Minutes of Proceedings

COMMITTEE FOR HEALTH, SOCIAL SERVICES AND PUBLIC
SAFETY

Reply from the Minister for Health, Social Services and Public Safety to PFI/ PPP issues raised 14 June 07

MINUTES OF PROCEEDINGS

THURSDAY, 14 JUNE 2007
SENATE CHAMBER, PARLIAMENT BUILDINGS

Present: Mrs Iris Robinson MP MLA (Chairperson)
Ms Michelle O’Neill MLA (Deputy Chairperson)
Dr Kieran Deeny MLA
Mr Alex Easton MLA
Mrs Carmel Hanna MLA

In Attendance: Mr Alan Patterson (Principal Clerk)
Mr Hugh Farren (Clerk)
Ms Hilary Bogle (Assistant Clerk)
Ms Vicky Surplus (Clerical Supervisor)
Mr Mark McQuade (Clerical Supervisor)
Mr Joe Westland (Clerical Officer)

Apologies: Mr Thomas Buchanan MLA
Rev Dr Robert Coulter MLA
Mr Tommy Gallagher MLA
Mr John McCallister MLA
Ms Carál Ní Chuilín MLA
Ms Sue Ramsey MLA

The meeting commenced at 2.36pm in open session.

1. Apologies

Apologies as listed above.

2. Chairman’s Business

Members noted that the Northern Ireland Launch of the Celtic Nations Autism Partnership takes place in the Long Gallery at 11.30am on Tuesday 19 June 2007 at which the Reverend Coulter will be welcoming the delegates and the Minister, Mr Michael McGimpsey will be speaking.

3. Draft Minutes of the Meeting held on 7 June 2007

The draft minutes of the meeting held on 7 June 2007 were agreed.

4. Matters arising

Members noted a letter received from the Minister setting out the Terms of Reference and Membership of the Review of Medical Training Recruitment.

Members agreed that the letter from Dr Lyness be forwarded to the Department and to the Review Team for information.

Members noted that the Health (Miscellaneous Provisions) Bill is due to receive its second reading in the Assembly on Tuesday, 19 June 2007.

Members agreed a Press Release and Public Notice on the Health (Miscellaneous Provisions) Bill and noted that the Clerk would write to a range of relevant organisations inviting written submissions on the provisions of the Bill.

5. Evidence Session with the Chief Medical Officer on public health matters

Members took evidence from the following witnesses:

Dr Michael McBride, Chief Medical Officer.
Dr Margaret Boyle, Senior Medical Officer.

The Chairperson thanked the witnesses for attending.

6. Evidence Session with Departmental officials on PFI/PPP

Members took evidence from the following witnesses:

Dr Jim Livingstone, Director of Infrastructure Investment
Mr Stephen Galway, Grade 7, Infrastructure Investment
Mr John Cole, Chief Executive, Health Estates Agency
Ms June Wilkinson, Deputy Principal, Infrastructure Investment

3.40pm
The Chairperson thanked the witnesses for attending and apologised that the evidence session had to be curtailed. It was agreed that any further issues would be put in writing to the Department, requesting a response.

7. Health Related Groups

Members noted a paper outlining the key points that had been raised at the lunchtime meeting with the Northern Ireland Chest, Heart and Stroke Association on Thursday, 7 June 2007.

Members noted that a lunchtime meeting has been arranged with Down Lisburn Carers’ Forum - Mencap at 1.15pm on Thursday 21 June 2007 in the Members’ Private Dining Room.

8. Correspondence

Members noted the correspondence received together with Press Cuttings/Releases.

9. Any other business

Members agreed that the North and West Belfast Community Groups in relation to suicide and a Psychiatrist should be invited to give evidence to the Committee on 5 July 2007.

10. Date and time of next meeting

The next meeting will be held on Thursday, 21 June 2007 at 2.30pm in the Senate Chamber, Parliament Buildings.

The Chairperson adjourned the meeting at 4.05pm.

Reply from the Minister for Health, Social Services and Public Safety to PFI/ PPP issues raised 14 June 07

Officials’ evidence to Assembly Health Committee on PFI/PPP – 14 June 2007 – Follow-up Questions

Question

What are the criteria used to compare the relative costs of a PFI scheme against a standard public procurement model for the Omagh and Enniskillen hospital projects?

Response

The HM Treasury Value for Money quantitative assessment model is used to provide a high level evaluation of the likely relative value for money of PFI versus conventional procurement for a project. The output from this model is a comparison between the risk adjusted Net Present Value (NPV) of the Public Sector Comparator (PSC) or traditional procurement and the PFI option, as estimated at Outline Business Case (OBC) stage immediately prior to procurement. The estimated NPV is the sum of the discounted benefits less the sum of the discounted costs using the following criteria:

• The whole life costs of the PSC, including capital, lifecycle and operating costs;
• The whole life costs that would be borne by a PFI provider, including capital, lifecycle and operating costs;

• The interest rates, bank margins, finance costs, etc that impact on the PFI company’s funding costs;

• Optimism bias – this is an adjustment made to OBC costs and duration to reflect the general optimism of appraisers’ tendency to overstate benefits and understate costs and timescales.

• Risk transfer on potential additional costs to the private sector partner under PFI for design, construction and development, and planning approval. It is expressed as a percentage of the initial capital costs. The level of risk transfer is likely to vary between schemes and each scheme needs to make a realistic assessment of the level of risk transfer achievable.

• Transaction costs – these represent the risks of higher contract management costs during construction which are partially transferred to the PFI provider under the PFI option. Under the PSC the Trust can have many supply contracts to manage, but only one in the case of a Private Sector Project Company under PFI.

Question

During the evidence officials said that an EQIA had been completed and that a further one would be undertaken once a preferred bidder had been identified. Can a copy of the original EQIA be provided to the Committee?

Response

The Trust published the original EQIA report in October 2006 on ‘The implication for staff of the method of financing the project and the relocation of jobs’. I have provided a PDF copy of the Executive Summary report with this response. The full report, which is well in excess of 100 pages, is being prepared in hard copy and will be forwarded shortly to the Committee.

Question

Officials agreed to pursue the refusal to provide a copy of the Outline Business Case with the Western HSC Trust. Can a copy be provided to the Committee?

Response

The Outline Business Cases for the New South West Acute Hospital at Enniskillen and Omagh Local Hospital Complex are already available from the project website on www.newhospitals.org as a link from the Acute Hospital Project webpage. At this stage commercially sensitive information has not been presented in line with HM Treasury guidelines to protect the integrity of information which may influence the outcome of the current procurement process.

Question

What is the rationale for allowing a developer to provide ancillary and catering services as part of a PFI contract? The Committee is concerned that this could result in less favourable working conditions for staff as well as allowing less local control over cleaning regimes or the quality of catering provided. There are also concerns that it could impact on local employment.

Response

The rationale for inclusion of ancillary and catering services in PFI contracts, as set out in HM Treasury guidance, is that it can offer value for money through the better integration of design with ongoing service provision and a single point of responsibility. Current Treasury guidance, and UK Government policy, requires that a procuring authority which proposes to use PFI must undertake a value for money assessment to determine inclusion or exclusion of soft facilities management services within a PFI procurement.

The application of the policy in respect of inclusion of soft FM in PFI procurements for health and social care projects in Northern Ireland is currently being reviewed by the Department.

Question

Officials denied claims by Unison that the Enniskillen and Omagh projects both feature a consultancy report that reduces the number of posts by 25%. Unison had argued, for example, that a number of the calculations for the Omagh project were positive for PFI only because they included the 25% job cuts. Officials also stated that efficiency gains would be achieved from the rationalisation of the three existing hospitals into two new hospitals. Can the Department explain the extent of those anticipated efficiency gains and, in particular, the impact on jobs in support services? 

Response

No reduction in whole-time equivalent posts has been stipulated to potential bidders, in either the South West Acute or Omagh Hospital Complex projects.

In August 2006, figures were shared with UNISON which, on early analysis, demonstrated that facilities management staff were expected to be part of its public-sector model and the Trust must rationalise three hospitals — the Erne Hospital, the Tyrone County Hospital, and the Tyrone and Fermanagh Hospital — into two. At that stage, the Trust anticipated that a rationalisation of certain facilities management services would bring about an efficiency gain of up to 20% in terms of whole-time equivalent staffing numbers during the five years leading to the creation of the two new hospitals. However, during the past six months that analysis has been revised. The Trust is now anticipating a reduction of 39 whole-time equivalent (9% of the total) posts and resultant efficiency gains as a consequence of the reduction from three hospitals into two.

Question

In evidence to the Committee Unison claimed that the business case for the Omagh project identified an affordability gap of approximately £20 million. Can the Department explain the background to this and how it will be addressed?

Response

Issues to do with financial affordability parameters for projects of this nature need to be treated as commercial in confidence, particularly at this stage of procurement.

As with all new major capital revenue developments however, whether conventional or PFI, there will invariably be an additional funding requirement in respect of higher servicing costs. These relate to new service models of delivery in line with ‘Developing Better Services - Modernising Hospitals and Reforming Structures’ policy. Furthermore there will be additional capital charges for financing and higher depreciation costs to cover higher capital value of new buildings.

All Trusts are expected to meet a proportion of these in particular where this relates to contributions from existing services which are not required in the reconfigured model. The remainder will have to be found from the overall Departmental funds available which reflect the Executive Committee’s views on overall priorities.

Question

What work is currently being undertaken by or on behalf of the Department to produce a strategic delivery plan (SDP) for future primary care facilities in Northern Ireland and to what extent is the SDP likely to involve PFI procurement, such as that used in England (NHS Lift) and Scotland (the hub initiative) to improve the primary care estate?

The Department has been exploring how current models of primary care infrastructure delivery in GB and NI might be applied to develop the optimum procurement delivery model for the PCCI Programme.

As the PCCI Programme is complex in terms of scale and the multi-site/multi-facility nature, the Department, after careful consideration, has determined that no single established procurement route provides the flexibility required to deliver this programme effectively. However PFI specifically is not considered appropriate for use as part of the strategic delivery plan (SDP) for primary care facilities.

Procurement models in GB such as NHS LIFT in England and the emerging hub initiative in Scotland have been examined, specifically around the potential value for money benefits that can be achieved through these types of PPP arrangements which differ from PFI. Both initiatives cannot however be readily or immediately adapted for Northern Ireland, and further work is in progress to assess their potential in the longer term.

In the short term consideration is being given, based on an independent assessment, for use of a range of procurement methods to achieve a best value for money model. These include a combination of use of Performance Related Partnering (PRP) and Third Party Development (3PD).

Existing procurement arrangements in Northern Ireland for primary care facilities already include Performance Related Partnering (PRP) developed by Health Estates. PRP relies exclusively on public funds but does not test or achieve the transfer of significant risks such as residual value, operation, maintenance and life cycle costs.

A more traditional approach to private investment in primary care infrastructure, which in fact pre-dated both initiatives in GB, is Third Party Development (3PD). This provides a less complex option than more established PFI and PPP models, does not require any legislative amendments, provides the option to apportion risks to those parties best suited to manage them and has a track record of delivering affordability and value for money benefits for facilities of the scale of those in the PCCI Programme.

The Department is currently examining the potential to develop a procurement delivery model which includes these procurement methods enabling maximum flexibility in terms of risk transfer and funding.

Question

Clarification sought by Caral ni Chuilin regarding estimated costs for the Enniskillen and Omagh hospital projects, whether these were capital or PFI costs.

Response

The figures of £229 million and £150 million quoted respectively for the South West Acute and Local Hospital projects in previous briefing on PPP/PFI submitted to the Committee, are the published estimated construction costs based on the approved Outline Business Cases.

These figures exclude potential future inflation arising in the period before aware of tender and other contingency costs. However they effectively reflect the scale of capital expenditure needed to deliver the required service outcomes, whether PFI or conventional funding is used.