28 July 2006<%=replace((Recordset1.Fields.Item("NewsStory").Value),VbCrLf,"
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<% NewsURL = Recordset1.Fields.Item("URL").Value if NewsURL <> "" OR NewsURL <> "http://www.adhb.govt.nz" Then response.write "Click here for more information. ("&NewsURL&")" end if %>Auckland District Health Board
Background on the community laboratory contract

The three Auckland regional DHBs (ARDHBs) are intent on providing the best possible health services for people in the region within their budgets. This is about spending tax payers' money wisely and for this particular contract, also ensuring that the Auckland region will continue to receive quality, timely laboratory services.

Because a company has held a contract for a number of years is no reason in itself to continue to award contracts to it. In fact, such a practice for a publicly funded contract of this value would breach Audit Office guidelines.

The new contract represents savings of $120million across a $560 million contract. This is a significant saving which will go straight back to the DHBs to invest into other health areas. It represents the equivalent of 90 hip replacements every month, every year, for eight years. Or, an additional 470 heart bypass operations a year, or 10,000 tonsillectomy and adenoidectomy operations a year.

Background to tender
The ARDHBs have been developing a regional pathology vision for the future and first advised publicly of the intent to issue a Request For Proposal (RFP) for a long term strategic partner to work with them to realise the vision in December 2005. The existing contract with Diagnostic Medlabs Ltd (DML - now owned 100% Australian company Sonic) was due to expire 30 June 2005 and was extended by two years to 30 June 2007 to cover the period that the ARDHBs developed the RFP.

Extensive consultation was undertaken prior to the issuing of the tender documentation in early 2006, with feedback from the December discussion paper incorporated into the RFP.

The quality and service requirements, including access, that was set by the DHBs, was the same for either a new or existing provider.

Tender process
As is customary for large commercial tenders, the actual tender process was conducted on a confidential basis with the final decision made by the Boards of the three DHBs. To consult with stakeholders after issuing the tender on who should be granted this commercial tender is neither practical nor possible while retaining commercial confidentiality. Again, if the ARDHBs had contemplated such a step they would have breached procurement guidelines and the stated terms of the tender.

The tender process was extremely robust with Audit New Zealand input, ensuring that it was conducted in keeping with recognised good practice.

A nationally respected pathologist was seconded as an independent member of both the working group and the evaluation team to ensure sound clinical judgement. In addition the membership included other highly qualified medical, scientific and managerial people. The quality and service requirements, including access, that were specified by the DHBs were based on national standards.

Money was not the only consideration in the tender process and as is normal for DHB tenders, the relevant criteria were stated in the documentation. Parties also had to satisfy the three DHBs that they could meet the quality and service delivery criteria before price was considered

After evaluating the tenderers against the criteria there was clearly a preferred provider, however the process did not end at this point. Due diligence was conducted on this provider, including their ability in establishing and managing laboratory services at a distance. To this end the DHBs carried out due diligence on a "green fields" Healthscope laboratory projects in Kuala Lumpur. The due diligence team also visited a substantial Healthscope laboratory in Melbourne.

Tender outcome
It was the only responsible decision - to appoint a provider capable of delivering quality and timely laboratory services that will meet the needs of the people in the Auckland region and at a significantly reduced cost.

The savings ($15million per annum on current spend) is substantial and will go straight back into other health services.

The number of collection points proposed by the successful tenderer is broadly similar to that proposed by all tender respondents, so a reduced number of collection points would have happened no matter which provider was chosen. In addition, the DHBs are particularly interested in building access to high-need populations and the selected tenderer clearly demonstrated their understanding of this need.

Also, for the first time the community laboratory contract also includes performance measures which are robust and enforceable.

The Labtests Auckland Ltd consortium that has won the contract has a  combination of a proven international track record coupled with local expertise. Labtests Auckland is a trans-Tasman consortium comprising Healthscope Limited, Labtests Auckland Limited, Labtest Support Limited and employed pathologists/senior management. The major shareholder of Labtests Auckland is Healthscope Limited, a significant provider of laboratory services in New Zealand, Australia, Singapore and Malaysia.

The transition period
The ARDHBs are confident in the ability of new provider Labtests Auckland Ltd to be up and running by 1 July 2007. The majority shareholder, Healthscope, has experience in setting up 'green-field' laboratory services (ie from a zero base) and will be putting in the necessary resources to meet our requirement to be up and running as of 1 July 2007.

Contractually we expect both companies to be professional in the transition phase. The two providers (current and effective 1 July 2007) are both highly credible international companies with significant asset backing and which are legally bound to deliver on their contracts. Their international reputations rely on them meeting their contractual obligations.

Labtests Auckland is seeking to employ a significant number of staff from DML and we have been advised that Labtests Auckland has already approached many DML employees and most are keen to see contracts.

This is an eight year contract which will provide new employees with certainty.

The DHBs have oversight of the transition period over the next 12 months with regard to Labtests Auckland. There are milestones and trigger points throughout the transition period so that the DHBs can act in good time if necessary. As for any major new project or identified risk, there will be a contingency plan, just as there was for the RMO strike and the power black-out.

The ARDHBs appreciate that major changes can unsettle some people.  However the new contract will provide people in the Auckland region quality, timely laboratory services to meet the needs of our communities. The savings from the new contract will mean millions of dollars can be redirected back into other areas of need, which can only benefit the health of the region.

Ends.