How PFI delivered for Hexham

Jonathan Hills , PPP Forum

With over 500 PFI projects now operational, the benefits of new hospitals, schools and transport systems are being experienced by communities all around the UK. Since 1997 over 100 major hospital schemes have either been built or are in construction. Over three quarters of these have been delivered as a result of PFI. This has made a real difference to the fabric of the NHS estate, helping to improve patient care.

However, in the public debate about PFI, the perspective from the public sector manager of these facilities is not often seen. To redress the balance, the PPP Forum gives the public sector a platform to share their experiences of managing projects from procurement through to operation. We have gathered together a significant body of evidence which proves that the partnership between the public and private sectors is working well in these projects.

Evidence from government surveys supports this. A Partnerships UK survey in 2006 commented on the largest survey of PFI projects ever undertaken. It contains a comprehensive review of the performance of projects during their operational phase, and the findings show that public sector managers and users are happy with their projects and the level of service they are receiving. For example, the survey found that over 95% of projects are performing at least satisfactorily and four out of five of all public sector users of PFI projects are always or almost always satisfied with the service being provided.

To see how this translates to the daily experience on the ground in the NHS, the PPP Forum has carried out a number of case studies, one of which we focus on here - Hexham General Hospital PFI project. The PPP Forum interviewed Paul Brayson, head of PFI at the Northumbria Healthcare NHS Foundation Trust at the end of 2006. The result adds some useful and relevant perspectives to the debate about PFI in the NHS.

Hexham General Hospital

Officially opened by Prime Minister Tony Blair in January 2004, the state of the art £28 million new Hexham General Hospital serves around 70,000 people in the Tyne Valley, providing them with a stunning new environment in which improved services and facilities can be provided. It replaces the original wartime emergency medical hospital which was made up of short term huts built during the Second World War, which still formed the bulk of the accommodation in the hospital

PB: “It was all single storey and on quite a significant slope – it was really quite a challenge just for some people to negotiate the hospital. So by the time we got to 2001, it was a much loved institution but hopelessly inadequate for its purposes. Ever since 1955 there had been plans afoot to rebuild the hospital as the wartime huts were still in use even though they had an original design life of 10 to 15 years. We needed to do something about it.”

The new hospital so desperately required was not given the go ahead for many years. The reason for this was the lack of available capital.

PB: “Successive regimes from 1955 onwards undertook a series of reviews that always concluded that yes, a new hospital needed to be built at Hexham, but we can’t get the capital. Then every five years the story would be the same at the reviews – we still need a new hospital but we can’t get the capital, and so on…that was a nationwide problem and in some respects PFI as an initiative emerged as a response to that dilemma which was being replicated up and down the country. Hexham is not the only place in the country regrettably that has wartime huts – I’ve been to half a dozen sites up and down the country where the NHS has this dilemma of replacing clapped out Victorian accommodation. I think that PFI has been key in breaking this cycle.”

Procurement

Catalyst Healthcare was finally selected as the preferred partner. The Trust originally received over ten bona fide submissions from different consortia.

PB: “We really picked what we thought was the best scheme for us. And for us that worked really very well. So in a period of two years we broke the cycle of forty years of prevarication. PFI brought to Hexham a project which forty years of trying hadn’t delivered previously.

We successfully closed the deal, very much against the parameters that had been established early on. So that represented to us it was a good deal and a fair deal. The consortia did work with us well. There’s obviously a lot of work in developing detailed clinical proposals. We had a highly iterative process whereby it was actually the nurses and clinicians on the ground who designed the facilities. So I think it’s true to say that most people ended up with facilities they were happy with. Most people genuinely felt they had got a fair deal and I think the facilities have stood the test of time. We’ve been living in them now for nearly three years – and most people most of the time are happy with what they’ve got. It has proved to be a successful project.”

Both parties agreed that the project company and the Trust shared a common objective on this project.

PB: “Genuinely I think we did [share a common objective]. It was delivered on time which I accept was no mean achievement with such a large undertaking - the NHS’s track record of delivering projects before PFI was patchy. That was regarded as a very successful result.”

Operational issues and performance management

In the project there is a formal performance monitoring regime which was established in line with national protocols. The project company is required to account for its performance on a month by month basis and this is supplemented by day to day relationships on the ground.

PB: “I think it’s true to say those processes are working in a satisfactory manner. They’re not without the odd challenge and the odd pressure – we do make deductions for unavailability and where services dip below the necessary standards we do impose financial penalties. That does work and things do get fixed but it is about getting the required service level. The level of deductions is not significant – it’s the odd issue that tends to be picked up – and generally speaking we resolve things without it ever becoming a matter that precipitates the deduction mechanism.

Most things are attended to in the relevant contract periods. There is a well trained, well resourced team on site, so not surprisingly most of the time they do exactly what they’re supposed to do, and that’s the way the contract should work. So I think it’s fair to describe the ongoing relationship as good – it’s working in a satisfactory manner, the parties speak to each other in an appropriate manner – and it is an appropriately robust commercial relationship. We’re in this for the long term. ”

Long term security

The long term nature of the contract gives the Trust an element of security with respect to the property costs.

PB: “The whole point of PFI is that we have successfully transferred a huge range of property risks that previously used to lie with the Trust. So if the roof leaks in ten years it’s not our problem, if the main boiler plant goes ‘pop’ tomorrow it’s not our problem. So that gets rid of all of those risk items associated with the property base that on other sites would have to be managed internally. This does make the task of managing clinical services on this site easier.

There is an issue, much talked about in the press, that we are locked into the deal for 30 years – and that can be both a good thing and a bad thing against a rapidly changing healthcare agenda. But to be honest, personally I always think it is a little unfair to run that argument because in the scenario where the Trust gets capital and builds something it’s equally as locked into those facilities – if you sink £30 million into the ground it’s there for 60 years. You can always demolish it if you want to and you can always leave a PFI deal if you want to. I think the concept of flexibility is much misunderstood in capital terms – I think in reality we’ve actually got as much flexibility within the PFI contract that in reality we do in any other building that we build .”

Variations

There is a major variation going on at Hexham at the moment.

PB: “It is quite surprising really that only halfway through phase one we decided that the world had changed generally in the NHS sufficiently to warrant us reviewing quite severely the content of the second phase of the development – and we have managed to find a way through that process. The variation process has worked in the sense that there is a new building out there being delivered. You have to say that it isn’t easy – it isn’t easy to do a PFI variation, and I think the industry and the Department of Health acknowledges this as well. It is a very difficult process but when you think about what you’re trying to do I guess it’s always going to be difficult: we’ve effectively raised another £20 million of investment, so not surprisingly there is a great deal of discussion that needs to take place to secure development. I think there’s a risk in saying too easily that it’s too difficult – it’s always going to be difficult whichever way you do it. It is just a difficult subject.”

Design

PB: “I think the fact that it does exactly what it’s supposed to do should not be overlooked. The design was led by clinicians and first and foremost the hospital does deliver a clinical solution. It’s also true to say that many people find the building surprisingly attractive. And credit to the architect and the construction team – they have delivered something which not only delivers exactly what it is supposed to do, but is genuinely a pleasant environment to go into. I think when most people walk through the door of the hospital they’re surprised at the quality of the facilities that they’re faced with. It’s proved to be quite an achievement by all concerned.”

When asked what he would say to the critics of PFI, Paul gave the following answer:

“Come and see! I think we’d be happy to talk through our experience of dealing with it to any critics. The hard facts of life are that PFI has delivered a good quality facility here which the NHS tried to do for 40 years and never succeeded. I think it is true to say that PFI broke that cycle of continued deferment of capital schemes. So I think the simple answer is come and see what PFI can do.

I’ve done major schemes like this in the old days through capital funding – it wasn’t easy then, it was always a very hard process. People say PFI is difficult – well it is, but it always was difficult. They obviously don’t have a living memory of just how difficult it was to get capital schemes off the ground. And the simple fact is that PFI is delivering, and the old system didn’t .”

It is clear that PFI is a partnership that works. It has enabled the dramatic transformation of the UK’s deteriorating infrastructure and will continue to do so in the future. In the NHS alone, there is a further £7 billion worth of major hospital projects in the pipeline. This means that since 1997, 111 new major hospital schemes will have opened by the end of 2010, the majority of which are funded through PFI. It is hard to call this anything other than a success story.