Department of Health data deal "failed taxpayers"

The Department of Health (DoH) failed taxpayers by neglecting to properly tender a 24 million data analysis joint venture - effectively handing it to the chosen firm "on a plate", MPs were told today.

The public accounts committee report (PAC) examined a joint venture between the Department of Health's Information Centre and private sector informatics firm Dr Foster, which came about without any external tender process.

Set up in 2005 to bring skills and expertise to the Information Centre - which collects and analyses NHS health data - the joint venture was created with Dr Foster through exclusive negotiations, without any expressions of interest to identify other potential partners, the report said. The DoH bought half of the joint venture, called Dr Foster Intelligence, for 12 million in 2006.

"By pursuing its back room deal with Dr Foster LLP, the Department of Health failed in its duty to be open to parliament and the taxpayer," said committee chairman Edward Leigh. "There was no fair and competitive tendering competition, as laid down in public sector procurement guidelines. And Treasury guidance on joint ventures between public and private sectors was ignored. Instead, the deal was handed to Dr Foster on a plate."

The DoH defended its methods in a statement: "Dr Foster was the right strategic choice as a partner for the joint venture, based on the market analysis and due diligence that was carried out before and during the negotiations and on the subsequent performance of the joint venture."

As the procurement process lacked competition, the DoH's information centre can't prove it got the best deal for its 12 million half of the joint venture, Leigh said. "Certainly, the 12 million that it paid, 7.6 million of which went straight into the pockets of Dr Foster's shareholders, was between a half and a third higher than its financial advisers' evaluation," Leigh said.

According to the report, the DoH's advisers KPMG said the 12 million the DoH paid was 33 per cent to 53 per cent higher than the indicative valuation of a Dr Foster half-share. The payment included a strategic premium of between 2.5 million and 4 million.

In a statement, the DoH said it sought legal and professional advice in the planning and negotiation stages of the joint venture. "The price negotiated was a reasonable one, based on the commercial advice received and the fact the vendors were ceding control of their company," the statement said. "A recent independent report by Pricewaterhouse Coopers has since shown that the initial DoH investment of 12m for a 50% stake of the business was soundly based."

But Leigh and the report disagreed. "The department and its Information Centre cannot show how investment in this one company, Dr Foster, rather than conducting an open and transparent competition, is to the benefit of the NHS," said Leigh. "The seeming degree of favouritism in the choice of company and the haste with which the deal was concluded show a disregard for the rules governing the use of public money."

The DoH said it would consider the PAC report and provide response to parliament.