14 With initial support from Partnerships for Health, strategic planning within local health economies has improved and the process has developed to be more inclusive of a wide range of local stakeholders. LIFTCos have developed plans tailored to local circumstances and are continuing to progress these to improve their effectiveness. Most LIFTCos are also now demonstrating that they have the capacity to think innovatively and are building strong local partnerships with key stakeholders. Inevitably in some cases not all stakeholders have been supportive of proposals. The Primary Care Trusts faced some inherent constraints in kick-starting LIFT's development. As newly established organisations operating against a backdrop of change in Primary Care, it is not surprising there were difficulties in co-ordinating all the different elements that were needed to complete the deals effectively and on a timely basis.
15 LIFT itself appears to be an effective and flexible procurement mechanism, capable of providing value for money. The process for selection of private sector partners has produced good initial results with robust competition from at least three credible shortlisted bidders in all LIFT areas. Business cases to develop initial schemes and to establish the joint ventures are now robust.
16 The financing structure and terms for LIFT are broadly similar to those achieved in PFI deals, even though LIFT deals are smaller and have novel features. The ratio of debt to equity (gearing) of the schemes examined was in the range 89 to 95 per cent, with PFI typically 90 per cent. Returns to the private sector also appear comparable. The blended equity Internal Rate of Return5 of LIFT projects in our case studies, ranges from 14.3 to 15.9 per cent. These are not out of line with the 12.5 to 15 per cent seen on similarly sized PFI projects. The deals have been designed to offer clear long term benefits to both the public and private sector participants (see Figure 12). Requirements for benchmarking and market testing, aimed at protecting future value for money, have also been built into the contracts.
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5 Blended equity IRR includes subordinated debt - debt which ranks below other loans with regard to claims on assets or earnings, also known as mezzanine debt - a debt instrument which combines the features of debt and equity, and equity and equates to the rate of interest that balances the present value of cash outflows from a project with the discounted cash inflow of the investment.