NHS Trusts operating from the 100+ buildings constructed under the Private Finance Initiative (PFI) since 1997, and effectively leased from a private sector consortium, are likely to face difficulties negotiating changes to the shape and structure of the buildings to adapt to life with Covid-19.
The experience of staff in many trusts has been that PFI consortiums jealously guard “their” hospitals, objecting even to eye charts on the wall, and insisting even the smallest changes to the fabric of the building needs to be negotiated with, and delivered by the consortium – at extra cost.
That’s just one of the many aspects of PFI that were not recognised – or disregarded – by ministers or by NHS trust negotiators at the time. Now the National Audit Office has produced a new report highlighting another neglected aspect of PFI – the costs and complications of negotiating the end of a PFI contract – including the question of what condition the building will be in, and whether the public body has to fork out further sums to buy the asset when the final payment has been made.
The study surveyed 107 of the 571 PFI projects in England (it does not disclose what proportion of these were NHS projects), of which 18 had already expired.
To anyone conscious of the conflict of interest at the heart of a “partnership” between the public sector and a profit-seeking consortium it will be no surprise that the NAO now concludes that:
“PFI providers have an incentive to limit expenditure on maintenance and rectification work in the final years of the contract as any savings can be used to pay out higher returns to investors.”
It’s only taken the NAO 28 years to issue this warning, after £57 billion of capital projects have been built in the UK, with much bigger repayments stretching on into the 2040s.
In more locking of stable doors after the horse has bolted, grown old and died, the NAO also belatedly note the relative bargaining power of the private sector in expiry negotiations. While 328 public sector bodies have PFI contracts, 182 of them with just one apiece, the top six management companies control 45% of PFI contracts:
“This concentration allows the private sector to take a portfolio approach to expiry negotiations which risks putting the public sector at a disadvantage.”
An even bigger disadvantage is that the public sector has allowed the management companies to take sole charge of the maintenance and repairs to buildings and mark their own homework: 30% of those responding to the NAO survey do not even monitor annual maintenance spending – and some early PFI contracts even prevent public authorities from checking on spending or the condition of the asset.
Surprise, surprise many of these companies are taking full advantage and failing to maintain buildings as required: almost half of the nine authorities that had taken ownership of PFI assets at the end of a contract were dissatisfied with the condition it had been left in.
As more contracts, including some of the early NHS PFI contracts start to come to an end, the NAO warns that at least four years of preparatory negotiations will be needed, for which public bodies are not properly staffed, and a majority, in a triumph of hope over experience, are expecting to hire in management consultants.
The NAO notes – again to no great surprise for readers of the Lowdown – that “The government’s piecemeal approach to hiring consultants such as legal experts may not represent value for money in the long term.”
The costs of this additional work has not been properly factored in to the overall cost of PFI contracts. Many of these issues have been flagged up over the years by campaigners and by analysts – but ignored because ministers were fully committed to PFI, both as a way to build new hospitals and infrastructure without increasing public borrowing, and as a way of discretely funnelling large and guaranteed profits from the public purse to the consortiums – many of them now in offshore tax havens.
The Johnson government has disavowed PFI, but not addressed the substantial and still growing cost burden it imposes on NHS trusts: we can expect this NAO report to be quietly shelved.
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