The future of PFI - a 'good idea, badly executed'

Conference hears there is hope for trusts locked into PFI contracts to make significant savings

PFI was a ‘good idea, badly executed’, but there is still hope for trusts lumbered with costly bills, delegates at the 2015 IHEEM Annual Conference were told.

The event, held recently in Manchester, heard from Martin Cannon, a construction and engineering law specialist from DAC Beachcroft. He said there is still a chance for trusts to get out of PFI contracts by proving failure on the part of the PFI partner, but he recommended taking a different approach that would see trusts forging closer partnerships with providers to enhance services at the same as cutting costs.

I think PFI was a good idea, but one that was very badly executed and we have no option to change it

“I think PFI was a good idea, but one that was very badly executed and we have no option to change it,” he said.

“PFI involves two sets of conflicting needs and the pressures on both are the worst they have ever been.

“We have to accept the contracts are not flexible and they are not what we want. We have to accept where we are now and look for something different.”

Currently, the only way trusts can reduce the amount they pay under their PFI deals is by effectively fining the PFI provider for failures under the contract terms, known as ‘deductions’. But he advised against this approach for all but the most-serious problems.

We have to accept the contracts are not flexible and they are not what we want. We have to accept where we are now and look for something different

He warned: “We should not be looking to maximise deductions. We need to move away from that approach and ask how we can stop any problems from occurring.

“If a contract is performing OK, then you shouldn’t be taking deductions. The most-important thing with deductions is that it should not be about punishment or making money, but about getting the environment we want.

“If we take deductions out of the PFI contracts then we are taking money out of the hospital and it will affect you somewhere else along the line.

“When you drive the cost too low, you won’t succeed in getting the right environment.”

A better approach is to sit down with the PFI provider and work out variations to the contract that could save money without affecting services.

The most-important thing with deductions is that it should not be about punishment or making money, but about getting the environment we want

“We in healthcare estates are in a position to provide the most-suitable environment to enable our trusts to deliver clinical care at the lowest cost and we seem to have lost some of that focus.” Cannon said.

“With variations, it’s a brave position to take as you often don’t know what the cost effect will be and you don’t know that by taking something out of the contract you will not affect services, or whether you will, in fact, save money. The only way, I would say, to reduce the amount you pay each month is to sit down and talk to your PFI provider.

“You have to put your ideas forward and say what you no longer need.

“Services are different 10 years down the line and the best savings I have seen are when contracts have been changed so that non-urgent things such as changing the door handle on a store room are no longer marked urgent and can be fixed the next day instead. That’s where you get real value.

“We need to be sitting down with our PFI partners and asking them how we can descope and redesign the contracts.”

And he urged trusts to share their experiences.

“The biggest disappointment in PFI for me,” he said, “is that there is no knowledge sharing.

We in healthcare estates are in a position to provide the most-suitable environment to enable our trusts to deliver clinical care at the lowest cost and we seem to have lost some of that focus

“People are sceptical and they say they will never be able to sort it out, but I am more optimistic. PFI is commercially driven, but if we continue fighting with PFI contractors, it’s the lawyers who will do really well.”

An example of this united approach can be found at Dartford and Gravesham NHS Trust, which has worked with the NHS London Procurement Partnership (LPP) to carry out a benchmarking review of the soft facilities management element of its PFI contract. The move has resulted in savings of £4.81m over five years.

The current services provided by the PFI sub contractor are housekeeping, patient catering, logistics - portering, transport, internal security and waste - switchboard and laundry. These make up a significant part of the total cost of the PFI contract.

A five-year benchmarking process, carried out by the LPP, reviewed all services and their continuing roles. This helped to identify cost savings and led to price renegotiations with the contractor.

I do not think that the Midland Metropolitan project will be the catalyst for an increase in hospital PF2 schemes

The huge saving is equivalent to around 12% of the annual spend on soft FM services within the contract.

Chris Forster, director of estates and facilities at Dartford and Gravesham NHS Trust, said: "We are extremely happy with the outcome of the benchmarking, ensuring that the trust maintains value for money over the next five years. LPP supported the trust throughout the negotiations, providing clear information and knowledge of healthcare and PFI contracts. The completion of the benchmarking provides the trust with a significant reduction in annual service fees with its current soft FM provider.”

Barts Health NHS Trust has also saved on its PFI contract. In 2013 it secured savings of around £7m, including an immediate payment of more than £1m from the private sector company that built and manages part of the estate.

The then director of estates, Trevor Payne, said: “The size and complexity of PFI deals provides a management challenge to NHS trusts, and these contracts need to be closely examined to make sure that the NHS is getting best value."

To secure savings, the trust worked with specialist advisors P2G. Its founding partners, Bruce Dalgleish and Russell Manley, said: “On the contracts we have looked at to date, we believe that this sort of issue is not uncommon, and we would not be surprised to achieve similar or greater levels of savings on many more PFI contracts in the future."

PFI is commercially driven, but if we continue fighting with PFI contractors, it’s the lawyers who will do really well

The conference also heard that the Government's much-criticised PF2 framework was unlikely to provide a new route for future investment in the healthcare sector.

Having failed to take off in the education sector, the framework has been used for just one flagship hospital project – the new Midland Metropolitan Hospital development.

Speaking to BBH at the IHEEM Conference , Simon Kydd, head of healthcare at ESP Group, said: “I do not think that the Midland Metropolitan project will be the catalyst for an increase in hospital PF2 schemes. The trust was quite bold in pushing it, but I don’t think, ongoing, the current government is a big fan of PFI.”

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