For any project finance lawyers with an idle moment to fill this summer, a recent report available on the Unison website might make interesting reading. ‘The PFI Experience, Voices from the Frontline’ is a collection of accounts given by staff working in nine early PFI hospitals in the UK. Rather like a horror novel, it makes for gripping reading.
Carlisle: “The surgeon and I were scrubbed, ready to do an operation. It was a windy day outsideâ€¦ and the blooming window blows in!”
Durham: “We’ve had sewage coming out of hand-washing sinksâ€¦ we’ve even had sewage coming through the ceiling because the pipes were blocked.”
Edinburgh: “The new hospital will cost £31.9m a year over 25 years. The last we heard is that the trust is £24.5m over budget.”
The PFI continues to court controversy. But a new
model of public-private partnership (PPP), branded NHS Lift (Local Improvement Finance Trust), is promising to overcome at least some of the flaws of conventional PFI. Crucially, it is introducing a true partnership between the public and private sectors that could help eliminate the ‘us and them’ tension so evident in the Unison report.
The total value of investment in NHS Lift will be somewhere in excess of £2bn over the next five years, and could even reach the £4bn-5bn mark. A handful of law firms are already recognising that the new approach could also define other areas of the UK PPP market and are making sure they get ringside seats.
The potential goes further. As one magic circle banking partner put it: “It wouldn’t surprise me if a number of Continental countries looking at PPPs adopt this new model because it removes some of the barriersâ€¦ Our Italian partners are very interested.”
Lift breaks with the PFI model, in which the project company is wholly owned by the private sector. Instead, each so-called ‘Liftco’ is a joint venture. The selected private sector partner takes a 60 per cent stake, Partnerships for Health (a joint venture between the Department of Health and Partnerships UK) takes a 20 per cent stake, and key local stakeholders such as primary care trusts, NHS trusts, health authorities,
local authorities and GPs take the final 20 per cent stake. This new level of partnership gives the public sector much greater control and is expected to meet requirements that change over time in a more flexible way, rather than getting bogged down with the initial contract.
For banking lawyers, Lift represents a hybrid of project and property finance and creates a market of funders lending against a new allocation of risk.
Lift also stands out for its speedy procurement process. There are 42 ‘bundles’ being delivered in three waves. The aim is to reach financial close 12 months after tender notices. The first project – the £62.5m East London and City Lift – took 14 months. Not bad for a pathfinder when you consider that PFIs are still taking between 18 and 24 months. Funders are still getting comfortable with the new approach, but now that this first Lift has been shown to be bankable, appetite is likely to increase.
Bevan Ashford is advising the public sector on the East London and City scheme, while Allen & Overy is fielding teams for both the private partner, Group 4 Falck Global Solutions/ Babcock & Brown, and the bank, Bayerische Landesbank. Anne Baldock and David Lee are leading the respective teams.
Bevan Ashford’s head of projects and PFI Steve Hughes has been involved from the outset. His team won the initial tender to advise Partnerships for Health on the development of the project structure and standard documentation.
Bevan Ashford is also on the panel put together by Partnerships for Health to advise the public sector on each of the 42 new schemes planned. It has scooped 17 of these appointments and is also advising the private partners on around 10 other Lift projects. The hire of the firm’s first dedicated banking partner, Denton Wilde Sapte project finance partner Philippa Chadwick, will boost its offering. Chadwick, who will be London-based, will be involved on the private sector side, where the preponderance of the banking work inevitably falls.
With so many schemes in the pipeline, Addleshaws and Bevan Ashford are being particularly canny about keeping their private sector clients happy. On the public sector side, Addleshaws tends to be instructed on schemes in the North, while Bevan Ashford is more active in the South. The pair have set up an informal conflicts arrangement – if one is conflicted from advising a private sector client wishing to bid, the other will step in to offer a similar service. Identical fee scales are presumably part of the package.
Other firms advising the private sector include Taylor Wessing, where Andersen Legal Garretts lateral Hamid Yunis is involved in 12 Lifts for sponsors and financiers.
Among the funders, Barclays is particularly keen on this new area. Despite the fact that Lifts aren’t straightforward PFI structures, the deals are being run through Barclays’ PFI unit, headed by Nick Salisbury. DLA has been at Barclays’ side throughout the development of PFI, so it is no surprise that the firm has been appointed on all of Barclays’ NHS Lift bids. The bank is already working on five schemes and could be involved in a further 20.
The sheer number of projects is a major attraction to firms such as DLA. Many may be small fry (their capital value ranges from £13.5m to £62.5m), but there’s plenty of potential for repeat work, as well as for mini-financings as new properties are added into each Liftco.
Lift is now being applied outside the health sector. Lawyers involved at this early stage are well placed to benefit. One deal doesn’t make a market, but it looks like the Lift model is here to stay and might even come closer to giving the public sector what it really needs.