Reimagining estates funding

Key points

• The lack of capital is making it harder to improve NHS productivity and affects both patient care and staff morale. But there are ways in which trusts and integrated care boards can improve estates, through collaborative working and innovative ways of accessing funding. This was the focus of discussion at a recent webinar run jointly by the NHS Confederation and Darwin Group.
• While the pandemic was a difficult time for the NHS in many ways, it had a transformative yet temporary effect on estates planning. The short timescales involved to make major changes in infrastructure led to using frameworks with direct awards or mini competitions. 
• An ongoing challenge for the NHS is the government’s tight control of annual capital spending (CDEL) – the departmental spending on investment projects and capital. The limits on this mean that even trusts with money in the bank cannot spend it on capital projects. While there will always be a place for traditional capital projects, this does mean trusts are having to look at different ways of delivering much-needed improvements.

Background

The NHS is facing a historic waiting list challenge and has been tasked with significantly increasing its annual productivity in NHS England’s planning guidance. 

But despite there being some improvements, a decades-long lack of capital continues to make progress challenging. The NHS has had half the average rate of capital investment of OECD countries since the early 1970s. This is evident in the 27,000 clinical service incidents in the last five years, which were caused by estate and infrastructure failures. Demand for capital far outstrips what governments have made available. 

The NHS Confederation has made increasing capital spend in the NHS one of its top asks for the new government and has stated it will take £6.4 billion extra spending a year to get back on track. 

Improving productivity and services against this backdrop of very limited capital is hard. The NHS Confederation recently partnered with Darwin Group to deliver a webinar for members exploring this, with a panel of NHS and industry experts. Speaking at this session, Russ Favager, the senior responsible officer for the new hospital programme at Mid Cheshire Hospitals Foundation Trust, gave an example of the trust’s community hospital in Northwich, which had been forced to close from Friday until Monday the previous week due to a fire alarm system malfunctioning. 

Some services moved to the trust’s main site, but outpatient appointments and minor procedures had been postponed. The trust has a backlog of maintenance of £337 million, but funding to address this is only around £2 million a year. “Ageing estate…has a massive impact on us and great inconvenience to patients,” he said. 

It is due to get funding through the New Hospitals Programme (NHP) for a new build at the main site – Leighton Hospital. The hospital has RAAC planks which have far outlived their shelf life and have cost nearly £100 million in remedial work and inspections over the last three years. But it is not just the costs of inspection – it can cause disruption as regular reinspection of 20,000 planks in the roof take places and impacts on productivity.

“Taking wards and theatres out of use to do inspections is a major inconvenience for the hospital and we have to get in there to inspect and put steel props and steel supports under the planks,” he said. “It impacts massively on our ability to be efficient.” 

However, many trusts with pressing estates issues have not been so lucky with funding. Many missed out on the 40 places on the NHP or have other infrastructure needs, as we see with the £11.2 billion maintenance backlog. 

The webinar panel felt traditional capital funding will continue to be important for many projects in the NHS, but there are other ways to deliver capital projects, such as design and build and revenue-based solutions, which trusts will need to consider.

Innovative and flexible solutions

Trusts should look at their clinical strategy as the basis for what they need from estates, said Michelle Larkin, national NHS account holder at Mott MacDonald. A clear clinical strategy could help them navigate going forward and define estate needs for the future. Clinical strategies could cover workforce numbers both now and in future and also the role which digital services will play in the future. Integrated care boards (ICBs) are also writing infrastructure strategies for their areas, which will set out their strategic plans. This may guide priorities. 

Some needs are easy to anticipate in advance – Michelle gave the example of mental health attendances at A&E which increased over the festive period. Planning for temporary accommodation in the grounds of A&E could improve their experience and that of other people waiting for treatment. 

Modular buildings can be a solution for some trusts’ needs – especially if they need to transfer patients to allow work on other parts of their estates. At Leighton Hospital, a two-storey modular ward has been commissioned and built by Darwin Group in less than a year, at a cost of £15 million. “It was a scheme which came in on budget and on time,” said Mr Favager. “I’m thinking of planning for the likes of winter, this style of construction is probably the quickest and cheapest to do.”

Building hospitals or units to a standardised design may also offer some savings in both time and money. The new hospital at Leighton will be a pilot for low-rise builds in the NHS and should start construction in 2026 with completion in 2030, he added. 

While there are some mixed feelings about modular design across the NHS, Alan Davidson, healthcare director at Darwin Group, suggested that though there are a range of local and clinical factors that would need to be considered, standardised designs could add value. “If we are able to look at a standard room, a standard configuration, but accepting that every site is different,” he said. 

A challenge with some projects is how to design in risk-sharing – especially when the NHS partner is working to tight timelines. Mr Davidson said that risk should not be one way. “Once we are in contract there should be pain or gain sharing,” he added.

Timing

Very often money for estates improvements is time-limited, leaving trusts struggling to meet the timelines for bids. In extreme cases, the deadlines can be a matter of days after funding is announced. This can mean some trusts miss out while others struggle to produce detailed plans in the time available. 

One solution may be for ICBs to have worked-up and prioritised plans across their area which can be quickly put forward when funding becomes available. “ICBs have a bigger part to play in managing estates across the whole patch,” said Mr Favager. ICBs are developing strategic infrastructure plans.

Learning from COVID-19

The pandemic was a difficult time for the NHS in many ways, but it had a transformative yet temporary effect on estates planning. The short timescales involved to make major changes in infrastructure led to using frameworks with direct awards or mini competitions. “Possibly that’s where some of the collaboration and innovation has come from across the NHS,” said Mr Davidson. “Everyone was pulling in the same direction.”

Projects such as the Nightingale hospitals were delivered extremely quickly, showing what could be done under pressure. NHS England’s regional estates delivery director, Andrew Gate, who was involved in the construction of two Nightingale hospitals, said an 800-bed hospital had been delivered in Harrogate Convention Centre within four weeks. 

Mr Davidson suggested there were lessons that could be learnt from the collaboration – everyone had an agreed remit, nobody was working against the system. 

COVID-19 has also led to changes in the way patients expect to access clinical professionals, said Ms Larkin. The growth of remote consultations and the use of virtual wards could change what NHS organisations need from their estate and potentially reduce the space needed.

Funding options

There are national schemes which trusts have been able to benefit from – whether this is the New Hospitals Programme, community diagnostics centres or the commitment to get rid of dormitory accommodation in mental health settings. 

But the current funding system has some drawbacks which may impact on the value trusts can get out of the money available. 

Frequently, bids for capital have to be made within a tight timescale: this can mean that trusts had a half worked-up scheme which they had to submit and then “reverse engineer” the scheme back to match the funding envelope. “Current processes do not ensure the best value for money for the NHS,” said Mr Favager. The previous Friday a request for bids had come out for £150 million of funding for A&E improvements with about three days to respond, he added. 

The NHS can also look outside the government for capital funding. One source could be working with private sector partners – potentially through a wholly-owned subsidiary – to provide access to capital, said Mr Gate.

An ongoing challenge for the NHS is the government’s tight control of CDEL – the departmental spending on investment projects and capital. The limits on this mean that even trusts with money in the bank cannot spend it on capital projects. While there will always be a place for traditional capital projects, this does mean trusts are having to look at different ways of delivering much-needed improvements. 

Sometimes workarounds are necessary to ensure projects do not count towards CDEL. Switching to a payment-for-service model – as happens in the IT services – can turn some projects from capital to revenue funding and keep them away from the CDEL limit, suggested Mr Gate. “Is there a managed service model we can make work and can we innovate to make that happen?” he said. As revenue budgets are extremely tight, this is not an option for many parts of the NHS. 

Selling surplus land – something mentioned in the Naylor report on NHS property and estates – can provide cash for the NHS to use on capital investment, subject to accounting rules. But it can also offer “social value“ when land is sold for social or key worker housing – important for some NHS trusts in high-cost housing areas where staff struggle to afford somewhere to live. “We need to look holistically at the land we have got,” said Mr Gate. 

But there are also opportunities to condense the amount of estate a hospital needs. Where hospitals are strapped for space, replacing low-level car parks with multi-storey facilities can free up land for other uses. 

There can also be alternative ways of using space within hospital grounds which can produce a revenue stream – for example, putting a canopy on a car park for solar panels to produce electricity, either for sale or to use within the hospital. 

Unused or reconfigured hospital space can be let to other organisations – Ms Larkin gave the example of a trust which had moved senior managers and support services out of a grade II listed building to enable that space to be hired out as a conference venue.

Working with partners

The NHS may be able to trim costs by working with partners, both in public services and more widely. 

The One Public Estate programme has seen the NHS working with local authorities to share some buildings, but take up has been limited. “The challenge for us all is how do we make this happen rather than being a theoretical approach?” asked Mr Favager, suggesting that ICBs could have more of a role. “Do that strategic plan across the whole public estate and make it systemic,” he said. 

Community hubs have the potential to bring together services from a number of NHS and third sector providers and make care “closer to home”. Mr Davidson suggested there was scope for community and mental health trusts to work together more closely over estates going forward. 

The Health on the High Street initiative – promoted by the NHS Confederation – also offers the possibility of locating some facilities in urban areas which would be more accessible for patients but also could benefit local communities. This could invigorate town centres by using space vacated by retailers. One example had led to footfall increasing by 50 per cent, said Ms Larkin. But such an approach could also open the way to additional funding, for example, through regeneration monies. 

Other sources of potential funding could be section 106 agreements – where developers commit to putting money into local facilities when they get planning permission. Earmarking this money for projects which benefit the NHS normally involves working closely with the planning authority. 

Some NHS facilities can also be used to service a wider area than the local trust – some surgical hubs, for example, are used by multiple trusts or treat patients from across an ICB area. This can involve delicate negotiations – Mr Favager said a plan for his area had started as a collaboration between several trusts but eventually some dropped out and now it is only his trust, with one other, using some sessions.

“In the end organisations make their own decisions,” he said. But provider collaboratives may be one way to [encourage] them to work together. “People start to think ‘can we pool our staffing resources?’,” said Mr Gate. Could they share capital teams and designers across the ICS? 

Closer working between NHS organisations can also lead to greater transparency around contracts, which may save money. If one supplier is charging different NHS organisations differing amounts this will be more evident, for example. 

All members of the panel agreed that they are keen to work with government to explore how the NHS can access capital and how best practice can be shared more widely.

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