This morning’s withdrawal from the Wellington region DHB tender process for lab services leaves our DHBs waiting for a shafting. Other DHBs and the government are now in line for their turn when current contracts expire.

It is extraordinary for a tender party to withdraw after all the work is done and before the decision. So it looks as if the DHBs must have told Aotea they were coming second, and Aotea has decided not to throw good money after bad in the process. If that is not the explanation, the process must have become a shambles.

Whatever the reason, the DHB position is dire. From what Abano says in its announcement, a decision by the DHBs on Friday would not have formed a contract. Though it is best practice to ensure that the decision is conclusive, it seems likely that the DHBs thought they would have the luxury of  refining the details in negotiation with a winner remaining disciplined by competitive tension. Now of course the remaining party can dictate terms, unless the DHBs convince themselves they could set up the replacement services by October themselves. Doing that for less is improbable.

The withdrawal crystallises the risks I described in Friday’s post for the Ministry of Health and all other DHBs. Healthscope now has the monopolist’s inside running  across the country.

I had no knowledge of any Aotea or Abano plan to withdraw when I posted last week. It is a bombshell, but one that is consistent with the commercial logic of the situation. If a services buyer seems too naive to appreciate the risks for its whole portfolio (Health budget and DHB negotiation position) in letting a relatively small strategic contract, and it wants to use competitive tension without making sure that competition will remain healthy, it invites such a collapse in its position.