Private Finance Initiative - Treasury Contents

Written evidence submitted by the North Tees and Hartlepool NHS Foundation Trust


North Tees and Hartlepool NHS Foundation Trust is a provider of acute and community healthcare services in the North East of England. Its services are provided to a population of c500,000 people predominantly located in the communities of Hartlepool, Stockton on Tees, Easington and Sedgefield.

The Trust operates from two district general hospitals, University Hospital of North Tees and University Hospital of Hartlepool, as well as a number of other smaller facilities which are particularly used in the delivery of community services.

Prior to achieving Foundation Trust status, a new management team was appointed and the organisation was then one of the first NHS Trusts to achieve financial turnaround having been operating a significant deficit. It has achieved a surplus for each of the following financial years and achieved Foundation Trust status in 2007.

The Trust was the first provider of acute services to be awarded a contract to provide community services in its locality and has done so since November 2008. This is now the most popular model for community service provision within the NHS.

The Trust and its PCT commissioners have a collective and whole system approach to delivering healthcare across the whole of North Teesside. A programme, the Momentum: Pathways to Healthcare programme, has been established with a Programme Board co-chaired by the Chief Executives of both the Trust and its main commissioners. This approach is a direct response to a number of reviews of healthcare provision in the locality, the most recent being by professor, now Lord, Darzi and the Independent Reconfiguration Panel. The latter recommended that a whole system healthcare approach be taken and that there be one (rather than two) district general hospitals serving the population of North Teesside and that this hospital be equally accessible to all communities the Trust serves. The Trust has taken equally positive and proactive steps to secure a new hospital in accordance with the IRP recommendation.

It has purchased a greenfield site, close to the local major trunk road, the A19 and has secured outline planning permission for the new hospital.

The new hospital scheme was originally to be publically funded but, following the review of capital commitments by the Coalition Government, the Trust was asked to consider other funding routes for its new facilities. The Trust has considered all available options and has concluded that private finance and the use of the private finance initiative is currently its preferred option.

Within the Trust's Executive Team there is a significant amount of PFI experience, both in terms of putting PFI schemes in place and in terms of running and managing PFI schemes. This extensive experience over five PFI hospitals, has given the team significant hands on learning and it therefore wishes to improve upon the existing model in delivering its new facilities. It continues to review all private finance options to seek to ensure that it obtains the best terms for any private funding.

This submission therefore focuses on the lessons learnt from the operational PFI schemes and the Trust's suggestions for improvement which the Trust wishes to adopt in its new hospital venture.


As mentioned above, members of the Trust's Executive Management Team have put three PFI schemes in place and managed the operation of two others. The experience gained was within other NHS Trusts. The Trust's Director of Operations also worked in the private sector for a company which provided facilities management and lifecycle investment to services in PFI environments and therefore understands PFI from two key perspectives.

The key issues which arose from an operational perspective are as follows:
Issue Commentary
Cost of additional works and services

Time taken for estimates often in excess of contract timescales.

Costs often had to be challenged and often were significantly reduced when checked by a cost consultant engaged by the Trust.

Services provided outside of PFI arrangements

Some PFI schemes had services provided outside of PFI payment mechanism arrangements, but which were critical to the operation of the hospital.

Sole remedy clauses meant that the Trust was unable to incentivise performance or remedy issues easily.

Benchmarking/market testing

No detailed arrangements were included for benchmarking or the parameters for comparisons to be used for benchmarking.

There were/are very few comparable sites and services with which to compare.

Benchmarking was exclusively the PFI providers' responsibility and would benefit from involvement of the Trust.

Requests for price increases as a result of benchmarking exercises across two PFI schemes varied between 7% and 20%. These were challenged. Subsequently a significant reduction was negotiated on one scheme and the benchmarking exercise re-run on the other.

On another contract a unique tailored arrangement was agreed for five years.

Keeping track of changesLogging changes and keeping the payment mechanism up to date was often overlooked. Change in personnel within both organisations meant a loss of corporate knowledge. This could be improved upon in any new contracts.
Payment Mechanism

Often too compartmentalised in approach, with the Trust's own commercial risks not mirrored sufficiently well. For example, NHS providers can also face deductions from commissioners where required service levels are not achieved. This means that:

The triggers for unavailability and service failures can often not reflect operational needs or working practices;

Self measurement of performance is not necessarily reliable and, to avoid challenge and queries, joint performance management may be more effective;

Built environment condition should also be linked to the Trust's own performance requirements for premises which are detailed in the Trust's own commissioning contract.

Payment Mechanism and Independent Tester overlap A number of installations such as heating, ventilation, ICT and so on would benefit from some sort of bedding in period to demonstrate performance in accordance with contract requirements. These should not be signed off by an independent tester as fully functional units until the technology has proven itself in practice in normal operational conditions.
InsuranceArrangements for insurance have usually placed responsibility with the PFI provider. This mechanism may or may not prove to be value for money and could be more flexible to allow for the entity best placed to secure insurance to be able to do so.
Lifecycle arrangements Greater transparency on costing including pricing for risk and involvement of the public sector in determining replacement timing would be beneficial. Often expertise in such lifecycle planning within NHS Trusts and other public bodies has not been utilised effectively or at all within the PFI schemes.
Shareholding arrangements Many shareholding arrangements are often for an initial period of one year post construction completion and then can often be amended with offshore and corporate shareholders/directors put in place. This often means that true ownership details of those ultimately running or managing the schemes are not easy to determine. Such arrangements lack transparency and can mean that a Trust or other public sector body does not know who it is truly contracting with or how well that business is performing. In a long term arrangement increased transparency would be helpful. In addition some control over shareholding and other changes may be useful to ensure that a true partnership can develop and continue.

There were a number of other project specific operational issues which arose which were unique to the drafting of the PFI contracts in question.

In all instances some vigilance and management at a high level within the Trust was needed to ensure that the correct amount was payable for all services provided.

The time taken to manage a PFI contract was in excess of that originally anticipated. The self monitoring of performance by the PFI providers whilst useful, did not mean that the Trust itself did not have to monitor the provision of services.

In all instances change is inevitable and early and continual appraisal of performance to match operational needs is essential.


The Trust has undertaken three separate soft market testing exercises and in each instance met with at least five key private sector PFI providers. Discussions and interviews took place over a three year period and the following key themes were discussed:

—  Lessons learnt from operation PFI schemes from both a public and private sector perspective.

—  Funding availability and funder appetite for PFI..

—  Costing of risk and which entity is best placed to take each risk.

—  Approach to procurement including methodology and cost.

—  Procurement timescales.

—  The Trust's preference to address each of the operational issues addressed in section on Lessons Learnt above and the private sector view on such issues.

In particular discussion took place in respect of the Trust's wish to create a "new generation PFI" :

—  to carry out "front of house" hard facilities management services eg. decoration, replacement of floor coverings, general wear and tear and thereby reduce the lifecycle costs paid to the private sector. Also, the Trust would undertake minor works such as hanging pictures, putting up shelves, moving sockets and so on;

—  have the private sector continue to be responsible for hard infrastructure such as the energy centre, pipe and duct work, heating and ventilation, windows, roofs, masonry etc;

—  to have joint contract performance monitoring;

—  to have insurance purchased by the entity best placed to achieve value for money;

—  to have the Payment Mechanism recalibrated to ensure that overall risk weighting remained as has traditionally been the case but that weightings within the mechanism reflect the true risk of loss of income to the Trust and better reflect commissioning contracts incentives and penalties; and

—  that cost certainty for variations is ensured and represents value for money;

All considered in some depth and positively received as a sensible way forward by the private sector.


The Trust believes that in addressing the lessons learnt and revising PFI as detailed above would:

—  build on the strengths of PFI;

—  address operational concerns;

—  ensure a facilities management model which would give better control to and input from the public sector;

—  ensure lifecycle investment is carried out at an optimum level;

—  ensure a truly tailored and incentivising payment regime;

—  be more cost effective; and

—  offer the opportunity for a greater sharing of benefits.

Whilst initially the proposed adjustments would take a little extra time to negotiate, thereafter the benefits of standardisation would apply.

Private sector and public sector costs would be reduced, there would be less duplication of effort by all parties involved, more appropriate risk transfer and sharing of risks would apply, funding institutions would remain confident in the model and staffing arrangements would be more stable than in early schemes.

The Trust is keen to exploit the benefits of PFI and learn from experience to date. It looks forward to involving private sector input both financially and operationally into its new scheme and feels that the above approach could harness all of these aspirations in a market acceptable way.

The Trust and key members of its Executive Management Team would be happy to give evidence at interview should you so wish.

We apologise for the late submission of this paper which resulted from overlapping annual leave during April.

May 2011

previous page contents next page

© Parliamentary copyright 2011
Prepared 10 August 2011