Transferring assets to social enterprises - the perks and quirks

In the light of the recommendations of the Quirk report that more guidance on transferring public assets to community ownership and management would be helpful, it is worth drawing attention to Estatecode as a possible tool to assist in externalising primary care trust provider services and promoting sustainable contestability.

• Externalisation is neither a clearly prescribed process nor an easy one (potential issues include consultation, pensions, EU procurement law and insurance, but do not stop there).

• The PCT, as commissioner, should ensure that any separate provider body with which it contracts enjoys robust clinical and financial governance. To achieve this, the separate provider entity may need an asset base - especially if it wants to attract external funding.

• A PCT is constrained by the scope of its statutory powers to invest in or fund companies, which could affect its scope to transfer assets or prime the new provider entity in other ways.

• If the commissioner releases control over the facility from which the service is delivered, there is a danger that far from creating contestability, it may find itself committed to a contractual relationship with a single, available external provider, instead of managing an internal provider arm. The likelihood that a separate provider will enforce its rights under a legal contract is much greater than the likelihood of an in-house provider standing its ground and winning the argument under an NHS service level agreement.

Estatecode provides that priority purchasers (the definition of which includes non-NHS organisations that provide social or healthcare services under contract from a PCT) have first call on ‘surplus’ assets. There are a number of available options:

Outright transfer

You need to ask: is the risk of loss of control counterbalanced by the capital receipt? Consider disposing subject to restrictions on use and/or clawback provisions.

Short-term lease

Consider the possibility of a concessionary lease linked to the commissioned service contract term (but not exceeding seven years). Estatecode permits these in specific circumstances where the premises are to be used for services that complement NHS services or would otherwise be provided by the NHS. The value of the concession isjustified by the expectation that any financial loss will be matched by equivalent financial gain or service benefit.

Grant powers

Alternatively or additionally, consider using grant powers under the NHS Act 2006 to assist not-for-profit organisations to procure or upgrade their own facilities for the provision of services. A PCT may wish to make the grant subject to commercially proportionate conditions that monitor the proper expenditure of monies by the services provider, possibly including collateral warranties and clawback provisions.

The Quirk review has concluded there is no need for legislative change because the mechanisms for transferring asset management and ownership are already available. Nevertheless, PCTs may benefit from professional advice to take advantage of those mechanisms and manage the risks of doing so.

There is, however, a wider question about whether NHS provider trusts (which may include community foundation trusts) will want to make assets available to non-NHS competition. NHS providers may resist asset transfer to inhibit third-sector competition.

This underlines how commissioners face a wider challenge to stimulate competition in other ways, including, at the very least, developing a strategic range of sophisticated and contractually robust commissioning contracts, and possibly also including joint ventures and other innovative approaches.