6.46 As providers of the finance that will be used to fund the development and other preparatory work, financiers play a pivotal role in PPP transactions. A key lesson from early schemes is that it is important to ensure that financiers are appropriately involved at the right time. The selection of financiers and the method of financing will be a decision taken by the bidder.
6.47 NHS bodies should take the bidder's strategy in appointing financiers into account as part of the selection process and should make an assessment of the deliverability of the bidder's proposals. The following factors require consideration in respect of funders' proposals:
• experience of privately financed infrastructure projects in health and other sectors;
• familiarity in dealing with public health bodies;
• acceptance of the NHS body's proposed contract terms;
• experience of the NPD PPP structure, if applicable;
• anticipated due diligence strategy;
• resources available to financiers in carrying out due diligence and involvement in other schemes which may impact on these resources;
• acceptance of timetable to financial close.
6.48 NHS bodies should insist that the minimum involvement of financiers during the bidding process is as follows in the Table 6.1 on the following page:
Figure 6.1: Involvement expected from financiers at each stage of procurement
| Stage of process | Minimum degree of involvement from financiers/participants advisers |
| Prequalification | Details of who is going to advise the bidder on financial issues including information and experience. |
| Submissions during the dialogue period | Details of proposed financing approach from participants advisers. Confirmation of pinpoint equity (very small/nominal amount of pure equity) and junior debt to be provided by sponsors (other than third party equity providers). Evidence that consortium will be able to secure finance on the proposed contract terms. |
| Submission of Final Bids | Further statement of support including draft term sheets from funders and third party equity providers with acceptance of key contract terms (including NPD provisions where applicable), payment mechanisms and performance regime, financial model and allocation of risks within consortium. |
6.49 Financiers should have undertaken a full contract review, economic analysis and commercial risk analysis prior to the NHSScotland body selecting the shortlist of two. They will also need to carry out a number of further checks before they commit themselves to providing finance. The nature and extent of these checks will vary between financiers and will be influenced by the size of the scheme and the circumstances of the NHSScotland body. However, it is likely that financiers will agree between themselves who is responsible for undertaking due diligence in separate areas of the scheme on behalf of all the financiers.
6.50 Typically financiers will employ specialist advisers to conduct the separate areas of due diligence. These advisers will need to go through the contract terms and ensure that the contract will operate in practice to the financiers' satisfaction (although financiers will already be required to sign off on the detailed commercial terms). The actual due diligence process may vary in length, but at this stage of development of PPP in the NHS can be expected to take around 12 weeks on major schemes. Financiers will then need to obtain internal authorisation (normally through a credit committee) before a deal can be signed. It is expected that detailed due diligence should commence upon appointment of the preferred bidder.
6.51 For schemes funded by bonds or other capital instruments, consortia will normally elect to buy an insurance wrap from a monoline insurer. Monoline insurers underwrite (or insure) the project risk against their own balance sheet for a fee. Where monoline insurers are used they will undertake the due diligence process.
6.52 NHS bodies should confirm with participants what aspects of the scheme financiers will require to be complete at different stages up to financial close. In particular, what level of detail in the design drawings will be needed before due diligence can be undertaken?
6.53 The different areas of the scheme which will generally be considered as part of due diligence include:
• financial;
• legal;
• healthcare;
• technical (including design, construction and services);
• insurance.
6.54 The financiers will be expecting the due diligence to include details of the following:
• the quality of the NHSScotland body's management;
• the NHSScotland body's financial position;
• the NHSScotland body's strategy for the foreseeable future;
• the NHSScotland body's business performance;
• the NHSScotland body's internal commitment to change;
• the appropriateness of the scope and scale of the design solution to the NHSScotland body's healthcare needs;
• the degree of cohesion and the allocation of risks within the consortium;
• the impact of the commercial deal on the financiers' ability to secure repayment and an investment return;
• an audit of the consortium's financial model.
Funding is covered in more detail in Section 3, Technical & Commercial Issues.