Kill or cure?

Plymouth’s Derriford Hospital is falling apart. It housed its first patients nearly a quarter of a century ago and simply cannot cope with the demands of modern healthcare. Derriford is the 19th worst hospital in the country for outbreaks of the MRSA superbug and the fifth worst for speed of treatment of heart attack victims. It operates at occupancy rates of more than 100% – some patients are cared for on trolleys.

The effect on patients is demonstrated by the delay in treatment of Nicola Panay, suspected rheumatoid arthritis sufferer. In a letter to The West Briton, her local paper, last month, Ms Panay wrote that the hospital had told her it could not treat her for up to 15 weeks. This was despite her fingers being “bent closed with painful and swollen knuckles”, waking up one morning unable to walk, and struggling to look after her “very demanding” two-year-old child.

A remedy for all of this ought to be in sight. The hospital should be three months away from appointing a preferred PFI bidder to refurbish it and build a planned care centre, complete with rehabilitation and day surgery facilities. Instead, it could be another 12 months until an appointment is made for the new-build element alone.

The problem was that the original bidding process had to be scrapped after two of its three bidders dropped out. The Department of Health has long frowned on single-tender bidding because it is not competitive. The result is that the scheme is in limbo, the renovation of the hospital may be delayed by as much as three years and, with inflation, an estimated £260m will be added to the estimated £340m pricetag.

The principal reason that bidders are so thin on the ground is that bidding for PFI healthcare schemes is painful for those who lose: the bid costs are estimated to be £4m for a £100m project. This means that the single bidder problem is about to become a familiar one. There are at least three other examples across the UK, and if single-tender bids are not allowed, it looks as though the government will have to find itself another procurement route.

A dire prognosis: Derriford, Plymouth

There was a warning this would happen. In 2002 the Department of Health received two bids, from Skanska and Bouygues, for the £750m St Bartholomew’s and Royal London Hospitals scheme. At the time, the DoH’s rules said three were required, but then it bowed to the inevitable and accepted a two-horse race. But it refused to accept the possibility of single-bid negotiations.

The first test came at Derriford in January and February this year. The project was at a disadvantage because few major builders have a strong presence in the South-west. A German–British consortium pulled out of the bidding because it could not find a construction partner, and Carillion is rumoured to have said that it would have looked at the scheme “if it were 200 miles further north”. This left only two actual bids: one from a team led by Australian contractor Multiplex and another by a consortium called Medico Vanguard, led by Amey and its Spanish parent Ferrovial. Then Multiplex withdrew to pursue projects in other areas of the country.

Syd Jamieson, Plymouth Hospitals NHS Trust PFI project manager, tried to carry on regardless. “We had a lot of discussions on single-bidding, but there were so many interested parties involved, from the Strategic Health Authority to the Treasury, that it was very difficult to build a consensus.”

The public sector was nervous about the lack of competition. This would effectively put the project down the negotiated contract route, which the Building Cost Information Service has found to be 13% more expensive than competitive tenders. David Harrison is director of health at PPP advisory Partnerships UK and worked on the St Bart’s tender process. He points out that the Treasury’s value for money guidance issued last year “makes specific reference to concerns the public sector would have with regard to single bidders”.

So Amey faced the loss of a scheme on which an average of 15 people had been working for nearly two years, on top of bid costs that ran into hundreds of thousands of pounds. So the company decided to lobby the Treasury and the DoH’s private finance unit. Mel Ewell, Amey’s chief executive, argues: “In our opinion, single-procurement sources are rational as long as they clearly go through tests for best value. Instead, we’ve got a hospital in Plymouth crying out for investment, and we’re stood here ready to go with it. It’s frustrating. Unacceptable.”

Ewell adds that there have been enough hospitals that have gone down the PFI route since the Labour party came to power that a single bid would face tough scrutiny as so many parts of the process could easily be benchmarked. This would ensure that the bid would remain low.

Not all contractors agree. Chris Haines is PFI director at the UK office of Italian builder Impregilo. He was going to bid for Plymouth, but decided against it when the scheme went to the market. Haines says: “I can’t see single-tender bidding [in large PFI schemes] ever happening. It would be great if you were a bidder, as the contractor is in such a strong position.”

Haines’ withdrawal from the Plymouth race was significant. He had complained it was too risky, and wrote a paper to the private finance unit outlining his concerns. These centred on not being able to conduct structural surveys as they would disturb the everyday operations of the hospital. If there were latent defects, the winning consortium would be responsible for fixing them. That was a financial risk that could not be assessed, so Haines suggested the new-build and refurbishment elements be tendered separately: at least the primary care centre would get built. The department declined, believing it had three bidders.

Last week the trust announced that the project would be taken back to the market, although it will indeed be divided into at least two packages, as Haines suggested. The primary care centre should advertise for a fresh set of bidders in early autumn, but sources say the refurbishment may not hit the market for 18 months. Project director Andy Ibbs justified the decision by saying the situation made it difficult to ensure value for money, but what is more telling is that he added there would have been a lack of “visible” competition. Certainly, breaking up the project will make it more attractive, and may avoid accusations of a lack of competition. If it had gone with the Amey bid, however, the hospital would now be nearing financial close – saving itself up to three years and £260m, including inflation.

A lifeline: Stobhill and Victoria, Glasgow

North of the border, the authorities are starting to budge. Health procurement decisions are taken by the Scottish executive in Edinburgh rather than the private finance unit in London. A Balfour Beatty–Canmore Properties consortium has been named preferred bidder on the £190m Stobhill and Victoria hospital in Glasgow, even though no rivals emerged.

The Scottish executive gave the health board outline permission to see if this route was financially viable. It is understood that if it proves successful, another Scottish health board will give the green light to a single-bid negotiation. Andrew Gordon, the chief executive of Canmore Partnerships, argues that concerns over anti-competitiveness have meant the scheme will deliver better value than it would otherwise. “We’ve been subject to a scrutiny by the board and their advisers to an extent that is in some ways tougher than the multi-bidder approach. Look at the BAAs of this world. They don’t get three bids going in and they still get the right price.”

Not that Canmore is out of the woods yet. The Scottish executive still has its doubts, and can reject the scheme once the final business case has been presented. This is no mere formality. A source in the executive warns: “Single tendering is not our preferred option. The Greater Glasgow NHS board will have to show this is the right way to progress.”

The board is trying to demonstrate that the bid is value for money by appointing a consultant, believed to be Ernst & Young, to draft a “shadow” bid. For some critics, though, this is not enough. Jean Turner, the MSP for local constituency Strathkelvin and Bearsden, says: “I thought the whole point of PFI was competition. I’m very dubious that single-bid is value for money.” Dr Matthew Dunnigan, who has protested against the scheme on the grounds that it replaces five A&E units with two, backs Turner’s view: “This is contrary to commercial competition. This scheme can still fall.”

On the mend: Whipps Cross, London

If Glasgow hospitals succeed in using the single tender route, it seems that authorities in England and Wales might follow suit. Peter Coates, director of the private finance unit in the Department of Health, says: “We have not said we would reject it out of hand. If there is a case made that it’s the right thing to do, we would consider it.” True, but at least one NHS Trust figure says in the past he felt “steered away” by civil servants from that path.

If the officials do bring themselves to consider single-tenders, it would be too late for Plymouth, but not for the £350m Whipps Cross hospital in east London. Authorities fear that this high-profile scheme could be delayed 18 months if they re-tender the project, but a Balfour Beatty-led consortium has pulled out leaving Bouygues as the only bidder. The trust promoting the scheme is now talking to the department about proceeding with the one bidder. Otherwise, it is likely to return to the market later this year. A source close to the scheme says that there is little choice but to proceed with Bouygues: “The market is overheated because it is so small. If contractors haven’t expressed an interest now why would they the second time round?”

The idea appears to be that the consortium’s bid would be matched against the public sector comparator, which assesses the risk of a project. Tim Stone, PPP director at KPMG, thinks the department should consider using the “should cost” model. This would be borrowed from the Ministry of Defence, which often goes ahead with a single bidder. The MoD has not had a great deal of success with the system, partly because its projects tend to be one-offs. But Stone argues that it is easier to arrive at a sensible project cost on PFI health schemes as they are reasonably similar to each other. “Health PFI is a mature market so if it is absolutely necessary then the department should work with single-tender bidding,” says Stone, before warning: “But it needs to be jolly confident it is carefully thought out.”

It seems there is a way forward for the DoH. It can take a gamble on single bidders and try and find ways to ensure that contractors do not hold it over a barrel in the negotiation process. Or, as fewer and fewer bidders are willing to take on the financial strain of major PFI schemes, it can let its hospital stock rot.