Calderdale and Huddersfield hospitals estate plan – is it a scam to profit the PFI companies?

Both the January 2016 Pre Consultation Business Case for the “reconfiguration” of Calderdale & Huddersfield hospitals –  and now the Full Business Case that was published just over a week ago –  are based on advice from Lendlease Consulting.  This is part of the Lendlease company that has a 40% stake in the Calderdale Royal Hospital Private Finance Initiative Special Purpose Vehicle, and stands to profit if Lendlease Consulting’s advice is acted on.

Lendlease Consulting’s advice is that Calderdale and Huddersfield NHS Foundation Trust should knock down Huddersfield Royal Infirmary and replace it with a small planned care clinic, outpatients and urgent care centre, while expanding Calderdale Royal Hospital into an acute and emergency hospital to serve both Greater Huddersfield and Calderdale.

Given Lendlease Consulting’s obvious conflict of interest, is such information credible?

Lendlease Consulting’s advice reverses the 2014 Strategic Review’s and Strategic Outline Case’s preferred option that Huddersfield should be the expanded acute and emergency hospital, with the PFI-funded Calderdale Royal Hospital to be turned into a small planned care clinic, and other uses found for the excess parts of the building.

Lendlease Consulting’s advice is based on its 2015 update to the 2013 NIFES survey.  The NIFES survey estimated it would cost £39m maintenance work to bring the 1960s – built HRI up to an acceptable standard. The Lendlease Consulting Ltd review pushed this capital cost up to £95m.

This figure was used in the Trust’s 5 Year strategic plan, drawn up by EY when it was parachuted into the hospital Trust by Monitor (now NHS Improvement) in the autumn of 2015, in order to impose huge cuts that the Trust had failed to make because they would have endangered patient safety.

This led to the flip in the preferred option.

Lendlease conflict of interest

Lendlease Corporation has been involved in Calderdale Royal Hospital PFI from 1998, when it bought 50% of the equity in the Calderdale Royal Hospital  PFI deal. Lendlease Corporation is a major (40%) shareholder in the PFI Special Purpose Vehicle, Calderdale Hospital SPC Holdings Ltd – which would stand to benefit financially from developing Calderdale Royal Hospital as the acute/emergency site.

The Ernst & Young 5 Year Strategic Plan for Calderdale and Huddersfield NHS Foundation Trust (CHFT) says that any proposed capital works that fall within the Calderdale Royal Hospital PFI site that is owned by the PFI provider will be subject to their own procurement procedures that take longer and cost more – within the PFI contract there is an identifiable 12.5% overhead cost. Programme costs may also increase because of the longer period to procure the works. The type of contractors used may increase the tender prices. The capital cost at Calderdale Royal Hospital may be greater than at Huddersfield Royal Infirmary. Should the works at Calderdale Royal Hospital be added to the annual PFI costs, this will significantly increase the differential between Huddersfield Royal Infirmary and Calderdale Royal Hospital over the remaining 47 years of the PFI contract (Ps 226/7).

However none of this information seems to have been carried forward into the Full Business Case.

The Role of Lendlease Consulting in updating the capital costs of both options for the hospitals reconfiguration and advising on the decision to make Calderdale Royal Hospital the acute/emergency care hospital seems at odds with the role of Lendlease Corporation as a major (40%) shareholder in the PFI Special Purpose Vehicle Calderdale Hospital SPC Holdings Ltd – which would stand to benefit financially from developing CRH as the acute/emergency site, if EY’s 5 Year Strategic Plan is to be believed.

During the 2016 Public Consultation I asked CHFT’s Assistant Director of Strategic Planning, Katherine Riley, whether in deciding to employ Lendlease Consulting to update the NIFES survey CHFT considered Lendlease’s conflict of interest. Ms Riley said she couldn’t answer that.

I also asked how much CHFT paid Lendlease Consulting, and Katherine Riley said I should put in a Freedom Of Information request about how much they were paid. It may be subject to commercial confidentiality – CHFT would ask LendLease Consulting if they are happy to provide info.

On top of Lendlease’s role in the Calderdale Royal Hospital PFI Special Purpose Vehicle, in 2012 CHFT appointed it as sole provider of Project Management, Quantity Surveying and CDM Coordinator services under a four-year agreement, after it had carried out numerous repeat commissions for CHFT since 2006.

By 2016 Lend Lease had carried out £35m of capital and small works programmes at both Huddersfield Royal Infirmary and Calderdale Royal Hospital. These included the new £8m Pharmaceutical Manufacturing Unit (PMU) at Huddersfield Royal Infirmary and and New Build Endoscopy Units at Huddersfield Royal Infirmary and and Calderdale Royal Hospital as well as the new-build and refurbishment of infrastructure and engineering works.

So Lendlease gets to profit from £ms of work at Huddersfield Royal Infirmary and then to profit again from recommending that what it built is knocked down.

New Lendlease info  in the Full Business Case says Huddersfield Royal Infirmary is time-expired

The Full Business Case includes a new 2017 update from Lendlease; this states that the £95m capital investment in Huddersfield Royal Infirmary would not solve the building’s structural problems, which have worsened beyond repair since 2015 when it came up with the £95m figure – so that in 10-15 years time the hospital would have to be pulled down and rebuilt at a cost of £379.5m, even after the £95m investment in backlog maintenance.

The Full Business Case justifies this statement by saying that since the 2015 Lendlease update of the 2013 NIFES survey, there has been a further deterioration of the HRI estates building and service infrastructure and space/functional suitability.

So the government’s refusal to fund the maintenance of Huddersfield Royal Infirmary is responsible for its run down and proposed demolition.

The Full Business Case claims that since the 1960s when Huddersfield Royal Infirmary was designed there has been greater demand on system capability at an acute hospital site, but any additional load resulting from extensions to the building would result in further pressure on the system infrastructure. Examples include:

• Corroded service pipework could potentially fail – carrying out repairs could significantly disrupt patient services and care due to the location of asbestos in the building.
• Roof repairs are required throughout the building as water leaks into the building and patient areas including wards and treatment areas.
Power supplies still require significant work despite improvements
Fire safety has improved, but significant investment is still needed for compartmentation, fire detection and alarm systems. etc

£277m PFI scheme for new build work at both hospitals – costing what to repay?

The Full Business Case says the £21m capital cost of rejigging the existing Calderdale Royal Hospital buildings would be financed through an Independent Trust Financing Facility loan.

The new build work at both Huddersfield Royal Infirmary and Calderdale Royal Hospital would be funded by a new 60 year PFI scheme for £276.6m, costing who knows what to repay over the 40 years of the PFI “concession”.

The use of PFI is because the government wants to keep borrowing off the national government books, to make it look as if its deficit is smaller than it is. This “Accounting Treatment” merits a score of 8 in the benefit analysis, out of a total of 54 points. (p 102) Why should keeping the loan off the Treasury’s books make up 14% of the “benefits” of using a costly PFI loan?

The Full Business Case says (p98) that one option for funding the new build capital costs was a Public Works Loans Board (PWLB)/Bonds, supported by Calderdale Council. Why was this option dismissed?

The Full Business Case identifies the high cost of the existing PFI scheme for Calderdale Royal Hospital as a key cause of the Trust’s deficit – although the deficit is really caused by persistent government underfunding of the NHS, since the 5 year £20bn cuts programme known as the “Nicholson Challenge” was introduced by the Coalition government in 2010. Until that time, although Calderdale Royal Hospital was paying through the nose for the rip-off PFI loan and facilities management, this didn’t send it into deficit.

Elimination of the Trust’s “deficit” is a key driver of the hospital cuts/reconfiguration plans.

The Full Business Case is opaque about the costs of repaying the new PFI loan.

PFI Diagram_JS
Financing Assumptions on p 127 say that PFI repayments have been calculated based on equal interest and principal (EIP) but I can’t find any information about what these repayments amount to. I am asking CHFT for this information and will update when I receive it.

Table 12.8.1 Income and operating expenditure (p 131) has 2 lines relating to PFI – one is PFI Operating expenses, the other is Interest/Contingent rent on PFI leases and liabilities but there is no clarity about if or how this refers to the existing PFI, the new PFI or both.

The Capital costs table on p129 has a line for PFI lifecyle costs which seems to refer to the “hard” facilities management which comes under PFI and maintenance costs. This inexplicably falls to 0 for 3 years between FY 23-26 and then starts again.

The £298m capital cost (Estate Cost Summary Table, p89) includes £7m income from “HRI disposal” of the 11 acre HRI site, which the FBC states will be sold. The Economic Case (p 102) says that one of the “investment objectives” is to use the surplus estate and potentially other owned assets and land to finance the development. The commercial case identifies “disposal proceeds of £7m…based on external quantity surveyor reports…The £7m is assumed to fund further capital in FY23 and FY24.”

We need a public interest report by an external auditor

We need an external audit of the assumptions and value for money calculations that favour PFI funding. This is public money and we need a public interest report. People vs PFI says that local electors (on the electoral register) in the area can ask an external auditor to produce a public interest report on Council PFI contracts.

It should surely be possible to extend this right to the hospital Trust’s decision to procure a PFI contract for the new buildings at Huddersfield Royal Infirmary and Calderdale Royal Hospital.

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5 comments

  1. Hi Jenny

    Getting an external PFI auditor report sounds a very good idea. Guess it would need 2 people minimum to request, one from each local area?

    In fact I think we really need to find a specialist health sector valuation surveyor too for the whole of FBC financials etc.

    Just to contribute to your PFI discussion:

    i/ Re whether existing PFI would be added to, and/or whether new PFI contact(s) will be used:

    From Commercial Case, p109
    “This chapter concludes that the most likely procurement routes are:
    • The reconfiguration of the existing CRH building facilities will be procured by way of a variation of
    the existing PFI Project.
    • The new build at CRH and new build at HRI will be procured via new PF2 arrangements. This could
    be via a single procurement or separate contracts for CRH and HRI.”

    ii/ Re the costs of the new PFI!

    p132 “PFI leases increases in FY22 as the new PFI buildings at HRI and CRH come into operation from 1 April 2021″

    So,Table p131 shows, in FY22 , an increase in ‘Interest/Contingent rent on PFI…..” of 11.6m (23.7-12.1) (p142 shows ‘Existing service model’ costs which I’ve deducted from the total to give the ‘new deal’ costs)

    It appears that that sum relates to the new PFI. It runs for 40 years = £464m total (at current prices: inflation will add to actual monetary payments).

    In comparison, the same amount £276.6m loaned, and repayable over 40 years, for the same total cost of £464m equates to an interest rate of 2.85%. Actually I’m surprised at how low that is compared to PFI 1 deals. It’s either (relatively) good value (tho’ still dearer than Govt loans eg ITFF 1.4%), or underestimated.

    Similarly (p131), in FY22 we can see an increase in PFI Operating Expenses, attributable to the new PFI, of £2.3m

    Steve

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  2. Thanks Steve, I think the new PFI might be a bit more expensive than £464m, as it’s not exactly possible to say from that table that the yearly PFI interest/contingent rent stays at £11.6m/year throughout the 40 year period? I’ve asked CHFT for the figures so we’ll see what they say. And we don’t know how much more costly the PFI hard facilities service costs would be than if they were provided without PFI.

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  3. This whole business is sick – if almost all people knew the details, they’d take the government to court. How have we allowed it even to be considered? wake up!

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  4. Hi Jenny, I agree the PFI will cost more than £464m in cash terms, but it’s supposed to be equal payments each year in real terms (after inflation). So at present day values it should be around £464m total
    A couple of points on the LL costings: there’s a redacted line having a value of £7.7m. I’ve put in an FOI. And -minor point – that ‘£95m’ figure now being used by the Trust was in fact £92.4m.

    And did you notice how abysmally lacking in rigour the LL review was? Item after item the surveyor commented ‘haven’t had sight of a works specification’ (or words to that effect) and yet costs were doubled with the line ‘cost looks low, increased to £xxxx/m2’. There’s also still many millions of outpatient dept costs in there. I thought that had all moved -but maybe not.

    The other thing I wonder about the costings of HRI rebuild, conceptually, is are they comparing like with like? If the £379.5m HRI rebuild quote is for a hospital of similar size to existing then they’d end up with 000s of m2 more floor area than under the ‘Future services option’. So it wouldn’t be a like for like comparison at all. But maybe it’s for a smaller building; I haven’t seen any evidence one way or the other.

    I’ve just submitted 14 FOI questions asking for surveys and reports referred to in chapters 8-12 of FBC (and hopefully the answers might enlighten us on the floor area issue). I’ll copy you in.

    Steve

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  5. Tx Steve. These are the questions I’ve sent to CHFT:

    1. Why did CHFT commission Lendlease Consulting to update the NIFES survey costs – rather than another company with no vested interest in CHFT?

    2. Did CHFT consider Lendlease Consulting’s conflict of interest, given that the 5 Year Strategic Plan identified that as a shareholder in the CRH PFI SPV, Lendlease would stand to benefit financially from developing CRH as the acute/emergency site? (5 Year Strategic Plan ps 226/7 says that any proposed capital works that fall within the CRH PFI site that is owned by the PFI provider will be subject to their own procurement procedures that take longer and cost more – within the PFI contract there is an identifiable 12.5% overhead cost. Programme costs may also increase because of the longer period to procure the works. The type of contractors used may increase the tender prices. The capital cost at CRH may be greater than at HRI. Should the works at CRH be added to the annual PFI costs, this will significantly increase the differential between HRI and CRH over the remaining 47 years of the PFI contract.)

    3. How much did CHFT pay Lendlease Consulting to update the 2013 NIFES survey?

    4. How much has CHFT paid Lendlease since 2012,  as CHFT’s sole provider of Project Management, Quantity Surveying and CDM Coordinator services under a four-year agreement?

    5. Please will you send the 2017 work by Lendlease that identifies that HRI is time limited and would need to be pulled down and rebuilt after 10-15 years – regardless of any investment in maintenance work to bring it up to Condition B standard?

    6. The Full Business Case is opaque about the costs of repaying the new PFI loan. Financing Assumptions on p 127 say that PFI repayments have been calculated based on equal interest and principal (EIP) but I can’t find any information about what these repayments amount to. What would be the unitary cost to CHFT of the proposed new new 60 year PFI scheme for £276.6m,  over the 40 years of the PFI “concession”? And how would this break down between the Availability Charge and the Service Charge?

    7. Table 12.8.1 Income and operating expenditure (p 131) has 2 lines relating to PFI – one is PFI Operating expenses, the other is Interest/Contingent rent on PFI leases and liabilities but there is no clarity about if or how this refers to the existing PFI, the new PFI or both. Please will you explain what each of these lines means?

    8. The Capital costs table on p129 has a line for PFI lifecyle costs which seems to refer to the “hard” facilities management which comes under PFI and maintenance costs. This inexplicably falls to 0 for 3 years between FY 23-26 and then starts again. Please will you explain each of these lines?

    9. “Accounting Treatment” merits a score of 8 in the benefit analysis, out of a total of 54 points. (p 102) Why should keeping the loan off the Treasury’s books make up 14% of the “benefits” of using a costly PFI loan?

    10. The Full Business Case says (p98) that one option for funding the new build capital costs was a Public Works Loans Board (PWLB)/Bonds, supported by Calderdale Council. Why was this option dismissed?

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