Select Committee on Health Minutes of Evidence

Memorandum by KPMG (PS 50)

  KPMG Corporate Finance are delighted to have been asked to submit evidence to the House of Commons Health Select Committee on use of the private sector in the provision of publicly funded health services in the UK. KPMG have been extensively involved in the provision of advice on health PFI schemes for both the public and private sectors. Schemes on which we have advised include the first of acute hospital PFI scheme to be signed at Dartford & Gravesham, as well as schemes at Greenwich, Bishop Auckland, Hereford, West Middlesex and West Berkshire. In the course of this work we have formed strong views both on the benefits which PFI and PPP can bring to the health sector, as well as the potential for making PPPs in health even more effective. Our views on some of the key issues which are likely to be considered by the Committee are as follows:

Value for Money

  Acute hospital PFI schemes overall have represented good value for money for the public sector. Whilst there have been some initial teething problems and learning points evidence suggests that a quantitative comparison of PFI against the public sector comparator does indicate value for money, albeit marginal. Moreover, we consider that as both the public and private sectors have become used to the process and the risks involved, value for money, compared to the early schemes has improved. For example, rates of returns required by private sector investors, have reduced and have bid costs to both the public and private sectors. In addition, we consider that, in general, PFI has led to a higher standard of hospital accommodation which has been delivered more quickly than under conventional procurement.

  PFI "per se" has not led to a decline in the number of bed spaces. To the extent that there are fewer bed spaces in PFI hospitals than hospitals they replace it is because of a conscious decision by health trusts and health authorities when specifying the requirement to reduce the number rather than being a consequence of PFI. This early trend is also being addressed in recent PFI hospital deals.

The PFI Process

  Since the first PFI schemes in health the process has improved considerably, with standardisation of contracts, pay and performance regimes etc with a strong NHS PFU, leading to more efficient procurement and reduced bid timescales and costs. The strengthening of the process has also allowed health trusts and the private sector bidders to devote more time to refining the clinical solutions.


  We consider that it is important for delivery of high quality health services that there is a well motivated, property remunerated workforce in respect of both clinical and non-clinical services. Much would be gained by an agreement between private sector employers organisations and unions to ensure that private sector bidders protect the terms and conditions of employees who are transferred whilst not impeding changes in working practices and improved efficiency and value for money. The "artificial" split between clinical and non-clinical services imposed under current PFIs causes arbitrary division between those involved in service delivery and risks undermining the health service ethos.

  There has been considerable private sector concern about the pilot projects where the workforce remain in the public sector. We consider that this can be made to work, if and only if, private sector managers are given real and effective managerial control over the public sector workers.

The Bidder Market

  We have some concerns that there is too limited a market of bidders for health PFI schemes, which mean that the benefits of diversity and competition might not yet be fully realised. Further effort should be made to encourage the development of a broader market.


  Whilst refinancing gains have attracted considerable criticism they should be looked at in the context that the early schemes were in an immature market where the overall project finance and market risks had not been fully digested. Moreover since then underlying interest rates have fallen significantly. This has enabled some refinancing gains to be realised from early deals but lower interest rates plus the introduction of standard refinancing sharing clauses in contracts has reduced much of the potential for such benefits to arise in future.

The Boundaries of health PFI/PPP

  In our view the imposition of "artificial" boundaries on the scope of PPP/PFI services in health by excluding clinical and near clinical services has meant that the scope to achieve even greater VFM through use of the private sector has been reduced. The experience of other sectors such as prisons and defence has shown that "whole service" PFIs maximise the scope for innovation and VFM. There are already established providers who provide such services and hence private sector capability is already established. Pilot projects involving clinical and near clinical services would help to establish what further benefits might be achieved from greater private sector involvement where the clear arbiter of choice ought to be value for money.

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