PFI HOSPITALS
JB: “How did the PFI model first develop, and how did it evolve for healthcare projects?” ID: “The Conservative Government, under John Major, introduced it as an initiative at the time to address the poor condition of hospitals, the need for new ones, and the mounting backlog challenge. Tony Blair’s Labour Government then took it forward. In reality, it was led as ‘the only show in town’ that could bring in that level of funding. So, it was launched by the Conservatives, and expanded by Labour.”
JB: “In simple terms, how does the model work? ID: “There’s a PFI consortium initially brought together – comprising the operating company, which usually includes a series of private sector funders, including a bank, a major developer, and a facilities arm – quite often linked to the developer. In the UHB case it was with Balfour Beatty as the main developer.”
JB: “Was PFI effectively like the NHS taking out a long-term loan?” ID: “It’s more of a vehicle to allow someone else to fund, build, develop, and operate the facility. PFI was designed to ensure that – in a contractual performance- managed manner – all the criteria and requirements of the NHS hospital were met, with the contract managed in a way that would keep the PFI buildings in good condition and operating optimally throughout the term, and then handed back in ‘as new’ condition.”
JB: “And for their part, NHS Trusts pay a monthly unitary charge to cover the cost of the services; they’re effectively paying back the money?” ID: “Yes. So instead of government funding the infrastructure works, it’s all funded by the consortium, which receives a monthly unitary charge, agreed at the outset, with various metrics for inflationary increases etc. included. That continues through to the contract’s end – when the facilities are due to be handed back. The volume of these projects coming to an end will significantly increase over the next 10 years.”
JB: “What do you think have been PFI’s key advantages and disadvantages?” ID: “The model undoubtedly delivered more new hospitals over a particular period than would have been possible through traditional funding mechanisms. Nationally, it brought forward more funding than would have been possible through normal government funding, or Department of Health capital. PFI therefore provided an opportunity that otherwise wouldn’t have existed – so, from that perspective, it brought us multiple new hospitals.”
34 Health Estate Journal June 2024
JB: “What about the drawbacks?” ID: “The time and complexity to get the schemes to financial close was one; in most cases it took over five years of contract design negotiation and development before construction started at ‘financial close’. Secondly, there are now issues surfacing in quite a few of the PFI-funded and managed hospitals with elements of the construction – especially around some of the investment choices made originally by developers as regards the completeness of the construction of hospitals versus the ongoing costs. Equally, because all the provision and ownership, and the knowledge and expertise, were within the consortia, quite a few PFI sites are now finding that some elements of the hospital – as originally constructed – weren’t to the required design standards. There are excellent examples of PFI hospitals working and being managed well; however, a number are surfacing where there are concerns. “There have been some early ‘takebacks’
of existing services. Several Trusts have already taken back their cleaning and other soft FM services through in-house bidding via the market-testing mechanism within the contract. There are also several Trusts that Capita, and others, have supported with forensic surveyors coming in to examine what was actually built in the first instance. To date there have been some quite significant shortfalls identified in a number of PFIs, with rectification costs into the hundreds of millions of pounds – for lack of provision to the original design standard or specification.”
JB: “Will the affected Trusts have recourse
to the courts to reclaim those monies?” ID: “The NHS does now have support from the Infrastructure and Projects Authority, within which there is a PFI Centre of Excellence. PFI contracts are a highly specialised area. It’s extremely difficult for individual Trusts, consortia, and construction parties, to fully assess the entirety of the contract; many are thousands of pages. Typically, you have a main contract, and then schedules, each addressing different elements of building performance. They are complex, and need considerable expertise and resource – so it’s helpful to have a centre of excellence to support Trusts. With those major PFI providers – one of which is no longer with us, however, there also has to be a balance with the reality of the challenges for the consortia – who, contrary to some perceptions, often don’t make substantial profit. Annual surplus in one provider I worked with in the past – with more than 10 PFI contracts – was less than £300,000.
JB: “If forensic surveyors used by some Trusts to look into PFI contracts identify major deficiencies, will the Trusts concerned then go to court over the monies they believe are owing?” ID: “They could, but there are mechanisms within the contract for the parties to come together and work through any non- compliance issues. When they get into a high cost or level of difficulty, however, they could quite easily end up on the way to court, with the issues settled more litigiously – especially where you could be talking reinstatement at £100 m for individual claims.”
Ian Daccus explained that the Conservative Government, under John Major, introduced PFI to adddress the problem of the poor condition of hospitals, the need for new ones, and the mounting backlog challenge.
Tony Blair’s Labour Government took PFI forward. Ian Daccus said: “In reality, it was led as ‘the only show in town’ that could bring in that level of funding – a vehicle to allow someone else to fund, build, develop, and operate, the facility.”
Chatham House, CC BY 2.0, Wikimedia Commons
© European Union, 2010 / EU, Photo: Pavel Golovkin
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