Select Committee on Public Accounts Minutes of Evidence


Supplementary memorandum submitted by the Department of Health

Questions 100-109: Where there are delays between completion of a contract and receiving payments, does the Department benefit from compensation (penalties for late payments) or interest payments in such cases?

  It is usual for there to be a defined period between the date of exchange of contracts and completion of a sale. The period may vary but is normally 28 days throughout the year.

  In some cases it may be agreed that there would be a longer period between exchange and completion. In these circumstances a higher payment would be expected, the amount depending upon the time period.

  These arrangements may also provide for the payment of a non-returnable deposit.

  If a purchaser failed to complete, a completion notice would be served and interest at a per cent above London Inter Bank Offered Rate (the rate would be would defined in the contract) would become payable on the amount owed. If the purchaser still failed to complete the contract would be rescinded and the deposit monies retained.

Questions 168 and 169: Can you provide a breakdown by local authority of identified surplus land by each NHS Trust?

  The Committee requested a note setting out NHS properties declared surplus, presented by local authority. This entailed writing to every NHS Trust in the country, including the new Primary Care Trusts, asking them for details of surplus properties, which could then be plotted against local authority boundaries. This information has taken around two months to obtain.

  The table at Annex A shows NHS property either for sale or that may become surplus by Local Authority area. In some cases a formal decision to sell has not yet been made and in some instances it will not be the whole site. Properties currently under contract to sell have been excluded.

Questions 181-188, and subsequent written question: How much of the £3.8 million proceeds from the sale of Lambeth Nurses Home was spent on nurses accommodation, and how many new nurses units were provided to replace the 240 sold?

  The former Nurses Home was disposed of having been formally declared as surplus estate by Guy's and St Thomas NHS Trust. The London Regional NHS Executive Office, local health authorities and other local NHS Trusts were all consulted prior to disposal and there was no interest in the site.

  The building had not been used as a nurses home since 1993 when it was partly damaged by fire. It was in a poor state of repair and was not popular with staff due to it's location in relation to the main hospital sites and the need for refurbishment. The estimated costs of refurbishment were £4,000,000.

  The former Nurses Home had been leased as office space to the neighbouring Guy's and St Thomas Mental Health Trust. This Trust was undertaking a major reconfiguration programme at the time which was subject to the submission of a full business case. The property was declared surplus when the business case was approved.

  Guy's and St Thomas NHS Trust submitted a further separate business case to refurbish the General Lying-in Hospital, a property substantially closer to the St Thomas' site which is held on a long lease. Part of the costs of this will be met from the proceeds of sale of the Lambeth Nurses Home. This business case has been formally approved. The Trust envisaged redevelopment of the General Lying-in Hospital with 40-70 residential units, dependent on final design of the reconfigured units to suit family needs and office accommodation. The office accommodation would enable the Trust to release a further property currently housing their Procurement department. This property is under consideration (please see below) for development by the NHS Housing Co-ordinator, to provide further key worker accommodation when the site can be vacated.

  The General Lying-in Hospital scheme has been designed and tendered. It is planned for refurbishment works to commence shortly subject to landlord approval. Part of the costs of the works will be met from the proceeds of the sale of the Lambeth Nurses Home, the proceeds in the interim are being brokered by the Department of Health.

NHS Plan

  The NHS Plan set a target of securing an additional 2,000 residential units in London by July 2003. To date around 1,000 units have been secured through the NHS Housing Moderniser which is project managed by NHS Estates. We are on target to meet the NHS Plan.

  In addition the Guy's & St Thomas' Charitable Foundation is shortly about to appoint a development partner to make a further 407 units of key worker accommodation available adjacent to the St Thomas' site.

Questions 210-220 and subsequent written questions:

(i)  Provide a full report on the PPP arrangements—costs, private sector risks etc?


  This note describes the background to the Public Private Partnership (PPP) for disposal of the NHS Retained Estate, provides details of the decision to opt for a PPP and sets out proposals for the future of "Inventures", the trading arm of the NHS Estates Agency.


The Retained Estate

  The NHS in England owns one of the largest estates in Europe. At April 2000, it was valued by the Valuation Office Agency at some £23 billion (existing use basis) and had an estimated replacement value of £76 billion. The estate includes a wide range of land and properties, such as hospitals, clinics, administrative and residential buildings.

  When NHS Trusts were created, the Secretary of State for Health "retained", rather than transferred to NHS Trusts, properties that were continuing in operational NHS use for a period of time, but for which only a limited short to medium term operational need existed. This is the Retained Estate. The value of the Retained Estate at April 2001 was some £600 million.

  The NHS Plan—published in July 2000—announced the disposal of the remaining Retained Estate through a one-off sale. This was outlined within the Public Sector Productivity Panel report, Sold on Health, and supported by an independent option appraisal.

Policy Background

  HM Treasury policy guidance, Selling Services into Wider Markets, states that the Government is committed to increasing the efficiency of the public sector, both though the more effective management and delivery of public services and the fuller utilisation of public assets. To this end the government published the National Asset Register (NAR) in November 1997. At the same time it announced incentives for departments and agencies both to sell off surplus assets and to make the best use of those retained.

NHS Estates

  The NHS Estates Agency's role is:

    —  to ensure optimum use of the NHS estate and facilities management services for better healthcare by advising and supporting SoS, the Department of Health and NHS on developing and delivering a range of policies and other DH work on estates and facilities issues, including building planning and design, the patient environment, capital procurement and professional and technical issues;

    —  to oversee the operational management and delivery of the NHS Estate and Facilities services;

    —  the management and disposal of surplus NHS property owned by the Secretary of State and corporately overseeing all sales by Trusts, and

    —  through its Trading Arm, Inventures, offer paid services including advice and support for NHS Trusts and other health clients including bespoke consultancy, property and project services, training and technical guidance.

Progress Since the NHS Plan

  The NHS Plan set out a target of £600 million to be realised through a one-off sale of the retained estate. We have adopted a twin track approach following Treasury guidance and industry best practice by:

    —  placing land and property which requires development work into a joint venture, where we will receive a base offer for the land and then share development profit with the private sector partner who will provide development funding and share the risk, and

    —  continuing disposal of land and property where development potential has been achieved (ie, planning permission for housing on old hospital sites).

  Income of £280 million was achieved between the launch of the NHS Plan in June 2000 and 31 March 2002.


  The public sector works with the private sector through Public Private Partnerships which come in many forms from establishing limited companies, joint ventures, licensing, sponsorship, contracts, leasing and lettings.

  This PPP is proposed to be:

    —  a joint venture for the retained estate and provides a way to involve private sector expertise whilst ensuring the taxpayer receives a fair share of the rewards and, at the same time, protecting public interest, and

    —  contracts with Inventures providing goods and services to the Department, NHS organisations and other healthcare providers.

Option Appraisal

  An independent strategic level option appraisal, carried out by a leading professional practice within the industry, sought to test the merits of various options for releasing the latent value within the Retained Estate through working with the private sector. The options considered were:

    —  Status Quo—Continuing with the sale of properties individually as and when they become available;

    —  A one-off sale with a single upfront payment and no further payments;

    —  A one-off sale through a joint venture with an initial payment plus future payments when development value has been realised, and

    —  The preferred option—a combination of the first and third options.

  NHS Estates Quinquennial Review in April 2000 concluded that the functions are all necessary, and NHS Estates should carry them out. It went on to say the Agency should, however, focus its efforts on providing direction in meeting the implications of the modernisation agenda, and should divest itself of those elements of Trading activities that are non-core. These activities should be undertaken by the NHS itself or by the Private Sector as appropriate

  The option appraisal concluded that VFM was unlikely to be achieved by a one-off sale with no further payments but that the preferred option offered the prospect of worthwhile added value to the public sector over the status quo option. Following the taking of market and customer soundings, having due regard to NHS Estates' Framework Review and the synergy which exists between the retained estate and much of the work carried out by Inventures, Inventures were included within the PPP. In April 2001, NHS Estates formally commenced the pursuit of a Public Private Partnership to dispose of the majority of the remaining properties in the Retained Estate and NHS Estates Trading Activities "Inventures".


  The private sector is taking part in a competitive process and the selected partner will be making an upfront payment and further payments (clawback) linked to the maximisation of the development value of a property eg the receipt of planning consent. However, it is anticipated the upfront payment will also include an element of "hope value" which would be at risk as there may be delays in resolving uncertainties about the planning position or doubt as to the use which would generate best value, this being whether the value of the site will increase following, for instance, the receipt of planning consent. The onus for achieving this added value will fall to the private sector.

  The PPP partner will be under obligation to maximise the value of the properties in the retained estate and will be responsible for all the costs associated with achieving this. They will also be responsible for the costs associated with environmental or contamination work, maintaining and securing vacant sites and obtaining the necessary planning approvals. As these costs, which are estimated to amount to £10 million per annum for the next three-five years, will not be a deductable expense from the public sector, the risk associated with them rests solely with the selected partner.

  In order to ensure that value for money is achieved, following receipt of offers a separate exercise involving the District Valuer will be undertaken. This will also ensure government accounting and Estatecode are fully complied with.


  This PPP, in strict legal terms, is not a partnership but a further Joint Venture in the format of a contractual arrangement. A Joint Venture can describe a range of different commercial arrangements between separate bodies. This will be a more complex contractual arrangement whereby joint inputs from the private sector and NHS Estates are required to achieve the full development potential of retained estate to maximise income. The nature of the agreement will be similar to that which is currently adopted for some existing individual sales. We further propose to secure ongoing interests with Inventures as a simple contract structure as used in the everyday purchase of goods and services. The PPP has therefore been assembled on the basis of the two elements being disposed of together. However, separate offers for each element will be considered if they demonstrate better value for money.


  The Joint Venture for disposal of the retained estate has a number of key characteristics:

    —  The retained estate is comprised of some vacant and some (currently) operational N HS properties, whose underlying value is considered to be greater for alternative uses (probably achieved by radical physical redevelopment in many cases) once declared surplus and no longer required for continuing NHS uses;

    —  The retained estate is varied in terms of many factors, such as built form, scale of individual properties, quality of title, planning uncertainty, age, functional obsolescence and location (region and urban/rural);

    —  "Target" dates for the achievement of vacant possession of individual properties have been set, and

    —  NHS Estates will continue to be the informed client, retaining skills and experience and the wider perspective of the NHS's needs.


  Inventures is looking to establish itself within the private sector and trade with the DOH, the NHS and other health bodies. It will start out with a simple contractual relationship with the Department (NHS Estates) and NHS organisations that reflects its current workload, other than with regard to the retained estate and this contract will be with the joint venture retained estate partner. We are working closely with staff and Trade Unions who are part of the selection process and to ensure their interests are protected.


  The tendering process is following best practice and is subject to OGC Gateway reviews. Firm expressions of interest were received from fourteen consortia. Following a detailed evaluation, four consortia were selected.

  Offers from the shortlisted consortia are due to be received on 7 May 2002. Following receipt of offers, a separate value for money exercise will be undertaken with completion of the sale programmed for Autumn 2002.


  Since the publication of the NHS Plan, income of £280 million has been achieved by 31 March 2002 with further estimated sums of £300 million by 31 March 2003 and £250 million by 31 March 2005, giving an estimated total gross income of £750 million.

  Within the option appraisal, sale values were discounted in all options by six per cent to produce a current net present value (NPV) to take account of time and cost of individual disposals. The difference in NPV between the preferred option and the status quo being 33 per cent.

  The cost of sales associated with the PPP are estimated to be around two per cent of total costs. These costs are similar to that identified within the NAO report. There is an opportunity cost which is afforded by the PPP ie, to release capital funds tied up in surplus assets at an early stage and reduce capital charge payments. It is anticipated that the preferred option will also reduce costs to the NHS of £10 million per annum over the next three to five years.


  Following completion of the sale, NHS Estates will be working closely with the partner to ensure that the maximum value is obtained from the properties included within the joint venture.

  Inventures present work for NHS Estates will continue for a number of years to meet the requirements set out in the present service level agreements.

(ii)  Will the PPP be set up with guidance that property should be sold with planning consent—ie will the NHS have the full development value?

  Disposals of property are made in accordance with the requirements of Government Accounting, as set out in Chapter 24 Disposal of property, and Annex 24.1 Disposal of land and buildings and other land transactions'.

  Government Accounting Annex 24.1 at paragraphs 13-18 deals with "Sites with development potential". Whilst paragraph 16 says that "land which has potential for development will normally secure the best price if sold with the benefit of planning permission", it also says that "sales 'subject to planning permission' are permissible". When land sold without the benefit of planning permission occurs, paragraph 19, Clawback applies.

  There is no specific requirement that surplus land should be sold with planning consent for alternative use. Section 25.2.4 (Valuation) says that "Advice should also be sought on development potential (which may lead to the need for a claw back clause in any sale agreement) and marketing strategy."

  The guidance on clawback is contained in Paragraph 19 which deals with the situations that arise where a disposal of land is made without the benefit of planning consent. The reasons for this is that there may be delays or uncertainties about the planning position, or doubt about the use which would generate the best practice. In these circumstances a "clawback" clause in the sale contract is appropriate that reserves all or a substantial part of any increase attributable to the grant of planning consent in the future.

  We have made a careful evaluation of what will represent best value from this disposal taking account of the professional advice secured. We are of the opinion that better value will be secured by transferring the responsibility, cost and risk of obtaining, for example, planning consent to the PPP.

  The NHS will benefit from an up front payment, and will further benefit from any higher values secured by the PPP through their negotiating development planning consents through a claw-back/participation arrangement. The private sector takes the risk, and the NHS secures the benefit.

  Thus the PPP disposal process complies with Government Accounting guidance.

Department of Health

April/July 2002

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