The documents for the Project Agreement (PA) and Facilities Management Agreement (FMA) govern the relationship between the NNUH Trust and Octagon Healthcare. These documents are not available in uncensored form in spite of the Freedom of Information Act. The information that follows is obtained from 'conformed copies' of the two Agreements. 'Conformed' means that there is certain crucial information left out on the grounds of 'commercial confidentiality'.
The Trust has had a direct relationship with McKesson under which McKesson have provided information technology and related network management and support services as well as some Financial Services. This agreement has now been replaced and the Trust has direct responsibility for the provision of some of the services (NNUHT September 2004, 6)
In turn there have been relationships;
• between Octagon Healthcare and John Laing (now called Laing O'Rourke) for the construction of the hospital;
• between Octagon and Serco (the Facilities Provision Contract);
• between Octagon and the Bond Managers (Security Trustees SBC Channel Islands Limited). There has been a 'Senior Bank Facilities Agreement' under which up to £197 mn was provided to the Project company (PA February 2005, 241)
Octagon Healthcare Limited was formed as the project company in October 1995. It is a private company limited by shares (FMA February 2005, 7) and is a wholly-owned subsidiary of Octagon Healthcare Holdings (Norwich) Ltd which was formed in May 1997 (PA February 2005, Schedule 12). In 2005, the ownership of the equity shares of Octagon Healthcare in 2005 was given as follows; 3i group (25%); Innisfree Partners Ltd. (25%); Barclays Infrastructure Ltd. (25%); John Laing PLC (20%); and Serco Investments Ltd. (5%) (see NAO June 2005, 2). Note however that the ownership has shifted since 2005 and we come back to this in the last section of this appendix.
Under the contracts, the Trust is due to make monthly payments to the Project Company (Octagon Healthcare). These are the monthly usage fee and facilities management charge. Total receipts by and payments to Octagon Healthcare between 1998 and 2008 are shown in table A1.3 below.
It is not easy to understand the receipts figures for Octagon, particularly for the years 1999, 2000 and 2001. It is possible that for these years, the receipts cover money received from the bank loans to cover the cost of building the hospital but if so, it is odd that these are entered under the heading of 'turnover' in Octagon's accounts.
For the other years it is probable that the differences between the NNUH figures and those in the Octagon accounts are explained by two factors. The main one is that the payments by the NNUH include payments for the facilities whereas these are probably excluded from Octagon's accounts. The latter probably include only receipts for the rent, plus possibly maintenance. In addition the accounting years of the Trust and of Octagon end on different dates which makes it difficult to reconcile the figures.
Table A1.3 Octagon Healthcare ayments made by NNUH Trust and |
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received by Octagon Healthcare |
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| Payments by NNUH Trust .... |
| Total receipts by Octagon | ||||||
| actually paid under | committed to |
| Healthcare |
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| the PFI contract and | Octagon Healthcare |
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| included in the | in the previous year's |
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| operating expenses | accounts |
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Year ending | £mn | £mn |
| £mn | Year ending | ||||
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| 48.3 | 31-Dec-98 | ||||
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| 71.6 | 31-Dec-99 | ||||
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| 61.7 | 31-Dec-00 | ||||
31-Mar-02 | 20.7 | 24.0 |
| 42.1 | 31-Dec-01 | ||||
31-Mar-03 | 38.5 | 29.3 |
| 29.5 | 31-Dec-02 | ||||
31-Mar-04 | 37.6 | 40.7 |
| 30.4 | 31-Dec-03 | ||||
31-Mar-05 | 37.9 | 37.3 |
| 29.7 | 31-Dec-04 | ||||
31-Mar-06 | 39.3 | 39.0 |
| 27.4 | 31-Dec-05 | ||||
31-Mar-07 | 41.0 | 41.0 |
| 23.7 | 31-Dec-06 | ||||
31-Mar-08 | 42.6 | 42.7 |
| 24.4 | 31-Dec-07 | ||||
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Sources and notes |
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(a) Payments under the PFI scheme by the NNUH Trust to Octagon commenced on 15 August | |||||||||
2001 (Annual Accounts 2002/03, 36). The actual payments and commitments are given in the | |||||||||
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(b) These are the annual commitments under the PFI scheme as given in the |
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Annual Accounts for the previous year (see also note a) |
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(c) These are the annual turnover figures for the Octagon group, as given in their accounts | |||||||||
(as obtained through FAME company reports) |
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In section A1.11 of this Appendix, we look at the accounts of Octagon in more detail.
It appears that receipts from car parking charges at the hospital go to the NNUH Trust (see FMA February 2005, 146 where it says that the service excludes cash management). In August 2005, there was considerable controversy over the level of car parking charges. The accusation has been made that the hospital has been using its 3000-space car parks as a cash cow. In 2004/05, the income from the car parks to the Trust was £1.5 mn compared to about £365,000 a year spent on maintaining them (Eastern Evening News, August 20, 2005) but reductions in the charges have since been made.
The bed-day and out-patients usage fees are rents for the occupation of the building. From 1 April 2003, the structure for the usage fee is as shown in table A1.4 below. Thus the usage fees vary according to the level of activity and they also rise with inflation. After 8 January 2037, they will be reduced by 65% (PA February 2005, 384)
Table A1.4 Usage fees from April 1 2003 at the NNUH |
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Unit and marginal prices (£) |
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| Unit price | Marginal |
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| for the | price |
| activity | or minus | |
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| (000) | (000) | |
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per bed-day (a) | 57.646 | 2.261 |
| 162 | 40 | ||
per outpatient unit | 12.503 | 0.451 |
| 125 | 35 | ||
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Note; (a) bed-day means the sum of Day-Case Attendances and | |||||||
In-patient Occupied Bed Days (PA February 2005, 10) |
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Every five years all the support services provided by the consortium are to be market tested (FMA February 2005, 66). This was due to happen for the first time on or before 14th August 2006 (NNUHT September 2004). The Trust would receive the first 2.5% of savings from market testing, the next 2.5% would be shared and any savings over 5% would go to the Trust (NNHCT 1996, 55)
According to the FMA February 2005, the maintenance of the building was to be carried out by AHS Emstar PLC,a company registered in London (FMA 2005, 18). The maintenance fee after phase 2 is £152,000 per month or £1.82 mn. at April 1995 prices and adjusted in line with the Retail Price Index (PA February 2005, 385)
In October 2002, work began on the renovation of existing staff accommodation and on new accommodation (144 bedded units at the NNUH site) with an estimated capital value of £10 mn. and a contract life of 50 years. The contract is a public-private partnership (PPP) scheme with Homewood Housing Associates (Annual Accounts 2003/04, 39 and NNUHT 2002). Also planning permission has been granted for a new nursing and midwifery school to be built on the hospital site (PPP 2004)
Finally it is not clear whether and on what terms the Project Agreement and the Facilities Management Agreement (FMA) can be terminated by the Trust. It is clear that the FMA can be terminated if the service is poor (see FMA February 2005, 83) but it would seem from page 84 of the FMA that a year's fees have to be paid by the Trust. As far as the Project Agreement is concerned, it would seem that the Trust can terminate the contract on 8 January 2037, or on 8 January 2042 or on 8 January 2052 with a year's notice being given (NNUHT 2003, 9). As for the period up to January 2037, it is clear that the contract can be terminated for Events of Default (such as the insolvency of, or bad performance by the project company) (PA February 2005, 158, 162) and on grounds of 'Force Majeure'43 (PA February 2005, 423) but on what terms is not clear. It would appear that the Trust would have to pay off any outstanding debt, interest and the market value of the Project company's equity (NNUHT 2003, Schedule 14, part 6 - see also the Beneficiaries' Direct Agreement44). It may be that the Project Agreement cannot be terminated before January 2037 other than for Events of Default or Force Majeure but in the PAC report of 2006 it is stated that; "… if the Trust defaults, or chooses to end the contract, its liabilities will be the full amount of Octagon's outstanding debt, payable as a lump sum" (PAC 2006, 10). Unfortunately (as the next section emphasises) Octagon's outstanding debt was massively increased by the refinancing which was undertaken in 2003. As a result the amount payable by the NNUH Trust on termination of the contract has also been dramatically increased.
43 . Force Majeure includes war, terrorism etc (see PA February 2005, 423)
44 . The Beneficiaries' Direct Agreement is an agreement between the Trust, HSBC Bank PLC, HSBC Investment Bank PLC and Octagon Healthcare. It was signed in January 1998 and amended by a supplemental agreement of July 2000. It is Schedule 4, Part 5 of the Project Agreement (PA 2005, 236-284)