Created in 1992, PFI took hold when New Labour came to power in 1997. Although criticism over expense has been consistent ever since, a 2009 study by University College London showed that hospitals operating under PFI have better patient environment ratings than conventionally funded hospitals of a similar age.
Since the Coalition took over in 2010, the PFI credit system has been abolished with public spending limited by austerity. PFI struggled to find value for money (VfM), particularly in two areas. The first was the speed of procurement, where the time between project inception and delivery was usually around five years, but was sometimes up to 10 years. Second, it needed a more effective balance of risk transfer, which would allow the public sector to retain some of the appropriate project risks while avoiding paying a premium within the contract.
This is not a paywall. Registration allows us to enhance your experience across Construction Management and ensure we deliver you quality editorial content.
Registering also means you can manage your own CPDs, comments, newsletter sign-ups and privacy settings.
Consequently PF2 was designed to overcome these specific issues. It was designed to speed up procurement by introducing a time limit of 18 months. If that 18-month deadline is broken then the public sector money for the project can be reallocated.
And on all equity investments the government itself holds between 30-49%, making it a minority investor and taking on both the risk and profit of that role.
When George Osborne announced PF2 in 2012 he said it would be “faster and more transparent” than PFI, which he had criticised as “poor value for money”.
PFI has always been contentious for tying NHS Trusts to inflexible and expensive facilities maintenance deals over prolonged periods of time, notably for “soft” services such as catering and cleaning.
PF2 should have been music to the ears for NHS Trusts desperate to transform their ageing estates by providing patients with state-of-the-art facilities at a reduced cost and more quickly. However, other than Midland Metropolitan Hospital, PF2 hospital projects have fallen by the wayside.
The Royal National Orthopaedic Hospital recently withdrew from PF2 due to VfM issues and North Tees and Hartlepool Foundation Trust last month announced that its plans to shift services into a new hospital were “paused” after failing to secure approval from HM Treasury for its PF2 bid.
This means Midland Metropolitan Hospital has become a pilot for whether PF2 is a viable solution for hospital development, and more important, whether it does overcome the criticisms of its predecessor.
The initial premise of PFI – spreading the cost of major assets like hospitals over the period of its use – is more relevant than ever due to the falling NHS capital budget. Latest figures from the Department of Health state that total backlog maintenance works of the NHS estate that present a significant and immediate hazard to staff or patients has risen by 19.2% (£56.8m) in one year. If much-needed investment is not coming from PF2, then we need to find new investment models quickly.
This piece first appeared on the WSP website here.
