MR DAVID NICHOLSON, MR HUGH TAYLOR AND MR RICHARD DOUGLAS

23 NOVEMBER 2006

  Q60  Dr Taylor: The money side does puzzle us because, we gather, you have cut the amount going in, that it is 150 million less, and yet their costs are going up. Where is the other money coming from?

  Mr Taylor: One of the things that we are doing is effectively holding a transition fund which has been paying for the costs of the transition of relocation and some of the costs of redundancy. I think that is reflected still in the total costs. So, although the amount of money going into the organisations is reducing, a separate transition fund is being held which is there to support the cost of redundancies and transition.

  Q61  Dr Taylor: So, in fact, you are still putting in the same money?

  Mr Taylor: We are, but the aim is that by 2008 that money will be out of the system. It is a similar point as the one the Minister was making about Commissioning a Patient-led NHS. To put it crudely, you cannot just take money out of organisations which involves moving people out and redundancy on and cut costs at the same time; there are some transition costs associated with taking out that number of people.

  Q62  Dr Taylor: It is very nice to hear you say that at this stage. It would have been rather nice to have had that sort of forecast at the beginning. Finally, is there any truth in the rumours that the plans to merge CSCI and the Healthcare Commission are unlikely to go ahead?

  Mr Taylor: There is no change to the plans to merge the Healthcare Commission and CSCI.

  Q63  Mr Campbell: The PCS unions told this Committee that the department employed 1,200 contractors, agency staff and consultants, largely because a third of the posts were cut with no change to the workforce. Are these figures right?

  Mr Taylor: I do not recognise them, no. I do not know what the basis of those figures is. I certainly do not recognise them.

  Mr Campbell: The figures came in basically because I think it was a problem.

  Q64  Chairman: There was a Workforce Planning Inquiry submission that we had, but basically they said that they had lost this amount and that staff were overstretched and consultant agency were being bought in at a higher cost and they claimed that at the department of 2,245 staff 1,200 were contractors. Do you recognise those figures?

  Mr Taylor: That is completely erroneous.

  Q65  Chairman: I understand that is a quote from their evidence.

  Mr Taylor: I do not know quite where they have got it from. At the moment we do employ contractors in some areas of work. According to the latest information I have got the number of contractors we are employing at the moment is around 100. They will be mainly agency staff working in certain areas, which frankly suit that form of employment. Our latest headcount figure that we looked at, I think, for the end of September was around 2,300 in the department, just slightly over the 2,245 control total, and the vast majority of those are fully employed staff by the department. It is just not a figure I recognise.

  Q66  Mr Campbell: Chairman, in all fairness, if what Mr Taylor is saying is right, I think a note to this Committee would put this right.

  Mr Taylor: I would be very happy to do that.[5] Partly because at a departmental level we have very good relations with the PCS, I do not want to rubbish them here, but one of the things, I think, which sometimes can lead to confusion (and this has happened over time in the department) is where we employ sometimes people from the NHS or others on projects funded out of programme money in the department. That happens, there is no question about that, but that is not substituting for departmental posts. We have a headcount of 2,245, and that is substantively filled by ordinary Department of Health employees. I am very conscious we put the department through a tough time when we reduced the size of the department. Around half the reduction that we pushed through in a number of posts were people who were transferred to other organisations and about half was a genuine squeeze on our headcount, which we managed as carefully and as sensitively as we could, in close partnership, I should say, with our union.

  Q67  Chairman: I suppose the obvious question is whether the cost of these consultants has actually added to the staffing bill.

  Mr Taylor: It is something which is of very great concern to me, because the overall amount of money we have to spend on the department (the departmental spending limit) has come down year on year, so I am not really in the business of employing highly paid consultants where we do not think that is appropriate. In certain circumstances it will be, but we have got now a system which monitors much more effectively than we have done in the past our use of consultants, the cost of those consultants and where we are using them I think we need to know about it and be sure that there is a bona fide justification for doing it.

  Q68  Mr Campbell: The other question is "turnaround teams". Your response to the recent debt in the trust and the PCTs was to send turnaround teams into a number of failing trusts. The Department of Health has very little faith in the Health Service, obviously, to resolve its own problems when you think that there are turnaround teams in 62 Acute Trusts and 81 PCTs. That is nearly a third of trusts. It seems to me that we have got either bad management or there is something going wrong seriously. It is either bad management or we are playing around with money.

  Mr Nicholson: In some organisations things have gone bad seriously.

  Q69  Mr Campbell: That is bad: a third of trusts.

  Mr Nicholson: And we have tried to deal with it. Initially the plan was to put turnaround teams into 98 organisations, which we did, and there was a criteria that set out a scale that related that to the scale of the deficit, and it is predominantly not necessarily about condemning the management in those organisations but actually providing them with support and help to do some of the things that they needed to do, bringing skills into the organisation that they did not have.

  Q70  Mr Campbell: So they were bad. They had the scales, they had the organisation, so they must have been bad in the first place?

  Mr Nicholson: Some of the issues that they are tackling are very complicated and very difficult. One of the things that we found when we did the work with all the Acute Trusts around their fitness for purpose for foundation status was that lots of organisations knew what they had to do in terms of improving their efficiency but quite a lot of them did not really know how to do it and they needed support and help to do that. That is essentially what the turnaround people have been doing. They have been going into organisations, they have been providing project management, expertise, rigor, into the process to make sure that the kind of ideas that predominantly come from NHS staff can be put into place—that is exactly what they have been doing—and there is some evidence, certainly in the earlier ones, but it does take some time to get this right, that it does actually work.

  Q71  Mr Campbell: Is there a time limit on the turnaround teams over six months?

  Mr Nicholson: The original arrangement was that we would have a diagnostic phase, if you like, that the turnaround people would go in, would have a look at the circumstances that organisations found themselves in and make a diagnosis about what the problems were, and that was the first phase and that has been completed in most of the organisations in turnaround. Then the issue is: how do we get our turnaround plan in place and get that agreed? And, again, in the majority of organisations we do have turnaround plans that have been agreed both by the organisations themselves and the Strategic Health Authorities. Then it is actually the delivery of the plan, and some of the plans are relatively short-term—six months, eight months—some of them are two years and it is up to individual organisations to decide then whether they want to continue to employ the turnaround people or not. So it can vary, but it is now the responsibility of organisations to decide whether they want to carry it on themselves.

  Q72  Mr Campbell: These teams are getting to grips with the problem and they are working?

  Mr Nicholson: One of the things I think we found is that it is not a panacea and it is not a kind of instant solution. You cannot throw a turnaround team at an organisation and suddenly turn round its ability to deliver, that is certainly not what happened, but if you look at the earlier ones that are now working through, in most of them there is good evidence to suggest, for example, that they are delivering a higher proportion of their cash-releasing cost improvement programmes than other organisations. In some trusts it has not worked, to be fair, and what we have said to Strategic Health Authorities and individual organisations who are dissatisfied with the turnaround arrangements is that they should get rid of them.

  Q73  Mr Campbell: What you are saying in some cases is that it was not a question of just money, it was a question of not having the expertise in the right direction?

  Mr Nicholson: And it is project management very often and rigor.

  Q74  Mr Campbell: So they were the problems, not the debt. Everybody presumed it was the debt and the money?

  Mr Nicholson: One of the things that we found in the NHS is that most organisations have a cash-releasing cost improvement programme every year of whatever it is that they have decided that they need. They can be quite substantial sometimes. They can go up to 5% or 6% of the turnover. What we were finding was that organisations would have these very grand plans but very often did not deliver all of the things within it. For example, a trust in the Midlands had a very interesting and good plan but essentially only delivered half of it, and that was one of the reasons that they had a financial difficulty. What we are finding with the turnaround teams, the NHS in general is getting better at that but the turnaround teams are getting even better, so for the first group of turnaround organisations over 90% of their plans are being delivered.

  Q75  Mr Campbell: It is very encouraging to hear that it is not the money that has been part of the problem, it is the expertise and the organisation?

  Mr Nicholson: Most financial problems are management problem actually.

  Q76  Mr Campbell: As I said before, have we got the right management in these places, but, then again, remember, at the beginning it was all money, it was all debt, they were not getting enough money, they were being starved of money, but now we are being told we had the whole run of the place, we did not have the right people in. That is what we are saying now, are we not?

  Mr Nicholson: Most of the financial problems that organisations have can be solved by good leadership and good management.

  Q77  Dr Naysmith: Mr Nicholson, there is another aspect of consultants that I find slightly worrying. Perhaps you can help me with it. One of the firms involved in this, McKinsey Consultants, are advisers to the Health Unit at Number Ten. They are also advisers to the Department of Health. As you have just mentioned, they are involved in turnaround teams and they are advisers to monitor as well. I also understand that they are beginning to talk about being directly and indirectly involved in some commissioning services and even providing services. The first thing one needs to ask is what is it that this particular firm gives that is so valuable to the National Health Service at every level and almost everywhere you look, and, secondly, is there not just a possibility of conflicts of interest arising?

  Mr Nicholson: I do not want to turn this into an advert for McKinsey's really. All I know is that when I have dealt with them directly and as a firm, certainly in the environment where I have been engaged with them, they have always provided the best value for money, and the highest level of expertise. They have some extraordinarily talented people in their organisations.

  Q78  Dr Naysmith: I do not know whether Mr Taylor would comment on the civil service side, and how you can make sure this balance is kept.

  Mr Taylor: First of all, it is certainly not just McKinsey's that are being employed by either the Department or the NHS as consultants. There is a range of firms and sometimes there are circumstances where particular firms have a conflict of interest and are therefore effectively barred from a competition, and that slightly narrows the range of people. There is no secret about the fact that they have built up a very effective health consultancy service. They saw, as have a number of the other firms, an opening as we moved towards greater financial transparency in the NHS, more emphasis on tight, close management, for the very reasons we have just been talking about, that there were some expertise gaps which good commercial people moved to fill in. So I do not think there is anything to apologise for there, but you are quite right, in the generic sense, that we do of course have to be very careful about looking at conflict of interest in any of these cases. That is something which it would certainly be my job, with colleagues here, to keep appraising all the time. There will be circumstances, and we have done it, where we have said, because somebody is involved in a particular area already, they would not be in a competition for consultants.

  Q79  Dr Naysmith: Particularly in the area where the advice has been that we need to put these contracts out and so on, and then we find they are advising people who are applying and bidding for the contracts. That surely is an area where there must be suspicions and you have to be really careful.

  Mr Taylor: You have to do this all the time. To be honest, when you are managing any contract with a firm of consultants, or anybody else actually, one of the things you have always got to be wary about is that there is a certain amount of interest in attracting further work. That is good commercial operations and it is our job as managers and commissioners of things of that kind not to let that happen. We have systems of audit and so on, which should guard against any impropriety. So we are alive to the problem that you are alluding to.