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  Improving the design of PFI hospitals
 

 
This speech was given in the House of Commons on 26 January 2006 as part of the Public Accounts Committee debate

Mr. Richard Bacon (South Norfolk) (Con): It is a great pleasure to follow the hon. Member for Bishop Auckland (Helen Goodman), who provided the House with a penetrating analysis of the Committee's work, and of some of the issues and problems with which it has to deal. I agree with a great deal of what she said. She certainly does not sound like a new member of the Committee, but of course, she was a Treasury official for a while. We also know - I am not sure that she knows that we know - that she was the original teenage scribbler. She has now been promoted from scribbling to offering penetrating analysis, and we welcome her and the other new members of the Committee to their positions.

Helen Goodman: I should point out that I was not a scribbler; I was the original teenage kid.

Mr. Bacon: The hon. Lady was a deputy scribbler, perhaps.

Like the hon. Lady, I want to pay tribute to Nick Wright, Chris Randall, Emma Sawyer and Ronnie Jefferson, who run the Committee's office; to the press office of the National Audit Office, which is headed by Barry Lester, with able support from Mark Strathdene and others; and to the office of Sir John Bourn himself. I should point out by way of correction that members of the NAO are not civil servants and that in fact, the Comptroller and Auditor General is an Officer of the House of Commons. That is of incalculable importance. Even if it is a constitutional nicety, it says something very important about the way in which the system is structured.

I want to focus on private finance initiatives, particularly those relating to hospitals. The Committee has examined a wide range of PFI projects and a wide range of hospitals. We have looked at the Darent Valley hospital and the Dartford and Gravesham hospital. We visited the UCL hospitals and recently examined the Norfolk and Norwich hospital, which is in my own area. The issues associated with hospital procurement illustrate some important themes that merit further scrutiny and discussion not only by the Committee, but by the Treasury.

We are all familiar with the standard PFI model as it has developed. It started out as a design, build, finance and operate model, whereby the Government said to operators, "Go off and do it, and tell us when you've done it." There have been many successes; indeed, not even critics of PFI would deny that an increasing number of buildings have been delivered on time and on budget, with substantially reduced, if not completely eliminated, cost overruns.

The NAO's figures show that, in 2001, 76 per cent. of projects were delivered on time and 79 per cent. to budget. That compares with 30 per cent. on time and 27 per cent. to budget for conventional procurement. More recent Treasury figures tell an even better story, with 88 per cent. of projects delivered on time and 79 per cent. to budget.

We all know examples of conventional procurements that have gone horribly wrong - the Jubilee line extension, the British Library, the Scottish Parliament building, and even Portcullis house. In the latter case, all kinds of problems were encountered. The wrong kind of bronze was used on the roof, and the windows cost 23 million more than they were supposed to. The president of the Royal Institute of British Architects told me recently that it would have been cheaper to clad the exterior of Portcullis house with 7-series BMWs. That shows the scale of the problems that conventional procurement can encounter, and that PFI has offered a successful alternative in many cases.

There is no doubt that PFI has led to significant improvements, or that it is here to stay. The question is whether we are getting the best possible value from the way that PFI procurement is conducted. There is growing evidence that we are not, a conclusion that is especially well illustrated by PFI hospital procurement.

Many of the problems have to do with design, and they could be avoided with more thought and a better assessment of requirements in the early phase of procurement. For example, the Cumberland infirmary in Carlisle was a 45-year contract costing 65 million. The contract called for a 474-bed hospital, but the new infirmary has a capacity of 444 beds. Floor capacity in the old sites that it replaced amounted to 57,000 sq ft, but the new site has only 42,000 sq ft. The infirmary has been criticised for having cheap components that need refitting at short intervals. The maintenance costs are 50 per cent. over projections, there is poor drainage and plumbing, and limited signage. Patients exiting cardiology have to go through five sets of swing doors, even though most of them are in wheelchairs.

The new 450-bed district general hospital in Durham was built on the Dryburn site to rationalise services provided previously at Shotley Bridge and the old Dryburn hospital. There, the pathology lab flooded three times in the first 18 months, twice with raw sewage. There is poor ventilation and air filtration and the fixtures and fittings are of poor quality. Some of the lightweight storage cupboards are unable to take the weight of routine equipment.
 
The opening of the hospital in Bishop Auckland, in the constituency of the hon. Member for Bishop Auckland, was delayed by two months for modifications. The generator and the core electrical systems had to be redesigned immediately after the hospital opened.

The Norfolk and Norwich university hospital is on the border of my constituency. Most of my constituents go there for medical treatment, and many work there. The negative pressure rooms were not properly operational for two years. A nurse lifted ceiling tiles in third-floor ward areas and found air ducting lying in unconnected lengths. The job simply had not been finished. I am pleased to say that the hospital has since spent some money on modifying those rooms and they are fully operational, but other problems remain. For example, there is no ventilation in the kitchens: 30 C working conditions are common, and a temperature of 44 C has been recorded. In addition, delivery loading bays are inefficient, and there are numerous reports of health and safety problems due to layout and the poor materials used in construction.

When it is published, the separate PAC report on refinancing will reveal some startling facts about the financial engineering used, not to increase the number of beds or to build a new wing, but solely to accelerate the rate of financial return, from 18 per cent. to over 60 per cent.

The new Hereford hospital has 354 beds. The boiler house opened with no water treatment plant. There were materials defects, doors were too heavy for the opening restraints. Engineering workshops designed for five staff regularly have 13 people working in them, and three lifts had to be refitted within the first 12 months.

I turn now to Worcestershire, a county for which I have a particular affection, as I had my appendix taken out in a hospital there some years ago. In the Worcestershire acute hospitals NHS trust's modern, 452-bed facility, the back office conditions are too cramped. Corridors are too narrow to pass two beds side by side. There is also an inefficient and unused one-way system.

It is worth saying that these are not just snagging issues that occur with any new building. They are design problems. It is not normal to refit three lifts in the first 12 months. One does not redesign the generator and the core electrical systems immediately after opening a new hospital and call it snagging. Corridors that are too narrow to pass two beds side by side are not a snagging problem. A pathology lab that floods three times in 18 months, including with raw sewage, is not a snagging problem. They are fundamental signs of poor specification and design. The current PFI procurement process makes such design more likely, not less.

As well as inadequate quality, we are also seeing spiralling costs. The average cost of bidding for a PFI hospital has risen from 7.5 million two years ago - itself an extraordinary figure - to more than 11.5 million now. RIBA believes that a conservative estimate of the cost of abortive bids is about 500 million per annum across the sector. As part of the company's operational profitability, that inevitably gets rolled into the cost of the losing consortium's next bid. Even the winning consortium is likely to have factored in the cost of its previous unsuccessful bids.
 
The process is simply making the whole industry more expensive. It is also excluding many capable medium-sized contractors. In effect, it is a Government-sponsored oligopoly. It is wasteful. Parallel teams work up designs that require a considerable amount of professional time and skill at a time when, as the hon. Member for Bishop Auckland said, there is an acute skills shortage. It is worse than that, because the most expert clients are the ones who can recruit the best designers, who then compete with each other while the other bids have less experienced designers, leading to lower overall quality of design.

Once a consortium has won, another key question arises that, in some ways, is even worse in terms of its consequences, namely, who, then, is the client? The client is not who one would think it would be. It is not the hospital trust; the designer's client is the consortium. So there will be pressures. A marked degradation has been seen on many occasions in the design quality after financial close.

Helen Goodman: Does the hon. Gentleman agree that part of the issue is not the overall cost but the point at which we are spending money on big projects? We are not spending it early enough. We are not investing early enough in skills within the public sector. Hence, we find ourselves spending more later on.

Mr. Bacon: We find ourselves spending more later on in spades, and wastefully. In the recent exercise with St. Mary's, Paddington, the bidding round failed, cost 50 million and produced nothing of worth. They are having to go back and do it all again. We recently heard about the problems with Bart's, with potentially 100 million of fees lost.

The hon. Lady anticipates a point that I intended to make later by drawing an analogy with the way in which defence procurement works. As we have said in some of our reports, the assessment phase should receive a greater proportion of the resource that goes into the project. Designers are having to respond to pressures from the leaders of consortiums, who are usually a combination of the building contractors and the banks, to build to the lowest cost or to facilitate the easiest building method. That may be sensible or it may be in the best interests not of the client but of the consortium that has to deliver it. The client is interested in the best possible hospital within the available budget for patients.

The problems are so widespread that the Treasury cannot say that it is not a problem and neither can anyone else. It is a significant problem. The question is what do we do about it? RIBA, along with others, has evolved what it thinks may be part of the answer. It has called it smart procurement, which leads directly to the point that the hon. Member for Bishop Auckland was making. In smart acquisition, part of the emphasis is on spending more of the resource earlier.

In our third report of the 2005-06 Session, HC410, we said in terms:

"The amount of work undertaken in the assessment phase is still not sufficient to enable sensible investment decisions to be taken . The Department's own Smart Acquisition guideline suggests that up to 15 per cent. of the cost of a project should be spent in the assessment phase."

That is for defence procurement. I do not want to promulgate a particular percentage, but it is clear that the point is analogous to what is going on in PFI hospitals.

Essentially, it is about getting the design team much nearer to the client. I have talked to the institute and it does not appear to be a case of architects or other professionals talking up their own book, which might be expected from any professional body. That is not what the institute means. It means getting civil engineers, quantity surveyors and others to work closely with the relevant hospital trust at a much earlier stage to eliminate problems by having a much closer understanding much earlier of what is required. That effectively allows the client to drive the process more strongly, with greater information and control, and power over the outcome.

In that context, it is interesting to consider the situation in Northern Ireland. As the Chairman said earlier, we have had many reasons to look at Northern Ireland, including the Navan centre, the sheep annual premium scheme and the recent job skills project. Many of the projects we have looked at have been a disgrace, but the Department for Health, Social Services and Public Safety, especially the Health Estates Agency under the management of John Cole, is blazing a trail. Because of the slightly different context in Northern Ireland, it has gone further down the path and I urge the Financial Secretary and other Ministers to examine what has been done there and whether the rest of the UK could learn some lessons about how PFI can be conducted.

The issue is not only about designers: it is about the whole built environment sector coming together to produce better outcomes for taxpayers. The initiative that the institute has evolved is now at an advanced stage and preliminary discussions have already taken place with the Treasury. The institute has talked to public sector clients, building contractors, civil engineers, quantity surveyors, building surveyors, facilities managers, insurers and banks, and is looking to produce a final cross-industry position paper. My plea to the Financial Secretary is that the Treasury should engage with the process seriously. These are welcome moves by the industry to produce a better, more mature and more efficient PFI market. I urge the Financial Secretary to meet the main players who, in my view, are seeking genuinely to eliminate problems and produce better results to turn PFI into something that delivers even more value for taxpayers who are, after all, paying for it.



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