Circle's risk on historic Hinchingbrooke deal capped at £7m

The contract was signed by the Department of Health late last Wednesday night, nearly a year after Circle was selected as preferred bidder.

It will see the firm manage an estimated £1bn of turnover at the Cambridgeshire trust, over a 10-year period from February 2012.

But Circle is only required to cover any losses incurred by the trust over that period up to the first £5m, according to a statement released to the Alternative Investment Market. If the financially struggling trust incurs further losses on Circle’s watch, either party can terminate the deal, requiring Circle to pay a £2m termination fee to Hinchingbrooke.

Any surpluses made at Hinchingbrooke will be split between Circle and the NHS, with much of the latter share used to pay down the trust’s £40m historic deficit.

Health minister Simon Burns told the House of Commons the agreement was a “good deal for patients and staff at Hinchingbrooke”.

“There is an incentive and a pressure on Circle to seek to deliver on reducing and – we hope – eliminating over the 10 years the [trust’s £40m] historical deficit,” he said.

Achieving the kind of surpluses which would allow that deficit to be paid off would represent a radical transformation for the trust.

In two of the past five full financial years Hinchingbrooke has recorded deficits in excess of Circle’s maximum liability under the contract – £13m in 2006-07, and £16m in 2007-08. Its surpluses in the following three years totalled less than £1m.

Hinchingbrooke’s most recently available finance report shows that at the end of August the trust was reporting an in-year deficit of £2.6m, and was forecasting it would deliver only £3.6m of its £6.7m savings plan.

He added that the company expected to invest “millions” developing the hospital, and its new model for managing Hinchingbrooke could take three or four years to bear fruit.

Circle chief executive Ali Parsa told HSJ that Hinchingbrooke’s current management had his full support. “It’s a really important message that this is not about changing management, it’s about giving management the ability to manage,” he said.

The delay in signing the contract had been “detrimental” to the trust’s finances, but this had been “counteracted by a very strong strategic team”, he added.

“I’m very impressed with 
the way people like [chief executive] Nigel Beverley and others have been holding the fort,” he said.