Outsourcing, common sense and good faith - lessons from a UK hospital services outsourcing arrangement

The UK case of Mid Essex Hospital Services NHS Trust v Medirest 1 provides some timely lessons for governments around Australia as they pursue partnering and outsourcing arrangements with the private sector, particularly in the hospital and health services space.

The case highlights how a failure by parties to an outsourcing arrangement to cooperate in good faith, together with a confrontational approach to strict contractual performance and an overly complex service level regime, can result in the breakdown of a productive commercial relationship.

TRANSITIONING TO "SERVICES ENABLER" - GOVERNMENTS SEEKING VALUE FOR MONEY

Governments in Australia continue to examine ways to improve service delivery to their communities in challenging economic times. The Queensland government in particular is moving to implement its April 2013 Better Services for Queensland plan, issued in response to the Independent Commission of Audit Final Report of February 2013. This movement is also coming into sharp focus across other States and Territories along with the Federal Government making clear its intentions to explore contestability and increase competition and value for money in delivery of Government services to assist in returning the budget to surplus and improving the quality of services to Australians.

CATERING SERVICES IN ESSEX PUBLIC HOSPITALS - WHAT WENT WRONG?

In 2008, Mid Essex Hospital Services NHS Trust contracted Medirest to provide facilities management including catering and cleaning services for two of its public hospitals. The contract was for seven years with an option for extension.

If Medirest failed to meet the service levels specified in the contract, the Trust was entitled, by a complicated system of service failure points and service credit points, to reduce the fees payable to Medirest. The Trust also had a right to terminate if Medirest exceeded a certain number of service failure points in a specified period.

The contract also required the parties co-operate with each other in good faith, limited to the efficient transmission of information and enabling the Trust to obtain the full benefit of the contract.

Services began in April 2008 and, despite some early teething problems, by early 2009 both parties agreed that the service level requirements were being satisfied. Feedback indicated that patients were pleased with the food quality and hospital staff were happy with the cleaning standards.

However, the Trust had issued a formal...