1.4 NHS Estates
Could the Department describe how NHS Estate
will be disposed of. Could the Department list the directors of
the new company Inventures and their connection with NHS Estates?
Could the Department explain the process of dividing the proceeds
from the disposal of NHS assets and the accountability for public
Could the Department describe how NHS Estates
will be disposed of.
1. The Secretary of State has given the
go ahead for NHS Estates to prepare a Business Case for a public
private partnership (PPP) for disposal of Retained Estate and
NHS Estates Trading Activities.
2. The PPP is to in practice seek a sale
of a surplus property portfolio and the true value will be determined
by offers. The provisional value is around £400 million.
We also need to ensure that the sale proceeds met NHS plan targets
and that NHS Estates staff transferring to the PPP are treated
fairly and properly.
3. NHS Estates trading staff will act within
the PPP for disposing of property or as a developer, working in
partnership with the NHS.
4. The control the Department would have
will depend on the offers recovered and what interests the Secretary
of State wishes to retain (iewe are not yet ruling out
the possibility of a total sale rather than a 49 per cent:51 per
cent Joint Venture). The choice of shareholding will be clearer
once potential private sector partners offers have been received.
5. The process being followed to achieve
the PPP follows the OGC Gateway Review best practice. A copy of
the outline milestones and a timetable is attached.
6. To achieve the project aims and objectives,
new organisational arrangements have been put in place from 30
April 2001. This involved the establishment of two clear groups
of staff, the Inventures group (transferring into the PPP) and
the Vendor group (the remaining NHS Estates functions). The Project
Organisational Structure is also attached.
Could the Department list the directors of the
new company Inventures and their connection with NHS Estates.
7. Inventures has not been incorporated
as a new company and as such has no directors under company law.
It exists in shadow form only as part of NHS Estates which in
turn is part of the Department of Health.
8. The membership of Inventures' board is
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Non Executive DoH rep
Non Executive DoH rep
9. The Inventures Board reports to the main
NHS Estates Agency Board. Kate Priestley, David Lawrence and Martin
Dove will join the new PPP when it is established. These individuals
are not members of the main NHS Estates Agency Board.
10. Tim Straughan is the Executive Director
of Finance and a member of the main NHS Estates Agency Board.
His role as non-executive on the Inventures Board is to represent
the Secretary of State and Agency interests. John Evans is a non-executive
of the main NHS Estates Board and also attends the Inventures
board as a non-executive member, also representing the interests
of the Secretary of State and the Agency.
11. These management arrangements have been
approved by the Agency Main Board and Audit Committee.
Could the Department explain the process of dividing
the proceeds from the disposal of NHS assets and the accountability
for public funds.
12. In discussing the issue of participation
in property profits (overage payments), the following terms have
been used to identify the different levels of value at which the
properties could be assessed :
13. Base 1: This is the first stage,
being the open market value of the Surplus Estate in its current
state. It represents the price the market might pay at current
prices reflecting the uncertainty of future planning permissions,
regardless of whether overage affects a particular property. It
includes an element of "hope" value. Both Base 1 and
Base 2 will be provided by the District Valuer.
14. Base 2: This second stage represents
the value of the properties in their ideal state for, generally,
redevelopment. This would assume that all permissions, services
provisions and access have been dealt with satisfactorily (typically
referred to as "oven ready").
15. Base 3: A third stage would
represent an increase in the values of the properties obtained
by the PPP Company on the actual disposal of a property to a third
party (or a market value on letting of a property).
16. Historically, many of the properties
in the retained estate have been sold with the benefit of planning
permission, ie at Base 2. It is suggested by that this historical
practice should be imported into the structure of the PPP agreement
such that the Secretary of State would be entitled to the following
percentages of base values:
|Base 1 on completion of PPP deal
||100 per cent|
|Difference between Base 1 and 2||100 per cent less specified expenses
|Difference between Base 2 and 3||60 per cent
17. On advice from our Property Advisors and the District
Valuer it was considered that this overage structure would not
be commercially acceptable to a Private Sector Partner (PSP) who
would want to share in the increase in value achieved not only
at Base 3 but also between Base 1 and Base 2.
18. An alternative structure would be to share in the
increase of value above Base 1 between the Secretary of State
and the PPP Company as to 50 per cent for the PPP Company and
50 per cent for the Secretary of State. This would meet the requirement
to allow the PSP to share in the increase in value beyond Base
1. The PPP Company would bear any expenses during the interim
(eg holding, obtaining planning consent and disposal costs) from
its share. Any payments above Base 1 would be made at certain
predefined trigger pointseg planning consent, sale or build
19. To enable a consistent approach and thus evaluation,
in the Invitation to Negotiate (ITN) for the purposes of the compliant
bids, bidders will be asked to assume that each of the properties
in the Surplus Estate will be sold subject to an overage payment
following the grant of planning permission. However, the ITN will
make it clear that both the percentage and trigger event are fictional
and that separate provisions may apply as relevant to each property.
It will furthermore make it clear that the percentages are negotiable
and that bidders may submit variant bids on alternative bases.
20. It is recommended at this stage that an overage structure
is implemented that would enable the PPP Company to share in any
increase in value of the Surplus Estate beyond the value attributed
to it at the time of completion.
21. It is suggested that the sharing arrangement be at
least 50 per cent for the Secretary of State but this will be
subject to negotiation in respect of each individual property
and will vary depending upon the initial guaranteed upfront payment.
The Sale Process and Prospective Timetable
Notice has been given in the Official Journal of European
Communities with respect to the PPP inviting requests from interested
parties ("Candidates") to be selected to negotiate with
a view to entering into the PPP arrangement.
The procedure that it is being followed in the sale process,
along with the timetable and approvals required at each stage,
is outlined below: