Service Failure and an Inflation Claim on a Managed IT Contract
West Mercia Community Health Partnership has a three-year, £24m managed IT services contract with Helix Systems, with 18 months left. Helix missed the 99.5% service availability KPI in nine of the last twelve weeks; average availability was 98.1%. Service credits are capped at 10% of monthly charges, and West Mercia has already claimed £310,000 this year. Helix has requested an 11% price increase, citing energy and wage inflation. West Mercia's benchmark, based on a comparable lot, suggests 4% is defensible. The contract has a price variation clause requiring evidence of material change in input costs and a termination-for-convenience right with 90 days' notice. Exit and re-tender would cost about £1.8m and take 12-15 months, with clinical downtime risk. The board wants savings and service improvement before winter.
1. Evaluate the contractual and commercial options. Recommend a negotiating position and the evidence you would require.
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Separate three issues: service failure, price variation and exit. On service, 98.1% against 99.5% is a material breach pattern; the credits cap is not a licence to underperform. Require a root-cause remediation plan, third-party assurance and a service improvement plan with weekly recovery milestones; reserve rights.
On price, the clause requires evidence of material input-cost change, not a general inflation claim. Request open-book payroll, energy, subcontractor and margin data, index references and a reconciliation. The benchmark supports about 4%, but scope differences matter. The negotiating position should reject 11% and offer 4% only if verified, conditional on a 12-month improvement plan, service credits outside the cap for repeated failure, and a benchmark or most-favoured-customer clause.
Do not threaten termination first. Use the 90-day notice as BATNA but quantify the £1.8m exit cost and 12-15 month transition. If Helix refuses evidence, withhold the uplift and escalate through the dispute process. The board message should be that savings come from service recovery and demand management, not only price.
2. What governance should West Mercia put in place to manage the remaining term and any transition? Include roles, KPIs and exit planning.
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Create a contract management board chaired by operations, with procurement, finance, clinical or IT safety, and the Helix account director. Hold monthly service reviews and quarterly strategic reviews. Clarify accountability: a contract manager owns the relationship, a service owner owns clinical risk, and finance validates credits.
KPIs should include availability, restoration time, severity-one incidents, change success, patient-facing downtime, credit accuracy, security patching and exit readiness. Add leading indicators, not only lagging credits. Maintain a live risk register.
Build an exit plan even if termination is unlikely: asset and data register, knowledge transfer, people and TUPE mapping, transition service obligations, source-code escrow and data deletion. Audit supplier evidence quarterly. Any price variation should go through a documented change board. Escalation to CEO level should be triggered by repeated breaches. This prevents service credits from becoming a substitute for service improvement.