Health PFI Handback – Re-inheriting a PFI asset: milestone or pot of gold?
Many assume that an appropriate level of resourcing, robust contractual knowledge, and a touch of negotiating guile, will result in successful contract expiry and inheritance of the relevant assets – and the Trust’s business can continue as normal, focussing on delivering frontline services. However, the implications of inheriting an expired PFI asset are not that simple.
This article explores the various issues that a Trust must prepare and resource for to fully leverage inheriting a PFI. All being issues that have nothing to do with the PFI contract partnership but are the implications of having it.
For 25+ years, the PFI asset may have been either the sole asset occupied by a Trust, or part of a Trust’s portfolio, around which the role of other assets have been considered. The inherited asset is likely to be in a better condition than other assets.
Upon expiry, the Trust can better manage the utility of the asset to support service delivery and potentially relax some of the physical standards, allowing more capital and cash to be directed towards serving health needs.
Dependant on the nature of the underlying asset and its relative importance to the Trust, PFI expiry may enable placing a more appropriate estates strategy, utilising its whole estate to best effect. This includes the consolidation of various services within the former PFI asset, freeing other assets for further uses or value creation enabling the Trust to manage its portfolio more effectively.
The Trust will regain management of the soft / hard FM, and perhaps other previously PFI’ed services. In effect the Trusts become able to operate their estate in the same way all other Trusts have done for years.
But now the inherited assets are newer and potentially have been better maintained over the last two decades. To the FD it is a free asset (no more payment of the unitary charge but still revenue and accounting implications). To the COO there is less contract management. To the Estates Director, it offers more flexibility to do what is necessary with the estate – it’s a win, win, win.
Trusts may think that managing the expiry with their PFI contractor is a complex and lengthy process, and the Trust cannot wait to get the keys and do what they want. However, any Trust would be foolhardy to ignore the matters that need addressing sooner rather than later.
Whilst the NAO suggests that Trusts need to be readying within 7 years of expiry, they must also begin planning post expiry configuration and considering opportunities in parallel– not a message that resource strapped commercial and estates functions want to hear.
The key objective must be to maximize value and outcomes. As expiry looms, more thought is needed to capture these values and better outcomes. It is never too early to start the preparatory work – spreading the burden of resourcing and thinking. Put simply, there are three key aspects to consider:
- Know what you are receiving.
- Ensure the lights don’t go out as you receive it; and
- Make the most of the re-inherited asset.
Taking these in turn:
1. Check the obvious, and check again
Trusts should begin with an early check of their expected estate, asset and service configuration and clearly set out what they will have at their disposal after PFI expiry:
Are all assets reverting simultaneously?
What about mid contract variations?
The equipment may be bolted to the building, but was it part of the PFI agreement? And does it revert to the Trust- was it part of a side-managed equipment service contract?
Once you know what you are getting, ask if it’s what you want. A 30-year-old gas fired boiler may be better than a coal burning furnace, but in the NHS age of NZC by 2040, the Trust will need to act quickly or may be left with a hefty refurb / carbon bill.
Trusts should consider the benefits of engaging with the PFICo earlier and utilising the lifecycle fund differently to gain a more appropriate and valuable asset on expiry. Similarly, while the PFI is probably the best asset on the Trust book, it will not be perfect.
Although contractually compliant, there may be areas which need attention following service changes, shifts in the model of care, or suite of healthcare services now provided.
Trusts should consider a level of due diligence beyond that offered by the expiry survey or provided in monthly performance reports. As a simple test, each Trust should ask how much money will be absorbed into various reserve accounts in the last 5-7 years of a project, and how much of that is earmarked to asset improvement.
Trusts’ examinations should consider how diverting those funds (in agreement with the PFICo) could make for more efficient assets on handover, ensuring a more positive impact on health outcomes in future. The scale of these funds is likely to be greater than any capital allocations available in years to come – so the opportunity to use them effectively is paramount.
Understanding the services extends to the potential lease and sub lease’s obligations, e.g. for the Trust’s coffee franchise and supermarket outlet, as well as the composition of the asset management resource base. Will the Trust inherit an estates function overnight? Will it bring services in-house or re-procure? Will there be a reverse TUPE position? Will they double up on estate and asset management?
As expiry approaches, even smaller things are worth checking. If the PFI includes Soft FM, it’s worth knowing what consumables, FM equipment, records and data will come back to the Trust on expiry.
2. Keep the lights on every second
At expiry the investors, PFICo, FMCo will effectively walk away. That virtual moment of transition – and the following days and weeks must be seamless. Doing this can require years of transition planning, readiness and assessment.
From this moment, the Trust is responsible for ensuring hygiene is maintained, meals are provided and lightbulbs work – the public will be unforgiving if there is a shortage, or failure. The scale of transition may be as big as any trust merger / acquisition. However, without the obvious clinical configuration, planning for the seamless integration of people, working practices and systems should not be underestimated.
Unlike some integrations, there is no shadow working model to revert to. The success of the transition lies in the Trust’s understanding of many method statements, digital plans, workbook reports and commercial relationships.
The transition will need to assess and coordinate each of these, in a similar manner to an IT system change. Considering the commercial complexity being greater than the perceived simplicity of a single FM provider change, that is. For each FM service – a multitude of subcontracts and supply chains will need to be migrated or re-procured.
Planning for day zero starts now. Ensure the Trust reads the meters, issue contracts and cancels all leave!
3. Plan for the future and prepare
Once a Trust understands its baseline, a more traditional approach of corporate strategy development or implementation can be considered. They can establish where they want to be, and how to get there.
This should be focussing the minds of the Trust leaders on a continuous basis. But with 3 -5 years to expiry, Trust strategies should have particular regard to PFI handback, and its implications on clinical models, estates, IT, workforce, risk, finance and procurement strategies.
This overdue reassessment of the health economy, from locality-based modelling to the reconfiguration of specific assets, should help to develop future estates strategies to underpin future clinical and operating models. This creates more opportunities for engagement, specification co-production and a reassessment of the delivery of clinical outcomes.
These considerations may spark an initiative of system and delivery co-production from Trusts having the freedom to do as they wish. Allowing consolidation or dispersing services or teams, moving walls and rectifying physical barriers that were once too expensive to address, or simply to changing the coffee provider.
Depending on the PFI asset significance and the affordability of change, Trusts may begin business justification consideration for post-expiry asset and service configuration (leading to cases for change, appropriate system business cases, governance plans and investment needs). Trusts may have a programme of change needs, yet limited capital and revenue. Therefore, Trusts should consider how best to utilise their resources to generate or improve value and outcomes from their portfolio.
In summary, any Trust with a PFI should be mindful of the opportunities and implications of their contract expiring. Health sectors could learn from the likes of education and defence (through HM Treasury). However, health is different; assets and services are more complex, and the service outcome is truly life critical.
It’s never too early to consider the transition from the PFI, maximising the benefits that could follow.
If you to discuss how to best manage your contracts in the lead up to PFI expiry or have any further questions about this, please contact Jackie Heeds or Paul Styler, Director of Infrastructure Solutions at ETL.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
‘Doing the right thing’ is at the heart of Freeths. Find out more about our excellent client service and the strong set of values that guide the way we work.
Talk to us
Freeths are a leading national law firm with 13 offices across the UK. If you have a query about our services or just want to find out more, why not give us a call?
Contact: 03301 001 014