Compensation danger over LIFT contract transfers

An internal Department of Health briefing document, seen by HSJ, which discusses the issues around the PCT private finance schemes warns that investors could demand compensation for the breaking of contracts and even evict their NHS tenants.

The DH briefing documents also cautions that any organisation to which a LIFT contract is transferred must be “of equal financial standing to a PCT” and says that where this and other contractual obligations are not met, there will be “substantial termination liabilities”.

Roughly 90 PCTs have entered into the public-private capital programmes which have led to the delivery of £2bn of property schemes.

Many of the private partners - so called LIFTCos - have rights to a guaranteed future amount of capital work in the geographic area for the next 20 years.

The six page briefing document was delivered to the DH’s transaction board in July and HSJ obtained it through the Freedom of Information Act. The issues set out in it remain unresolved. There is still no guidance as to where the PCT estate will sit after PCTs are abolished and the DH last week asked managers with questions about LIFT to contact it directly.

The document warns the legal liabilities for breaching these contracts “could easily reach the high hundreds of millions”.

It says most LIFT schemes have terms meaning “a prospective NHS reorganisation which takes away from the PCT the backing of the secretary of state, potentially [triggers] a public sector default and payment of compensation to the LIFTCo.”

It added that with some contracts “the private sector partner, as landlord, could re-enter the premises and evict the NHS tenant, whilst still pursuing for outstanding rent and other losses.”

The DH document, written by commercial directorate acting deputy director Ben Masterson, said the LIFT Council, which represents LIFTCos, was likely to ensure its members claimed the maximum compensation for which they were eligible.

The document sets out six options for what to do with LIFT contracts: relocate them to foundation or community foundation trusts, to an outpost of the NHS Commissioning Board, to commissioning consortia, to local authorities, to a “health infrastructure company”, or do “the minimum”.

The favoured options were relocation to the Commissioning Board or the infrastructure company. The document said both these options could continue to “commission local assets in the LIFT area when required”.

A briefing note accompanying the document said the infrastructure company  could be a national “not for dividend” organisation wholly owned by the department “similar to the structure of Network Rail”, an arm’s length body or a public-private joint venture.

The LIFT Council has said the government “could make a rod for its own back” if it transferred property to the wrong body. Chair Chris Whitehouse said this could undermine patient choice and competition. The DH document agreed, saying “assign[ing] long term leases to clinical providers would potentially work against any willing provider”.