Scottish Government ("SG") budgets are classified as either for revenue purposes or for capital purposes. The capital budgets have decreased substantially and the SG have introduced the revenue funded projects as a mechanism to take forward projects where there is insufficient capital cover. All DBFM projects, as revenue funded projects therefore need to meet the requirements of revenue funding. This is a condition of SG support.
From a budgeting perspective, HM Treasury rules state that where a DBFM project is:
i. assessed as a service concession under the terms of IFRIC12; and
ii. satisfies the test outlined below for risk transfer under ESA95,
it will be classified as revenue and an adjustment will be made to the capital and revenue budgets to reflect the impact of the difference between treatment under IFRS and UK GAAP. In terms of HM Treasury spending controls the Unitary Charge will score against the revenue budget.
For an asset to be classified as a non-government asset under ESA 95, two of the following three risks have to have been transferred to the private sector provider:
• Construction Risk;
• Availability Risk; and/or
• Demand Risk.
If the DBFM project is classified as a "non-government asset" under HM Treasury budget rules this is the best position for the NHS Board. If after applying HM Treasury budget guidance they are classified as a "government asset" the NHS Board will have to:
• allocate the capital budget available in respect of the facility; and
• pay for the Unitary Charge from their revenue budget (note that this does not mean that the NHS is physically paying for the asset twice, more that it scores against both capital and revenue budgets)
It is a condition of the Scottish Government Revenue Support package that the projects are classified as "non-government."
Therefore, it is important that an NHS Board reviews each project undertaken within the hub initiative and satisfies itself of the appropriate accounting treatment in order to assess its financial impact. The hub DBFM contract has been designed to meet the risk transfer requirements of ESA95 for construction and availability risk. This should be backed up with appropriate professional advice where considered necessary and confirmation from auditors that they are content with the accounting treatment proposed.