Written evidence submitted by the North
Tees and Hartlepool NHS Foundation Trust
BACKGROUND
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.
LESSONS LEARNT
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 changes | —
| Logging 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.
|
| Insurance | | Arrangements 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.
SOFT MARKET
TESTING
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.
NEW GENERATION
PFI
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
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