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:
- not enter into any more PFI deals but finance all new infrastructure needs through direct government borrowing
- 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.