In their report, the Committee describes the handling of the contract between Cambridgeshire and Peterborough clinical commissioning group (the CCG) and UnitingCare Partnership as a catalogue of failures.
It sets out urgent recommendations to address the lack of commercial skills in the NHS and calls on NHS England and NHS Improvement to improve the oversight and supervision of contracting arrangements to "avoid such catastrophic failures in future".
The UnitingCare Partnership contract began in April 2015 and was terminated after only eight months because of a failure to reach agreement on contract cost.
The CCG "tried to outsource its own responsibility"
The termination led to unfunded costs incurred by UnitingCare Partnership totalling at least £16 million, which had to be shared between its two trust partners—Cambridge University Hospitals NHS Foundation Trust and Cambridgeshire and Peterborough NHS Foundation Trust—as well as the CCG.
This worsened their financial positions and reduced the money now available to provide patient services in Cambridgeshire and Peterborough.
The Committee concludes that by putting the contract for older people's and adult community services out to tender, the CCG had "tried to outsource its own responsibility" to commission local health services.
Case demonstrates "lack of commercial skills in the NHS"
There was a "fundamental mismatch" between what the CCG expected to pay for the contract and what UnitingCare Partnership expected to receive, and "it was grossly irresponsible of the trusts and the CCG to rush ahead with the contract without sufficient clarity on the costs and the risks".
The case is a further demonstration of the lack of commercial skills in the NHS to procure patient services effectively, says the Committee.
It finds the contract set-up exposed weaknesses in regulatory and oversight arrangements and warns that if these are not addressed, they "may reoccur in local initiatives proposed as part of sustainability and transformation plans".
Meg Hillier MP, Chair of the PAC, said:
"It beggars belief that a contract of such vital importance to patients should be handled with such incompetence.
The deal went ahead without parties agreeing on what would be provided and at what price—a failure of business acumen that would embarrass a child in a sweet shop, and one with far more serious consequences.
Services for patients are likely to suffer and we will be expecting the clinical commissioning group to come clean about precisely how much damage has been done in terms of future service provision and finances.
Local MPs have told me that they could not get answers to concerns they raised about this contract, which in turn raises questions about transparency.
Our Committee is well aware of the financial pressures bearing down on the health system.
On November 3 I wrote to the Prime Minister setting out the PAC's concerns about the sustainability of the NHS budget, highlighting evidence from our reports and hearings on the NHS throughout this year.
Against this backdrop, it is understandable that those responsible for providing services will explore new ways of doing so.
What is not acceptable is for services to be farmed out to the lowest bidder without due regard for the interests of patients and taxpayers in general."
PAC Member Karin Smyth MP said:
"While this case is specific to Cambridgeshire and Peterborough we are concerned that it reflects weaknesses in the NHS that could result in costly mistakes elsewhere.
The Public Accounts Committee has previously called for measures to improve commercial skills in the NHS and once again we have seen the effects of what appear to be gaping holes in its abilities.
There have now been multiple reviews prompted by this project, which will come at a cost, and the CCG continues to rely on consultants—at the time we took evidence, it had lined up an £800,000 contract for advice on how to improve its financial situation.
NHS leaders need to address this lack of commercial expertise as a matter of urgency to ensure no more taxpayers' money is wasted on ventures that, while well-intentioned, are simply not fit for purpose."
Among its recommendations, the Committee calls on Cambridgeshire and Peterborough CCG to explain in its sustainability and transformation plan “the impact of this contract failure on its ability to deliver health care services".
More broadly, the Committee urges local commissioners to take responsibility for designing more integrated systems of healthcare themselves and "not abdicate commissioning responsibilities to a body which is not clearly accountable to the taxpayer".
NHS England should set out the minimum steps CCGs should take to assess "the realism and viability" of bids for contracts to provide services, and also report back by April 2017 on what specific action it has taken to improve the quality of commercial skills available to local NHS bodies.
In December 2015 an £800 million contract for UnitingCare Partnership to provide older people's and adult community services collapsed after only eight months because it ran into financial difficulties.
Cambridgeshire and Peterborough clinical commissioning group (the CCG) attempted to design a more integrated and improved service for patients in the area. But, in contracting out responsibility for commissioning local health services, it lost sight of its own commissioning responsibilities.
The procurement exercise was undermined from the start by poor commercial expertise, a lack of realistic pricing, and weak oversight.
"Catalogue of failures resulted in unforeseen costs and losses"
The CCG accepted the lowest bid on the table, without seeking proper assurance that the two trusts, which had combined to form the UnitingCare Partnership, could deliver for that price.
It was then grossly irresponsible of the trusts and the CCG to rush ahead with the contract without having resolved significant differences in their understanding of the contract price or indeed the scope of services that were included in that price.
The catalogue of failures resulted in unforeseen costs and losses, and services for patients in Cambridgeshire are likely to suffer as a result.
NHS still lacks procurement expertise
Following the collapse of the Hinchingbrooke franchise, this Committee made a specific recommendation that the NHS should improve its commercial skills, yet it still lacks the expertise to ensure that patient services are procured effectively.
This is all the more worrying as local initiatives proposed in sustainability and transformation plans may still include CCGs using new or untested contracting arrangements.
With the NHS budget so stretched, innovative solutions are likely to be part of attempts to make the NHS financially sustainable.
NHS England and NHS Improvement must improve the oversight and supervision of contracting arrangements and avoid such catastrophic failures in future.