The NHS formally adopted the Private Finance Initiative (PFI) in 1994. It involves Trusts finding a partner in the private sector who is willing to invest money to design, build and maintain new hospitals and community facilities. The partnerships are covered by contracts of between twenty and thirty years.

By using the private finance initiative, Peterborough Hospitals NHS Trust does not purchase a building; it purchases a fully maintained hospital.

The private sector takes on a significant amount of the risk associated with the project, and it will lose money if it does not provide the hospital to the agreed quality standards. These standards, set by the Trust, cover every aspect of the building and the services provided by the private contractor.

In England 64 major PFI hospital development projects, worth over £7.4 billion, have been approved (2002 figures). Seven are now operational and many more will follow in the coming months. Contracts for over 50 small community and mental health schemes, between £1 - £25 million, have also been signed.

Because the private finance partner builds and takes all the risk of maintaining the hospital, they have to be sure the building and services are designed and built to the highest standards. They do not just walk away after the building is complete as in a publicly funded hospital.

This 'transfer of risk' also commits the private sector to providing a high quality building and maintenance service, during the life of the contract, to ensure the work of the Trust continues uninterrupted.

The private finance initiative is government policy. It forms part of the process Trusts must follow when planning any major capital developments. Before our project can be considered for public funding we must test the option of private finance.

A number of consortia have been involved in the private finance initiative since its introduction in 1994. The memberships of these consortia includes banks and finance houses, companies which provide and operate support services, health service suppliers and construction companies.

No. The Trust is and always will remain part of the NHS. Our services will continue to be free at the point of use, and we will continue to be responsible for provision of hospital services to the local population.

The private finance initiative is about bringing private sector expertise and resources into the health service to finance our hospital development project and improve the quality of our facilities. It is not about the transfer of our Trust or local health services to the private sector.

Drug manufacturers, equipment manufacturers, food suppliers, and building maintenance companies all make profits from the purchases made by the NHS. When the private sector builds a hospital using public funds it also makes a profit.

It is true that the Government can borrow more cheaply than the private sector, but determining value for money is not a simply about comparing interest rates. The additional costs of borrowing are more than offset by the private sector taking on the risk of construction cost and time overruns, using their ability to innovate and making more efficient use of resources.

Capital expenditure forms on average just 22% of the total cost of PFI projects; the balance is the long-term cost of maintaining the building, replacing equipment and providing support services.

The Trust has yet to decide if any other non-clinical support services should be provided by the private sector. The government is currently reviewing the policy on the transfer of services and the Trust has been told to wait until the outcome of the review is known.

In the mean time, the Trust is undertaking a study of all its non-clinical support services to determine if they are providing the level and quality of service we need to meet the NHS Plan. We are also comparing our costs with those of other NHS trusts and industry norms to see if our services are providing value for money.

The National Beds Inquiry set out the criteria by which we must determine our bed requirements for the next ten years. The additional 100 beds is an integral part of the local capacity plan and will be required to meet the fast growing population of Greater Peterborough.

If the Trust transfers a service to the private sector, the employment conditions of the staff who would also be transferred would be protected under the Transfer of Undertakings (protection of Employment) regulations (TUPE). The new employer would also be required to provide a pension scheme that is comparable to the NHS Superannuation scheme and enter into a Trade Union recognition agreement.

We will select six consortia from all those who have expressed an interest and start the tendering process. The final choice is based on the quality of the facility and services proposed by the private sector partner and the cost. Only if the private sector scheme provides better value for money than a publicly funded project will we be allowed to sign the contract.

Redesigning local health services to meet the challenges of the NHS Plan and the needs of our patients is a complex and time-consuming process. The Trust has appointed a number of technical advisers to assist in the process. They all have experience of working on large hospital developments and the PFI process.

There are also complex contractual and financial issues to be considered so we have employed specialist legal and financial advisers who have experience of private finance projects in both the NHS and other public services.

We will be using their expertise for the provision of some support services, such as cleaning and laundry. Therefore we will need to work closely together to ensure these services meet all our requirements and standards. Consequently we will make joint decisions where appropriate.

The consortium will be making a long-term investment in the hospital. Therefore it is in the consortium's interest to perform well and ensure these standards are met.

As with any partnership each side has to support the other. The Trust and the consortium will need to develop joint working arrangements to deal with situations where problems occur. Ultimately the Trust will have the right to protect patients' interests by withdrawing from the contract.

Based on the NHS PFI guidance, we should be able to complete the procurement process by October 2003. The new hospital would take about three and half years to build and open in 2007. The community and mental health facilities would open much earlier.

Derek Thomas, Assistant Project Director

Derek McNally, Assistant Project Director

Angela Broekhuizen, Project Clinician

Richard Kirk, Equipment Manager

Alison Evans, Assistant Director, Greater Peterborough PCTs

Mandy Richardson, Project Administrator

The North West Anglia Healthcare Trust and PCTs in Peterborough are also appointing project managers to work on their parts of the project. They will work with the project team to ensure all the individual projects are successfully delivered on time.

Where these changes increase the cost of the services or involve additional building works the price has to be agreed with the Trust before they are implemented.

The annual cost for the building and its upkeep is increased in line with the annual inflation figure, as are NHS budgets. The cost of any services provided by the private sector is tested against the open market on a regular basis and adjusted in accordance with normal market levels.

This ensures the cost of the privately funded facility remains affordable and provides value for money throughout the life of the contract.

PFI has expanded the scope of these risk assessments to include the long-term risks of operating a hospital. Issues such as the appropriateness of a design, the cost of maintaining the building, the level of energy usage, maintaining the building at the correct temperature and the life of plant and equipment are included in the risk assessment of a PFI project.

For most of these risks there is historical data available against which an estimate of the probability and cost of a risk occurring can be measured. There are some subjective elements to a risk assessment, but even these can be compared with estimates made on other projects to ensure they are within excepted values.

• changes in the demand for services,
• changes in law that only effects the NHS,
• changes in the type of services the Trust needs to provide,
• changes in the funding available to the NHS,
• the actual value of the facility at the end of the contract compared to the value estimated at the start of the contract, and
• the procurement and management of a PFI contract.

The Trust has little control over many of these risks and they would exist if the facilities were paid for by public funds.

In a few of the early PFI projects no provision was made in the PFI contract for the public sector to share in this 'refinancing' benefit through lower annual payments. That is not the case now.

The Trust cannot sign the private finance contract unless the privately funded scheme costs less than the equivalent publicly funded scheme, the PSC.

The Trust also uses its technical advisors to assess the proposals of the private sector to ensure they can deliver the quality and level of service the Trust requires.