Learning from the masters

You sometimes wonder what Aneurin Bevan would have made of it all. The famously firebrand MP and then Minister of Health was the driving force behind the establishment of the National Health Service in 1948. Some of the changes may have him turning in his grave, but he was at least a man of his times so maybe he would have understood the need for change.
He would certainly be surprised at the way PFI (Private Finance Initiative) has developed, not least in the sums devoted to the funding of major projects and the overall dynamism of the sector. The last three years have seen an explosion in the amount of capital invested in infrastructure around the world.
“The potential is undeniable but governments should not underestimate the challenges,” says Maurice Tidy, director general of the Facilities Management Association. “What has become apparent as PFIs have developed is that investors will be attracted only by a clear policy framework and will always pick their battles carefully, especially given the well publicised failures of some companies to make a profit in the market. In order to get the best out of PFIs, Governments have learned - or should have learned - that for the private sector to now be willing to invest in projects, they need a transparent and well defined process with which they can engage the public sector.”

For all the criticisms that have been thrown at PFIs in this country, the UK government still provides the best example of this, having developed in a number of areas at least a standardised regulatory, administrative and contractual framework with defined decision-making and procurement processes.

Since 1994 it has closed more than 700 Private Finance Initiative (PFI) transactions in about 20 different sectors by more than 100 different authorities. Figures compiled by Project Finance International magazine show that the UK completed deals worth £3.6bn last year.
“One question that has always haunted the sector is that of affordability,” claims Mark Kirkham of Service Works Global, a facilities management software provider. “For example, critics see the questions surrounding the development of certain hospital PFIs as proof of their belief that the construction of a hospital with private borrowing over 25 or 30 years, rather than cheaper government borrowing, is madness. This viewpoint has been given added prominence recently with the trend in healthcare away from big hospitals to more local service provision.
“I believe there are two developments that are driving that change: technological advances allow more care to be delivered outside the traditional hospital and a new system for paying hospitals in the UK means a less certain income stream for hospitals as they rely on the number of patients they treat.”

Making money
“These trends are already being reflected in the market,” says Tidy. “For a start, the Treasury has already announced a slight reduction in the scale of what it is planning, with projected future spending on big hospitals coming down from £12bn to around £8bn. Nevertheless, there is evidence that PFI is delivering more buildings on time and to budget than under the traditional procurement model. And - reassuringly for the taxpayer - when projects are up and running, not everyone makes a mint. Of course, there have been concerns expressed by the National Audit Office about windfall profits on some schemes, but a survey by KPMG showed a quarter of contractors claiming their project was not currently profitable. Only six out of 10 said they had made money in each year of operation.”
“There is also some reflection of the development of the market in the changing models of procurement operating in the NHS,” says Mark Kirkham. “Certainly models such as ProCure21 and LIFT exhibit some of the elements of transparency and flexibility demanded by the marketplace and can act as an alternative to PFIs as a way of developing Public Private Partnerships.”

Constructing results
ProCure21 has been around for some time now, emerging in 2000 in the wake of Sir Richard Egan’s seminal report ‘Rethinking Construction’. Starting with the central objective of providing better care for patients, ProCure21 uses long term relationships with carefully selected supply chains working across the whole life cycle of schemes. Principle Supply Chain Partners (PSCPs) are given a defined scope of work and take single point responsibility for design and construction. They then work with a supply chain of Principle Supply Chain Members (PSCMs) to deliver the best possible results for the client.
The aims of ProCure 21 are to deliver greater value for money, offer a speedier approach under EU procurement laws and offer better results thanks to the experience of the PSCPs themselves. Firms are asked to prove their suitability for PSCP status, then open book accounting and benchmarking are used to confirm best practice and value for money on specific developments.
So far the scheme is proving very successful. Following the successful development of ProCure21 in two pilot areas, it has now been extended over the whole of the NHS. There are now a growing number of PSCPs to cover the whole of the NHS, which comprises over 600 NHS Trusts.
So successful has the scheme been that NHS Estates would like to transfer a growing number of PFI projects to Procure21 or at least develop a hybrid model and has been discussing the best ways of doing this with the Department of Health for some time. NHS Estates sees a clear distinction between PFI as a way of delivering investment with ProCure 21, which it sees as a ‘lean, waste-free, best value construction method’ and would like to see both ideas linked more often.

Developing local services
One other development that is important is NHS LIFT, which stands for Local Improvement Finance Trust and which has been around for over 5 years. LIFT is closely linked with the development of more local services away from big hospitals. It is focussed on building design as a response to the need to provide services rather than what it sees as the traditional idea of creating buildings into which services are placed. It is therefore applicable to a wide range of services including general practice, one-stop primary care centres, integrated service centres and community hospitals.
The Department of Health believes that this is very much a necessity of the modern era of healthcare provision given that only around 40 per cent of primary care premises are purpose built with nearly half being converted shops or houses, 80 per cent are too small and only around 5 per cent of GPs are co-located with a pharmacy.
LIFT works by establishing a PPP, set up as a limited company with the local NHS, private companies and possibly including individual practitioners alongside Partnerships for Health (PfH) a joint venture company established by the Department of Health (DH). LIFT has started off with £210 million of public investment but hopes to attract a further £1 billion investment. It has already been applied to around 100 schemes.
“What all of these initiatives demonstrate is the ongoing evolution of PPP models alongside the traditional PFI route,” says Maurice Tidy. “That they are needed is beyond question. The UK leads the world in the development of transparent and flexible procurement models and we have to make sure our innovation in these areas never flags. It will certainly be interesting to see the direction this takes under Gordon Brown.”
“Regardless of the government, the proof of whether they work, of course, will be based on the evidence,” says Kirkham. “What is always apparent is that the foundation stones of belief in the new models are reporting systems and information. Demonstrating best practice, best value, speed of completion and continuous improvement will help to establish any new models and also feed back into the procurement process as it develops in the future.”
You kind of hope that those early NHS pioneers would approve.

For more information
FMA – www.fmassociation.org.uk
Service Works Global – www.swg.com

Event Diary

Healthcare Estates 2019 is just a few short weeks away, with preparations really ramping up now for the biggest event yet.