Decide your preferred procurement route

This section describes the procurement routes available to both GP-led and PCT-led schemes. It is likely that a combination of these routes will be required to deliver all the developments under consideration across a PCT area.

Procurement timescales will vary depending on the size and nature of the scheme being considered. The procurement route should only be explored once it has been established that the chosen scheme supports the local SSDP. See the section entitled 'Identify sources of funding' before reading this section.

Procurement routes for GP-led and PCT-led schemes

GP-led schemes

GP-led schemes have a choice of three procurement routes. These are to secure their own finance through personal borrowings, to use a third party developer (3PD), or to use LIFT in those areas where it is available. GP-led schemes using personal borrowings or the 3PD route are likely to take in the region of 12-24 months to complete. In terms of approvals, they are usually allowed to use a simplified (locally designed) business case format rather than that detailed in the 'Capital Investment Manual' involving the development of an OBC and FBC. Under the 3PD approach, the development company forward funds the project and receives an 8-10% share of development profits*. See section entitled 'Get approval for your scheme' for further details of the approval process.

Approval process and timescale for GP-led schemes

PCT-led schemes

PCT-led schemes can use public funding from HM Treasury through conventional capital procurement arrangements or ProCure21. They can also use public-private partnership (PPP) arrangements such as the private finance initiative (PFI), a "short form" arrangement or LIFT. A "short form" arrangement is a simplified (locally designed) business case format rather than that detailed in the 'Capital Investment Manual' involving the development of an OBC and FBC. The procurement route for a PCT-led scheme is governed by the size and nature of the PCT and the scheme in question. The delegated financial limits for PCTs is shown below:

Delegated financial limits for PCTs

The conventional procurement route when using NHS capital is shown below:

Conventional Treasury-funded procurement route for PCT-led schemes

ProCure21 route

ProCure21 is a partnering framework based on the recommendations in the 'Rethinking Construction' Agenda.

ProCure21 procurement arrangements

The supply chain is a hierarchy of private sector companies who are expected to work in partnership.

The PFI route

PFI is a complex procurement arrangement for which specialist advice is needed.

PFI procurement route

PFI is not normally considered best value for projects valued at less than £25 million as this route tends to have high upfront transaction costs and advisor fees. It is possible to group smaller schemes together (batching) in order to bring the overall cost of the scheme up to the required level.

The LIFT route

Under the LIFT initiative, a Lift Company (LIFTCo) is created that becomes the owner of the premises being developed. Due to the high management cost of setting up a LIFT programme, the total building cost of all the proposed projects in the first tranche of a LIFT programme needs to be at least £15 million. It is possible to group smaller schemes together (batching) in order to bring the overall cost of the scheme up to the required level.

Ownership arrangements and services of a LIFTCo

Approval process for LIFT schemes

See 'Innovation in the NHS: Local Improvement Finance Trusts' (National Audit Office) for further details on LIFT procurement.

Other procurement routes

An alternative to LIFT is to set up a Primary Care Development Framework. A panel of property developers is selected under open competition. Members of the panel are then asked to bid for individual GP-led projects. While PCTs may rent elements of space within such primary care projects, these should represent minor elements of the overall project (otherwise the PFI process outlined above should be followed). A variation on the 3PD approach is for GPs to appoint their own lead architect and an external development consultant(s) with commercial property and financial expertise. The consultants have the same responsibilities as 3PDs but are paid on a fee basis rather than getting a share of the development profit*. In other words, all profits go to the GPs. For small projects costing around £1 million, this approach would save the GPs around £100,000. Furthermore, any savings on construction costs or other project development costs would revert to the GPs. This is likely to focus the GPs' attentions on development and design issues. GPs can interim fund the projects and dispose of the assets by tender or auction at practical completion or can retain all or a share of the assets as an investment. 3PDs tend to market themselves by referring to historic projects and unique selling points. Selection of 3PDs is, therefore, usually made on this basis. With this alternative approach, GPs deal directly with the professional design team rather than the sales team. Construction work may be tendered on the open market rather than relying on the 3PD's preferred construction teams, and costs can be controlled through the architect's own affiliated quantity surveyor, with open book arrangements and full accountability to the commissioning GP. Such a procurement arrangement should provide strict controls on progress and costs, and offer the same supervisory expertise as a consultant employed on a commercial basis by a private sector provider (i.e. via a 3PD). GPs are advised to take specialist advice before embarking on this route. *Development profit = Actual or hypothetical sale price – development costs

Value for money and affordability

For all procurement routes, there is a need to demonstrate that the scheme is viable and affordable within the required timescales, and provides value for money. There are upper and lower limits on the value of capital schemes that determine whether a procurement route offers value for money and/or is attractive to PPPs or 3PDs. A clear audit trail should be maintained. As well as assisting with post-project evaluation, this should help to ensure appropriate accounting and tax treatments are adopted.