Bidding farewell

Just as we are getting used to private finance initiatives funding healthcare buildings, there are plans to change the system to stop potential bidders walking away. Emma Forrest reports

The private finance initiative has been constantly knocked since its introduction. Yet it has become an established method of procuring public buildings.

But life for PFI continues to be difficult. With the next batch of PFI buildings to be announced this summer, the number of bidders willing to put themselves forward is at a worryingly low level. Despite attempts to standardise the complex contracts behind PFI schemes, potential bidders are put off by the expense and effort required to negotiate and complete the deals.

NHS Confederation Future Healthcare Network report Getting the Best Out of Future PFI Investment in Health was prompted by FHN members, including acute trust chief executives, concerned that PFI deals failed to reflect the way that modern healthcare is changing.

'PFI worked when it was designed in the mid-1990s, but the world has moved on, ' says FHN manager Sylvia Wyatt.

The FHN's ambitions for a newlook PFI revolve around nine key issues: flexibility for the future, putting the local investment jigsaw together, capacity planning to meet local needs, investing in good design, making better use of resources, cutting bureaucracy, managing complexity, managing supply and making the transition to a new PFI (see box).

Of these, the most radical involves scrapping the 25 or 30-year life span affixed to PFI contracts in favour of a five-year partnership deal such as those used in local improvement finance trust arrangements - a local framework contract dictated by local needs.

Current PFI deals are criticised for being too inflexible to deal with changing needs.

'One of the most difficult things for healthcare providers is trying to define what healthcare will look like in 30 years' time. PFI is designed for a static market but the healthcare environment changes fast, ' explains Ms Wyatt.

There are hopes that some changes can be worked out in the next two years, by the time the latest batch of PFI deals is ready for the next stage of the bidding process. Meetings have been held with the Department of Health and the Treasury and Ms Wyatt is confident of their co-operation.

'We are not saying this is a solution but we would like to work with them on developing one, ' says Ms Wyatt.

She refutes the suggestion that there would have to be a substantial amount of work and costs involved to rewrite contracts: 'We will not have to start from scratch, ' she argues.

'One of the biggest PFI costs comes in the last three months of negotiations, when lawyers are trying, for example, to establish fuel costs in 30 years. A partnership would reduce those pressures and a five-year contract would do away with those kind of costs.' l Time for a change: extracts from the Future Healthcare Network report The local investment jigsaw Investment into healthcare infrastructure is coming from many different sources but in some instances there has not been adequate thinking about the implications of this.

We urgently need to ensure that the jigsaw of investment adds up to an appropriate pattern of care locally.

Capacity planning

The long lead time for planning means that the hospitals planned before 2004 will come into operation from 2006-13 but they will have become fixed in terms of their size and shape much earlier in the lifetime of the project (during 2002-03). This means that many of these private finance initiative projects in the pipeline may be too big for the long-term requirements of the NHS.

Using scarce resources Bidding costs are too high and could be reduced. A significant cost lies in multiple designs for each hospital, which can add 3-4 per cent to the cost of the project. The design falls as a cost on bidders, but is ultimately passed on to the NHS. The requirement to have multiple design teams also exacerbates the shortage of planning and design skills available in healthcare.

Legal and adviser costs are still unnecessarily high and the process can damage the design if cost savings have to be made at a late stage.

As a result of these flaws we need to overhaul the bidding process both to make better use of scarce resources and effectively incentivise good design.