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
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still failed to complete the contract would be rescinded and the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
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
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.
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 arrangementscosts,
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
The NHS Planpublished in July 2000announced
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
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
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
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 QuoContinuing 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 optiona 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
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
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
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
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 consentie 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