Buying one hospital for the price of two: Derry Journal

Posted on November 7, 2008 · Posted in Derry Journal

 

Altnagelvin’s new £18m Laboratory and Pharmacy Services Centre is universally welcomed as an excellent replacement for poor quality facilities that were inefficiently spread across various buildings at the hospital campus.

 

But praise for the building is not the same as saying that the way it was ordered and financed was right. Both the Northern Ireland Audit Office and the Assembly’s Public Accounts Committee believe it was value for money – others are unconvinced. It was commissioned under the Private Finance Initiative, which has been very controversial in Britain.

 

The bare bones of the deal make clear the financial cost. Although the value of the total facility was £18m, the PFI contract was for £15.2m, with the balance comprising specialist equipment bought outside the PFI contract. Unlike many other PFI contracts, the Altnagelvin laboratory and pharmacy centre was build-only – it did not come with services such as cleaning, catering, or security.

 

So it will surprise many people that the payments from the public purse will actually be £40m. In other words, £15m pays for the building and £25m pays for the cost of the money. Under the PFI, the Western Health and Social Care Trust is paying for the facilities over a 25 year period, at £1.6m a year. It is the use of contracts such as these which has led two economic analysts – one the former chief national statistician for Scotland – to describe PFI as ‘buying one hospital for the price of two’. The result, of course, is less money to spend on the rest of the health service.

 

Yet the Northern Ireland Audit Office report does not complain about this: not does it criticise the Western trust for its delays in going ahead with a scheme. The trust sought expressions of interest in May 2000. It finalised the design in June 2002. It appointed a preferred bidder in April 2004. It completed negotiations with the bidder in January 2005. The contract was awarded in April 2005. And the facility was completed in January 2007. The process took nearly seven years.

 

There is no in-depth analysis by the auditor on why this level of delay took place. But we get an insight from one sentence. “[The trust] explained that delays in the process were, in part, as a result of initial external advice on implementation timescales proving unrealistic and the absence of clear, centrally issued Northern Ireland guidance at that time, resulted in the trust needing to quality assure decisions at each stage of the process.” This does not sound like a process in which we should have confidence.

 

This seems to explain why PFI was regarded as the best option. The auditor’s report makes clear that the PFI option was not, in fact, the cheapest option – conventional procurement with government funding was cheaper. But PFI was regarded as offering better value for money, because there were strong fears that a conventionally procured facility would not be completed on time. In other words, it was the trust’s expectations that it could not properly manage a construction contract that drove it towards using PFI. Using PFI was predicted to cut six to 12 months from the construction timetable and avoid costly delays to other elements of the Altnagelvin redevevlopment programme. But is this a valid reason for using PFI, or just a reason for improving internal procedures?

 

Not that using PFI avoided delays, as we have seen in the tortured procurement process. In fact, there were various revisions to the design and the requirements from the new building, which were costed during negotiations with the preferred bidder – made worse by the procurement delays. Together these led to a 21% increase in the 25 year repayment costs.

 

Does it have to be this way? Clearly not, as the Western trust considered using conventional procurement, but did not have confidence that its monitoring of contractors would be sufficiently strong-arm to get them to complete on time. The preferred option of the Unison union is for the Northern Ireland Executive and the UK Government to borrow the money itself – at a lower rate of interest than contractors can borrow it.

 

Another option is being explored in Scotland. The Argyll and Bute council has entered into a ‘not-for-profit’ contract for the rebuilding of its schools, eliminating the opportunities for contractors to obtain ‘super profits’. And the Scottish Government has set-up the Scottish Futures Trust, in attempt to get more ‘not-for-profit’ schemes up and running in place of PFI.

 

It will be interesting to see if the Northern Ireland Executive – if and when it ever becomes functional again – wants to take the English road of PFI, the Scottish not-for-profit highway, or to tread its own path. Given our desperate need for improved public facilities, a lot will depend on the answer.

 

  • Paul Gosling is author of the report, ‘The rise of the “public service industry”’, which has just been published by Unison. The opinions here are his own.