2 The role of the Department of Health
12. By the end of 2005 the Department had approved
in principle the development of capital investment schemes with
an estimated capital value of £13 billion. Local NHS Trusts
would contract with private sector suppliers, who would build
hospitals. The value of the capital programme represented a substantial
increase over the original approved schemes. For the 17 schemes
over £75 million that the Department reported on in November
2005 and the cancelled Paddington scheme, the estimated valuation
in November 2005 was some £4 billion above the approved scheme
valuations (Figure 3). Overall the schemes increased by
an average of 117% over the original approved values.[13]
Figure 3: Increase in estimated capital construction costs since Outline Business Case approval stage
Source: Memorandum received from the Department
of Health containing Replies to a Written Questionnaire from the
Health Select Committee,
HC 736, Session 2005-06, 5 May 2006, and Comptroller and Auditor
General's Report
13. The Department is currently reviewing all 38
unsigned PFI schemes over £75 million to determine how the
commissioning of major capital schemes through PFI can be reconciled
with long-term affordability and policies on choice, Payment by
Results and the movement of care away from acute hospitals to
the primary care sector. As a result it expects the scale of the
PFI programme to fall from £13 billion to £7-9 billion.
The review is still to be completed and the Department believes
that costs are not likely to rise in the meantime to an extent
that would outweigh the benefits of such a review.[14]
14. Over the period in which the Paddington Health
Campus scheme was being developed, the Department introduced a
number of national policies with local implications. These included
new guidance on bed numbers, consumerism standards, new Treatment
Centres, Payment by Results and choice at the point of GP referral.
Local NHS organisations had to make their own estimates of the
impact of such new policies. The Department accepted that local
NHS organisations, in making their own assumptions in planning
capacity, had no track record on which to base their assumptions.
[15]
15. The Department played two key roles in the development
of the Paddington Health Campus scheme. It supported the vision
of the scheme as a means of meeting the clinical and estate needs
of the local NHS organisations but it also challenged the affordability
and deliverability of the scheme. As both 'champion' and 'challenger'
the Department, and elements within it, gave mixed messages to
the Campus partners, so much so that the partners were uncertain
whether the Department did in fact want the Campus scheme to succeed.[16]
16. When the Department approved the inadequate Outline
Business Case for the Paddington Health Campus scheme in 2000
it did so with a number of qualifications. The Campus partners
told us this was a high level business case, but the Department
agreed it was not close enough to the development of the scheme
to perform an effective critical challenge. In October 2003 it
was the Treasury, rather than the Department, which requested
a review of the scheme and withdrew the approval of the 2000 Outline
Business Case.[17]
17. The Department approved the Outline Business
Case in 2000 despite the existence of a strong condition from
the Royal Brompton and Harefield NHS Trust that it would not proceed
with the scheme if it was required to merge with St Mary's NHS
Trust. The Department believed that such a merger might make delivery
of the campus easier, but did not propose or require one as a
condition of the scheme proceeding, as it believed such a requirement
would have stopped the scheme.[18]
18. The 2000 Outline Business Case was developed
under the Department's Capital Investment Manual. That Manual
required a review if the estimated cost rose by more than 10%;
that outline planning permission be secured prior to advertising
in the Official Journal of the European Union; and that risk management
be adequate to ensure that the preferred option in an Outline
Business Case was affordable and represented the optimum solution.
None of these conditions were met by the Campus partners or the
scheme. The Department accepts that it should implement its own
guidance, and told us that schemes coming forward now are subject
to central scrutiny which was not the case in 2000.[19]
19. In approving capital investment, for which the
taxpayer ultimately pays, the Department has stressed the need
for affordable schemes. In the case of the Paddington scheme,
at the time the December 2004 Outline Business Case was submitted
the land deal supporting the scheme was on-balance sheet. The
NHS Trusts could not afford the scheme with the land deal on-balance
sheet and the Department did not have the resources at that time
to fund such a deal, which resulted in the Campus scheme partners
resolving to exit the scheme.[20]
13 Q37, capital costs data underlying Figure 3 of C&AG's
Report Back
14
Qq 18, 36-37, C&AG's Report, para 2.30 and Note to Q75 Back
15
Qq 59-62, 132, C&AG's Report, para 2.32 Back
16
Q 148 Back
17
Qq 3-5, 9 Back
18
Qq 159-161 and C&AG's Report 2.13 Back
19
C&AG's Report, para 27a, 2.6, 2.14 and Q5 Back
20
Qq 50-54, C&AG's Report, para 16, 3.8-3.9 Back
| 
