either disclosing and barring checks must have been undertaken or the operation of the contract must be structured so the staff cannot interact with patients.

An example of this is when a trust occasionally needs to arrange with a funeral director to take away a patient who has died. Even though this may be an ad hoc arrangement, if contractor staff access wards then full checks and obligations to comply with the trust’s policies must be in place before any service is provided.

A checklist for robust governance

Against a backdrop of rising legal requirements, greater scrutiny and increased risk of legal challenge, it is essential to put in place a robust governance procedure to manage the risks of the many low-value contracts you enter into.

Based on our experience, here are some tips for dealing with low-value procurements:

1. Establish a procedure for the authorisation of low-value spending that is widely circulated internally.
2. Ensure you have a clear policy for when quotes must be sought for particular contracts and when contracts must be advertised on Contracts Finder.
3. Develop straightforward and short standard forms for use on all purchases where you require quotations or advertise on Contracts Finder.
4. Develop standard form terms and conditions for all below the threshold contracts. These can be very short and flexible to reflect the nature of risk. Also, provided your processes are robust, they do not need signing, which simplifies the procedure.
5. Develop an internal checklist that identifies where a contract may be of high risk.
6. Keep a database of all below the threshold contracts and their expiry dates. Ensure prompts are sent to appropriate members of staff before they expire.

Gill Thomas is a partner at Mills and Reeve, gill.thomas@mills-reeve.com