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How £22bn of NHS cuts are driving construction opportunities

Government policy is creating new and different types of work for those contractors who understand where the health sector is heading.

The NHS faces intense pressure to use its land and buildings more effectively, and lucrative deals could await contractors able to support this objective.

Health organisations across the country are currently scrutinising their estates having been set the target of making £22bn of efficiencies by 2020, as well as a Treasury edict to raise £2bn from underused assets.

Although financial strains have led to the NHS capital budget being cut by £1.1bn this year, they have also fuelled a renewed impetus to redevelop, refurbish or sell off sites – and funding has certainly not dried up.

Take the Department of Health’s ProCure22 framework, which is expected to start this October and offers £4bn of work, with six contractors likely to be appointed.

Among the 13 shortlisted firms was Galliford Try, which was also on the previous P21+ framework.

“We often find out about a project at 5.30pm on a Friday, but then within three weeks we can start on a significant scheme”

Omar Jomeen, Galliford Try

Galliford Try healthcare director Omar Jomeen sees the primary care sector – including GP surgeries and community health centres – as offering the most opportunity in future, in line with a general move to care for more patients outside of hospital and closer working with social care providers.

“In a perfect world, what we want is to integrate health and social care services,” he says. “We may end up with hub facilities – for example, integrated GP premises.”

Shorter waits, more collaboration

The tendering process for P22 will focus more heavily on value for money than its predecessor, but Mr Jomeen believes it still has advantages for contractors and clients who use it – not least the speed with which projects can come together once they are signed off.

“We often find out [about a project] at 5.30pm on a Friday, but then within three weeks we can start on a significant scheme and the following week our staff are being paid,” he says.

CREDIT Tony Peacock_Whittington Hospital

CREDIT Tony Peacock_Whittington Hospital

Source: Tony Peacock

Whittington Hospital Trust is one of many looking to consolidate its estate

Willmott Dixon has also been shortlisted for P22. National health sector manager Philip Turley says another benefit of the framework is the opportunity to work closely and share learning with other companies that would otherwise be treated as rivals. “It’s probably the only framework where there’s true collaboration,” he says.

He agrees with Mr Jomeen that the opportunities will largely lie in primary care. “In the acute sector, there’s going to be refurbishment and extensions, but probably very few big, brand new hospitals,” he says.

He believes there could also be a resurgence in schemes under the Local Improvement Finance Trust model, where joint ventures between the NHS and private sector companies fund new primary care facilities. To date, the 49 LIFT companies have generated more than £2.5bn in investment to develop 339 new integrated community facilities.

“Construction companies might want to approach LIFT companies and see if they’re looking to market-test their provision”

Bridget Archibald, Mills & Reeve

LIFT schemes experienced a lull after primary care trusts were dissolved as part of the reforms instigated by former health secretary Andrew Lansley. But Bridget Archibald, a partner and head of health at law firm Mills & Reeve who specialises in estates strategies, says Community Health Partnerships – which manages primary care and community health estate – is now encouraging more schemes.

“I know of a couple that are happening, and I understand that there are more in the wings,” she says. “Construction companies might want to approach LIFT companies and see if they’re looking to market-test their provision. Sometimes they work with the same contractors, but there might be opportunities.”

Another growth area is in ‘step-down care’, which Ms Archibald calls “an area which looks like it really needs investment”. These are sometimes known as patient hotels, and are seen as a potential way of removing so-called ‘bed-blockers’ – often elderly people – from hospitals, providing a level of support until they are ready to leave.

Opportunities from consolidation

That does not mean there are no opportunities in the hospital sector itself. Lord Carter of Coles’ report in February this year, which looked into improving the efficiency of hospitals, found more than £1bn could be saved if all trusts were as efficient as the best, and recommended targets on the effective use of space.

Richard Coe, senior development manager at developer Kajima Partnerships, says trusts are under more pressure than ever to take an overview of how their estates are operating. “I think the budget pressures facing the NHS actually present a massive opportunity for the industry, both developers and their construction partners,” he says.

Robert Naylor chief executive University College Hospitals Foundation Trust

Robert Naylor chief executive University College Hospitals Foundation Trust

Sir Robert Naylor is overseeing NHS property and estates

Whittington Hospital Trust, he highlights, is looking to consolidate its 29 sites to 10, while the Royal Cornwall Hospitals Trust has converted doctors’ offices into clinical space. The local estates strategies that commissioners were last year told to draw up reveal “a whole series of projects which could go to one team or a whole range of supply teams”, according to Mr Coe.

Due to the complexity of NHS schemes, he recommends keeping project teams consistent throughout the process. He also suggests agreeing as much of the reviewable design data upfront, due to a tendency for the NHS to announce last-minute changes – sometimes causing delays.

Data released by the Health and Social Care Information Centre last month revealed 148 trusts reported that they had up to 15 plots of surplus land, which covered 418 plots totalling 545.7 ha and was worth £334m. Mental health trusts often sit on particularly large estates and manage the biggest proportion of sites declared surplus.

Kick-starting major projects

In February, the government appointed University College Hospitals Foundation Trust CEO Sir Robert Naylor as its new tsar to oversee NHS property and estates. One of his roles is to look at how to get some of the capital’s biggest NHS capital development projects moving, such as Moorfields Eye Hospital’s plans to move to a new site in the Euston and King’s Cross area.

Separately, he is working on a national NHS property strategy that is due to be published in September. This will look at how the Treasury’s target to raise £2bn from existing estates can be realised, which Sir Robert stresses will involve building improved health facilities on the land. He says: “We need to get the best out of these assets in order to release resources to enable the development of services.”

CREDIT Tarquin Binary_Moorfields Eyes Hospital

CREDIT Tarquin Binary_Moorfields Eyes Hospital

Source: Tarquin Binary

Sir Robert will look at getting major plans such as those for Moorfields Eye Hospital off the ground

Projects will be looked upon kindly if they fit with priorities outlined in NHS England’s Five Year Forward View, he adds. These include breaking down barriers between different providers and addressing potential health problems early on. Clues about commissioners’ priorities can also be found in the Sustainability and Transformation Plans being drawn up as a blueprint for local NHS needs.

An extra incentive for the NHS to free up unused land for newer buildings could come in the form of the “vacant land policy”. This will allow commissioners to pass on the future costs of surplus land to NHS Property Services, which manages around 3,500 properties.

NHS Property Services director of asset management John Westwood says: “The process is to encourage users to use their estate more efficiently, because there’s a financial benefit to them handing back space.”

With an occupied floor space of 25m sq m, the NHS has the biggest property portfolio in Europe. But much of the estate is either ageing, no longer fit for purpose, or lying empty.

There is no doubt the health service currently faces a dire financial situation, with providers ending the last financial year in March with a £2.5bn deficit.

But there are ample opportunities for construction firms to offer their services in a way that both reduces long-term running costs and improves the quality of care offered to patients.

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