DHL Supply Chain has won a two year extension to its NHS Supply Chain contract and has been set a target to deliver £300m of savings by October 2018, operating in a more transparent manner.
The NHS has awarded the two year extension to DHL after an NHS review panel rejected the option of extending the contract by five years.
The original ten year £850m per annum contract was awarded in 2006, with a five year extension clause, amidst concerted opposition from NHS workers and unions, opposed to the outsourcing of NHS services. Since then the contract has been grown by DHL to be worth £1.6bn per annum.
At the time the then minister of state for the Department for Health, Andy Burnham, predicted the outsourcing deal could save the NHS £1bn in supply chain costs. It is DHL’s largest UK contract.
A spokeswoman for DHL said that this had been achieved and NHS Supply Chain had delivered £1bn of "inflation beating savings back to its customers since the start of the contract in line with the savings methodology".
DHL said that it had already made savings of £96.5m against a £150m savings target of March 2016. This target has been extended to incorporate a further £150m by October 2018.
NHS Supply Chain’s CEO Nick Gerrard said: “We have worked hard to ensure that the extension agreement contains what our customers have asked for: more cash releasing savings to be delivered through NHS Supply Chain and greater transparency of our contract which will be achieved through an open book arrangement.”
The extended contract sees DHL continue to manage what is one of the largest logistics operations in Europe, involving the procurement and delivery of over 316,000 products for NHS trusts, hospitals and other healthcare organisations.
The NHS Business Services Authority said it was confident DHL could meet these targets by working more closely with the NHS and through the introduction of a revised reward structure aimed at incentivising the delivery of the savings.
The NHS said the new contract brings ‘substantial improvements” which include greater transparency through the introduction of an open book contract management model, and greater flexibility in how services are provided.
Steven Pink, NHS Business Services Authority change director, said: “This agreement provides a step change in savings delivery for the NHS. We’re really looking forward to working closely with NHS customers, suppliers and DHL to secure the £300m savings target.”
The future of the contract beyond October 2018 is unclear as the NHS has said it is already looking at its options. Both the Department of Health and the NHS Business Services Authority are "considering the long term future operating model for procurement and supply chain services for the NHS from October 2018”.
