Select Committee on Health Minutes of Evidence

Memorandum by Business Services Association (PS 41)


  The Business Services Association is a policy group for major companies providing outsourced services to companies, public bodies, local authorities and government departments and agencies. The combined annual turnover in the United Kingdom of its 20 member companies is around £15 billion. Member companies employ directly and indirectly more than 500,000 people.

  BSA member companies are among the leaders in providing services across the public sector. They are actively involved in the majority of PFI and PPP projects across the whole range of Government Departments and Agencies, NHS Trusts, Local Authorities and Local Education Authorities. As such they are engaged in implementing Government's agenda for modernising public services.

  The Association itself is closely involved in working with Government to develop and deliver the principles for modernising public services. As well as representing the providers of relevant services, all employees of BSA member companies are users of these services. This gives them and member companies a clear perspective on quality and end-user requirements. Those views are reflected in those of the Association in its submissions to Government across a whole range of issues.

  In this memorandum we restrict our comments to those areas in which we have an active involvement and which affect member companies directly.


  The member companies of the Association are among the largest providers of services to the NHS and NHS Trusts. They are involved as consortium members and service providers in the majority of PFI and PPP contracts, which have been let over the past four years. They are the potential service providers for all the current pilot projects in which the proposed "Retention of Employment Model" (REM) is being tested currently. As the representative body for such companies, the Association has a key interest in the current debate over and Inquiry into the role of the private sector in the NHS.

  There is no dispute that the state of the NHS infrastructure inherited by the current Government was not good. Hospitals were frequently in a bad state of repair, starved of financial resources by the policies of successive previous administrations. To illustrate the point, the NHS Plan cites that the backlog of maintenance in the NHS stands now at £3.1 billion. Many of the hospitals were unsatisfactory buildings, as one third of the buildings used by the NHS today were built before the NHS was even created in 1948. New buildings were necessary but, within the Chancellor's Golden Rule public sector borrowing to finance the whole of this new building programme was not possible. Private finance is necessary to enable this ambitious, desirable programme to achieve the Government's target of over 100 new hospital schemes and the development of new buildings through an extended role for PFI by 2010.

  These new buildings will need to be maintained to a high standard, unlike most of those they are replacing. Under the long term PFI contracts the private sector is charged with the responsibility of maintenance, repair and replacement throughout a 25 to 30 year period. The financial means to pay for such maintenance will be guaranteed by HM Treasury throughout the length of the contract. The relationship between capital and service delivery is important to ensure future flexibility delivering ongoing benefits to the end users—NHS staff, patients and visitors.

  Other patient services are also required, such as catering, cleaning, security, grounds maintenance, laundry and IT services. In most instances, Trusts have drawn on their past experience of outsourcing these services and have included them in the PFI contract with severe penalties for failure to perform. This allows NHS trusts to concentrate on that which they are best able to do, provide high quality clinical services.

  In this way, new infrastructure resources have been built and will be maintained at an agreed price for the effective life of the hospital. This allows trusts to budget for future expenditure and gives them the ability to introduce flexibility to cope with changes in service delivery and demographics with their private sector partners.

  The involvement of private companies in the provision of services within the NHS is at the request of the NHS client, usually a Trust, which has decided that the best way to provide a new or upgraded facility or a range of services is through the involvement of the private sector. This decision is taken after much internal debate and consideration. It is at this time that the Trust will determine the number of beds in the new or improved hospital. The use of the in-house team as direct providers will have been considered and rejected. It is only at this stage that any potential involvement of the private sector will come onto the radar screen.

  Once the decision to place an OJEC notice has been taken and the procurement process commenced, the bids and offerings of the potential private sector bidders will be closely scrutinised by the Trust, the Department and HM Treasury before any decision to award the contract is made. These safeguards are necessary to protect taxpayers and to ensure that the successful contractor delivers value-for-money.

  There is much argument and debate, often emotional, regarding the involvement of the private sector in health service provision with inaccurate claims of privatisation being made. Outsourcing and public private partnerships bear no relationship to privatisation. The service is still a public one owned and controlled by the public sector client. The specifications are set, monitored and enforced by the public sector client. User satisfaction remains the ultimate responsibility of the public sector. The difference is that the staff providing the service are now employed and managed by a private sector company, which has been employed as a virtual department or series of departments of the public sector client. This allows the introduction of innovation in relation to working practices and purchasing regimes and the use of measured service input to achieve higher quality services. Additionally, performance is much more closely specified and defined and penalties imposed for failure to meet the agreed standards, a feature which is not possible within direct service provision.

  Private sector companies continue to employ the same staff who performed the same services previously for the client. They transfer on protected terms and conditions under TUPE and continue to receive these benefits throughout the contract. In addition, the transferring staff have the opportunity to join private sector pension schemes that have been certified by the Government Actuary's Department as offering comparable benefits which include a requirement to offer day for day credits. The private sector companies and the managers are experienced health service professionals who are committed to providing the highest level of services to improve the quality of life for patients, staff and visitors. There are many good news stories arising from the involvement of private sector companies, contrary to much media publicity, and three are attached by way of example at Annexe 1 to this submission.


  The principles of Best Value, as introduced in local government, should now apply within the NHS. Unfortunately, the policy consultation document has never been published by the Department resulting in NHS Trusts and private contractors remaining in limbo as to what is current policy in this area. This Association campaigned for the abolition of compulsory Market Testing in the NHS and welcomed its abolition. The ensuing vacuum, however, is less than satisfactory and needs to be resolved.

  Under the present policy, services which had been outsourced previously are now being taken back in-house. Indeed, there are many who believe that this is the purpose of Government's Best Value initiative. There is insufficient stress on contestability within current policy which allows Trusts to elide challenge and competition by relying on comparison with other Trusts.

  Historically, Market Testing relied on the acceptance of lowest price tenders by the client to demonstrate best value. This was a flawed policy which resulted in services being provided at uneconomic rates with little thought for quality or user satisfaction. The lack of clear policy in this area means that this philosophy still prevails. Public sector client managers still view lowest price as the safest way by which to demonstrate value-for-money. Further education is needed on the benefits of whole-life costing to the client.


  BSA member companies are committed to valuing, protecting and developing staff. Their employees are crucial to the way in which they are able to deliver high-quality services to clients throughout the world in the public and private sectors. Staff need to be empowered, trained and rewarded within a well developed team culture. Accreditation under Investors in People is seen as an important step within the process. BSA member companies are committed to lifelong learning with many having internal NVQ training accreditation.

  Terms and conditions rightly are important to staff. Thus BSA accepts the application of TUPE to public sector outsourcing contracts and has campaigned for its application to be more uniform in both first and subsequent generation contracts. We were actively involved in the consultations on the Cabinet Office Policy Statement Staff Transfers in the Public Sector and welcome the proposals by Government to implement its terms in legislation under the current DTI review of TUPE regulations. BSA also played a leading role in negotiating the TUPE Code of Practice in MoD.

  The Secretary of State for Transport, Stephen Byers, announced at the Labour Party Conference that there was to be a review of the so-called two-tier workforce. This term is used to refer to the different terms and conditions applied to employees who join the private sector to work on a public sector contract during its life. They are paid at market rates in agreement with the public sector client. Often this results in them receiving a higher level of pay than transferring public sector employees, though in some cases the wage rates for blue-collar workers are lower than those transferring from the public sector. In an initial response to that statement and the subsequent DTLR Press Release, BSA has proposed a possible solution for new employees in public sector contracts based on broadly equivalent remuneration packages. A copy of that paper is attached at Annex 2.

  We believe that this is a much preferable solution to the relevant issues and trade union positions than the Retention of Employment Model proposed for the current NHS Trust pilot PFI projects as a result of the agreement reached between the Secretary of State for Health, Alan Milburn, and Unison prior to the General Election and included in the Labour Party Manifesto. It is our view that it will be difficult to achieve and implement the Manifesto desire to allow staff to remain in public sector employment within the NHS without damaging severely the whole PFI/PPP programme. A paper outlining some of the issues, which will arise the detriment of the staff, the client and the patients and users is attached at Annex 3.

  Pensions, too, are an important part of the remuneration package. BSA is in detailed negotiations with Prudential Corporation to set up a Group "GAD" Pension Scheme. There have already been discussions about this proposal with HM Treasury and the Government Actuary's Office. This would cover all public sector pension schemes and will enable staff transferring to the private sector to remain in one GAD approved scheme throughout the remainder of their working lives with full day-for-day past service credits when they transfer from the public sector.


  Partnerships for Health is a new joint venture between the Department of health and Partnerships UK to develop Local infrastructure Finance Trusts (LIFTs) to assist new Primary Care Trusts to improve local facilities. This is an exciting and imaginative initiative in which private sector companies look forward to playing an important part by utilising their expertise to allow these new facilities to be established and operated in ways most appropriate to local needs.

  The proposed public private partnership with Inventures (formerly NHS Estates trading arm) is a further exciting example of how redundant assets can become profitable by harnessing the capabilities of the private sector to exploit these on the open market to the financial benefit of the NHS.

October 2001

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