The Committee's 2008 Public Expenditure
Questionnaire and management consultants
1. For many years the Committee has undertaken an
annual Public Expenditure Questionnaire (PEQ) inquiry in
which we have examined the Department of Health's expenditure.
Each year we send the Department a questionnaire asking a range
of finance-related questions. The answers relating to national
and regional information are published in hard copy as well as
on our website; we also include on our website spreadsheets containing
a further breakdown of data relating to Primary Care Trusts.[1]
2. Shortly after the publication of the PEQ in December
2008, we held an evidence session with senior Departmental officials,
including the Permanent Secretary (Mr Hugh Taylor) and the NHS
Chief Executive (Mr David Nicholson), to question them about the
information contained in the PEQ and other matters related to
public expenditure. In previous years we have held a second evidence
session with the Secretary of State, accompanied by his officials;
this year we decided to focus this second session on the NHS Operating
Framework, but followed up a number of the issues raised in the
PEQ session.
3. We have not in the past published a report following
our PEQ sessions. However, this year we have decided to make an
exception to our normal practice and to comment on the replies
made by the NHS Chief Executive to our questions about the use
of management consultants.
Use of management consultants
by the Department of Health and the NHS
4. The National Audit Office (NAO) estimated that
the NHS spent £0.6 billion on consultancy services in 2005-06,
and that that is about a fifth of the entire public sector consultancy
spending for that year. The NAO also estimated that the NHS was
responsible for about a third of the increase in public sector
consultancy expenditure between 2003-04 and 2005-06.[2]
5. In 2007-08 the NHS summarised accounts for the
first time had separate disclosure of the amounts payable to external
consultants in the NHS (prior to that, the costs were included
in "miscellaneous expenditure"). The totals given in
the summarised accounts, were £43.4 million for SHAs, £132.6
million for PCTs and £132.4 million for NHS Trusts, giving
a total of £308.5 million. The Consolidated Accounts of NHS
Foundation Trusts did not separately identify consultancy costs
in 2007-08.
6. In our evidence sessions we questioned the officials
about what types of firms were employed and their rates of pay.
The cost per day of senior partners is usually in excess of £1,000,
juniors £400-£500 (Q38). A wide range of firms are used,
from the Big Four to small firms (Q36).
7. In answer to our questions, David Nicholson, the
NHS Chief Executive, argued that consultants did a useful job,
especially in undertaking work which NHS organisations and the
Department did not have the skills to do themselves.
8. Mr Nicholson highlighted three important areas
in which consultants had worked, pointing out that "there
simply were not the people out there for us to recruit, so it
was not an issue that we could get a lot of people to do these
really very complicated technical things, so we had to use consultancy
significantly". These areas were the work of consultants
on IT (as part of the Connecting for Health programme),
the Commercial Directorate and turn-around teams.[3]
9. He stressed the benefits consultants had brought
in respect of "turn-around":
In terms of the turnaround we spent in excess
of £50 million on the turnaround, and I have to say that
turnaround moved us from half a billion deficit to one and a half
billion surplus
The benefits had mainly come from improved implementation:
virtually none of the schemes that came up around
getting ourselves back into financial balance came out of the
brains of the consultants—most of the ideas came out of
the NHS itself. What the consultancies gave us was the ability
to execute some of these much better.
10. He noted that circumstances had in recent months
changed dramatically and the Department currently had
a programme both in terms of the Commercial Directorate
and in Connecting for Health to significantly reduce the amount
of consultancy we use across the board, and you will see that
come down significantly over the next six months or so.
The Department has now "set up a thing called
IMAS (NHS Interim Management and Support), which you may or may
not have come across, which is an internal consultancy. So we
have developed an internal consultancy where we use our own people
across the NHS now to do this kind of work and they are currently
working in 23 organisations."
11. Our key questions addressed the issue of collecting
and publishing information about the use of consultants. In December
2006 the Treasury issued guidance for the Spring 2007 departmental
reports, placing a requirement on Departments to include information
on consultancy spending. The Department of Health now collects
such information about its own use, but not about the NHS's use
of consultants.
12. The questions and answers to Mr Nicholson during
the PEQ evidence session in December 2008 were as follows:
Q70 Dr Stoate: How much money are you
spending on external management consultancy at the moment? I could
not find that in any of the tables. Do you have any figures?
Mr Nicholson: No. We have not so far collected
that information centrally. We have started to think about how
we might do it but I think the numbers we have got are so unreliable
at the moment that we are not satisfied that we have got that
number right.
Q71 Dr Stoate: Is that not a cause for
concern, because they are rather expensive.
Mr Nicholson: That is why I think we need to
get the numbers right. Absolutely.
Q72 Dr Stoate: If you have not collected
them, it is difficult to know if they are right or wrong.
Mr Nicholson: Yes. We think we need to know how
much money the NHS is spending on management consultancy and we
have started the process of collecting the information. I agree
with you, we should have collected it in the past, but we did
not….[4]
13. However, when we questioned Mr Nicholson in 2009
during the second evidence session (on the NHS Operating Framework)
we heard a different story. He seemed to claim that collecting
information would lead to micromanagement of the NHS.
Q30 Sandra Gidley: …Mr Nicholson
[you were] before us in December and said that the Department
had never had never tried to keep track of how much the NHS is
spending on consultancy services. Why not?...
Mr Nicholson: I am happy to say again why we
did not do it. From the centre we desperately try not to micromanage
what the NHS does and consultancy can be literally from a very
small amount of money to help a particular part of an organisation
get better, whether it is environmental health or all sorts of
things for which we use consultancy, right the way through to
using the big firms (Q36).[5]
He added
Centralising organisations all over the world
start off by collecting detailed information in this way and then
they start to use it to micromanage organisations; we do not think
that is the right thing to do."[6]
14. We also asked the officials how they ensured
that the consultants provided value for money and whether "there
should be some sort of external peer review of consultants' reports
or some way of ensuring that the taxpayer is getting value for
money". Mr Taylor told us:
It depends where the spend occurs. If the money
is spent in the Department, either on programmes or on admin then
the expenditure is monitored and we publish the spend figures.[7]
and
in the Department we have our own internal function
that certainly looks at use of consultancy within the Department
and we are obviously subject to NAO review. And we have our own
internal protocols to ensure that if a consultancy contract is
let it is let with strict adherence to procurement rules, and
we do look to try and evaluate internally within our finance and
other directorates whether we are getting good use of the money
we are paying to consultancy organisations.[8]
15. However, this was not the case with NHS spending
on consultants. Mr Taylor told us that it was for individual boards
and the Audit Commission to look at the way that NHS organisations
spend their money
We believe that with the responsibility of individual
boards to make sure that they get value for money, with the responsibility
of the Audit Commission to monitor this and to make sure that
through their scoring systems they have every year that they make
sure that the individual organisation is getting value for money.
We think that is a better way of doing it than of collecting pennies
from every single organisation in the country to bring up to a
complete national whole....(Q36).
Conclusions and recommendations
16. We agree with Mr Nicholson's comments in December
2008 that the NHS should know how much it is spending on management
consultants. The information must be collected locally and it
would be a simple matter to bring this together centrally. We
do not accept Mr Nicholson's subsequent argument that the central
collection of such information would inevitably lead to more micromanaging.
Making such spending subject to public monitoring might improve
the way consultants are used. We recommend that the Government
collect centrally lists of
- the management consultants
employed by the Department of Health, SHAs, PCTs and acute, ambulance
and mental health trusts, indicating the projects they are employed
on, their duration, cost and purpose;
- the top ten daily rates paid by each category
of organisation.
We will ask for this information annually and
publish it in the PEQ. Monitor, the regulator of Foundation Trusts,
should collect similar information for Foundation Trusts which
we will also publish in the PEQ.
17. It is important to know whether the NHS and Department
of Health are getting value for money from the contracts agreed
with management consultants. We do not believe the present system
which relies on internal systems and the NAO (in respect of the
Department) and the Audit Commission (in respect of NHS organisations)
is adequate. They do not undertake a thorough and systematic assessment
of the value of the work done by the consultants. Research carried
out for the Department of Health by academic institutions and
individuals is always subject to peer review; a similar practice
should apply to work done by management consultants as part of
the condition of the contract. We recommend that a sample of
contracts with management consultants agreed by all categories
of NHS organisation and the Department should be subject to external
peer review. This should include an assessment of the value of
the consultants' output. The external peer review might be put
out to tender through the National Institute for Health Research
which the Department uses in respect of R and D contracts.
1 http://www.publications.parliament.uk/pa/cm/cmhealth.htm Back
2
Source NAO 2006 report Back
3
Q 31 (11 March 2009, HC 340-i) Back
4
Q 70-72 (11 December 2008, HC 28-i) Back
5
Q 30 (11 March 2009, HC 340-i) Back
6
Q 31, (11 March 2009, HC 340-i) Back
7
Q 35, (11 March 2009, HC 340-i) Back
8
Q 36 (11 March 2009, HC 340-i) Back
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