PFI Housing and Hospitals

Response to questions and additional information arising from PAC Hearing 21 November 2010 – NAO Report into "Operational NHS PFI projects"

• Q60, page 15: do we track equity changing hands?

Whilst the Department collects information on transfers or sales of PFI project companies' shares for completing returns to the Treasury (see Q160-161, para 4 ), we do not collect information on any gains of losses made in these transactions .

• Q117-118, page 24: the PFI club, is it going ahead?

The D epartment supports the proposal that a PFI Club is set up. It recognises that this offers the opportunity for member trusts to provide long term support for their PFI schemes, and a body that will be able inter alia to coordinate relations with the private sector on their behalf. The matter was to be raised at the December meeting of the NHS PFI Forum, but the meeting was cancelled because of the bad weather. An additional meeting of the group has been scheduled for late January, when the proposal will be outlined . An average fee of around £5,000 pa will be suggested.

• Q119, page 24: improving data quality

The proposals for a 'PFI club' for operational schemes (see above) provides an opportunity to look again at the options for the most cost effective and efficient use of data to support benchmarking and market testing exercises. The most important element remains that the end users - the NHS Trusts, Foundation Trusts and PCTs - are fully involved in and agree to any decisions. The D epartment will be consulting with other organisations with major roles in the collection and use of NHS data such as the NHS Information Centre, HEFMA (Health Estates and Facilities Management Association) and the British Institute of Facilities Management, as well as private sector companies who perform these tests for NHS bodies. The role of the Department's own ERIC database will also be considered in this context.

The aim will be to establish whether NHS bodies are best served by essentially running any data collection exercises entirely by themselves (i . e . by the PFI club); w hether the D epartment or the NHS Information Centre have a role in coordinating or managing existing databases and sources to enable better access to and uniformity of data; and whether the solution involves the Department enhancing its own existing database (i . e . ERIC).

• Q122, page 25: is there a de minimus on existing contracts to allow small changes to be made without incurring extensive legal and other costs?

T he need to make small changes is dealt with under a ‘small works’ section o f t he NHS Standard Form PFI contract . This is a schedule of rates which must be agree d annually , which may be by reference to published national industry standards and indices. This is specifically to ensure that such changes can be managed in a quick, efficient and transparent manner.

The contract defines ‘ small works' as being of an individual cost not exceeding £1,000 . HM Treasury guidance has a value of £10,000. The Department's advice to Trusts' is that they can decide to increase the 'small works' threshold if they wish but recommend using the HM Treasury ‘low value’ definition as a maximum.

• Q160-161, page 30: a list of PFI projects that are extant and public sector comparators

With respect to information requests at questions 160 and 161, attached below are a number of documents and spreadsheets.

1. The first spreadsheet [up.xls] holds the information on:

- the name of the hospital (columns 'Commissioning Body' and Project Name' )

- the start date (column 'Project Operational Date')

- how many years it runs (column 'Ops Pd of Contract)

- the value of the annual unitary charge payments and the total cash value of the payments over those years going forward (columns starting at 'Unitary charge payment 2000-01', the last payment in 'Unitary charge payment 2047-48' and then a column with cash total for each scheme)

All this information is sent to the Treasury as part of biannual returns on PFI signed schemes which is then published on their website along with returns from all other Government Departments. The latest one was published earlier this year ; the link is :

http://www.hm-treasury.gov.uk/d/pfi_signed_projects_list.xls

The spreadsheet below has a few minor updates to it. Note that the unitary payment figures in these tables are prepared within the department and are largely projections based on the price at financial close uprated annually using an RPI figure of 2.5% (used as a long term average estimate). We do update figures for individual schemes using information normally received from Strategic Health Authorities (SHAs) in response to queries or other one-off information gathering exercises, but as unitary payments fluctuate both up and down as a result of contractor performance, additional services requested by the trust or taken out, the effects of refinancings and changes to RPI, these figures are only estimates.

2. The second spreadsheet [Increases in capital costs.xls] holds information on the cost of each PFI scheme at the Outline Business Case - when it starts as a PFI project - and the actual cost at financial close. This information is part of the Department of Health's annual evidence to the Health Select Committee, which is then published by them; it also includes the reasons for any increases. For example see table 5.3.4 in the report of 2005:

http://www.publications.parliament.uk/pa/cm200506/cmselect/cmhealth/736/736.pdf.

3. The document [Further infor NPV from HSCs.doc] holds the information on the value for money analysis for PFI schemes . Value for money is assessed by comparing the risk adjusted whole life costs and benefits of the PFI option with those of the public capital funded option (the public sector comparator), both being expressed as a single criterion known as the net present cost (NPC), often referred to as the net present value (NPV).

Again, this information is submitted as part of the Department of Health's annual evidence to the Health Select Committee, which is then published by them (eg see tables 5.3.5(a) - (f) in the 2005 report above; the document below contains these published returns for each year since 1997/98 . All the signed NHS PFI schemes are included apart from some of the earlier projects as the Committee only requested the information for schemes above £25 million.

4. Information on the counterparties to NHS PFI contracts (the project companies) is collected by the department and sent to the Treasury as part of biannual returns on PFI signed schemes; again, it is then published on their website along with returns from all other government departments. The spreadsheet [FSBR Oct 09 HMT Return.xls] is the latest return from October 2009, which also shows any changes in shareholders since the previous year. Foundation Trusts (names in red) are not required to submit returns to the department for this exercise.

• Q173, page 33: monitoring of Trusts

The NHS Performance Framework is a quarterly assessment that identifies underperforming non-FT NHS organisations and stipulates when intervention should occur in such organisations. The framework has been applied to Acute & Ambulance trusts from April 2009, and Mental Health trusts from April 2010. Implementation guidance informs NHS organisations of the criteria against which their performance will be assessed and informs Strategic Health Authorities and Primary Care Trusts of when they should intervene to address poor performance.

In the NHS Performance Framework, trusts are assessed on the domains of Finance, Standards & Vital Signs, User Experience, and CQC Registration Status, which are combined to give an overall score. From Q1 2010/11, all trusts are given two separate ratings: one for Finance, and one for Quality of Services, which is comprised of the remaining three domains.

Within the NHS Performance Framework, trusts are put into the following categories: Performing (Green), Performance under review (Amber), and Underperforming (Red). The framework takes an escalating approach to managing poorly performing trusts - if a trust consistently achieves substandard scores they will be escalated to a more severe category. So if a trust is Performance under review for three consecutive quarters they will be escalated to Underperforming . Consistently Underperforming trusts can be escalated to Challenged .

If a provider is categorised as having its Performance under review in either of the two domains, the remedial intervention is led by the relevant PCT commissioner. Remedial intervention on Underperforming organisations is led by the SHA ; that on Challenged organisations is led by the SHA on behalf of the Department. The Department will work with the SHAs to ensure that the organisations that are financially challenged have recovery plans in place to return to financial balance whilst at the same time maintaining and improving services to patients. Problems with and maintaining efficiencies and value for money at individual PFI schemes is generally picked up and addressed through the mechanisms described in the NAO report. Such solutions may then form part of local recovery plans.

The results of each round of the NHS Performance framework are shared in the quarterly departmental publication, The Quarter .

There is no Performance Framework for Commissioners - PCTs are held to account through the management chain by their local SHA .

Department of Health

January 2011

PAC Hearing 21 November 2010 – NAO Report into "Operational NHS PFI projects"

In my answer to Q118, I stated that completion of the Estates Return Information Collection (ERIC) database is not obligatory for all NHS trusts, whereas the footnote to fig 11, p.25 of the report states that it is. On the request of the Clerk to the Committee, I have again looked at this issue and I accept this answer was not fully correct and could mislead, and the note below clarifies the position.

The discussion prior to this question related to specific costing data on the ERIC database, and if this should be used as a basis for determining if trusts were being charged rates in their PFI scheme that were over market norms. The data in ERIC is collected at Trust or site level. Sites, as used in ERIC, can be either PFI, non-PFI or a combination of the two. This means that the costing data in ERIC can be a combination of that relating to PFI and non-PFI. No data on the split between them is collected by ERIC or is available from other sources. Trust level data is not attributable to sites. It is thus impossible to ascertain if data applies to PFI or non-PFI costs and therefore cannot be used as the basis for comparatives between PFI and non-PFI rates.

I also confirm that it is not possible, under current rules, to require Foundation Trusts to split the PFI specific data out, and the position remains that ERIC data is not suitable as a basis for analysing PFI costs.

On the more general question of the requirement for all trusts to complete the current ERIC database, the attached spreadsheet details all the fields on the current ERIC return, and their status. Of the 100 fields, 37 or 37% are not compulsory for FTs to complete. However, on average between 70-80% of FTs have completed these fields.

The correct position is therefore that just over 60% of the fields in the current ERIC return are mandatory, with completion of the remainder is discretional for FTs.

Please accept my apologies if the Committee were misled by my reply.

Peter Coates

Commercial Director

Department of Health