A1.7  The NNUH he construction of a flagship PFI and a U-turn on beds

The NNUH was the one of the first hospitals to be built from scratch under the PFI - indeed it has been described as a 'flagship' of PFI policy (see Greenaway et al 2007, 726). In March 1996, the Full Business Case for a 701-bed hospital was approved by the East Norfolk Health Commission and in April 1996 it was also approved by the NHS Executive and the Treasury (NNUH website). In June 1996, South Norfolk District Council granted full planning permission but at about the same time there was an upward revision of the plans for the hospital at Colney from 701 beds to 809 beds (FMA February 2005, 9 and NNUH website). In September 1996, the additional 108 beds were approved and the planning permission amended (NNUH website).

In November 1996, the Trust signed a commercial contract with Octagon Healthcare to build the hospital (Eastern Evening News 24 April 1997).

With the advent of the 'New Labour' government in 1997, there had been a strong endorsement of PFI at the national level and "deputations from Norwich were warned that if the Colney deal failed to go ahead, there would be no realistic hope of a hospital in the near future" (Greenaway et al 2007, 726). This was a realistic fear since, in 1997, Alan Milburn, the then Health Minister, proclaimed "it's PFI or bust". In other words, if local health officials did not agree to PFI, a hospital wouldn't be built (Channel 4 website, accessed in November 2006).

In January 1998, the financial contract for a hospital with 809 beds was signed with Octagon Healthcare42 (Annual Accounts 2002/03, 36). On the day that the deal reached financial close, the then Health Minister, Alan Milburn, stated that; "They will now get the brand new hospital for the 21st century that they deserve" (Smith 1999, 24). The contract term was 60 years from the date of completion of 14 August, 2001 (NNUHT September 2004, 3).

Site work on the NNUH started in January 1998 - at about the same time as Tony Blair, the new Prime Minister, announced from Tokyo that agreement had been reached on a new hospital in Norwich. In September 1998, the foundation stone for the new hospital was laid by the then Secretary of Health, Frank Dobson.

By April 1999 the number of beds proposed had risen to 953 from the 809 of September 1996 and in September 1999, planning approval was given for the additional 144 beds (PA February 2005, page 238). In December 1999, the Trust submitted a Supplementary Case for the additional 144 beds. The Supplementary Case stated that the reason for this increase was a much faster rise in demand than previously expected. In October 1996, the number of in-patients plus day cases (at the two Norwich hospitals plus the small hospital at Cromer) had been forecast to be 84,700 by 2002/2003 but between 1995/96 and 1998/99, the actual total had already risen from 89,700 to 95,800 (NNHCT 1999, 4, 5) and the figure for 2002/2003 was being forecast as 102,800 (page 5).

In June 2000, an addendum to the FBC was formally submitted by Newcourt Capital on behalf of the Trust. Three options were presented for the expansion, as follows; a PFI-funded option; a publicly-funded option but with Octagon maintaining the expansion; a publicly-funded expansion but one delayed until after the completion of the 809 bed phase. The best value for money (using a 6% pa discount rate) was claimed for first of these options (the PFI option). But once again the PFI option would have been inferior at a 3.5% pa discount rate (see table A1.2 on the next page)

It is pretty clear that the comparison was not a serious one. On paper a publicly-funded option was being considered to provide the four extra wards (or 144 beds), but the Regional Office of the NHS Executive concluded that there is "little likelihood of public capital becoming available, even in 2001/2002 for this scheme" (NNHCT 1999,10).

Thus it is hardly surprising that the expansion was funded using finance from Octagon Healthcare (NNHCT 1999, 1) with an increase of £1.5 mn pa in the usage fee. The contract variation was approved by the NHS Executive in July 2000 (Annual Accounts 2002/03, 36) and in that month the contract variation covering the additional 144 beds was signed (Annual Accounts, 2002/03, 36). The phase 1 construction cost (for 809 beds) was given as £143.5 mn and the phase 2 construction cost (for the additional 144 beds) was given as £16.5 mn (PA, February 2005, 28,29) but the breakdown of the construction cost is not given in the public version of the Project Agreement. That page (Schedule 5, Appendix A of PA February 2005) is left blank. In 1999, the total capital cost (including development costs and interest during construction - see the earlier table A1.1) had been given as £214 mn (UK Parliament, July 1999, para 226) for 809 beds, whereas in the Annual Accounts of 2002/03 (page 38) and on the NNUH website, the value of the project was given as £229 mn. The number of beds is 987.

42. Octagon were to sign the financial contract only in 1998 because the bankers were reluctant to provide the money until after 1997 when the legislation had been changed (Sussex 2001, 27 and Greenaway et al 2007, 733)