Case Study – Derant Valley Hospital UK PPP for Health Care Provision / 案例 – 英国医疗服务PPP：Derant Valley医院
by Ce Li, edited by Dr. A.Merna and Mr. D. K. Anderson, University of Manchester
曼彻斯特大教Ce Li；A. Mern 专士和D.K. Anderson 编辑；清华大学赵国富和王守清译
1.1 Introduction / 弁言
This case study describes the processes,risks and financial aspects associated with the first PPP hospital built in the United Kingdom.Since this hospital’s inception over 34 more hospitals and 19 other health schemes have been procured under PFI in the United Kingdom, many of these hospitals have followed this model although some have used the private sectoras well as the public sector to provide health care.
The Derant Valley Hospitalis a state of the art hospital built to a maximum three storey building heightand catering for a variety of medical conditions and the necessary facilities and treatment.
1.2 Project History / 项目近况
Derant Valley Hospital project was the UK’s flagship PFI hospital development. The overall planning and development allowedfor change and growth throughout the hospital. With the number of older people increasing, there are more than 200,000 patients needing to be cared for every year in Dartford. The three old and outdated hospitals, Joyce Green, West Hill and Gravesend and North Kent in Gravesend, could not meet the required demand or service necessary.
Derant Valley医院项目是英国PFI医院收展的标记性项目。全体方案和发展要求医院进行变更和发作。跟着老年人的不断删减，在达塔福德(Dartford)每年有远200000病人需要护理。格雷妇斯(Gravesend)的三个陈腐和过期医院——JoyceGreen、West Hill and Gravesend和North Kent，曾经不克不及满意需要或提供必要的服务。
In1995, Dartford & Gravesend NHS Trust (DGNHST) considered providing a new,advanced hospital to replace the old ones in order to provide a better healthcare service. A feasibility study was undertaken in 1995 by DGNHST, which clearly indicated that the PFI/PPP route was a realistic one. It should benoted that this project would not have been sanctioned if a PFI/PPP procurement strategy had not been adopted. It was in fact the only deal in town. The project was advertised in the Official Journal of the European Community (OJEC) later that year.
Abid procedure typically has three routes:
§ open procedure
§ restricted procedure
§ negotiation procedure
However, the open procedure isnot suitable for PFI projects, as the cost of bidding is too high to encouragea large number of competitive bidders and a negotiated contract was notconsidered to comply with UK and EU requirements. DGNHST therefore employed a restricted procedure wherebidders expressed an interest with some invited to pre-qualify. A thorough andclear specification set out the criteria that bidders had to follow. The philosophy behind the bid was to give healthcare staff the best environment that would allow them to spend more time on patient care. After six months assessment and approval by the Department of Health, of the full business case prepared by the Trust, there emerged a preferred submission, that being The Hospital Company (Dareath Ltd.) that is a consortium made up from Carillion Construction and Carilllon Services.
DareathLtd. was awarded a contract to design, build, finance and operate (DBFO) a new 400 bed hospital at Derant Park to replace the threeold and outdated hospitals. Carillion Construction Company had responsibilityfor the design and construction of the new hospital. The subsequent provisionof support service is provided by Carillion Service Ltd. and its subcontractors.DGNHST leases the hospital building, purchases ancillary services, such as catering,cleaning and security from Dareath Ltd. The NHS, however, employs medical and para-medical staff drawn from the public sector who work alongside the Facilities Management company drawn from the private sector.
Opened in September 2000, Darent Valley Hospital has 419 beds and provides in-patient and out-patient care, drawing on an annual budget of around £80 million starting in 2001. (K&M 2004). The hospital employs more than 1500 medical and non-medical staff and has contract term of 28 years of operation and maintenance. Financial difficulties in terms of meeting repayments have necessitated the Trust negotiating to extend the service contract for a further 5 years.
1.3 Project Objectives / 项目的目标
The main objectives of this project were to create a state of the art medical facility which would provide value for money and provide much needed treatment to the public in the North Kent area. If successful, the PPP arrangement would then form a model for future hospital projects.
A further objective was to ensure that the stakeholders to the project, both internal and external were all involved in the decision making process as the project developed.
As a flagship project both the public and private sector partners were keen to ensure a successful project based on a carefully researched performance specification based on extensive consultation with all stakeholders.
1.4 Project Partners / 项目参加圆
Figure1 illustrates the project structure and the financial flow for the project.
Figure 1: Project structureand Financial Flow, (Carillion 2004)
Project stakeholders’ interest can be positively or negatively affected by any project. In recent years,public dissatisfaction with public hospital projects applying a conventional approach to health care has increased. Stakeholder groups felt left out and the hospital Trust were under-informed. Hospital staff that were directly affected were not involved or were only involved to a limited extent and often late in the project. The lack of stakeholders’ involvement tends to generate a situation where those groups involved in the project under-perform. Under this PPP arrangement both public and private sector stakeholders were encouraged to actively involve themselves from the start of the project. "Satisfy Stakeholders!" is Derant Valley Hospital project’s mantra, an objective that has been met.
To succeed, it is not enough to deliver on the Trust’s demand, it is also critical to understand who the potential project stakeholders are and the potential roles that they will play in the development of the project, and meet all stakeholder expectations.Identifying stakeholders was a primary task because all the important decisions during the initiation, planning and execution stages of the project were made by these stakeholders. Under the Derant Valley Hospital project, stakeholders were not only those in the project team, the functional management, the sponsor, and hospital staff, but also include anyone who is impacted by its results. Table 1 illustrates the internal and external stakeholders to this project.
Dartford & Gravesend NHS Trust
Funders and investors
D & G citizens
other relative government departments
Table1: Stakeholders of the Darent Valley Hospital Project
1.5 Project Scope / 项目范畴
The project is located in the Dartford and Gravesend area of North Kent in the south east of England and was designed to accommodate those services previously provided by 3 old hospitals. The new hospital provides numerous medical care facilities for both in and out patients. The hospital is financed, built and operated by the private sector with health care provided by the public sector. At the end of the operation and maintenance term contract the facility will be transferred to the public sector who will have the opportunity to either manage the asset themselves or offer through a competitive tender a further Facilities Management contract for a specified time period.
1.6 Legislation Issues / 法令事变
Nospecial local, regional or national enabling or statutory legislation was needed as PFI/PPP projects have been an integral and major part of infrastructure development, operation and maintenance in the UK for over twenty years. Both alegislative framework and a growing case law history were in place.
1.7 Concession Agreements / 特许权协议
Figure2 illustrates the payment mechanism for this project.
Figure 2: Payment Mechanism
The delivery performance of the service proposed is linked with the payment mechanism, which can provide value for money for the public. In this payment mechanism, the total payment comprises an availability payment and a performance related payment. Certain quality criteria were established and if the operator fails to achieve the specific objective criteria, there will be a reduction in the performance related payment.
1.8 Financial Arrangements / 融资支配
1.8.1 Initial Arrangements / 初始支配
The total financing requirement for the project was £115 million. The financial instruments employed in the project were debt and equity at Financial Closure, followed by a debt/bond swap and sale of equity as part of the project refinancing.
The SPV initially borrowed the majority of the money needed for the project with the total funding requirement of the project provided in a ratio of approximately 88:12 of non-recourse debtto equity (£101 million long term debt and £14 million equity).
Funding for the Derant Valley hospital project was obtained in the form of long-term bank loans (some of which were replaced by bonds during the operation period) without recourse to the shareholders and were secured on the assets of the SPV. The lender recognised the risk of the SPV defaulting on its loans and thus required shareholders in the SPV to place some of the capital at risk as an incentive to perform in the form of equity. £14 million equity was issued in a subion of shares, which was a loan from the shareholders of the SPV. Equity investment carries a higher risk than non-recourse debt as it pays out a return only afterall other liabilities of the SPV have been discharged in full.
The principal bank advising the Trust was Lloyds TSB, the financial adviser was KPMG and the legal adviser was Nabarro Nathanson. Debt was raised from Deutsche Morgan Grenfell, UBK Rabobank and 11 other banks. Financial Closure for this project was 30th July 1997.Construction on the project started in September 1997 and it became operationalon 11th September 2000. The 3 year construction period was to programme.
为该基金会提供咨询的首席银行是Lloyds TSB，融资顾问是毕马威管帐师事件所，司法参谋为Nabarro Nathanson。贷款来自于德意志摩根建富(DeutscheMorgan Grenfell)、UBK Rabobank 和11家其余银行。该项目的融资完成时间为1997年7月30日，项目建设于1997年9月开始，于2000年9月11日投进运营，三年建设期合乎计划。
1.9 Refinancing / 再融资
In 2001, the SPV of the Derant Valley Hospital project, which was £101 million in debt, refinanced part of the debt by swapping £8 million of senior debt into a bond. This resulted in a reduction in debt payment allowing the SPV to better manage its debt and improve cash flow. The fixed coupon bondwould only pay bi-annual coupons over a period of 10 years but would not payany principal until the end of that period.
In November 2003, the SPV sold £4.1 million equity in the Derant Valley Hospital PPP concession to Barclays UKInfrastructure Fund. In addition to the £5.2 million that the SPV received forits equity interest, the sale crystallised as profit the £11.2 million of cash received when this PPP concession was refinanced in March 2003. The promoter’s proceeds from the sale and refinancing are therefore some £16.4 million, fourtimes the value of the original investment in this project of £4.1 million. In accordance with HM Treasury Guidelines, the refinancing gain was shared with the Dartford and Gravesham NHS Trust, which received some £10 million mainly in the form of lower annual payments to the SPV. Even though the refinancing gain was shared with the public partnercritics of the PFI/PPP procurement route consider the private sector is making too much profit from such arrangements.
1.10 Incentives / 激励措施
Incentives,as discussed in Section 7 above are primarily team based incentives, similar to those adopted in PFI prison projects. The team based approach seeks to raise standards over and above those identified in the performance specification.Team based performance schemes have been adopted in a number of PPP hospital projects and seek to exploit both individual and group standards with rewards,in terms of bonus payments typically being paid for efficiency gains, cost savings and quality of care. These soft measures are integrated into theoperation of the hospital where similar schemes in terms of cost savings in Facilities Management are monitored by independent assessors.
1.11 Discussion / 探讨
The risks associated with concession projects are far greater than those considered under traditional forms of contract, since the revenues paid by the principle must be sufficient to pay for construction, operation and maintenance, and finance. The uncertainties such as client’s affordability, the cost of finance,the length of concession periods, the effects of commercial, political, legal and environment factors must be considered by promoter organizations. Table 2 illustrates a number of areas of risks that impacted on the Derant Valley Hospital project.
Table 2: The PPP Risk Spectrum
Design and Construction Risks:
Time and cost overruns, environmental issues, and inherent liabilities/defects were considered as major risks in this project. Hospitals need to plan with greater regard to community service and the possibility of risks associated with demand and destructive technology.These risks impacted on the design of the project.
The concession contract is over a period of 32 years, of which 28 years are operation and maintenance. The SPV faces quality issues with respect to transferring facilities, with a lower quality standard, particularly equipment at the transfer stage.
Because PPP projects often combine the cost of building new facilities with the cost ofrunning them, all of which is paid for from the revenue budget (unitary charge),this means that revenue budgets must be increased to cope with the additional expenditure. In the Derant Valley Hospital project, revenues generated by the project came from the DGNHST budget. The SPV may, in the long term face a delay in payment should the demand exceed the forecast.
The Health Company may face risks associated with higher operational costs such as the cost of labour, energy and consumables over the concession period. This is currently a major problem in UKNHS Trust hospitals where a large amount of the budget has been eroded by for example, the cost of heating such facilities as world energy prices have increased dramatically. The SPV also faces the risk of not providing the specified standard of services due in part to reducing human resources which will result in a reduction of payment. The Trust will not pay for poor standards of service (see Figure 2).
A significant consideration in the U.K, for example, the change in environmental law, building regulations or health and safety legislation often emanating from the EU, may result in unanticipated increases in capital or operating cost.
The ability to service debt, both principal and interest is crucial to this project. Refinancing was considered prior to sanction and was implemented in the early years of operation to mitigate such risk.
Secondary Market Risk:
This project could be sold to the secondary markets, such as trust funds, pension funds or equity investors seeking long term profit from a project whose revenues are contract led. The sale of such an asset, at some time during the operation period, poses a risk to the NHS since potential new owners are not those who signed the original contract.Innisfree, one of the original financiers of this project are now the second largest owner of hospitals in the UK after the State. Changes incorporate direction of such companies could present the risk of hospitals being managed on the basis of market forces and not health care.
1.12 Summary / 总结
Clearly PPP projects require detailed risk assessments. The length of concession and the uncertainties over long periods of time must be addressed prior tosanction. In PPP projects the private sector undertakes more risks than the public sector, therefore identifying, analysing and mitigating risks is paramount to the success of any project.
In theUK,PFI/PPP has offered a solution to the problem of securing necessary investmentat a time of public expenditure restraint. According to UK government guidance, a PFI project should demonstrate considerable advantages over the Public Sector Comparator (PSC), thus the PSC should be used as a bench mark for establishing best value.
The Derant Valley Hospital project needed to create best value over a conventional approach. The project was delivered on time and to budget unlike many traditional public sector procurements,which often suffer from delay, cost overrun and compromise on initially planned requirements. One major requirement for a PFI project is the achievement of value for money (VFM). Therefore offering best value for money to the taxpayer was also a major financial objective of the Derant Valley Hospital project. The project’s actual cost was £115 million, compared with the estimated £250 million for the public finance option. The actual cost to the Trust of the building is approximately 4.5 times the initial CAPEX due to the long term repayment period, which is serviced through part of the unitary payment.
The National Audit Office, in 2001, estimated that the hospital would achieve valuefor money of £5 million, and the hospital project could save the Trust between 4% and 14% over the life of the project. This however, is not the case. By virtue of being the first PFI hospital the NHS Trust had to accept a £5 million per annum premium, based primarily on the uncertainty surrounding the long term operation. The hospital currently (2006 accounts) runs at a deficit of £4million per annum.
As well as value for money, a PFI solution also has to be in line with the wider government objectives, such as environment development and employment opportunities. Under the Derant Valley Hospital project, great emphasis was placed on shaping the built environment. The careand attention given to the design of a room and the quality of space, with respect to the integration of equipment and technology, has helped shape the environment, and takes into consideration the comfort of patients and users of the equipment and contributes more benefits to the environment.
For example, The Hospital Company employed solar control glazing and lowmaintenance building materials, such as aluminum roofing, to keep down longterm running costs, maximising the use of natural daylight for lighting and water cooling, and using off-site manufacturing for faster installation and improved quality control. This has been shown to help improve the well-being of patients and reduce the cost of care without reducing the standards specified.The private sector’s better utilisation of assets and increased operational savings from support service are a core requirement for the viability of most PPPs. In the case of Derant Valley Hospitalcosts of patient care and facilities management have increased to the extent that the hospital is running at an annual deficit.
1.13 Conclusions/ 论断
Derant Valley Hospital, was the first hospital to bebuilt and operated under the private finance initiative (PFI), and won the British Institute of Facilities Management award for PFI/PPP project of the year in 2001. Because of aninnovative funding approach and the efforts both of the Trust and The Hospital Company staff, the project aimed to achieve the Trust’s affordability target,and thus meet the UK Treasury’s value for money criteria.
Derant Valley医院是英国第一个采用PFI模式建设和运营的医院项目，并获得了2001年度“英国设施管理协会(BritishInstitute of Facilities Management)”大奖。由于翻新的融资方式和基金会与医院项目公司员工的通力合作，该项目目的在于实现基金会的可负担目标，进而知足英国财务部的物有所值原则。
Under the Design-Build-Finance-Operate (DBFO) contract, the risks such asconstruction risks, residual risks, and operation risks were allocated to the consortium and have been, to date well managed by The Hospital Company (DareathLtd.). The experience and management skills of the private sector have been well utilised as the consortium is made up from Carillion Service Ltd. (serviceprovider) and Carillion Construction Company. The Carillion construction company handled the risks in the construction period and the project was delivered on time and to budget.
Experience in providing similar services, in this case high-quality service to NHS Trust and appropriate risk allocation and management which resulted in construction completion on time and to budget achieved value for money in that phase of the project. In the Derant Valley Hospital project, the benefits of PPP are successfully gained and the public objectives were also achieved but at a cost far exceeding the initial estimate.
Criticism of this hospital, particularly the operation and maintenance element, was aired in a Channel 4 Dispatches programme on 14th August 2006. It stated that the long term O&M contract has allowed the Operator to imposes taggering charges for small day to day maintenance. Examples cited included changing a light bulb and hanging a mirror costing £420 and £200 respectively.The Clinical Director of Surgery condemned the charges saying: “You just know that when there is a middle man and a private company and there is a whopping charge for every trivial bit of maintenance that it is not value for money – it is blatantly obvious. All this money that has flooded into the Health Service,very little of it seems to have actually got through to patient care. There are extra staff and, luckily, extra doctors and nurses. But there are a lot of people with clipboards”. A Labour Party MP, went as far as saying the PFI/PPP, for this and many other hospitals is “a money making racket” and represent an enormous waste of money. An opposition party spokesman stated that the time has come for a fundamental reassessment of how the NHS access capital for their investment projects since PFI/PPP is becoming too unwieldy a tool for encouraging capital investment in the NHS.
Clearly,this project has not met its financial objectives. Unitary payments are insufficient to meet the required level and the tax payer must subsidize this project by £4 million per year. If this money cannot be found by the Trust then it is highly likely the hospital will scale down its operations and close sections of the facility. Sadly a number of UK hospitals procured as PFI/PPP projects are in the same situation. Currently the NHS has a deficit of £500 million, despite spending £70 billion on hospitals and services.
When the hospital was first considered as a PFI/PPP project very little was done in terms of value for money compared to the value for money exercise a similar project would need to undergo in today’s market. A lack of clarity as to the long term operations phase, prior to sanction, shows that detailed assessments are required by both the public and private sector to ensure costs can be met without scaling down or reducing the performance specification.
Sadly,at least ten major hospitals face closure, despite Government plans to spend a further £1.5 billion on the Health Service over the next five years under the Private Finance Initiative. In some areas there are too many hospitals providing the same or similar services – which is not considered to be value for money. A misconception, however, is trying to compare the capital cost value and the full life cost value. Cost value relates to capital construction(CAPEX) whereas full life cost covers the cost, usually over a period of 30 years for feeding patients, cleaning and maintaining the building, therefore Government will need to pay the private companies £58 billion over the next 30 years or so, although the actual CAPEX is £8 billion.
Finally,the Darent hospital, although operating at a greater cost than estimated was built on time and to budget, something not always common to projects procured by traditional methods.
References / 参考文献
1. K&M (2004), Kent & Medway NHS web site,www.kentandmedway.nhs.uk
2. Carillion(2004), Carillion Group web site, www.carillionplc.com