Care in the business community

For Greenwich, along with a growing number of councils, the private finance initiative was the answer. As with social housing PFIs, care-home deals involve a builder, a bank, PFI credits from government and an organisation to provide tenant management or care, such as a housing association or private firm. So far, no PFI social housing refurbishment schemes have been signed because of tenant concerns and contractual wrangling. But new-build PFIs have been more successful – North-east Derbyshire and Derby have signed up housebuilding schemes. And in care, PFI deals have been struck in Portsmouth, Richmond, Surrey, Harrow, Westminster and Dudley (see "PFI's progress", below).

But Greenwich's scheme was a landmark. When it was signed in September last year, the 30-year deal was the biggest ever.

First things first: research
The deal had its origin five years earlier.

Once Greenwich council realised that improvements were needed, and soon, it started to research the problem and possible solutions. Between 1997 and 1998, its social services and health departments investigated the future demand for care, producing a paper, Anticipating Future Demand. The research took eight weeks and included demographic information and visits to other care homes to compare facilities and designs.

"The homes weren't fit for the future," says David Behan, Greenwich's social services director. "They were built in the early 1970s and levels of dependency are now greater." Change in the ethnicity of Greenwich's population would also affect care home provision, for example, in terms of residents' cultural needs.

The council wanted to replace the homes, and an NHS continuing care ward, with three neighbourhood resource centres that would provide 167 residential, nursing, intermediate and emergency beds, plus outreach and day care services. It decided to demolish two of the old homes and earmarked a council-owned brownfield site for the new centres. Demolition would take place in phases, with residents moving gradually to the two remaining care homes or the new centres over 18 months.

Let negotiations commence
Work then turned to raising the funds needed to fulfil Greenwich's ambitious plans. The council preferred PFI over other options such as stock transfer; it had firm ideas about the type of care homes it wanted to build, and felt that stock transfer was more suited to refurbishment rather than new build.

The first step for the council was to win "in principle" approval from the department of health, which it got in 1998. The PFI process began in earnest later that year when the council advertised for interested consortia to come forward. By 1999 the council had received 20 bids from housing associations and private care providers. Sifting through the bids took months, but a year later the council shortlisted four bidders which it invited to negotiate. That was then narrowed down to two bidders – the Ashley Shaftesbury Kier (Ask) consortium and a private care provider. Greenwich eventually chose Ask in November 2001.

The Ask consortium comprises registered social landlord Shaftesbury Housing Group, its care and support division Ashley Homes and construction firm Kier Project Investment. What made them stand out from the other 19 bidders?

"Greenwich liked us because we're not a private care provider," says Mark Lloyd, executive director of Ashley Homes. "We're a combination of a private builder, financier and not-for-profit care provider."

Greenwich's Behan stresses that Ask won "on merit" rather than because it includes a housing association. "We think there's an innovative side to the consortium bringing together the independent and private sectors and a commercial builder," he says.

Choosing a partner organisation, however, was by no means the end of the selection process. Staff and residents still needed to be informed of, involved in and convinced of the decision to use the Ask consortium.

"It was 10 solid months of hard negotiation on things like staff terms and conditions, design and analysing the cost risk," recalls Lloyd. Staff sometimes worked until midnight ironing out the details, from how to deal with voids to what menus would be served. But it was this painstaking process that cemented the relationship between the parties.

As talks continued, Ashley Homes held interviews with 37 groups of stakeholders, including unions, general practitioners and representatives from BME communities. At the same time, Greenwich appointed a member of staff to communicate with stakeholders and encouraged staff to visit Ashley Homes and ask questions.

Behan says there was little opposition to PFI from staff or residents because they realised new buildings were needed and saw PFI as merely a delivery vehicle. "We didn't start with the idea that 'we're having a PFI', we started with how we will deal with older people's needs."

Finding the funding
All this work would be for nothing, however, if the funding could not be found. Ask secured loans with lender Dexia, which funded previous Shaftesbury schemes. Kier and Shaftesbury contributed equity of £800,000 each and Dexia loaned the remaining £18m to cover building costs. Kier and Shaftesbury agreed to pay any abortive costs if the deal failed – an estimated £2000-£3000. "We couldn't have done it if we didn't have an equity partner in Kier," says Lloyd.

The decision
By last September, the council was convinced and the deal was signed. The result was the biggest-ever care PFI arrangement. Under Ask will build and manage three care homes for the next 30 years.

Greenwich has won £29m in government PFI credits, to be released gradually over the 30-year life of the project. Those credits, combined with approximately £120m the council would have spent on the old care homes over 30 years, will pay Ashley to provide care in the new centres; an income from the council of about £4m a year. After 30 years, Greenwich can extend the contract or take back the land and buildings.

The prospect of a guaranteed income was what attracted Ashley Homes to the deal. "We are tied to a 30-year contract," says Lloyd. "It's hard to get out of, so you have to cost your bid carefully so you do not undercut, but we have a guaranteed income for 30 years." In other homes it ran, Ashley had been paid per resident, which meant it footed the cost of any unfilled beds.

But the are also pitfalls behind this promise of stability. For example, PFI contracts have key performance indicators – a list of standards that the care provider and building management firm must adhere to. These include things like the time taken to fix a washing machine. There is a £40 fine every time the agreement is broken and the fine multiplies if the repair is left incomplete. There is potential to incur large costs if you are inexperienced in care or have not planned your scheme properly, according to Lloyd. But on the plus side it "creates a culture where you get things done", he says.

Could it work for you?
Building has already begun on Greenwich's new care homes, which were designed by GMA Architecture and will open next April. The council's landmark PFI deal prompted the Department of Health to award the scheme pathfinder status in 2002 so that other RSLs and councils can learn from how the deal was put together.

Lloyd encourages RSLs care providers to get involved in care PFIs, but also cautions against having unrealistic expectations. "The reality is you do not make a profit out of care," he says. "Staff costs are high, although you can do well if you understand the employment market and the National Care Standards Commission regulations.

"There's a good opportunity to get into this market, but look at how you will cover the cost: you need equity partners and need to be prepared for the long haul. Don't do it alone, do it as part of a consortium so you can share the risk."