Is this the end of PFI?

Will the Private Finance Initiative continue to have an impact on the NHS after its initial implementation in 2010? Reports from B&E.

Since its humble beginnings in 1992, the Private Finance Initiative (PFI) has come a long way.

In order to jumpstart investment in new hospitals and schools without burdening taxpayers, the Conservative government looked to PFI as a way to shift risk to the private sector.

16 years later, the government’s enthusiasm for PFI appears to have diminished.

Between 2009 and 2010, alterations to international accounting standards will necessitate the inclusion of £30 billion in PFI liabilities on the government’s books.

Curing Illness

Larger healthcare projects will benefit from further exploration of these models by the government. “NHS Lift” is an example of a strategic infrastructure partnership.

  • An integrator approach, in which the public sector authority hires a project delivery organization (the integrator) to manage the project from pre-procurement preparation to operation.
  • Procure 21 is an example of a hybrid approach used to meet a specific set of requirements.
  • Project-specific or longer-term joint ventures.
  • A method in which a facility is built entirely by the private sector, but the public sector contributes a portion of the capital at the end of the project to lower the total borrowing cost.

What does this mean for the UK’s healthcare construction situation, given the need for major new facilities?

Models for delivering goods and services

A total of 70 operational hospital schemes worth £4.5bn have been delivered by PFI since 1997.

The government announced this month that it will look into new ways to deliver large, complex projects by expanding the current range of procurement models.

Newer forms of partnerships combine public and private capital to reap the benefits of PFI while incurring lower costs.

Procure 21, joint ventures, and NHS Local Improvement Finance Trusts are among the options being considered by the government (LIFT).

PFI projects worth £23.3 billion are expected to be signed over the next five years, so the program is still seen as having value.

A framework of construction companies can be used by NHS Trusts across the country through Procure 21 for acute capital projects.

To date, LIFT programs have been used to build primary and community care facilities. A joint venture company between the private sector and a local primary care trust is formed as part of the initiative. Trusts, unlike PFI, can avoid the costly bidding process by using the designated contractor and accredited supply chain of the LIFT company.

A well-balanced situation

A leading healthcare partner at Pricewaterhousecoopers insists PFI has proven its case for the future, on or off the balance sheet. “The PFI process has proven to be better value for money than traditional public sector procurement,” he claims. “And new hospital investment is still needed urgently.”

A group of trade unionists has taken issue with PFI, claiming that it produces low-quality buildings at the lowest possible cost.

He claims that most large hospitals procured using traditional methods were late, over budget, and didn’t meet the specifications. Wooton “I believe that all of the difficulties have been resolved,” he says. PFI hospitals have been delivered successfully for some time now, and this experience should be built upon rather than discarded.

In the past ten years, the number of large acute care facilities required in each city has decreased significantly. Progress has been made in this area, but there is still a lot of work to do.

Several NHS trusts are abandoning their PFI business cases in order to accomplish this.

Building blocks for the future

The government’s initiative to give NHS Trusts more power by allowing them to apply for Foundation status is a major driving force behind this.

When there is a shortfall in spending, a Foundation Trust does not return the money to a central fund. It allows the trust to build up funds in a way previously unimaginable. This allows the trust to take out bank loans for capital projects.

The result is that a number of trusts are now able to raise the money needed to fund new projects.

The Taunton and Somerset NHS Foundation Trust is reevaluating its plans for a £57 million PFI-funded medical center in Taunton and Somerset. For a project of this scale, Trust director of planning and facilities David Allwright assumed that PFI would be the only funding option.

Trustee status has been granted to it since it submitted its business case. Traditional procurement or Procure 21 may be used to complete the £72 million project, according to Allwright’s statement. “It’s not decided yet,” he responds. “In April, we’ll reexamine the business case that proposes a way forward without using PFI,” says the spokesperson.

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It was the longer-term affordability of the program and the ability to deliver it in three stages that prompted Allwright to look beyond PFI funding. “It is much more difficult to phase with PFI,” he says. This is a massive success. It is possible to deliver the project in stages using traditional procurement methods.”

A 30-year recurrent unitary payment, regardless of how successful the hospital may be, is being accepted by trusts forced to take the PFI route, he says.

“From what I can tell, we’re not the only ones dealing with this,” he says. Because there is another option, many trusts are reconsidering their PFI status, and that is as a Foundation Trust.” When it comes to a project with a budget of more than £200 million, PFI is the only option. “The freedom of Foundation status allows us to do that,” he says.

Additionally, the Hillingdon Hospital NHS Trust is looking into other options for the construction of a new $80 million hospital. An outline business case for a PFI-funded delivery was approved by the trust. Traditional procurement methods are now being considered for a phased development, a trust spokesman said.

There is a new breed of trust chiefs, according to Peter Woolliscroft (chairman of the Construction Clients’ Group), compared to 15 to 20 years ago. Customers and the business community, he claims, “have matured significantly over the years, and now there is an especially strong drive for value as opposed to lowest price.”

He suggests that before making major investments in new infrastructure, trusts should reexamine their priorities. To my members, I’ve been advising them to consider carefully whether they really need something new before making a purchase.” Repairs and maintenance are the Cinderella art, and they should be practiced more often.

The Post-2010 Environment

The emergence of more standardized methods of delivering healthcare facilities, such as the DoH Procure 21 framework, has coincided with the cultural shift.

In order to bid for a place on the framework, each of the 11 framework contractors must form supply chains that include architects, engineers, and M&E firms. NHS Trusts can avoid OJEU tenders by using Procure21.

It’s been criticized by contractors who paid the annual fee but didn’t get projects because it provided a more standardized and open working relationship between contractors and trusts.

Firms have received repeat business as a result of the use of Procure 21 for £70 million in building projects. More than 360 projects totaling more than £2.5bn have been registered so far.

By utilizing Procure 21 for previously PFI-funded deliveries worth between £50 million and £100 million, the new capital regimes enjoyed by trusts are expected to help the program grow even further.

As a result, the Department of Health and Human Services (DoH) has decided to replace the current program when it expires in 2010.

It was while Woolliscroft was in charge of the DoH’s Procure 21 program that Woolliscroft came up with it. There is a lack of standardization among hospitals under PFI-funded arrangements, according to him.

Because of this, he argues, “there is no incentive to compare providers and solutions.” For example, “unless the same contractor is used to build a hospital in Durham and another one in Essex, there is no natural collaboration between standards and use of material purchasers.”

Under Procure 21, long-term partnerships are thriving. With Sheffield Teaching Hospitals NHS Foundation Trust, HBG has signed contracts for 15 separate projects.

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Woolliscroft recalls that when he was in charge of Procure 21, he frequently received phone calls from NHS trust leaders expressing their preference for the Procure 21 model over PFI. Procure 21’s speed and trusts’ hands-on control may have been factors in some cases.” Additionally, they were actually working out the details of their contract with a contractor in the real world.

To keep the smaller investment programs alive, Woolliscroft wants to see more work done on the big PFI projects. In any of the schemes, “two things hold them up,” he explains. Firstly, there’s the financial argument, and Secondly, there’s the legal argument. A standard legal practice and a standard specification are necessary if the government is to get anything out PFI.

According to Woolliscroft, contractors can lose up to 5% of a project’s capital value during the pre-contract phases of PFI delivery. ‘That has to be included in the budget as an overhead on a £600 million project.’ “A lot of that would be eliminated if we had the option of standardizing the precontract phase,” he says.

Trusts, like any other provider of capital goods and services, must get the most bang for their buck. PFI will continue to be the only option for major infrastructure projects, but most trusts will have achieved Foundation status by 2010.

Trusts delivering medium-sized projects will find it more cost-effective in the long run to purchase a hospital outright rather than commit to a 30-year recurrent unitary payment regardless of the success of the hospital.

There will be less PFIs because of the government’s push to address community-based healthcare investment.

In order to keep the NHS up to date, it will be up to the smaller investment models. In the future, large healthcare facilities may be able to build on these models’ success by incorporating repeat work and long-term collaboration.

Last Updated on December 28, 2021

Indra-Gupta

Author: Indra Gupta

Indra is an in-house writer with a love of Newcastle United and all things sustainable.

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