Following the Money: Rent is optional

Of the many elements of the Lansley reforms, the creation of NHS Property Services ranks high among the list of its unpopular legacies.

Established in 2011 to manage, maintain and improve NHS properties in England vacated by strategic health authorities and primary care trusts, the company has struggled ever since to fulfil its purpose.

At the outset, the idea seemed to make sense. The company’s portfolio of around 2,900 properties equals 12 per cent of the NHS’ total estate (by floor space) and has an estimated value of £3.8bn. With some savvy management, surely millions of pounds of savings would be unlocked and reinvested where the health service needed it most?

A tale of woe

But alas, eight years on, that opportunity has become shrouded in a fog of troubles consisting of angry GPs, frustrated trusts, exasperated taxpayers, and millions of pounds of deficits every year.

The company had a difficult remit when it went live in 2013. Nearly two-thirds of the properties it took over did not have leases in place, and many buildings were in poor condition with many maintenance requirements.

Attempts to agree leases with tenants have been met with howls of anger (mainly from GPs incensed at the associated – many say inflated – price increases) and almost no progress has been made on this front.

Tenants have also complained about the accuracy of bills and the company’s slow response time to sorting out estates issues.

Meanwhile, there are question marks over the company’s bonus payments to directors, which have topped the list of NHS quangos, despite other peers (including NHS England) scrapping reward schemes given the NHS’ current economic difficulties.

In 2018-19, NHS Property Services paid £206,000 to its seven executive directors (CEO, finance officer, asset management, operating officer, customer services and communications, information officer, and HR), down from £235,000 the previous year.

The company says its bonus scheme sees directors “tied to the delivery of challenging efficiency and improvement targets set annually by the remuneration committee”.

Independent body offers some support

But it was interesting to read a report by the National Audit Office published last month, in which some sympathy for the company was expressed by the watchdog’s new head.

Gareth Davies, who took up his role on 1 June, said “too many NHS organisations and GPs seem to regard paying for their premises as optional”, and noted £700m had either been written off or remained unpaid to the company.

According to Mr Davies, the company “still lacks the powers it needs to run its affairs effectively”, and he urged the Department of Health and Social Care to address the “unsatisfactory situation” rapidly.

And he concluded: “NHS Property Services has slowly improved the way it manages its NHS properties.”

However, his auditors urged the DHSC to “provide stronger challenge” to the company’s process for directors’ bonuses, so that “bonuses are paid for achieving genuinely stretching and important targets”.

Resolving disputes

One of the major problems for NHS Property Services is that it has “no effective way of getting tenants to sign formal rental agreements”, the NAO found – and, even when contracts are signed, the company cannot take legal action, issue penalty charges, or evict unruly tenants because of the DHSC’s policy is to decline “Crown vs Crown” legal action due to the expense to the public purse.

The company can take an uncooperative tenant through a formal arbitration process. This process was established in 2017, but the NAO reported some requests to start such arbitration have taken more than a year to get approved.

NHS Property Services has made around 60 requests, but only 19 of those were approved by the central bodies.

Yet HSJ understands no arbitration hearings have ever been held because NHS Property Services and the tenant have always reached an agreement just in time.

The NAO concluded the new arbitration process is “not working effectively” and recommended a new process be put in place. DHSC has accepted this. 

The 2020 challenge

If the DHSC is serious about the problems encountered by NHS Property Services, officials must move fast.

HSJ understands the DHSC has accepted the NAO’s recommendations and has committed to drawing up a plan with the company that will see all tenants agree tenancy details and charges by the end of this financial year.

But given the difficulties faced in the last six years, sorting out this mess in eight months seems unlikely.

The NAO report also highlighted the DHSC’s failure to undertake a review of the company despite the Cabinet Office expecting all non-departmental bodies to undergo this at least every three years.

However, DHSC officials say the Cabinet Office’s rule applies specifically to arm’s-length bodies and not to wholly owned subsidiary companies such as NHS Property Services. A source told HSJ the DHSC’s estates team had focused on “improving the operational performance of the company”.

But a DHSC review is expected to be published by October this year.

This review, together with the DHSC’s plan in response to the NAO’s findings, must find a way to urgently turn around the fortunes of a company which is haemorrhaging cash.

HSJ asked NHS Property Services when it anticipated becoming financially self-reliant, as the DHSC originally envisaged.

The company said that would require a “significant increase in the level of agreed occupancies and associated charges, and an associated improvement in payment behaviours from its customers to reduce the debt”.

A spokesman added it was “difficult to give a precise estimation for when this will occur”.