Health authority's catalogue of wasted millions: A secret document reveals mismanagement and conflict of interest in an NHS region. Tim Kelsey reports

EVERY February, Sir Robin Buchanan boards a plane for Settlers' Beach in Barbados. In 1990, his holiday was interrupted by the arrival of a 152-page contract. Senior managers at Wessex Regional Health Authority had decided that Sir Robin, the region's chairman, should personally approve it.

The circumstances surrounding that contract constitute one of the most damaging scandals in the history of the National Health Service.

A joint investigation by the Independent and Computer Weekly has found that Wessex and the Department of Health have gone to great lengths to suppress a 77-page report, written by the District Auditor, Richard da Costa, which discloses serious mismanagement by the authority.

Senior staff at Wessex have been warned that approaching either the press or their local MP would cause instant dismissal. Virginia Bottomley, the Health Secretary, has studied the allegations but has taken no action.

Last year, in an attempt to defuse speculation about mismanagement and corruption, Wessex admitted that more than pounds 20m of public funds had been wasted during attempts to privatise its information technology services.

A preliminary report by Mr da Costa was published. This praised the authority for taking steps to check abuse after 1989. The existence of a second secret report, one of the most damning indictments of public sector management, has not been admitted.

The suppressed report highlights Sir Robin's role, and the extent of Department of Health misgivings. Documents and sources close to the authority and its sub-contractors confirm that he nurtured disturbing conflicts of interests between suppliers and Wessex. The final cost to Wessex, according to senior authority officials, is still not known but may be as high as pounds 63m.

Sir Robin, who is also chairman of the NHS Supplies Authority, one of the most politically sensitive posts in the NHS, told the Independent that allegations of mismanagement were 'yesterday's agenda crawled over by so many people'. He did not deny that millions were wasted but said he acted responsibly. He said: 'I have distanced myself always from contractual arrangements within the health service,' although this seems to conflict with other evidence.

His appointment in August 1988 to the chair of Wessex region, which has responsibility for 200 hospitals in southern England, came after the authority had decided to implement the Regional Information Systems Plan (RISP), a programme of computerisation which was designed to integrate computer services. It was a flagship project and the largest attempted in the NHS.

Originally, members of the Health Authority had been told that the scheme would cost about pounds 29m. Authority managers knew the cost to be higher but did not disclose this to the members for 'political' reasons.

By the time of Sir Robin's arrival, it was becoming clear that RISP was one of the most ill-advised adventures undertaken with NHS money. The district health authorities were far from enthusiastic, and the costs of the project were ballooning. The officer in charge of information services warned in a secret memo dated 19 February 1988 that he would be forced to serve notice to all contract staff unless additional funding was found.

If it had been abandoned at the time Sir Robin became chairman, millions of pounds - in excess of pounds 8m - might have been saved.

A year before he took over, a computer consultancy, CSL, a subsidiary of the Chartered Institute of Public Finance and Accountancy, had been commissioned to consider the privatisation of information systems in Wessex. There was no competitive tendering for this contract. CSL was then asked to do the groundwork for a tender for the privatisation. The secret report shows that the Regional Treasurer warned that clear conflicts of interest should prohibit CSL from tendering itself. He was overruled.

An invitation for tender was issued and four firms responded. CFM, a joint venture between CSL and another consultancy, Midsummer Computing, was awarded the contract. CFM set up a subsidiary called Wessex Information Systems (WIS) to service it. The final contract was signed a month after Sir Robin's arrival at Wessex in 1988.

It is an extraordinary document: the authority undertook to pay for the formation costs of WIS and to guarantee a profit of 15 per cent. This worked out, according to the report, to about pounds 350,000 a year. The sub-contractors were also permitted to set their own fees.

Under a subsidiary agreement, Wessex undertook to pay for 104 staff - the number theoretically employed in their in-house computer rooms. But there were only 60 staff who left for the private company. Despite this, Wessex was billed for 104. The authority said that they were prepared to pay for the staff to ensure them a 'soft landing' into the private sector.

The health authority had no control over the contract, or any way of checking that it was getting value for money. The contract was vigorously criticised by the Department of Health which warned in a confidential letter to a senior manager at Wessex that the contract 'left the WRHA potentially open to serious criticism over its handling and control of public monies'.

In September 1989, Sir Robin was given a report in which it was stated that the WIS agreement should be revised to include better controls; that there should be a proper tender and that RISP itself should be reconsidered. Shortly afterwards, he wrote to Philip Sellers, chairman of CFM, proposing to renegotiate terms.

By this time, Mr da Costa says that WIS was in no doubt that RISP was in trouble. But it took no steps to alert the authority despite the commitment in its contract to offer impartial consultancy on the implementation of RISP in the best interests of the health authority.

Sir Robin knew that RISP was short of cash. Our investigation revealed that he approached Mr Sellers to solicit a loan for a 'couple of million' to implement RISP in Bath. Most of the nine district health authorities had already rejected the scheme as too expensive and unnecessary. Bath was willing but it did not have enough money. Sir Robin admitted last week that he personally sought permission for the loan from the Treasury, which deemed the project in breach of conventional funding guidelines and refused to allow it. By October 1989, only three of the districts were still interested. The notion of regional integration was finished but Wessex continued to pour money into it. Senior managers knew that RISP was unrealistic and was too expensive for the authority's budget.

Nobody in the health authority had any accurate idea of how much WIS had already spent. On 14 September 1989, according to the da Costa report, the Regional General Manager, who reported directly to Sir Robin, wrote to the Regional Treasurer saying the head of the RISP project 'found it quite impossible to know what his financial position was. . .' Shortly after Christmas 1989, an invoice arrived at the health authority from WIS for pounds 28,000. Items included a christmas tree and lights as well as a shower - for employees who went jogging at lunchtime - and a bill for towels. An accountant blocked payment.

Despite the problems with RISP, Sir Robin pressed on with negotiations for the new WIS contract. The suppressed report comments: 'Several of the provisions of the contract would appear to have been framed for the benefit of WIS. . . and that these were directly or indirectly sanctioned by the WRHA chairman.'

The basis of the contract was a letter written by Sir Robin to Philip Sellers on 16 October. The contract perpetuates the payments for 104 former health authority staff working for WIS. Sir Robin has said that he did not know only 60 staff had transferred to WIS.

On 4 October 1991, the Department of Health was told that Wessex was negotiating for improved control over WIS. According to the suppressed report, however, Sir Robin later instructed Blake Lapthorn, the authority's solicitors, not to include any financial penalty clauses 'for failure to achieve targets'. On 10 November, the solicitor wrote to Sir Robin: 'I have tried not to put any proper provisions for what happens if the service provided is not of a proper standard nor for any specific penalty clauses.'

Wessex even agreed to accept liability for paying WIS staff if made redundant. The contract guaranteed an income to WIS in excess of pounds 3m. This figure was derived from budgets devised originally by WIS - so WIS was allowed to determine its own income.

WIS also seems to have over-charged Wessex. Every year WIS charged for a two-day staff induction course although most staff had already been trained by the health authority.

The contract was signed on 16 February. Several days later, members of the health authority were told of its existence and that no re-tendering was necessary. They ratified it. Sir Robin said last week: 'The whole agreement was taken properly and in great depth and detail through the RHA. I didn't connive in the agreement.'

Mr da Costa says that members were influenced by an apparently misleading report written by senior managers. It said that the objective of the deal was 'value for money' even though it forced Wessex to pay for staff it did not need. It stated that CSL offered the lowest tender in the original bids in 1988. In 1989, accountants asked to review the tender said that this was not the case.

The authority managers as well as Sir Robin were negligent in their responsibilities. The District Auditor notes: 'The chairman of the RHA had no authority to instruct that terms of the contract favourable to the RHA were omitted from the contract.'

Sir Robin said that he may have acted beyond his authority: 'If I acted ultra-vires OK. . .(I've) probably acted ultra-vires every time (in dealing with the NHS) . . . but if somebody deliberately flouts the rules then they are a prat.'

The RISP project was abandoned in mid 1990 after the appointment of Ken Jarrold as regional general manager. Mr Jarrold claimed last year that all officers responsible had left the authority. But the officer in charge of the RISP project was employed until October 1990 and Sir Robin still remains. By the end only one integrated regional network to cover finance was operational.

A copy of the report has been sent to police; it is understood that they have not yet investigated the circumstances surrounding the RISP project. A report into allegations of corruption connected to a second computer contract awarded by Wessex to a subsidiary of the American company, AT & T, has been passed to the Crown Prosecution service.

WIS, trading as CFM (Healthcare), lost the contract for computer services in 1991. CFM is now owned by ICL which has sued Wessex for alleged non-payment of more than pounds 750,000. Wessex is understood to have counter-claimed for pounds 5m. Sir Robin said: 'Why was I put into Wessex but to sort it (RISP) out? What have I achieved but to sort it out.'

(Photographs omitted)