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PPP IN UK HEALTHCARE

Peter Cossins

PPP Specialist, UKTI

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Introduction

• Background

• Range of projects

• Role at UKTI

3Page 3

Agenda (1)

• Introduction

• What is PPP?

• PPP in the UK and in UK Healthcare

• Types of PPP used in the UK

• The Procurement Process

• Bid Stages

• Project Structure

• Finance

4Page 4

• What makes a successful PPP Project?• Critical Elements

• The Need to Change – PF2• Case Studies• Summary

Agenda (2)

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What is PPP?

• Any procurement procedure that is carried out with the Public Sector and the Private Sector working together

• A partnership to develop better results, avoid confrontation and spread risk and reward fairly

• PPP requires a way if thinking that is different to traditional procurement

• Risk – placed with the organisation best placed to manage it

• Example – Design. Who is responsible for making it work?

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PPP in the UK and UK Healthcare

• Started in the early 1990’s

• Driven by poor social infrastructure and lack of capital

• Used for Hospitals, Prisons, Roads, Social Housing, Schools amongst other sectors

• Over GBP 55 billion to date across all sectors

• Over GBP 12 billion in Healthcare

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Types of PPP

• Private Finance Initiative (PFI)

• Local Improvement Finance Trust (LIFT)

• Non- Profit Distribution Model (NPD)

• Local Asset backed Vehicle (LABV)

• HUB

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The Procurement Process

• Prequalification

• Invitation To Tender

• The development work is done here!

• Preferred Bidder

• Final Negotiation

• Financial Close

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NHS

SPVLender Equity

ConstructorFacilities Manager

Subcontracts

Project Agreement

ShareholdersAgreement

ClinicalServices

OtherServices

LendersAgreement

PPP SAMPLE PROJECT STRUCTURE

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Finance• Project Finance

• Typically borrowing from a Lender or panel of Lenders

• Bond Financing

• More cost effective than borrowing senior debt but credit rating of project must usually exceed – BBB.

• Equity Contributions

• Made by Sponsors to the SPV for a shareholding

• Subordinated Debt

• Sometimes used as a buffer against unforeseen circumstances

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What makes a successful Project?

• Know what you want and spell it out ……..in detail

• Express your ethos and philosophy to service delivery

• Your procurement team – experience and knowledge

• It’s a full time job

• Do not underestimate the complexity or the need for dialogue

• Build relationships with your partners

• Workshops

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PPP – Critical Elements

• Clarity on deliverables

• Clarity on budget

• Identification of Risks and allocation

• Allow for sufficient time

• An experienced team

• Continuous reviews

• Smooth the way – keep others informed

• No surprises!

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The Need to Change – PF2

• Centralised procurement

• Limited Competitive Tendering phase

• Public Sector Investment and Transparency

• Funding Competitions

• Revised Risk Allocation

• Standardisation of Contracts – limited negotiation

• Soft FM to remain with the public sector

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Case Study 1 – The Royal London and Bart’s Hospitals PPP Project

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Case Study 1 – The Royal London and Bart’s Hospitals PPP Project• The largest healthcare project undertaken in the UK

• To modernise health services in East London and the City of London

• New Buildings, Refurbishment and Equipment provision

• Value GBP 1.1 billion

• Advertised in 2002

• Financial Close 2006

• Final handover 2016

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Case Study 1 – The Royal London and Bart’s Hospitals PPP ProjectContract Details• Services:

• Design• Construction• Reactive and Planned Maintenance (Hard FM)• Medical Equipment• Sterile Services• Clinical Support Services

• Cleaning• Catering• Laundry

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Case Study 1 – The Royal London and Bart’s Hospitals PPP Project

Financial Details:

SPV Investors:• Innisfree GBP 48 million

• Skanska GBP 48 million

• Equion GBP 32 million

Senior Funding:• Debt – European Investment Bank GBP 250 million• Index Linked Bonds – GBP 750 million

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Case Study 2 – Southmead Hospital PPP Project

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Case Study 2 – Southmead Hospital PPP Project

• ‘Super Hospital’ for the North Bristol NHS Trust

• Single building on a 115,000m2 footprint

• 832 Acute Beds

• 24 Operating Theatre Suites

• Accident and Emergency

• Care for a population of 500,000 people

• Value GBP 600 million

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Case Study 2 – Southmead Hospital PPP Project

• Trust retains responsibility for catering, cleaning and laundry

Contract Details

• Services• Design

• Construction

• Reactive and Planned maintenance

• Grounds Maintenance and Pest Control

• Utilities and Helpdesk

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Case Study 2 – Southmead Hospital PPP Project

Financial Details

SPV Investor• Carillion – GBP 50 million

Senior Funding• Lloyds Bank – GBP 150 million

• Royal Bank of Scotland – GBP 75 million

• National Australia Bank - GBP 51 million

• Credit Agricole – GBP 51 million

• Societe Generale – GBP 50 million

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Summary

• Clarity

• Committed and Experienced Resources

• Dialogue

• Standard Documentation

• Allow time for development with your partners

• Rigour in your Output Specification• Beware hair triggers!!

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Thank You!

Questions?