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NHS Trusts learn that managing a PFI contract is the most important skill

Out-Law Analysis | 30 Sep 2011 | 9:12 am | 1 min. read

OPINION: PFI contracts in the NHS have been in the news but the spotlight should fall on the management of PFI contracts, and not just the fact that they exist.

Some of the criticisms of PFI are coming from the Department of Health (DoH), but what many may not appreciate is that the 22 NHS Trusts highlighted as having financial problems are not a representative sample. They are the NHS Trusts that McKinsey & Co identified as being likely to have difficulties converting to NHS Foundation Trusts.

PFI was just one of the factors looked at in assessing whether or not these Trusts will pass smoothly into Foundation Trust status.

Whilst some of the Trusts might have problems with PFI payments, this should not lead to the conclusion that the PFI process itself is the villain of the story.

Any contract requires effective management if it is going to work as predicted and if it is going to adapt to changing circumstances. This is especially the case with long-term and complex transactions. If you do not stay on top of your contract it will not work for you. NHS bodies must become more disciplined and rigorous in enforcing their PFI agreements.

This is also the Treasury's view. Its review of operational PFI projects recommended exactly this kind of attention to contract management when outlining how savings and performance improvements could be achieved. 

But this is not how all NHS Trusts have treated PFI contracts. Trusts have often struggled to manage their PFI schemes effectively and so are not getting what they are paying for or enforcing the payment mechanisms to reflect performance shortfalls.

PFI contracts may not be perfect, but they do contain mechanisms, often ignored, that can help Trusts to claw back cash and make variations that reflect changing circumstances. How do we know? Because some Trusts are doing just that

Many Trusts are functioning perfectly happily and delivering surpluses which are ploughed back into healthcare. Those of the 22 Trusts identified by the DoH which have operational PFI schemes could learn valuable lessons from these.

The troubled Trusts should start policing their PFI partners' performance against contractual benchmarks more effectively. Then they can look into the tools at their disposal for improving their financial position.

The blunt truth is that they will have to make PFI work because financial bailouts will become increasingly scarce.

It is possible that for smaller scale proposals more flexible alternative delivery models are becoming used by commercially aware Foundation Trusts, but for the large scale, whole hospital developments, in the absence of serious amounts of public capital, PFI remains the only game in town.  Trusts must learn to make better use of it.

Michael Boyd is a specialist in PFI law at Pinsent Masons, the law firm behind Out-Law.com