Skip to main content

National Audit Office report: The PFI Contract for the redevelopment of West Middlesex University Hospital

The PFI Contract for the redevelopment of West Middlesex University Hospital

"This project for West Middlesex should assist the NHS in delivering modern healthcare in London. Effective procurement depends on learning from experience and this deal demonstrates that the NHS has learned lessons from its earlier PFI contracts."

"This project for West Middlesex should assist the NHS in delivering modern healthcare in London. Effective procurement depends on learning from experience and this deal demonstrates that the NHS has learned lessons from its earlier PFI contracts."

Sir John Bourn

 

The redevelopment of the West Middlesex hospital should assist the NHS in delivering modern, high quality healthcare in London, Sir John Bourn, Head of the National Audit Office reported to Parliament today.

As a result of letting a 35 year PFI contract with a net present value of £125 million to the Bywest consortium, the Trust will receive new facilities replacing dilapidated buildings, many of which are over 100 years old.

The National Audit Office found that this PFI procurement, which pioneered the use of a new NHS standard PFI contract, met expected local needs and was well managed. It also found that lessons had been learned from earlier NHS PFI hospital deals including the Dartford & Gravesham hospital deal on which the NAO previously reported. The Trust considered the unquantifiable benefits of doing this as a PFI deal such as the incentives on the contractor to deliver the new facilities quickly and with price certainty outweighed the disbenefits including the risks attached to being committed to a 35 year contract.

Long term planning is difficult in the health service because of uncertainties such as changing forms of healthcare and local demography. Any new hospital is a major commitment but there are particular risks from being locked into a long term contract as part of a PFI deal. The West Middlesex deal has some flexibility to accommodate these uncertainties, for example being able to increase bed numbers.

It is now government policy that the PFI has a central role to play in its capital programme for the NHS as an addition, not an alternative, to the public sector capital programme. In this deal the financial comparison with conventional procurement was not clear cut, the Trust’s calculations showing a marginal saving from the PFI deal. This form of comparison, however, has inherent uncertainties and in any event other matters need to be considered in assessing value for money. In making its decision to use the PFI, the Trust took account of, in line with Government policy, the wider benefits it expected from the PFI deal. As well as the incentive on Bywest to complete the new facilities to time and cost the PFI contract will incentivise Bywest to maintain the buildings well and to deliver the required facilities services over 35 years.

In arriving at its view that this deal would offer marginal savings the Trust gave considerable attention to an ongoing reappraisal of its public sector comparator estimate of what an equivalent conventionally procured project might have cost. Given the uncertainties inherent in these comparisons there is a risk that the attention given by the Trust to these figures may have masked evidence of important wider benefits that the PFI approach was expected to secure.

Included in the NAO’s recommendations is that departments should consider whether features of this procurement would help to reduce the time and costs of both departments and bidders in other deals and control deal drift in closing negotiations. In this deal the Trust moved directly from three bidders to a preferred bidder and obtained a letter from Bywest in which Bywest committed itself to the price and other terms of the deal while the contract was being finalised. The NAO also recommends that in demonstrating value for money departments should take all benefits and disbenefits into account and not place undue emphasis on the need for projects to deliver savings, however small, against a comparator.

 

Publication details:

ISBN: 0102919593 [Buy a hard copy of this report from TSO]

HC: 49 2002-2003

Published date: November 21, 2002