COMPETITIVE TENDERING IN THE NHS: AN ECONOMIC ANALYSIS' OF THE EARLY IMPLEMENTATION OF HC(83)18

Economic theory identifies circumstances where in-house production can be expected to be more efficient, in terms of the cost of production, than purchase from outside contractors. However, this efficiency advantage can also expect to be dissipated when in-house producers face no competition. The introduction of competitive tendering does not invalidate the case for in-house production; but significant cost savings can still be expected.
An in-depth analysis is made of six contracts put out to tender in the three hotel-type services. Markets for contracts were created, and open competition commonly brought about savings of one-third to two-thirds. Part of the cost saving was often achieved through a rationalization of services. Economic theory does not predict this result; but NHS management used the opportunities to introduce changes. Wage rates were usually cut and earnings fell by still more. Staff resignations and redundancies were common.