Is LiftCo inertia affecting progress, asks Shadbolt & Co’s Andrew Walsh and Grant Thornton’s Bob Anderson

Over the next 12 months, 68 new LIFT buildings are projected to open in addition to the 139 buildings that have opened since September 2004. This simple statistic suggests that the LIFT programme is delivering.

However, within this overall picture there are marked variations in the number of schemes brought forward by individual LiftCos, as follows:-

  • There is a close correlation between PCT funding and capacity to bring forward new LIFT schemes. Funding allocations for PCTs are weighted towards the large conurbations and particularly those with areas of social and urban deprivation. Thus, it is noteworthy that a large number of LIFT schemes have developed in each of Manchester, Salford and Trafford, Birmingham & Solihull, East London and Newcastle & North Tyneside;
  • When establishing Liftco teams private sector sponsors adopted widely differing strategies. Some took the view that PCT partners could not afford to support permanent LiftCo staff extending beyond the general manager: others took the view that you “get out of LIFT what you put into it” and established a larger team able to adopt a pro-active approach. Inevitably those contrasting strategies have reflected in the success or otherwise of each LiftCo in bringing forward new schemes: for example, a pro-active approach towards identification of sites and co-location of services with members of the local health economy can often be critical to get a scheme “off the ground”;
  • Buy-in to LIFT by local authority participants has in general been disappointing, a concern that Partnerships for Health is seeking to remedy. However, when authorities and members of the local health economy do engage positively, they can add vitality to the process, stimulate new schemes and promote co-location of facilities. Indeed LIFT schemes jointly sponsored by a PCT and local authority are not required to comply with separate NHS and local government financial requirements.

    Slow progress

  • In some earlier wave LIFT projects, the rate of development has been disappointing and only a small number of LIFT schemes have closed to date. Some of the principal reasons for this are:-

  • Some PCTs have simply not bought-in to the LIFT concept. Presented with a choice of promoting new schemes through the document and participant-heavy LIFT process or adopting the more straightforward third party development (3PD) approach, PCTs have often opted for the latter;
  • Many PCTs either lack the necessary funding to bring forward new schemes or simply have more pressing priorities. PCTs (like other public bodies) must comply with statutory duties and contractual obligations before investment opportunities. PCTs struggling with historic budget deficits or coping with cost overruns at a local PFI hospital are unlikely to have capacity to press forward with new LIFT schemes;
  • Absence of a local champion for a LIFT project can be critical. Conversely a proactive public sector ‘champion’ can increase significantly the rate of development of new LIFT schemes. A senior-level supporter is better able to overcome obstacles, reassure colleagues, ensure that timetables are adhered to and generally encourage project teams to progress their schemes;
  • Problems with LIFT schemes almost invariably arise as a result of property title or planning issues. There is a tendency for participants to commence procurement before title and planning issues have been finally resolved, leading to wasted costs and avoidable delays. The scheme timetable should allow for such matters to be resolved first: it is unreasonable to expect planners to prioritise LIFT applications ahead of other applications simply to meet the financial close timetable;
  • Approvals are needed from at least six separate bodies before a typical LIFT project can close. The executive time, cost and delays inherent in this process are factors behind certain PCTs opting to pursue 3PD schemes in preference to LIFT. It is clear that without perseverance and senior level commitment a scheme can easily get “bogged-down” in the approvals’ process;
  • Inability of NHS stakeholders to agree the service priorities in a particular area. Developing the patient pathways and service delivery models underlying the provision of new facilities can be complex and time-consuming, though vital to ensure a successful scheme. Again the role of a “champion” can be critical to ensure contribution of all parties and timely progress.

    Role playing

    The role of PfH, both at transactor and director level, can assist in brokering agreement between PCTs and LiftCo, ensuring that requirements (such as LiftCo’s Business Plan) are understood by all parties and bringing to bear relevant experience on other schemes. An experienced and proactive PfH representative can help to drive a scheme to financial close.

    Certain recent developments should assist the LIFT programme to develop further:-

  • The V5 amendments (introduced in August 2006) were designed in part to bring the standard LIFT documents into line with PFI. In particular the V5 provisions relating to refinancing gains, revised payment mechanism (which is close to the standard health PFI payment mechanism) and NHS standard service specifications are consistent with and reflect the terms of DH’s SF3 PFI project agreement;
  • The Land Retained Agreement (LRA) was introduced as part of the V5 process to update the standard LIFT documents. Under the LRA the PCT retains ownership of both land and buildings, which must be returned to the PCT on expiry of the lease period. The LRA is designed to enable LiftCos to develop larger and more complex schemes, such as community hospitals and specialist mental health facilities. The unitary charge under the LRA tends to be lower than the corresponding Lease Plus rental;
  • Following the latest round of consolidation and mergers among the PCTs, the emergence of larger and more sustainable PCTs is likely to provide a more stable platform for LIFT schemes;
  • New guidance on Stage 1 Business Case development is imminent which, though requiring more information, should lead to shorter times between approval and financial close.

    The LIFT programme faces some serious challenges going forward: in particular, there is broad consensus that, in relation to modest capital value schemes, LIFT is both a document and participant-heavy process (if anything, the V5 amendments have exacerbated that position). Areas requiring attention include:-

  • LiftCo teams are constantly searching for ways to streamline the procurement process, including:

    (a) use of short-form supplemental agreements;

    (b) consolidating the legal advisory role with a single firm (a multi-client role is also possible for the financial advisers);

    (c) appointments by the contractor of the design team using framework terms, and so on. But essentially it is a combination of the LIFT documentation and multiple participants that is primarily responsible for the lengthy and costly process;

  • There is a growing need, particularly in urban areas where sites are both expensive and hard-to-find, for a more flexible approach to use of the standard LIFT LPA. In central London LIFT Areas for example, suitable sites are increasingly available only as part of wider retail and residential developments. In such circumstances a co-located primary care centre will typically form part of the overall “development gain”, be provided under a long lease and made available to LiftCo as shell & core accommodation requiring fit-out works only. To adapt the standard LIFT LPA for this use would require significant derogations from the LPA and legal contortions sufficient to fit a ‘square peg into a round hole’. By contrast, approval for LiftCo to use standard institutional lease terms could produce savings in terms both of time and costs;
  • The V5 amendments introduce the potential for PCTs to request the provision of limited ‘soft services’ and such services were expressly provided for under the OJEU Notices for the 4th wave LIFT projects (indeed cleaning services were procured, for the first time under LIFT, in relation to the Sample Scheme at South East Essex LIFT project). However, doubts remain (under the EU procurement rules) whether such services could be procured in relation to earlier wave LIFT projects. Aspirations to extend the scope of LIFT to include the procurement of clinical and pharmacy services, remain uncertain;
  • Using primary healthcare premises to regenerate deprived urban areas was an early objective of the LIFT programme. Since then, LIFT has been widely promoted as a potential framework to deliver a wider range of projects. The evidence is there: LIFT schemes to date have included leisure facilities, public libraries, Jobcentres, social services facilities, Post Offices, space for voluntary organisations and Sure Start schemes. But could LIFT really be used for wider urban regeneration schemes? We remain sceptical: local authorities are yet to buy-in to LIFT and the appropriate bodies to sponsor such schemes are the local authorities themselves and specialist agencies. However, LIFT could potentially be used as a vehicle to deliver more modest bolt-on accommodation such as sports centres, intermediate care centres, libraries and residential homes for the elderly.

    Central role

    Over the next period we anticipate some consolidation in the LIFT market, with projects owned by a number of national groups, each with the capability to provide add-on services, such as pharmacies, diagnostics centres and clinical capability. Economies of scale can be achieved by centralising specialist advice and using ‘hit-teams’ to deliver individual schemes across several LIFT projects. This process is evidenced by an active secondary market in shares in LIFT projects, where the valuation will include financial returns from existing schemes and a judgement of the future pipeline. But much depends on assessment of the rate of development of the pipeline. Clearly removing some of the obstacles will be critical to that process. For the time being, LIFT is not for the faint-hearted!