Friday, October 17, 2014

Major changes ahead for healthcare construction procurement

Under reforms in the Health and Social Care Act, the NHS has undergone major structural change with the management of the NHS, including its estate, decentralized as more power is handed to Clinical Commissioning Groups (CCGs).

In addition, with NHS capital spending now drastically reduced, the process of funding new hospitals and primary care facilities has also changed. For procurement purposes, the most significant change for the NHS comes in the transfer of commissioning functions from PCTs to GP-led CCGs and NHS England, which has lead to the increased provision of services in the primary care setting.

With more healthcare services being driven out of the acute setting and into the primary sector, many GP practices are already expressing concern about how they can comply with the CQC requirements and where funding for property alterations may come from. In February 2014, NHS England announced that it had put the vast majority of GP premises investment on hold while it develops a national framework to evaluate bids for funding. The broader policies of developing GP-led commissioning have undoubtedly lead to greater co-operation between the private and public sectors and more work with private providers and their construction teams.

A further driver of increased partnership with the private sector is also taking place in the acute healthcare sector with the creation of NHS Foundation Trusts, under which hospitals can generate their own income. As a result, there has been a rise in private providers refurbishing part of existing hospitals, adding extensions, new-build facilities or even taking on the full operation of an NHS hospital. Foundation Trusts are expected to be a popular target for construction companies as they tend to be more commercially aware and are usually more financially robust. Furthermore, Foundation Trusts are moving towards more longstanding, partnership-style relationships with the construction supply chain, with the focus on building up long-term relationships.

As a result of these reforms, the nature of future work in the healthcare sector is changing to reflect a more rationalized estate, with the majority of healthcare clients reviewing their healthcare estates in a bid to achieve efficiency savings. The transfer of the NHS estate to NHS Property Services in April 2013 amounts to some 4,000 sites and a maintenance backlog of around £4bn.

The future focus of NHS services will be on moving care within or closer to home, more regional services and the closure of some hospitals. A capital programme is being developed, which is likely to see more healthcare work coming through at local level. In the months during which the PCTs were abolished, a number of healthcare projects were put on hold, but over the next 18-24 months opportunities for work in the sector are likely to re-emerge.

The joint venture structure as seen in PF2 and ExpressLIFT to replace the traditional PFI model now seems to be the way forward for privately financed development in the NHS. LIFT also has experience of bringing in capital investment into rundown areas. As public spending tightens, the shared use of buildings with other public sector bodies may be the only way that investment into new facilities can be achieved.

In the years ahead, NHS trusts and hospitals are expected to focus on the maintenance of their estates with refurbishment programmes and on improving staff and patient facilities. Projects are likely to continue at the smaller end of the scale in value terms, but there will be a high volume due to the need to improve the condition of the healthcare estate and most of these will be procured under P21+.

“The main challenge for contractors will be to reduce build costs and develop standardised designs and techniques. The current economic climate has focused all NHS trusts on capital efficiencies – how to achieve more for less.” said Andrew Hartley, Director of AMA Research. The construction industry will be looking to work closely with newly formed Foundation Trusts and CCGs in the primary care sector with advice and ideas on how to utilize existing assets to reflect the changing nature of health care needs within their area.”

Despite reforms and austerity measures, investment in the NHS still remains a priority for the Government, with revenue funding for the NHS protected until 2016, and increasing to £115.1bn in 2015-16. At the same time, NHS capital funding will rise to £4.7bn a year by 2015-2016. The Government has indicated that it may need to extend its austerity measures beyond 2016, which will mean further funding constraints for the NHS.

The ‘LIFT and P21 Procurement in Healthcare Construction Market Report – UK 2014-2016 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services within the construction and home improvement markets. The report is available now and can be ordered online at or by calling 01242 235724.

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