Awareness of, and interest in, Strategic Estates Partnership (SEP) Joint Ventures is growing rapidly amongst NHS Trusts and Foundation Trusts. Indeed, the latter part of 2016 saw five more NHS organisations place official advertisements seeking a private sector partner for a SEP, with two of these coming together, interestingly, to procure a ‘joint Partner’ to aid the development of joint projects between both organisations. We are also seeing commercially driven JV structures becoming more widely used across the public sector. This article provides one answer to the common question from NHS teams: Strategic Estates Partnerships - Why?
When posing the question it is essential to understand what a SEP is and what it can actually do for your organisation. Although called an Estates Partnership it is important to remember that SEP’s scope has been increasing as the model becomes more widely developed; SEPs are now seen as being able to provide benefit across ALL services and facilities, with the exception of clinical services.
What is a SEP?
- a 50/50 ‘deadlocked’ JV organisation set up between the NHS and a Private Sector Partner (PSP)
When established, the SEP will be a non-exclusive partner with the Trust to:
- deliver local NHS aspirational Projects (capital, service transformation or revenue generation) in order to align buildings and support services to the organisation’s Clinical Strategy
- aid off balance sheet solutions
- bring increased commerciality and entrepreneurship to the Trust’s thinking, and
- deliver efficiency and/or improved performance (e.g. improved facilities, financial savings1, increased revenues or non-financial benefits).
SEPs can deliver these objectives at pace and with flexibility as priorities change over the life of the partnership, avoiding pressure on NHS resources as PSPs typically provide JV and Project working capital.
There are some questions we need to clarify:
- Is a SEP going to solve the entire deficit of a Trust/FT
- Will it bring in private sector finance so cheap that the NHS can then deliver capital projects at will?
Answers to both of these questions are undoubtedly ‘No’. However, what SEPs can provide is commercial impetus and expertise to deliver successful projects (in a sequence that offers optimal value to the Trust/FT) and to allow the NHS to focus on what it is good at (delivering excellent clinical care to its patients). Using a SEP will ensure that NHS organisations can concentrate on their primary objectives rather than clouding their focus.
Through our extensive experience in supporting public sector clients in procuring SEPs, BDO is becoming increasingly aware that this new, broader commercial focus is what many of our clients feel is needed for estates development. Our private sector clients also understand the benefits of working differently with public sector partners to deliver benefits to the NHS and are increasingly becoming attracted to the SEP JV model.
This is all done under the previously stated non-exclusive, 50/50 deadlocked structure, where projects are only approved if both Partners (Trust and PSP) agree. Resource from either partner is utilised to best effect after assessing who is best placed to do so. Fee mechanisms from the SEP/PSP for delivering projects truly are incentive-driven and payable only upon successful delivery, meaning a mutually beneficial relationship for both Parties.
Finally, the Trust/FT remains free to take forward any project of its own accord if the SEP fee mechanism isn’t acceptable. If the parties agree on the mechanism during pre-project dialogue, this is then capped for the duration of the partnership. These characteristics are the real differentiators between the SEP model of working in partnership and traditional approaches to capital development and service transformation.
If you compare the SEP model with the traditional approach, where a Trust/FT contracts with various private sector partners (rather than a single SEP Partner) to deliver projects, only very rarely are payment terms based on achieving successful outcomes. In these instances, Trusts/FTs invariably carry all project cost, risk and success – as well as the burden of on-going contract management.
Therefore, if NHS organisations do have real and serious aspirations to deliver change then a SEP can ensure these are:
- De-risked from a financial perspective
- Well considered
- Commercially sound
- Correctly sequenced, and
- Delivered to provide genuine services benefit and aid the Trust’s ‘bottom line’ (or both).
What better way to deliver these aspirations than alongside a PSP who can be a single source of commercial and technical expertise, who is incentivised to deliver success and who is happy to take a higher degree of risk (development cost, time and successful delivery) than its public sector partner? A public sector partner who, at worst, will only share some of these project risks. Compared to the alternatives, we believe that every NHS organisation contemplating the types of projects discussed above should definitely consider SEPs as part of their plans.
NHS organisations thinking about pursuing the SEP route will need to gain enough confidence and understanding of the model in order to receive the relevant approvals to proceed. This is often not a straightforward process and our clients have stressed the importance of obtaining the right professional advice to ensure that the process, concept and implications are clearly understood before entering into a SEP:
“Burton Hospitals NHS Foundation Trust entered into the brave new world of Joint Ventures with the able assistance of BDO. Without the expertise offered in support from BDO we would have struggled to understand the complex new world we were about to approach. The Trust was aided from the start of the process to its conclusion when we appointed a partner to enter into a JV with.” - Steve Fowkes, Deputy Director of Finance
“BDO was appointed by Hinchingbrooke Hospital to support their SEP procurement and selection process for an ambitious £150m redevelopment programme. The BDO team were exceptionally NHS knowledgeable and provided excellent commercial and governance inputs to the process. They were a very important component of our cross functional Programme Selection team and I would highly recommend them for SEP support to other Trusts” – Mark Cammies, Director of Estates & Facilities
With this in mind, the question shouldn’t be Strategic Estates Partnerships: Why? - But Strategic Estates Partnerships: Why not?
1 The financial position of a Trust/FT is not a barrier to entering in to a SEP