The DoH and the industry have concluded that the preferred method of delivery, the private finance initiative, takes too long to reach financial close and is so costly for bidders that many firms have ended up avoiding the sector altogether. A case in point is the £600m redevelopment of the Royal London and St Bartholomew's hospitals. The bid costs are so excessive – a DoH source estimated that they could reach £20-30m – that only two consortiums bid for the scheme when it was launched last year. The DoH was forced into changing its own rules so that the competition could proceed – it had previously stated that at least three bidders were necessary for the benefits of competition to transpire.
Chastened, health minister John Hutton responded warmly to an idea brought to him by the private sector last summer: batching. Under this scheme, consortiums would bid to build and run two or three hospitals at once. The theory was that running only one competition would reduce the likelihood of delays and that bid costs could fall by as much as two-thirds.
In January this year, Brian Banfield, the former commercial director of megaconsultant Atkins, was brought in by the DoH to take over the new post of batching projects director to refine the process. Working with the Major Contractors Group, Banfield and his team, which included staff seconded from quantity surveyor Hornagold & Hills and lawyer Addleshaw Goddard, looked to turn the theory into attractive practice for the private sector. From his experience at Atkins, Banfield was particularly concerned by the number of man hours used up by public sector projects: "The number of resources contractors put into a bid drains a company of its senior people."
The first scheme the DoH team worked on was a bundle consisting of new hospitals for Salford, Tameside and Bradford valued at £500m. Using the pilot to develop the model, it was agreed that bidders would only design one principal hospital – in this instance, Salford.
The bidders would also, for the first time under the PFI, be required to detail the methodology behind their costing for the project. In effect, bidders would be competing against each other for this principal scheme, but standardisation of design and cost meant that the DoH would have a fairly detailed picture of the evolution of the other two hospitals. So, soon after the first scheme reached financial close, contracts on the other hospitals could be agreed. Banfield says: "We're hoping to issue room data sheets to give the contractor some commonality – a four-bed room in Bradford should be, as far as possible, similar to one in Salford."
Listening to its members, the MCG pushed for simplicity and security in this batching process. MCG director Bill Tallis says: "We think that bids should use the minimum of data possible."
Can one large organisation cope with £500m worth of hospitals?
Mike Nightingale, Nightgale Associates
One area in which Tallis and the DoH reached agreement was that as part of the prequalification process, bidders and government would sign a memorandum of understanding. This would entail the bidder agreeing to open-book accounting and to ground and building surveys commissioned by the DoH. Agreeing to the surveys would mean that the bidders would not have to waste time with commissioning their own. The DoH would issue a warranty guaranteeing the findings – the contractor and its consortium would not have to worry about liability for flawed surveys.
Tallis says: "We certainly thought it would be helpful to have one survey, rather than each bidder doing a survey of their own. It would be more economical."
Despite the obvious time and cost-saving advantages, the process is not free from criticism. One regular PFI bidder is healthcare architect Nightingale Associates. Chairman Mike Nightingale says: "The proof of the pudding is in the eating. Can one large organisation cope with £500m worth of hospitals? I think it's going to complicate the management to run three hospitals rather than one."
Batching team member Tesh Patel at the DoH counters this attack by saying that contractors could enter into joint ventures to share the burden of dealing with such large projects. Despite the straight bat played by Patel, it is clear that the government is concerned by the capacity issue: a DoH source has confirmed that some later batches are likely to be closer to the £50m-mark. "We envisage joint ventures and smaller batches of hospitals and mental health schemes," the source says.
Patel also believes that the DoH will provide administrative support to the private sector with the establishment of a board, consisting of DoH officials and representatives of each of the NHS trusts involved in a bundle, to co-ordinate the developments.
The birth of hospital batching: Salford, Tameside and Bradford
- 16 May 2003: Invitation to tender advertised in Official Journal of European Communities.
- 28 May 2003: DoH holds open day at Hope Hospital in Salford for 100 industry executives to learn more about how the first hospital batch will work.
- 23 June 2003: Prequalification questionnaire issued to prospective bidders.
- 11 August 2003: Deadline for return of questionnaires.
- 8 September 2003: Shortlist of three bidders decided.
- 9 September 2003: Invitation to negotiate issued to shortlisted bidders.
- 6 February 2004: Deadline for returns of invitation to negotiate documents.
- 7 April 2004: Evaluation of bids completed.
- 8 April–6 May 2004: DoH approvals secured.
- 7 May 2004: Framework agreed and signed with preferred bidder.
- February 2005: Financial close of Salford Hospital.
- May 2005: Financial close of second hospital (Tameside or Bradford).
- August 2005: Financial close of third scheme.