Four supplier relationship lessons learned from the failure of the NHS National Programme for IT (NPfIT)

By Allan Watton on

NHS Logo (Cartoon)Selecting and managing suitable suppliers often requires a much greater emphasis on communicating your business outcomes to them, along with much more subtlety and finesse in managing the emotional stakes, than many realise. The importance of strong supplier relationships from the outset cannot be overstated and to achieve your business objectives it is essential that both sides feel adequately incentivised.

There is no ‘one-size-fits-all’ approach, as programmes, projects, and the relationships that drive them, are all so very different. But from the pre-procurement process onwards, supplier management must be given the attention it deserves and be tailored to the needs of the business outcomes and not just the individual project. And it is these fundamental points that our case study on the NHS National Programme for IT (NPfIT) presents so early – if you get them right your project will benefit and your business outcomes will be achieved, but get them wrong and your mistakes can become very costly, very quickly.

So important was this very public programme failure, that it became a subject of particular interest to Dr Mark Seneschall in his book ‘The anatomy of IT projects: Why they’re hard and why they fail – A guide to the complexities and how to negotiate them’. From this we have extracted the details of this case study and ultimately the lessons we have to impart to anyone involved in large strategic provider relationships to learn from.

Background to ‘the biggest civil computer project in the world’

There are dangers inherent in complex provider relationships: just ask anyone who worked on NPfIT, a £13bn project that lasted 10 years. It was beset by significant delays, cost overruns and, because it has now been largely dismantled, we are left with very little to show for the money that was spent.

The National Programme for IT was intended to unite the underpinning information that supports the NHS throughout the country via something known rather fittingly as the National Spine. The aim was to bring the best of IT from around the globe to the UK, to create this new system and provide more effective patient care.

Huge in its scope, the contract was broken up into eight separate parts, one each for the development of a central database, the rolling out of a broadband network to connect all health and social care services throughout the country, and the booking software. The remaining five were to implement the Detailed Care Record – with functions including patient administration, clinical data and rolling out the new system throughout all NHS practices – across individual regions of the UK.

Despite the ambitious nature of the project and the large sums of money involved, it experienced significant and ongoing challenges, including those around the initial procurement process and the approach that was taken towards supplier relationships.

Dr Seneschall identifies what he considers to be the four primary lessons he feels are most relevant from this huge and complex programme.

1. Don’t be seduced by the lowest bid

The NPfIT project was deemed to be revolutionary by some because of the speed and perceived efficiency of its procurement process. Not only was it positively touted for presenting a completely new way of securing the right bidders, there were even calls to roll out the template across other government IT projects. However, others were more sceptical – believing that due diligence had not been carried out as thoroughly as it should have been.

In the case of some of the NPfIT contracts, it seems that the client was seduced by the excellent marketing and low price promises from some bidders, including iSOFT and IDX. Dr Seneschall suggests that while these vendors had experience, there were certainly others more capable of handling such a programme. From the details in his book, it seems, however, that the client appears to have been swayed by the marketing materials and a desire to push the procurement process through as quickly as possible, ignoring prudent questions to ask these suppliers to back up their statements.

While these low bids may have initially seemed enticing, in the long run it seems they proved much more costly; key suppliers were forced to withdraw during the ongoing implementation as they found it unsustainable to continue working on the programme for the agreed sums.

Your common sense tells you that it’s obvious to conclude that it is in the best interests of both clients and suppliers if individual projects within larger programmes are priced correctly from the outset. In order to weigh up whether bids seem accurately costed, there are several ways to appraise this: you could either run a cost analysis for yourselves if you have the internal expertise/capacity to do so, or you could engage appropriate vendors in a pre-contractual scoping exercise to give them a suitable depth of visibility of the business outcomes you want to achieve, before putting contracts out to tender.

If structured in the right way, this pre-contractual scoping (a) allows suppliers to undertake a diligence process to advise you correctly in the first instance, and (b) also puts suppliers under an express ‘expert duty’ (rather than an implied one) to make sure they are accountable to deliver what they say they will, within the time and cost agreed – with no argument. Using this mechanism, they will have the benefit of detailed pre-contractual scoping and stakeholder engagement in order to make their bids appropriate.

In an earlier article, also provided by Dr Seneschall, on the relationship between famed innovator Isambard Brunel and renowned engineer John Scott Russell in the construction of the SS Great Eastern, Brunel made just this mistake. Even though he had costed up the project himself and recognised that Russell’s bid was significantly lower, he still went ahead and accepted it and it led to all manner of significant problems in the ship refurbishment programme.

On the NPfIT programme, Dr Seneschall indicates that numerous bids were quite obviously low, but were accepted all the same, resulting in uncomfortable and costly renegotiations, deteriorating relationships and ultimately the need to find new suppliers to take over when disgruntled ones left.

2. All stick and no carrot is not a productive strategy

When the NPfIT programme was initially put out to tender, the client adopted an approach that the government had not tried before, and which it hoped would effectively keep costs in line and production on course.

Strict clauses were laid down from the outset, including an agreement that suppliers would not be paid until delivery, that there would be penalties for any delays, and that if performances guarantees were not met then they could be removed from the programme altogether.

While this new, aggressive approach to the procurement process was initially described as ‘vigorous’ and got quick results, in hindsight Dr Seneschall suggests that failing to give the suppliers enough of an incentive to complete the work ended up causing more problems than it solved. It seems also, that the government believed that these threats were enough to keep the suppliers in line and on task and then failed to adequately project or contract manage their suppliers from this point on.

Dr Seneschall indicates that by failing to build open and honest channels of communication, with iSOFT in particular, the government was unaware that their core software, Lorenzo, was not in fact everything that they had been promising it would be, even in public statements to the press. After significant development problems, the NPfIT project was left with software that was nowhere near as advanced or fit for purpose as they had wished. However, this was not entirely the clients’ fault and Dr Seneschall suggests that a portion of the blame must lie with iSOFT; their failure to see this problem coming meant that Lorenzo wasn’t introduced into any hospitals until 2010, seven years after iSOFT won the contract.

The government’s aggressive approach clearly failed to get the desired results for this programme as many of the related fixed-price contracts and projects that were awarded turned out to be priced too low, despite the supposedly strict regulations. While effective programme and project management throughout the contracts may have solved some of their problems, it is also likely that a much more rounded approach, including an appropriately structured pre-contractual due diligence and stakeholder management process, would have led to higher levels of supplier motivation and client engagement.

It is vital that the right behaviours are encouraged in suppliers from the very beginning of a project, as both client and supplier need to see themselves as getting a tangible benefit from their involvement. Because contracts had been underpriced and contractors demotivated by the government’s lack of correct management on their tough line for delivery, many eventually chose to extract themselves from the programme, which ultimately delayed things even further.

3. Lack of critical stakeholder engagement in systems design

A further very important point that Dr Seneschall raises, is that while the government was describing their procurement process as revolutionary, many others, even during the early process, were heaping criticism upon it. Given that the NPfIT was meant for use in hospitals, health care centres, and potentially GP practices, many medical professionals felt that they had not been adequately consulted or asked for their opinion on specific requirements. This lack of consultation was very poor practice, considering the NHS practitioners would be the computer system’s core users. The failure to get medical professionals on side may also have given them a negative opinion of the programme, when ultimately they could have been providing much-needed assistance in shaping the Lorenzo software.

Problems also arose because the age and complexity of legacy systems across the NHS were not adequately taken into account, something those on the ground could have provided information on if they had been involved in the process. Without an accurate view of the lie of the land, iSOFT and the other contracting companies were unable to see the bigger picture and quite how difficult it would be to roll out their new software across so many different system environments. This led, of course, to further delays, and when coupled with the development problems of the key software, meant that implementation barely happened at all.

It is also arguable that the degree of urgency placed on the suppliers by the government did not help matters and that they failed to implement due diligence when mapping out the project specifications. Placing an emphasis on speed and assuming that quality will follow is the downfall of many projects – if time had been taken to engage NHS professionals with the iSOFT team, they would have picked up on the deficiencies with the Lorenzo software at a much earlier stage.

4. Terminating relationships mid-contract is often costly and disruptive, and should be avoided where possible

Due to the speed of the bidding process and the fact that many of the contractors underpriced their bids, Dr Seneschall implies that it is hardly surprising that many of the suppliers ended up pulling out of the project long before its completion. Accenture were the first to go in 2006, after reporting significant losses, and although they had to repay part of their fee under the exit agreement, this was still disastrous to the programme. Fujitsu followed shortly after in 2008, and the contracts that the government had with both BT and CSC were substantially renegotiated and eventually reset after years of delays. While these circumstances were in many ways unavoidable due to the failure of the procurement process to accurately address appropriate pricing levels, more could also have been done to keep the suppliers on side – especially if open and honest communication had been maintained.

Terminating relationships with key providers may initially have seemed like a refreshing step for the programme, but in reality this only cemented feelings of distrust with the remaining partners, who feared being thrown overboard, as well as proving highly disruptive as years of negotiation were necessary to achieve this. There are of course no guarantees that new suppliers will provide a better service than the previous incumbents, and the changeover period is likely to be time-consuming and costly, especially when complex and highly integrated IT provisions are involved.

The National Programme for IT was a bold vision for the future of the NHS and could have provided a positive step forward for an institution that for the most part undertakes exceptional work. The gradual disintegration of the programme and the high level of investment on what was deemed a ‘revolutionary’ approach, Dr Seneschall indicates was actually superficial and ill thought through. By failing to appropriately pre-contractually scope the programme and provide an detailed picture of the complexities involved across both systems and critical stakeholders, it seems the government was seduced by the lowest bidders who themselves failed to provide a full view to the suitability of their products. From this inadequate approach to a complex programme of works and multi-supplier relationships, though, vital lessons can be learned by both the private and public sector; particularly about the perils of favouring speed and ‘vigour’ over quality relationship building and structuring innovation with appropriate programme and contract management.

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