1998 Reform Club Debate

“This House Believes that the current PFI process is undermining the ability of the NHS to plan a proper (responsive) health service.”

The Reform Club 12 February 1998

Chair

• Mr Douglas Wantling, FRIBA, Director of Estates, Forest Healthcare NHS Trust.

Speakers FOR the Motion

• Dr. Deidre Cunningham, Director of Public Health, Lambeth, Southwark and Lewisham Health Authority

• Seconder, Mr Howard Goodman, Chairman, MPA Health Planners, London

Speakers AGAINST the Motion

• Mr. Nicholas Alien, Partner, Devereux Architects, London

• Seconder, Mr. Graham Johnson, Director, Tarmac Plc, PFI Unit, Wolverhampton.

Dr. Roger Walters, Partner, Bickerdike Alien, Architects, London.

Vote of Thanks

Dr Deidre Cunningham.
Proposer For the Motion.

Key Points

• Health planning should be led by health policy and health needs, but PFI means that health planning is driven by the Treasury (Chris Ham ’95)
• public investment is efficient when it maximises returns within the constraints of public health policy goals but
• private investment is efficient when it maximises the return on capital (Newchurch)
• current health policy has two aims; health and partnership in shaping services between the public, professionals and local partners, but (Our Healthier Nation)
• PFI bids are secret and their contents may not be shared with CHCs or the public (Pollock et al ’97)
• current health policy also emphasises meeting needs within the community as far as possible, but
• with few exceptions only schemes which are attractive to the private sector will be implemented and schemes good in terms of delivering desirable service change, but not attractive to the private sector will be unlikely to happen, whilst schemes attractive to the private sector will be likely to happen, whether or not they are a priority for the NHS. (Newchurch’97)
• by the end of 1997 (Meara) there was no workable model for community / priority services schemes.
• Current health policy requires flexibility but,
  • • schemes will certainly not be flexible as they are intended to last for 10 to 30 years, and
    • there is evidence (’98) that the building’s engineering standards used (Meara) are inappropriate hospitals of 60 years life may not be needed. Wouldn’t high class systems building be better?
• Planning a proper responsive health service means having the right number of beds to meet population needs according to the current health care system, but
  • • evidence suggests that private finance has resulted in too few beds where more
    • are required (Pollock et al.) Lothian, Calderdale, Bromley or too many beds in
    • perpetuity where fewer are required and only fewer can be afforded, when 3
    • PFI schemes are considered in relation to needs of the local health community
• a properly planned health service means cost effective use of resources which are never likely to be able to meet all health care needs but (The New NHS)
• PFI has encouraged new build on greenfield sites and is not suited to major refurbishment (which might be more cost effective but not commercial) (Richard Meara ’98 a difficult child) and
• Private Finance Initiative has resulted in cost escalation funded by cutting other budgets in the short term and probably not affordable in the long term, despite the direct annual subsidy for the first 30 years. (David Price ’97)
• A properly planned health service means that capital developments happen but,
• PFI was adopted within the health service from 1994, but how many schemes have been signed off in that period? (Andy Black ’95)

How do Health Authorities decide?

• PFI bids are largely commissioned by Trusts but,
  • health authorities plan and fund services bids
• Health authorities are required to approve bids but
  • at very short notice often with pressure put on them to do so. Bids are secret
  • and cannot be disclosed to the public, CHC’s etc. (Pollock et al.)

Who bears the risk or costs

• Resources for the NHS are scarce and not enough to meet patient (care) needs but
  • Immediate costs of a bid can exceed £1 million (Andy Black 1997) and involve management taking their eye off the ball in running trusts
• Risks are supposed to be shared but
  • legislation ensures that any trust which is dissolved has its costs picked up by the Secretary of State for Health.
  • As Dawson and Maynard (’96) point out there are no free lunches
• The NHS pound is fixed or falling, but
  • There is no limit to public sector borrowing requirement with PFI and repayment of capital revenue and profit will have to come out of public funds.
  • What is required to plan a responsive health service?
  • Flexibility is the name of the game.
• We could not have predicted ten years ago the models favoured by the Government now, but
  • PFI developments are expected to last 10 to 30 years
• Health care for the future will be planned and funded according to needs, but
  • 1st wave bids did not reflect this. They did not contain revenue costs nor mention health needs. (Andy Black ’97)
• A range of hospital and Community Capital developments will be needed for the future, but
• 1st wave proposals included 14 hospitals (cost several £100m) and no community services.
• NHS capital needs were not being met, but
  • private care was stimulated in the first wave of proposals.
• Short lengths of stay depend on having in place the right mix of acute, intermediate and other services to care for patients, but
  • commercial concerns determine length of stay (Pollock et al.) regardless or without the availability of other local facilities.

In Summary

At a time when the DoH is giving a very clear steer that health services of the future will be based on health needs, will be efficient cost effective, affordable and planned locally by partners, professionals and people / public.

The Treasury is leading capital health building which if it produces much at all, will produce a costly unaffordable and inflexible stock of acute hospitals which will skew the pattern of services well into the Millennium. The country may have to pick up the bill for a load of White Elephants.

Dr Deirdre Cunningham

Seconder For the Motion.
Mr Howard Goodman.

My theme: ‘Let the Dog see the Rabbit’.

If we want to deliver a proper responsive service, first we want proper responsive buildings.

To get these we must use our – the designers, the conceptualists – skills. All these traditional skills – interpreter, facilitator, originator – depend on dialogue (or is it trialogue?) between sponsor, designer and procurer. We are the catalyst. Our ability is to understand function, to interpret function into space, to economically locate that space and procure it with the minimum fuss.

PFI interferes with our traditional role. We receive a brief, purporting to be what the sponsor wants. Only a critical dialogue could confirm that, but the dialogue is missing. Experience of PFI tells us two things. That the brief can easily become a ‘wish list’ never having been subjected to rigorous examination (you will remember the old health planning precept – when in doubt, leave it out) and that the policies that support it tend to be acceptable to the conventionalists rather that the forward lockers.

We have a dilemma in that we are uncertain who is (or should be) the sponsor and whose function is to set the strategic context. In the old days life was simple, the Region was the sponsor and also had responsibility for strategic planning. But now we have the Trust as titular sponsor with the health authority apparently sidelined regarding its strategic role. Unkind to the proposer of this motion but not so far from the truth.

I believe therefore, PFI to be, not only the enemy of strategic planning but the enemy of innovation. If you want to see the memorials to PFI look around you; Dartford and, Gravesham, Norfolk and Norwich and others. I will not comment further on these designs in case I hurt the feelings of some of those present, but the term ‘deja vu’ comes to mind. Been there done that, got the tee shirt – only the tee shirt is looking somewhat time expired.

Why cannot we innovate? After all PFI was designed to exploit the new freedoms that it brought with it. But they were the wrong sort of freedoms. Certainly they allowed freedom to produce ‘unconventional’ financing, novel management and the transfer of risks. But inbuilt bureaucracy and the innate conservatism of government demanded safeguards to ensure fair competition. Those safeguards stopped the alternative options being explored. Thus the non-compliant bid became a sham as compliance became a criteria in its own right.

The undemanding brief, the lack of dialogue, constraints on innovation, all conspired to produce the ‘affordability gap’; the graveyard of most PFI projects.

This essential dialogue to explore and explain person-to-person had gone. The rabbit was there, the dog was there but neither saw each other.

Howard Goodman.

Against the Motion
Mr Nicholas Alien

OPENING STATEMENT

I was pleased to be invited to speak against this evening’s motion. I did wonder what I had done to deserve this pleasure. I did not realise that an innocent comment I made, on how PFI can be successful, would be remembered by your Chairman, and used to persuade me to speak tonight. I would like to look at the current process from an architect’s perspective.

Chairman, ladies and gentlemen, PFI is here to stay. It will provide a growing proportion of our healthcare facilities, as it has with prisons and roads.

PFI is a developing process which can assist or even enhance the ability of the NHS to provide a responsive health service.

PFI has had a somewhat bumpy start. As Graham has noted, there was the original PFI with universal testing of all projects. A system which could not be sustained and that frustrated both the trusts involved and the Private Sector.

Under the new government the system is more selective of projects where the health need is established.

The PFI process cannot now commence until there is definite support from purchasers, region, and the prioritisation panel if it is over £25M, or the region if under £25M.

Great reassurance about the likelihood of the success of future projects will come from the new requirements that outline planning is obtained before PFI commences.

PFI is not privatisation of the NHS. The service requirements are still established by regions, Health Authorities and Trusts. Government, local authorities and the commercial sector are all used to renting serviced buildings. Most of us would not know if our local Sainsbury or Tesco store is actually owned or maintained by these retail companies, or cares. Why should healthcare buildings be different? Also why should the ownership of buildings and provision of some non-clinical services affect the planning and delivery of the health service?

DEVEREUX and PFI

Our practice entered PFI at an early stage in its use, having decided that we needed to learn about the process from the inside. Like most, we have experienced the problems of PFI such as affordability indecision and delays.

Our PFI projects have varied in size and type, including acute and specialist hospitals and mental health units. A number of projects have been under £20M. These are quietly proceeding and are outside the major hospitals approved to proceed.

Generally we have worked with Trusts who have been enthusiastic about using PFI and have found the process helps them to develop new ideas and thinking as the project proceeds.

With some consortia we have been stimulated by the teams desire to explore more radical solutions. In one case our proposal was to rebuild on a genuine greenfield site, saving time and cost and providing a superior end product.

Quality of design, in its widest sense, has been high on the Consortia’s and Trust’s shopping list on every PFI.

This we, as architects, have found encouraging.

In the early days we experienced ‘Consortium Confusion’. We had problems with the size and structure of a team where there were too many parties involved, and we ended up with numerous ‘clients’ instructing us.

Overall in our practice we believe that although we have suffered PFI frustration and confusion and considerable waste of time and money, PFI can make a real contribution if used for appropriate projects and the process is well structured.

ARGUMENTS FOR

It is easy to argue against a system such as PFI which has yet to really bear fruit. We can readily admit that this system of procurement for health care development got off to a bad start with too many projects whose need had not been clearly established.

And Yes, PFI caused delays and spending was held back, but as you have heard some of these projects had already been on the stocks for 10 to 15 years. The current picture has many projects moving rapidly ahead.

And Yes, PFI teams probably concentrated on the larger projects because the perception at the outset was of considerable costs to set up the project contractual structures. But now there is interest and backing for projects of most sizes.

Initially there was concern that Trusts would lose their freedom to plan facilities and therefore, the service they wanted to provide, because their PFI partner was in control. This has also proved to be unfounded.

If we just consider how the PFI process can deliver what the Trust wants, what the NHS needs for a proper, modern health service and what we as healthcare architects are trying to achieve in terms of quality of design and functionality.

(Then) the health need and service requirements must be established and included in the Outline Business Case. It is essential that this early stage is well considered and robust.

Once selected to tender for a PFI project, our experience is that with PFI the early design development can be highly focused and fast, being completed within a limited tender period.

In most cases we have found that Trusts have a reasonably clear view of the facilities they require for their clinical services, developing the initial brief and generating a design sufficient for tender is, in PFI, an intense process which brings together a far wider range of parties than the traditional process.

A significant advantage to the Trusts at this stage is that they have three extremely detailed, alternative proposals, including designs to select from.

Once a preferred partner has been selected there is the opportunity to finalise the brief and develop the design.

Some of the advantages that PFI can provide for Trusts, and thus the Health Service, are;

• Flexibility: the PFI partner wants the Trust to have the ability to change as easily as possible, so that it can continue to provide the latest methods of health care delivery and be successful
• Serviceability: the PFI partner has a big interest in the availability of the facilities and therefore will consider carefully how they are serviced and maintained
• Buildability: the PFI partner has to know that what he proposes is buildable within the programme and costs
• Functionality: the PFI partner needs to work with the Trust to make certain that the building will work efficiently and effectively and that the service providers with the PFI partner input their detailed requirements and can operate efficiently
• Affordability: the PFI partner is wasting his time and effort if he cannot produce a solution that is affordable
• Speed and certainty: as the process becomes refined these will probably become the greatest contrasts to the traditional system.

Whilst preparing for tonight I reflected on my early experiences with Hospital design during a spell many years ago at a Regional Health Authority. Questions I asked then were: Why does it take so long to design a hospital? Why when we complete these highly serviced and expensive buildings do they not get properly maintained and very critically why do Hospitals hardly ever win architectural design awards? PFI may help to answer some of these questions.

Already PFI is allowing some long overdue and significant hospital rationalisations to proceed. This is made possible by the ability of PFI companies to raise large amounts of capital and to facilitate projects through property deals.

The provision of new hospitals and healthcare buildings and their design has previously been controlled or guided by NHS Estates or Regions.

Already the PFI has created an environment which encourages fresh thinking and questioning some of the controls and guidance for these important public buildings. This must be good news if it leads to improved patient facilities and better value for money.

CLOSING STATEMENT

Chairman, Ladies and Gentlemen

Much of the change in healthcare delivery over recent years has been beneficial for patients. This change will continue. We need new healthcare buildings that are flexible to satisfy change and are well designed, built and maintained. We cannot continue with a service where patients still get excellent treatment and care in wartime huts or converted workhouses.

I believe that PFI can and will provide the buildings required.

For us healthcare architects involved in the developing PFI process we should be looking forward to the next stages of its development. I suggest that with the PFI companies, contractors, service providers and other team members we must find ways to complete hospitals faster at lower unit costs, incorporate more flexibility and surely we will eventually provide single bedrooms as standard for all patients, won’t we?

PFI has reinvigorated healthcare architecture. It caused much frustration but 1 welcome its challenges. PFI, like the British weather, has become a favoured topic of conversation and debate. Life would be dull without it.

Chairman, Ladies and Gentlemen, it is too early in reality too judge the outcome of the current PFI process but the vitality and scale of the initiative taking place does, I believe, extend the freedom of the NHS to plan a responsive and modern Health Service. I therefore encourage you to vote against the Motion.

Nicholas Alien

Against the Motion
Mr Graham Johnson

Chairman, Ladies and Gentlemen it is my privilege and pleasure to speak against this evenings motion

I will endeavour to make evident why PFI was a necessary (and essential) change in Public procurement

• explain why the first attempts were ill conceived
• and demonstrate how the CURRENT process has changed to be responsive to the NHS requirements. (the word current I see as being the key word in this evenings debate).

Ladies and gentlemen as many of you here tonight are members of arguably the “2nd oldest profession” you are well aware of the time that a traditionally procured NHS DGH typically took from the first approval – to building work on site

• history shows us that it takes up to 15 years
• in many instances Trusts are still waiting 25 / 30 years after the need was first established (Quote D&G).

PFI in healthcare started in earnest in 1993 / 94 with The Brompton

• with hindsight a project that was never going to happen
• for a number of reasons but most of all it had not obtained Outline Business Case Approval a process we now know to be a prerequisite before a Trust publishes an OJEC notice.All in all an inauspicious start.

We all know the driving force behind the Government PFI initiative

• spiralling costs across all public sectors
• an inability to increase capital spending on outdated facilities and buildings that, potentially, contravene EC regulations.
• in many instances huge backlog maintenance programmes have not been progressed
• rapidly changing methods of delivery of healthcare requiring flexibility and radical change that many of the present stock of buildings are incapable of providing.

The idea of the Trust being able to concentrate it’s efforts on clinical care

• leaving others (best suited) to concentrate on the non core services
• was in fact taking a leaf out of the Private Sector who were going through the same exercise.

The strategy of the Conservative Government’s although radical and forward thinking was flawed it opened up the process to all Trusts and by

• inviting the private sector to bring forward innovative solutions
• it is hoped to bridge the gap in Public Sector Financing.

The result was too many projects

• the Private Sector, the NHS and Treasury were overwhelmed.
• the innovative ideas were not always sustainable or fundable.Many of the projects were unsuitable for PFI or incorrectly packaged.

  The banking communities plea to the Government to clarify the right of Trusts to sign such contracts was also initially ignored.

  The Conservative Government believed the Residual Liabilities Act 1996 would be sufficient

• this was to be proved wrong
• the legal right of the Trusts to sign the contract was a grey area giving rise to danger of contracts being deemed “Ultra Vires”.

My own experience was of overseeing many thousands of pounds being spent in Queens Council chambers trying to unlock the ‘Vires’ problem. (Both Dartford and Gravesham & Norfolk and Norwich restructured the contract to try and accommodate QC’s advice.

As a result Projects were not being delivered

• the average tendering process was taking 18 months to 2 years (many are still not closed) many had failed to attain affordabilityLegal bills for the Consortium and Trust were enormous (some would say ‘out of control’)

  Initial risk transfers left the projects neither financeable nor sustainable (Bankability).

However the good news Ladies and Gentlemen is there has been a change – a change for the better.

The present Government and the NHS’s current strategy is to concentrate on fewer projects

• the first wave was 14
• the second wave is 11.

This focused approach together with other key factors has born fruit.

The NHS now has 4 significant projects financially closed

• Dartford and Gravesham
• Carlisle
• South Bucks
• Norfolk and Norwich

(I understand that it is hoped that Durham will become the 5th within the next week)

[stated on 12th February 1998]

In total about £1½ Billion has been financially closed.

What we do know is that the NHS Capital spending in each of the last 5 years has been a steady state of £2Bn per annum.

• with any PFI work financially closed being discounted against this value.
• the effect of these projects on the capital spending to date is to reduce it to £1.8Bn for the next 3 years (a marginal impact).

One of the key factors of this success has been

• The NHS Private Finance Act 1997, euphemistically known as the Vires Act.

Although the previous Government did undertake to process the legislation

• the impending election meant they had to abandon the attempt.

This delayed all of the health PFI projects until the election result was known. Despite this the bill passed through both houses and committee stage at record pace receiving the Royal Assent in July 1997.

The NHS Act removes the grey area surrounding the legality of the contract.

Having removed a major stumbling block the door had been opened to deal making.

What is the legacy these early projects will bring to future health projects?:

• It is intended that the early contracts so keenly scrutinised by the NHS, the Department of Health and the Treasury, will become the blueprint for future contracts. This will greatly reduce legal and advisers bills for both the Public and Private Sector.
• there is now a critical mass of banks and financial institutions who understand and wish to be actively involved in more health projects providing a range of debt finance (senior, junior and mezzanine). They are, in other words, comfortable with the sector.
  • Alternative financing solutions have been successfully achieved (Bonds)
  • There are Equity Investors willing to invest in the projects and share the higher level Consortium risks.
  • The members of successful Consortia understand what is required for “due diligence” and how to satisfy the banks process (painful process)

The benefit to the sector will result in more projects being closed

• and I believe the average length from OJEC to Contract Close should reduce considerably to 12 months and may be less (depending of course on the planning process)

What are the key lessons that have been learnt (both tangible and intangible):

• close team work (openness) with the Trust is essential.
• the quality and commitment of all parties must be of the highest order
• the project must have the necessary approvals before the tendering process begins
• the Trust must have a clear vision of where they are going
• there is a defined target of affordability that is understood by all the parties at the outset
• the public sector will have a better understanding of assessing what is and what is not suitable for PFI
• and last but not least there is no substitute for sheer hard work

Healthcare in the nineties has changed / is changing. The PFI process can help the NHS to respond to these changes:

• by relocating the healthcare to where it best serves the community and by providing inbuilt flexibility of the facility to accommodate future changes of healthcare provision (This is something the NHS has generally been precluded from doing).

A Truism Ladies and Gentlemen – The private sector is responding to the Trust requirements – which in turn is responding to the local healthcare needs. It is not privatisation of the NHS – the Public sector dictate the clinical function, the needs and the priorities.

In summary Mr Chairman, Ladies and Gentlemen the Motion to night refers to the current PFI process and having heard tonight the changes to the process that will ensure a successful future for PFI in healthcare.

I therefore commend to you that the current process will provide the NHS with the ability to plan a responsive health service well into the next millennium.

Other Notes;
Accounting Standards Board 27 page amendment to FRS5, Value for Money.

Graham Johnson

A VOTE WAS TAKEN OF THOSE IN THE AUDIENCE;

• Votes FOR the motion: 38
• Votes AGAINST the Motion: 9
• Total: 47
• Majority vote: 29

The Motion was therefore declared carried.

VOTE OF THANKS

Dr. Roger Waiters, Partner, Bickerdike Alien, Architects.

Our annual debate has again lived up to expectations. We came here knowing that there was little Risk we would not get Value For Money, PFI speak.

First of all I would like just to thank our tireless Chairman, Ray Moss, and his fellow Reform Club members for the splendid setting for our debate. We have again enjoyed hospitality from our main sponsors – James Halstead producers of Polyfloor and Osram: the hospital lighting specialists. Your generous support of our society is much appreciated. We are pleased to be associated with your excellent products.

I am not going to attempt to summarise our debate. The issues are complex but there is clearly fight on both sides. Debates engender false opposition. 1 would just like to reflect for a moment on the result – did the right side win?

Maybe, but tomorrow as Architects we do have to confront reality again! First there is an element of wishful thinking, perhaps even nostalgia in this house. PFI is flawed but it is here to stay.

My commiserations go to our gallant losers; you fought your corner well but perhaps you were playing ‘away from home’ tonight. Had this been at the RICS, I of B, Law Society, IHSM, CA’s I suggest you would have won. The only other venue where you would struggle is the BMA.

The doctors and the architects do have serious criticisms of this process.

• the jury is out as to whether this is really a viable source of finance
• rational planning (not that that was ever enough) does seem to be inhibited
• the commercial nature of PFI is sometimes in conflict with openness in planning and accountability
• the contractual homework required with SPV, D13F0 arrangements and a network of warranties is a bonanza for our friends in the legal profession and overwhelming for everyone else.

If there is no deal; there is no scheme. It is the schemes that are ‘commercial propositions’ that get done. These tend to be large and new build. Smaller community schemes, refurbishment schemes are genuinely difficult to undertake under PFI. User requirements when the user has the status of a tenant rather than an owner are different. Brief and design development becomes part of the deal making process. The lease agreement takes priority. Dialogue over function which is crucial to innovation is frustrated.

Planning was ever more political than rational. Our task as Architects is harder. Our concerns have moved down the agenda. Our challenge is to find ways of helping our nation of bean counters to take a longer term and more strategic view.

As Architects have much to learn about how to contribute to PFI, I am grateful to our speakers for helping us understand limits and opportunities. Both challenge us to learn. Good deals are to everybody’s advantage. Good design was never easy; but good deals depend also upon good design. So did the right side win?

The debate will go on BUT we are grateful to the speakers, ably guided this evening by our Chairman for being both entertaining and informative. You all challenge us to learn how we can improve upon our contribution.

Ladies and Gentlemen, I ask you to join with me in showing our appreciation to our Chairman and our four speakers.

Dr. Roger Waiters

The Debate was then thrown open to the Floor of the House.

Of the points that were raised those by two members were of special interest.

Mr Graham Underwood, Watkins Gray International raised two points;

Risk transfer or private insurance commenced with meetings at Lloyds Coffee House in 18th Century London, since when it has been proved that Government was better at handling risks than the private companies. With PFI this flies in the face of economic risk bearing by placing the risks with bodies less capable of handling it. NHS Trusts appear to be obsessed with this transfer of risk at the expense of other more important matters, other real functions and providing more policy and brief input

In theory PFI should present great opportunities to architects for design innovations but all too frequently ideas were frustrated by having to work three stages removed from the Trust ‘ Who was the client? Trust? FM Company? Or Contractor? Inevitably this reduced the array of solutions for the client to decide which met his needs.

Miss Virginia DeVere, DeVere Project Management.

It appears that many Trusts cannot devote the full time and energy required to a PFI project as their priorities lie in different directions having to work on new central initiatives such as reduction of waiting lists and other processes and procedures. They need to off load the PFI tasks on to others just to keep their mainstream duties going so real opportunities are lost.