Why is PFI blamed for so much but praised for so little? And why does it matter?

I have written an article for issue 2 of Hospital Times ( http://www.hospital-times.co.uk) (http://(https://edition.pagesuite-professional.co.uk/html5/reader/production/default.aspx?pubname=&edid=e6d0bc32-4e0c-4853-818b-946dc281816)) .  It is on pages 46 to 47, sitting amongst some interesting stuff, including articles on  public health, vaccinations, universal health coverage and workforce shortages.

In the UK,  a lot of shortfalls in healthcare delivery are blamed on the private finance initiative .  I have seen shortfalls in this delivery model. But many problems can be attributed to contract management resourcing  and would benefit more from careful analysis instead of knee jerk headlining.  Of course things go wrong in hospitals. They are complicated places where people do very difficult things which matter a lot.  They tend to go wrong more often and more seriously when healthcare expenditure is inadequate, healthcare systems are inefficient and there are not enough staff.  PFI could address some of these problems but by no means all and there are pros and cons: a balancing act in deciding priorities. And there are, of course,  other ways of doing things.

But if we look around the world we see PFI  (or PPP) being adapted to help in the provision of healthcare infrastructure and assist in the goal of universal healthcare coverage.  n Uk we have over 100 extant PFI hospital projects and over 300 other PPP healthcare facilities. It is not wise to ignore them. If we do so, expense will increase and we will get even less of the healthcare we want.


Flexibility in financing/ Concentration on need/ Universal Health Coverage

I wrote this article which has just been published in World Healthcare Journal. I believe it correctly identifies the expectations for complex solutions to complex problems, the need to concentrate on care with physical infrastructure as a tool not an end in itself, and the need for flexibility in financing solutions. It is rather UK centric in terms of solution providers but I don’t think that detracts from the key messages.


NHS infrastructure- what is to be done? Doing is not easy.

https://accountablecarejournal.com/newsdit-article/58c752a1f15f7ec223bb6d84989efab7/

I have been spending most of my time over the past few months looking at healthcare infrastructure projects outside the UK and the potential for UK exports. I will be writing more about this shortly, but in the meantime here is an article I have written for Hospital Times which has appeared online in Accountable Care Journal ( link above) . It covers the need to improve our infrastructure, both ‘traditionally’ owned and that developed through PPP models, looks at models for delivery and identifies some of the constraints on actually getting things done

 


NHS infrastructure- what is to be done? Doing is not easy.

https://accountablecarejournal.com/newsdit-article/58c752a1f15f7ec223bb6d84989efab7/

I have been spending most of my time over the past few months looking at healthcare infrastructure projects outside the UK and the potential for UK exports. I will be writing more about this shortly, but in the meantime here is an article I have written for Hospital Times which has appeared online in Accountable Care Journal ( link above) . It covers the need to improve our infrastructure, both ‘traditionally’ owned and that developed through PPP models, looks at models for delivery and identifies some of the constraints on actually getting things done

 


How to make PPPs better: Just saying they are bad does not get you there

I have just been reading an article in public finance international (http://www.publicfinanceinternational.org/news/2018/03/eu-public-private-partnerships-not-economically-viable-say-auditors?utm_source=Adestra&utm_medium=email&utm_term=). It tells us that the European Court of Auditors  suggest that PPPs lead to inefficient and ineffective spending. A report from the UK’s National Audit Office in January this year ( https://www.nao.org.uk/wp-content/uploads/2018/01/PFI-and-PF2.pdf) was also critical of this procurement methodology.

From my own experience in procuring and  negotiating PPP contracts, and in helping achieve complicated variations  to these transactions and sorting out some very difficult disputes, much of what is said rings true. As The ECA said ‘projects were poorly prepared by public partners and…contracts with private concessionnaires were signed before relevant issues had been solved.’  And this, coupled with poor or under resourced contract and project management, goes to the heart of the problem.

Many public infrastructure projects are under intense political pressure to get started. There is a shortage of competent project management teams. Scarce resources often lead to the disbandment of project teams once the deal is signed: you cannot sign and forget complicated contracts, skilled and knowledgeable people have to keep on top of them.

Carillion has been a high profile private sector partner in PPP and outsourcing projects in the UK and other countries. Its  recent very high profile collapse  has been used to suggest that these deals are bad. But are they? Carillion’s investors will absorb much of the loss. Maybe some contracts had been signed ‘before all the issues had been resolved’. It would seem that close government oversight of Carillion as major supplier may not have been as close as originally planned.

What all of this comes down to is that if you intend to procure a very complicated and expensive project you should be clear what you want, specify that before you contract and keep a careful eye on the contract. That applies whatever the structure of the deal.

 

The reports highlight the needs to do things better, not to start all over again.


A small boast

It was gratifying to be recognised as ‘one of the leading lawyers’ in the healthcare sector in the recently published Chambers guide. There is certainly a great deal occurring in the English and in the global sectors as infrastructure and services needs change. These challenge the ingenuity of those charged with structuring finance and corporate models to help make delivery happen. Interesting times.


Promising to end PFI hospital contracts will not make the NHS better

 

PFI contracts are criticised, especially in the NHS

PFI contracts continue to attract criticism from many quarters and the Labour party indicated recently  that it would:

  1. not enter into any more PFI deals but finance all new infrastructure needs through direct government borrowing
  2. buy back the existing contracts so that PFI assets would immediately be at the public’s risk and in  the public ownership.

PFI contracts have been criticised across  the various sectors – schools, roads, rail transport , water, waste, street lighting and so on but probably the most vitriol is directed at PFI contracts in the NHS. Let me say at the outset that some of the contracts are a bit disappointing, some are not very good but lots are good, just fine or struggling like the rest of NHS services and assets.

They are complex contracts for complex operations which  have been a useful tool in delivering and maintaining about 100 new hospitals to be delivered in good condition to the NHS at the end of the contract term

The 100 or so hospital PFI contracts ( there are others which have focussed on developing the primary healthcare estate) range from relatively small buildings to hospital and research campuses which had capital costs in the region of £500 million. The practical ways of managing these contracts for the maintenance of very different buildings, some involving a variety of NHS, university and other users, will differ hugely but in essence each will involve a consortium of suppliers responsible for maintaining to a required standard over 25 or 30 years a complicated hospital which must be handed over to the NHS in good condition at the end of the contract period. . Sometimes the consortium’s responsibility also  includes other services such as  providing and regularly updating medical equipment and/ or  providing cleaning, portering , catering and the like, sometimes called ‘soft’ or ‘hotel ‘ services. More often these other services are provided by the NHS or by separate contractors.

Resource is needed to manage the contracts well 

And so, in a PFI contract, we have all the complex interfaces of  a hospital clearly set out and allocated to organisations responsible for  managing them. And things go wrong, because they do. Just like they do at any hospital. If the contract is managed properly, much of the cost of sorting out problems lies with th private sector, not the NHS. My own view is that for new build hospital projects PFI (or its successor PF2) is useful tool, has done good. As a general observation, in some cases, it  could have done better had  more contract management resource been more assiduously applied.  I recognise that there may not be many more new English hospitals for a while , so maybe it is not a tool needed much in English healthcare but it is a tool which, with modifications, can do good elsewhere.

There is a need to change the contracts to adapt to changing healthcare requirements and budgets

Some of the existing  contracts are getting to the point that significant replenishing is needed and, as the needs of the NHS and its finances have changed, a lot of the hospitals need to be changed. It is here we run into a problem with PFI. Variations are quite difficult to do. But they can be done. I have been involved in negotiating these variations including  a  major rebuilding and extension of an acute hospital. This involved replacing courtyards with wards and changing the use of parts of the building. It all got done on time. It needs goodwill, patience, skill and good contract management.

Promises to terminate the contracts may discourage parties from making those changes 

I have a concern that the potential termination of these contracts may reduce the incentives to buckle down and sort out what needs to be done.  Why devote time and effort to  renegotiate a contract with 15 or 20 years to run when the whole contract may be terminated by the next government? Especially when the lenders to the project and shareholders would be fully paid out if that happened? From the private sector perspective ( whether service providers, pension fund lenders or whatever) why go through all that hassle? If a future government is going to pay out cash which you can invest somewhere else with less risk and take on the responsibility for maintaining the building, take back the employment and pension liabilities and so on, might it not be better to sit tight?  And that could be very bad for the quality of service provided to citizens in the meantime. And if termination happens, it may well not be  great deal for the taxpayer.

And so, I suggest that those who care about the practicalities of maintaining and improving NHS services concentrate on practical solutions. An atmosphere of trust and alignment of short and long term goals would be wise.

And what of future developments?

The number of new large hospitals to be built in England over the next few years is unlikely to be late. The new Midland Metropolitan Hospital in Birmingham is being delivered under a PF2 model. This is similar in many respects to the more recently completed PFI hospital models but creates more flexibility in terms of services and provides for a government equity stake in the Project Company delivery vehicle. This model is being contemplated for future projects and political uncertainty will not improve the chances of getting new hospitals built quickly.

And Project Phoenix?

In the meantime the need to replenish the primary care estate to repair, replace and meet new service requirements i s urgent. The new model for delivery is in the course of launch- Project Phoenix. This is a development of the LIFT and PF2 models to develop partnership arrangements to match need, expertise and finance. Again political uncertainty may hamper progress. That would be sad. To avoid such sadness a programme with clarity of viable objectives, pipeline and certainty of longevity is needed.