PCTs have just months to the deadline for divesting their provider arms. Clarity now will prevent nasty issues later, say John Chapman and Tracy Saunby

With less than four months to the deadline for primary care trusts to divest their provider arms, many have still to do so. Here we look at just some of the activities involved in the transfers of provider arms to trusts and foundation trusts.

Important stages will be agreeing the heads of terms and due diligence and then entering into detailed transaction documents. Clarity now will avoid issues arising later; and the heads of terms will also be needed for the Cooperation and Competition Panel.

Transfer details

Detailed financial, legal and operational due diligence will enable the acquirer to assess the provider business and identify areas for risk mitigation.

The transfer agreement itself will set out what is to be transferred and any related documentation, including the community services contract.  An important consideration will be whether premises and assets are to be transferred or only leased/licensed. Part of the negotiations is likely to be repair and maintenance of premises and recovery of costs incurred by the acquirer in the community services contract price.

The transfer agreement will also address allocation of pre-transfer liabilities. Other areas will include apportionments of debtors and creditors, provisions in relation to transferring staff, arrangements for the transfer of contracts, and provisions for any ongoing supplies of services.

The principal contract will be the community services contract with the PCT and the focus will be on the specification and duration of the contract and any restrictions on withdrawal of services for market testing. The contract value will need to take into account factors such as responsibilities being passed to the acquirer, the opportunities for efficiencies and, where there is a mid-year transfer, any uneven distribution of income and expenditure across the year.

The PCT may also need to address its legal duties to involve service users in the consideration of service changes. 

Other contracts such as primary medical services contracts and dental contracts may also need to be transferred or entered into with the acquirer.

The application for the Cooperation and Competition Panel to consider the transaction should be made once the heads of terms are agreed. Normal timings for its decision will vary from 20 to 130 working days.

Complying with Monitor

Where a foundation trust is involved and the transaction is regarded as “material” or “significant” the FT will need to comply with its obligations under the compliance framework and receive formal notification from FT regulator Monitor.

For significant transactions the FT must submit additional documents (including an integration plan and where required an independent accountant’s report) to enable Monitor to carry out a full risk evaluation. This process may take up to three months.

The acquiring trust will also need to allow for amending its registration with the Care Quality Commission and its cover through the NHS Litigation Authority to embrace its new activity from the transfer date. FTs will also need to deal with any variations to its authorisation where the transferring services are to become “mandatory services”. This will normally be decided by agreement with the PCT and in consultation with the overview and scrutiny committee.

The PCT will also need to take into account the SHA approval cycles for the transaction.

Staff assigned to the transferring services will automatically transfer to the acquirer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 and the PCT and acquirer are required to provide information to staff representatives and consult with them in relation to any measures to be taken as a consequence of the transfer. In addition, both the PCT and the acquirer are likely to wish to carry out a wider engagement programme with staff.

Integrating operations

The acquirer will need to address integration of the new operations and whether any changes are needed to its governance arrangements.

External agencies such as Monitor and CQC are likely to be very pressed with the volumes of transactions and PCTs and acquirers are advised to develop clear timetables which are cleared with these external agencies and to ensure that they stick to them.

John Chapman is a partner and Tracy Saunby an associate at Bevan Brittan LLP.