Select Committee on Health Minutes of Evidence

Memorandum by South Manchester University Hospitals NHS Trust (PS 52)



    —  Wythenshawe hospital has recently acquired a large new hospital wing and mental health unit through a PFI involving £66 million private and £40 million public funds.

    —  The NHS pays the private sector for the use of the buildings and for provision of non-clinical support services under a 35-year contract.

    —  PFI has given us a much-needed new hospital, delivering safer clinical care, within a timescale Treasury funding would not have delivered.

    —  The buildings are a success, being delivered on time, to budget and to a high standard.

    —  Some support services have improved following private sector investment but others are not delivering agreed quality standards.

    —  We expect the building to remain in good condition throughout the 35 years of the contract, when it become NHS property.

    —  Overall, the NHS is better off in revenue terms as a result of the South Manchester restructuring.

1.1  History

  Until September of 2001, South Manchester University Hospitals services were split fairly evenly between two sites: Wythenshawe and Withington. Our PFI allowed the development of Wythenshawe as our A&E and inpatient centre, with all specialities transferring to this site and able to cover any trauma demands, 24 hours a day 365 days of the year. A new Mental Health Unit was also built through the PFI scheme. I have not commented on the future development of the Withington hospital in this paper.

  The main PFI scheme provided a new building of some 396 beds and was linked to the existing hospital. The arrangement included £40 million treasury funding for enabling schemes and equipment, as well as £66 million private capital. Our partners are McAlpine (builders), WS Atkins (maintenance), Sodexho (hotel services) and Innisfree (equity). Funding came primarily from the Bank of Scotland and Royal Bank of Scotland.

  Our staff in maintenance and hotel services transferred to our PFI partners employ up to 2.5 years ahead of the new hospital being commissioned.

  After literally years of negotiating, the deal was signed in August '98 and we moved in between July and August this year.

1.2  Structure of the PFI deal

  Integral to our PFI was the "concession agreement" covering the 35 years of our contract with our PFI partners South Manchester Healthcare Ltd (SMH). Key points are:

    —  the Trust pays SMH a monthly tariff based on a formula adjusted for services being available and of good quality;

    —  the new hospital passes to the ownership of the trust, in good order, after 35 years;

    —  during this period, SMH will maintain both the old and new buildings at Wythenshawe, with ongoing replacement and upgrade costs in the new building being SMH's responsibility;

    —  SMH provide domestic, portering catering and switchboard services;

    —  specification and monitoring of services is based largely on outcomes, not detailed tasks.


  It is very early days to be assessing a 35 year deal! Initial observations are:

2.1  The New Buildings

  These are, so far, a big success:

    —  delivered ahead of time;

    —  accessed less than one per cent of contingency capital, due to a rigorous process to agree specifications both before and during the building process;

    —  functionally very good, partly due to full involvement of clinical users in the specification process;

    —  handsome exterior, if not of significant architectural merit!

    —  very good build quality, specified and monitored not just by the Trust's advisors, but by those in SMH who would need to clean, repair and upgrade it for 35 years;

    —  replacement/refurbishment costs are covered by the tariff, which should keep the new hospital looking good.

2.2  Services

  The quality of those services we've contracted out to our PFI partners has been mixed:

    —  laundry and linen services and catering have improved following capital investment from SMH;

    —  domestic services leave a lot to be desired and agreed standards are repeatedly not met. The teeth we thought the concession agreement gave us to address this are, in practice, not easy to apply. Nevertheless, we are now in the formal stages of dispute/rectification;

    —  contrary to expectation, the Trust is still spending significant management time on these matters;

    —  we need to refine our ideas as to how we manage a 35 year partnership and design contracts to support this.

2.3  Patient care

  The hospital has delivered a number of benefits, including:

    —  great environment;

    —  safer clinical services;

    —  elimination of patient transfers between hospitals; and

    —  easier infection control.

  Some of our constituents however, are unhappy about the increased travelling time from Withington to Wythenshawe, not withstanding a large number of clinics, screening and other outpatient services remaining at Withington. The Manchester Metro will arrive in this area fairly soon, but meanwhile, public transport has not matched expectations.

  We planned for a significant move of patients from the Withington area to other nearby hospitals and, as a result, designed the new hospital with fewer beds. This transfer is slow to happen and we are therefore under significant pressure.

2.4  Staff

  The negotiations and discussion with those staff who transferred from the NHS to SMH were, quite rightly, extensive. The biggest issue was over pension entitlements but we did finally bring this to a successful conclusion. Staff transfers eventually went smoothly, reflecting credit on all involved.

2.5  Financial issues

  The revenue implications of the new hospital, amounting to some £18 million pa have been covered by redeployment of previous charges for capital, depreciation, and service, plus savings. We have also released savings for investment elsewhere in the system: some funds follow patients who will attend other hospitals for treatment. Overall, the NHS is better off in revenue terms as a result of the South Manchester restructuring.

  Our business case demonstrated value for money in a PFI scheme over an entirely Treasury funded option. Ultimately, this was justified through the benefits of an earlier delivery of the PFI solution.

  We have also released a large and potentially valuable land site for sale.

2.6  Process

    —  was very protracted, eight years from the start of the consultation process to signing the deal;

    —  was expensive in legal fees;

    —  involved the NHS in areas beyond our expertise;

    —  required specialist advisors;

    —  needed a lot of NHS time from a wide range of staff;

    —  despite very robust negotiations, we have maintained a positive interaction with SMH and this pays dividends: the relationship must be a partnership as we're almost certainly stuck with each other for 35 years!

    —  management of services provided by SMH continues to occupy a great deal of NHS staff time at all levels within the organisation.


  It is too early to be definitive about the strengths and weaknesses of a 35-year contract but many clinicians, managers and staff feel relieved and very pleased that we have our new hospital and that the move has taken place without major mishap! This has taken some of the risk and stress out of clinical care that had been caused by delivering services across two sites.

  Initial observations are that a PFI can deliver quickly, to budget, a very attractive and functional new hospital, particularly if supported by staff input into the design and specification at every step of the way. We expect the new hospital to stay in good condition for three reasons: the duty of rectifying building defects rests with SMH. Further, the specification of the building was watched over not only by the Trust but by those members of the partnership who would be cleaning and maintaining it for 35 years. Finally responsibility for "life cycle replacement costs" (upgrades and refurbishment) is with SMH and is covered by the tariff. This is in contract to NHS ownership, where lack of capital frequently led to lack of routine refurbishment of buildings.

  The revenue to allow our PFI to deliver savings was expected to come from several sources, particularly:

    —  reconfiguration of existing services;

    —  savings from duplication of staff functions across two sites;

    —  savings on capital and estates charges generated by moving onto a single site;

    —  fewer beds, due to an expectation of a move of patients elsewhere plus a reduced length of stay.

  Most of these plans have been delivered. We are, however, under pressure at the moment because the demand for acute beds exceeds that available. There was an underlying problem here pre PFI, but it's been exacerbated because patients have not (yet) moved to other Trusts in the numbers planned.

  NHS staff from maintenance, portering, switchboard and domestic services have transferred to the employ of SMH. Some services have had capital investment that was not forthcoming from the NHS and are providing a generally higher quality product. Others are failing to deliver to specified service standards, due to poor management, difficulties in recruiting, inheriting a mediocre service, and an expansion in NHS requirements. An assumption that we would be able to safely leave all these services to the care of the private sector has proved erroneous! The contract arrangements that looked fine on paper are proving somewhat inflexible. We are still finding our way, with our partners, through the implications of a 35 year public/private partnership and finding different ways of managing the relationship: we believe, however, that this must be based on goodwill and co-operation.

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