PFI Health Centres: The Good, The Bad and The Ugly
3rd May 2016
April 2016 saw some good, then bad and finally some truly ugly news for Private Finance Initiative health care projects in Scotland.
The month got off to an excellent start with NHS Lothian’s announcement that it had entered into contracts for construction of three new £27.6 million health centres in Edinburgh and West Lothian. The centres will provide accommodation for GP practices alongside other health-related services, including dentists, podiatrists and therapists.
Completing these contracts is a major achievement for the Scottish Government’s equivalent of Private Finance Initiative, the Scottish Futures Trust (SFT). It shows that the SFT can give doctors, dentists and other health care professionals a viable method of securing new accommodation and is testimony to the variety of funding routes now available to health care professionals wanting to build, or see built, new surgery premises. This is important news, as a number of these projects had been slow in fruition and there was real concern in the second half of last year that the SFT might breach European accounting rules, causing all of the SFT projects temporarily to be suspended.
Within just days of this announcement, however, Edinburgh City Council announced unlimited closure of PFI-commissioned Oxgangs Primary School as a result of serious design flaws with the construction of an exterior wall. Bad news quickly turned to ugly news when it emerged that all seventeen of the local authority’s PPP1 PFI primary and secondary schools contained serious design defects. Not surprisingly, attention has now focused on whether the Scottish Government should pay for new schools, health care centres and other public buildings through general taxation rather than through private finance. The Scottish Government has announced an inquiry into the PFI commissioned buildings and, no doubt, lessons will be learnt for all new SFT buildings in the pipeline.
In the meantime, doctors and dentists can learn some important lessons from last month’s rollercoaster news. In the first place, practices wishing to move to new surgeries know that SFT financed health centre premises are a viable option alongside leases from the Health Board and grant-financed initiatives such as the Scottish Dental Access Initiative. The inevitable difficulty lies, of course, in persuading the health board to foot the bill for such premises and in minimising their liability for repairs and running costs of potentially expensive new premises.
In the second place, the Edinburgh schools debacle shows the importance of paying very close attention to the detail of occupancy agreements and contracts. If, instead, of defectively built schools, the buildings had been health centres, what responsibility would GP and dental practices have had for repairs to the buildings? What would have happened to their practices if they had been unable to occupy the buildings for potentially many months? These are important issues which highlight the need for legal input not just on the detail of the occupancy agreements but the practice’s overall liability for repairs and for construction design defects.
Here are my top tips to consider for any practice thinking of moving into a new health centre:
1. Press the Health Board to accept responsibility for design construction defects and not pass these costs onto practices – experience shows that Health Board practice varies significantly across the country and that there is considerable room for negotiation
2. Fact find the hidden costs of the new centre - find out early on the likely running costs of the premises; as new health centres typically include large common areas, service charges and running costs can be significantly higher than for existing premises.
3. Take stock of liabilities- work out the total exit costs from the practice’s existing premises – if, for example, the practice occupies leased premises, there may be significant repair costs at the end of the lease.
4. Review the practice agreement - it is essential to review and, if required, update the practice’s partnership agreement before entering into any occupancy agreement.
As a commercial property specialist with a track record in successful contracting and negotiating for health care professionals I am happy to respond to queries from individuals and partnerships as well as the media on this topic.
Michael Dewar, Partner, Healthcare Sector Team, Wright, Johnston & Mackenzie LLP (Published 3.5.16)