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News archive - January 2016

Looking for something different from PFI

Looking for something different from PFI

Health trusts crippled by PFI bills ‘have no option’ but to bite the bullet and sit down with their private-sector partners to renegotiate contract terms, a leading expert has warned.

Speaking at the 2015 IHEEM Annual Conference, construction law specialist, Martin Cannon of DAC Beachcroft, said there was ‘still a slight chance’ of trusts being able to get out of their contracts by proving failure on the part of the PFI partner, but instead recommended forging closer partnerships to ensure better value for money.

“PFI involves two sets of conflicting needs and the pressures on both are the worst they have ever been,” he said.

“We have to accept the contracts are not flexible and they are not what we want. We have to accept where we are now and look for something different.”

Talking it through

Currently, trusts can look to reduce the amount they pay every month under their PFI deals by taking deductions – in effect fining the provider for failures under the terms of the contract.

But Cannon advises against this approach for all but the most-serious problems.

He told delegates: “We should not be looking to maximise deductions. We need to move away from that approach and ask how we can stop any problems from occurring.

“If a contract is performing OK, then you shouldn’t be taking deductions. The most-important thing with deductions is that it should not be about punishment or making money, but about getting the environment you want.

“If we take deductions out of the PFI contracts then we are taking money out of the hospital and it will affect us somewhere else along the line.

“When you drive the cost too low, you won’t succeed in getting the right environment.”

Instead, he advises sitting down with the PFI provider and going through the contract to see where changes can be made without affecting services – so-called ‘variations’.

“You have to put your ideas forward and say what you no longer need,” Cannon said.

“Services are different 10 years down the line and the best savings I have seen are when contracts have been changed so that non-urgent things such as changing the door handle on a store room are no longer marked urgent and can be fixed the next day instead. That’s where you get real value.

Value for money

“We need to be sitting down with our PFI partners and asking them how we can descope and redesign the contracts.”

He concluded: “People are sceptical and say they will never be able to sort it out, but I am more optimistic. PFI is commercially driven, but if we continue fighting with PFI contractors, it’s the lawyers who will do really well.”

An example of where this bold approach has paid dividends is at Dartford and Gravesham NHS Trust, which recently worked with the NHS London Procurement Partnership (LPP) to carry out a benchmarking review of the soft facilities management element of its PFI contract. The move has resulted in savings of £4.81m over five years.

Barts Health NHS Trust has also saved on its PFI contract, securing savings in excess of £7m by re-examining the contracts.

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