NHS Trust Development Authority. Capital Regime and Investment Business Case Approvals Guidance for NHS Trusts

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1 NHS Trust Development Authority Capital Regime and Investment Business Case Approvals Guidance for NHS Trusts

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3 NHS Trust Development Authority Capital Regime and Investment Business Case Approvals Guidance for NHS Trusts Table of contents Table of Contents Section 1 Context... Overarching principles... Section 2 Capital regime and funding sources... Background... Capital planning general principles... Capital investment funding sources general principles... Internally generated cash... External financing... NHS Trust Limits Guidance Capital Resource Limits (CRL), External Financing Limits (EFL) and Net Borrowing Requirements (NBR)... Retaining cash at year-end... NHS Trust Capital Investment Loans... Planning for Capital Investment Loans... Loan term... Loan facility agreement and interest rate... Drawing of loan... Repayments of interest and principal... Failure to meet repayments... Overpayments... Effect on PDC dividend payments... Full and final settlement... Page No

4 Section 3 Section 4 Delegated limits for Capital Investment and Property Transactions... Capital Investment and Property Transactions Business Case Approvals Process... NHS TDA Business Case Approval Process... Timetable for capital investment and property transaction business cases Section 5 Capital planning and reporting requirements... Planning documentation... Section 6 General and other issues... Health Gateway Reviews... Post project evaluation... Major Projects Authority Appendix 1 Delegated limits for Capital Investment definitions and further technical guidance Appendix 2 Business Case Checklist (Version 1: 18 January 2013)... 30

5 1. Context Overarching principles 1.1 The NHS Trust Development Authority (NHS TDA) has a single ambition: to support NHS Trusts to deliver high quality, sustainable services in the communities they serve. That commitment will help to ensure that patients who rely on hospital services, community services, ambulance services and mental health care currently provided by NHS Trusts up and down the country will be able to demand the same high quality services that are now common place in the NHS. 1.2 Accessing capital will be key to improving services and infrastructure for NHS Trusts, particularly for those NHS Trusts where access to capital has been limited in the past. The following guidance attempts to set out overarching guidance relating to: capital regime and capital funding sources; delegated limits for capital investment and property transactions; capital investment and property transactions business case approvals process; capital planning and reporting requirements. 1.3 The overall style of the financial regime for NHS Trusts will, wherever possible, reflect the NHS Foundation Trust (FT) regime in order to both capture the financial incentives offered by the FT regime and to help NHS Trusts achieve the transition to FT status. Where ever possible the principle of earned autonomy will apply as it would if a NHS Trust were a FT. The regime used by the NHS TDA captures a number of the key freedoms of the FT regime, but retains elements of NHS TDA control (e.g. spending limits) as deemed appropriate for existing NHS Trusts. 2. Capital regime and funding sources Background 2.1 The NHS TDA capital regime is based upon bottom up capital planning and makes available a variety of types of financing including interest bearing loans as the primary source of additional financing for capital investment. 2.2 The regime incorporates elements of existing Department of Health (DH) guidance and has been developed within the principles set out in Managing Public Money published by HM Treasury in May In particular issues on the drawing down and use of cash can be found at In accordance with NHS legislation it also includes NHS TDA specific guidance around capital business case approvals, delegated limits and the capital planning and monitoring process. 1 of 46

6 2.3 This section of the guidance consolidates and builds on existing guidance on capital investment issued by the DH. 2.4 This guidance will replace all previous guidance relating to NHS Trusts put in place by the DH or Strategic Health Authority clusters with effect from 1 April Capital planning general principles 2.5 NHS Trust capital planning will continue to be a locally driven process and NHS Trusts, more than ever, will be required to draw up capital investment plans and associated capital cash management plans in line with the requirements of their local population, the NHS Trusts own local investment priorities and affordability. 2.6 Capital plans will need to be agreed with the NHS TDA. In agreeing NHS Trust plans, the NHS TDA will ensure that they are affordable, achievable, and in line with local and strategic priorities. Specifically, the NHS TDA will: undertake an analysis of capital cash management plans to ensure that they are in accordance with guidance set out in this document and the NHS TDA planning framework and any further new and relevant guidance issued; review requests for loans (and Public Dividend Capital (PDC) in exceptional circumstances). 2.7 The NHS TDA will work with the DH to perform a final review of affordability against the overall NHS capital programme and the total available capital resource. Should capital plans exceed available resources then the NHS TDA will work with NHS Trusts to prioritise and tailor plans accordingly. Capital investment funding sources general principles 2.8 Under the NHS Trust capital regime, the following general principles for funding capital investments in NHS Trusts apply: NHS Trusts may retain internally generated cash over year end for reinvestment in future years subject to the constraints set out below in paragraph 2.9; the primary source of funding after internally generated cash will be interest bearing loans; PDC will be available in a limited and rapidly reducing number of exceptional cases and this should not be included within NHS Trust plans unless a NHS Trust has prior agreement with the NHS TDA; NHS Trusts must not draw PDC in advance of need i.e. where the NHS Trust has flexibility to use its own internally generated capital it should ensure that this is used before exceptional PDC capital is drawn. 2 of 46

7 Internally generated cash 2.9 NHS Trusts are able to use the following sources of internally generated cash to fund investment: unspent capital cash brought forward from previous years (unspent depreciation and receipts from asset disposals); cash associated with the charge for depreciation in the current financial year (excluding any IFRIC 12 related depreciation); receipts from asset disposals (up to delegated limits); income and expenditure surplus (both in year and cash brought forward from earlier years); cash released from movement in debtor/creditor balances (although NHS Trusts must take account of Better Payment Practice Code). External financing Grants and donations 2.10 NHS Trusts may receive grants or donations from third parties for the purpose of capital investment. Donations and grants should be included in the cost of a scheme when deciding if a business case needs external approval and an NHS Trust will still require the business case to be signed off by the NHS TDA if the overall capital investment value (including the amount of the donation and/or grant) is outside of the NHS Trusts delegated limit. Loans 2.11 The primary source of cash for capital investment, in addition to that financed from internal sources, is through interest bearing capital loans accessed through the NHS TDA with final approval being required by the DH. These loans should be identified in the NHS Trusts financial plans and agreed with the NHS TDA who will subsequently agree them with the DH Loans are considered using the Prudential Borrowing Assessment (PBA) and the NHS Trusts Long Term Financial Model (LTFM). The PBA enables the terms of a prospective loan and the projected financial position of the NHS Trust to be considered across a five year period and in this way reviews the impact and affordability of debt service on a NHS Trusts income and expenditure and cashflow projections. PBAs should also be consistent with the LTFM of the NHS Trust, where these are available, which is expected to be in most cases Further details of capital investment loans and how they are accessed can be found in the NHS financing document. 3 of 46

8 Exceptional Public Dividend Capital (PDC) 2.14 Under the capital regime the primary source of additional capital is through loans, however, in exceptional circumstances, the NHS TDA may approach the DH to provide financing in the form of PDC Unlike loans, PDC has no fixed repayment period, but the NHS TDA (in conjunction with the DH) can require PDC repayments e.g. for excess capital receipts. PDC does not attract a charge directly but the assets purchased attract a capital charge (currently 3.5% per annum) on their net book value (NBV) (under a loans regime the value of the asset will be offset by the outstanding principal value of the loan) The NHS TDA will consider and put forward cases for exceptional PDC to the DH where a NHS Trust has failed a PBA and/or where a major capital scheme or restructuring forms part of the financial recovery of the NHS Trust or where the proposal is demonstrated to be of benefit to the wider health economy Any requests for exceptional PDC should be agreed with the NHS TDA before they are included in a NHS Trusts plans. NHS Trusts will be asked to provide further supporting evidence to the NHS TDA before exceptional PDC can be agreed and the NHS TDA will review these requests on a case by case basis The NHS TDA will review the policy on providing exceptional PDC on an annual basis In exceptional circumstances the NHS TDA will consider part loan and part exceptional PDC solutions where major capital schemes are part of the financial recovery of the NHS Trust. Central programmes 2.20 Central programme capital has been available historically to NHS Trusts to provide support for central initiatives supported by the DH and there may be opportunities for NHS Trusts to access central programme capital going forward If central programme capital is allocated NHS Trusts will receive Capital Resource Limit (CRL) cover for any central programme budget allocations. In addition, PDC will be provided to NHS Trusts for central programme budgets where internally generated capital cash as identified in paragraph 2.9 is already fully committed NHS Trusts should not draw down PDC when internally generated capital cash will be available during the year. If there is an in-year timing difference between the need to incur expenditure covered by a central programme and the availability of internally generated capital cash, the NHS TDA will consider supporting a case for providing temporary PDC. 4 of 46

9 2.23 It remains the case that any PDC drawn and unspent in one year will need to be repaid (or offset against any new allocation of PDC) in the following year. PDC will not be considered as spent until internal sources of capital cash (depreciation and asset disposals including carry forward) have been fully utilised. The level of repayment required will be calculated annually on the basis of final account Central programme budgets provide funding only for the year in which they are allocated. If a scheme slips there can be no guarantee that funding or CRL cover will be made available in subsequent years NHS Trusts should identify any such slippage in central programmes as part of the planning round. Affordability will be assessed alongside other priorities. Other sources of capital funding 2.26 NHS Trusts are able to pursue Private Finance Initiative (PFI and PF2, the governments new approach to private finance initiative) and Local Improvement Financial Trust (LIFT) financing solutions in line with the capital business case approvals process and delegated limits described within this document. NHS Trust Limits Guidance Capital Resource Limits (CRL), External Financing Limits (EFL) and Net Borrowing Requirements (NBR) General 2.27 This section gives further guidance and background on NHS Trust limits The EFL encompasses cash provided by DH (PDC and loans), planned internally generated cash, and cash from external sources (e.g. finance leases). The NBR sets a sub-limit within the EFL, and relates to the cash available from DH, and it is this measure that is now used to manage the issue and repayment of cash to and from NHS Trusts. Capital Resource Limits (CRL) 2.29 The CRL controls the amount of capital expenditure a NHS Trust may incur in a year. NHS Trusts require CRL to cover all capital expenditure and must not incur expenditure in excess of this limit Each NHS Trust will be allocated an initial CRL based on planned capital expenditure. This will change during the year if additional capital resources are allocated. Additionally, NHS Trusts credit the carrying value of asset disposals to CRLs which allows them to use the proceeds of such disposals to incur capital expenditure CRLs can be allocated to NHS Trusts in two ways: as part of initial limits where a NHS Trusts initial CRL is based on agreed plans. This will include all expenditure financed from internally generated sources excluding disposals, capital grants and donations. 5 of 46

10 CRL will be allocated in-year for additional expenditure as agreed with the NHS TDA e.g. as financing through loans or PDC is agreed or through the allocation of central programme budgets NHS Trusts must not overspend against CRL. This is a regulatory and departmental duty. In addition, significant under spending would be considered as an indicator of poor financial planning. Forecast under-spends should be identified and flagged to the NHS TDA during the year and no later than Q2. The NHS TDA in conjunction with the DH may adjust CRLs accordingly There is no carry forward of underspends of CRL. CRL will be set each year for NHS Trusts based on agreed spending plans for that year. External Financing Limit (EFL) 2.34 EFL is a control on net cash flows of NHS Trusts. It sets a limit on the level of cash that a NHS Trust may either: draw from either external sources or its own cash reserves positive EFL; repay to external sources or increase cash reserves - negative EFL. External Financing Requirement (EFR) 2.35 In essence, the External Financing Requirement (EFR) is the difference between the cash a NHS Trust plans to spend in a year and what it can generate through its operations. EFR can be positive or negative. A positive EFR indicates a net requirement for cash and a negative EFR indicates that a NHS Trust plans to spend less cash overall than it will generate EFL performance is measured against the EFR as discussed below. EFL performance 2.37 EFL performance is measured by comparing EFL against EFR for the full year If the EFR exceeds the EFL this is an EFL overshoot. NHS Trusts must not overshoot their EFL. This is a regulatory and departmental duty Undershooting the EFL (i.e. the EFR is lower that the EFL) should be avoided but is considered less serious, however significant undershoots may be considered as an indication of weak financial planning. EFL at plan 2.40 At plan stage, the EFL is set to equal the EFR EFLs may be positive or negative. A negative EFL does not indicate that a NHS Trust must make a PDC repayment; rather it indicates that the NHS Trust is generating a net inflow of cash from operating/investing activities. 6 of 46

11 2.42 Equally a positive EFL does not indicate that a NHS Trust is eligible for PDC, simply that it has a net cash requirement which may be met through its own reserves, loans or PDC PDC repayments and allocations will be identified and actioned through adjustments to the net borrowing requirement PDC (NBR PDCs). This is explained in paragraphs 2.54 to Initial limits 2.44 Initial EFLs are set based on EFR from agreed plan, but excluding spend on capital which requires external financing in the form of capital investment loans or PDC. EFL is allocated alongside CRL when these elements of financing are agreed Further adjustments to initial EFLs will only be made where there is an impact on the EFR. EFL under/over shoots 2.46 In simple terms an EFL under or over shoot will occur where there is a variation from plan that affects the external financing requirement (e.g. any changes in net cashflow for operating activities or investing activities). If a NHS Trust believes these may result in an EFL overshoot they should speak to the NHS TDA. Changes to EFL 2.47 EFLs may need to change during the year. This may be either because of central allocations made for capital investment (see above) or because of changes in local circumstances. Changes to EFL need to be notified to the NHS TDA and can only be actioned by the DH. Where a NHS Trust believes it will overshoot its EFL it should first consider whether this could be managed locally and contact the NHS TDA to discuss options. The NHS TDA may then need to discuss the EFL adjustment with the DH. DH will not normally consider requests to change EFL where NHS Trusts believe they will undershoot Initial limits and any subsequent changes to limits will be identified through monthly limits reports to NHS Trusts. EFL variations examples 2.49 Example 1 - Working capital: a NHS Trust suffers a reduced cash flow in-year from operating activities (i.e. reduced income or increased cost). This will result in an increased EFR and with no adjustment this could result in an EFL overshoot. A NHS Trust then has the following two options to consider: * if the NHS Trust has sufficient in-year surplus or cash reserves from previous years, then the cash shortfall could be covered from the NHS Trusts own cash reserves. However, an EFL overshoot would still occur. In such cases, NHS Trusts will need 7 of 46

12 to come to the NHS TDA to request an EFL adjustment. The requirement for such an EFL adjustment would be considered as indication of a worsening of financial position and so would flag a performance issue to the NHS TDA. Subject to this review an EFL adjustment would then be forwarded to the DH by the NHS TDA; * the NHS Trust could apply for a working capital loan to address the cash shortfall. An application for an unplanned loan could be made to the NHS TDA and would flag there was a performance issue that needed to be addressed. If the loan were approved the EFL would be adjusted accordingly Example 2 - Capital investment: a NHS Trust fails to obtain capital financing in the form of PDC. This may result in the following: the investment may not happen. As the initial EFL will not include this investment pending agreement of PDC then there is no variation from EFL; the NHS Trust may take a capital investment loan to cover the shortfall in PDC. EFL will be allocated alongside the loan; the NHS Trust uses cash from other sources (e.g. in-year revenue or reserves) to finance the expenditure. This would result in an EFL overshoot if the EFL is not adjusted. In this situation the NHS Trust should make a case to the NHS TDA for additional EFL cover These are two examples of how EFL variations may occur in-year and actions that could be taken. There may be other circumstances in which EFL variations may occur and NHS Trusts need to contact the NHS TDA if that is the case. Net Borrowing Requirements (NBR) 2.52 The NBR is the level of cash that a NHS Trust may draw from or must repay to DH There are two separate elements to NBR: NBR PDC and NBR loans that determine the level of PDC and loan principal to be drawn or repaid respectively. These limits are managed separately. Initial limits 2.54 Both NBR PDC and NBR loans are set to zero in initial limits. This reflects the rules on NHS Trust cash management where NHS Trusts are allowed to retain unspent capital cash. While it is expected that some NHS Trusts will have excess capital cash, a negative NBR will not be set as this would incorrectly indicate the requirement for a repayment. 8 of 46

13 2.55 All subsequent transactions (excluding the issue and repayment of temporary PDC) will be reflected in changes to NHS Trust limits. For example: allocation of PDC associated with a capital central programme will result in a positive NBR PDC limit adjustment; drawing against an agreed working capital or capital investment loan will result in a positive NBR limit adjustment; repayments against a working capital or capital investment loan will result in a negative NBR loan adjustment In the case of NBR PDC, adjustments to limits will impact a NHS Trusts net borrowing capacity. There is a limit of PDC against which a NHS Trust may draw. This limit will equal the NBR plus any repayments of PDC, less any advances already taken. If this results in a negative borrowing capacity then a repayment is required, if it is positive then the NHS Trust may draw PDC. Drawing cash in excess of need 2.57 Any allocation of NBR PDC for capital investment will be dependent on a NHS Trust demonstrating in its capital cash management plan that it has fully consumed all internally generated capital cash (i.e. from depreciation and assets disposals) for the current year plus any unspent capital cash from earlier years. All such internal capital cash must be consumed before any allocation of NBR PDC will be actioned. This will be agreed as part of the planning process If capital expenditure slips then this is likely to reduce the eligibility for PDC as internal capital cash is freed up. In such cases, NHS Trusts should under draw PDC appropriate to the level of slippage If NHS Trusts overdraw PDC in a given year e.g. draw more PDC than is required to finance capital spending after all other internal capital cash is used, then they will be required to repay the overdrawn PDC as soon as possible and no later than in the following financial year. Retaining cash at year-end 2.60 To allow NHS Trusts to operate properly, similar flexibilities to FTs on retaining cash from one year to the next will continue. NHS Trusts are able to: retain revenue cash generated through revenue surpluses for revenue spending in future years (subject to compliance with statutory breakeven duty) or capital investment; unspent cash associated with the charge for depreciation may be retained for capital investment only; retain capital receipts to finance capital investment in future years. Where the sums are immaterial, NHS Trusts will be able to retain the cash locally. Where the sums are material NHS Trusts need to refer to 9 of 46

14 delegated limits for approval and approach the NHS TDA where amounts exceed delegated approval levels. Where amounts exceed delegated approval limits the NHS TDA/DH will take a PDC repayment and CRL reduction in the year of the disposal, and re-provide equivalent PDC and CRL for planned capital investment within the current three year allocation/settlement period where internally generated capital cash is fully utilised Cash balances must be retained in NHS Trust Citibank accounts, not commercial accounts, and NHS Trusts must ensure that investment rules are followed These guidelines maintain a degree of equity with the FT regime in ensuring that the benefit of the capital receipt is not lost to the NHS Trust, whilst ensuring that the spending power is not lost to other parts of the NHS in the intervening period. This will allow NHS Trusts to plan their capital investment in a similar way to FTs NHS Trusts should not draw down PDC unless there is a need for financing above internally generated capital cash (including that from earlier years). Any PDC drawn and unspent in a particular year will need to be repaid. PDC will not be considered as spent until internal sources of capital cash (depreciation and asset disposals) have been fully utilised. Similarly, proceeds from asset disposals will only be considered as being spent once depreciation has been fully utilised. NHS Trust Capital Investment Loans 2.64 This section gives further guidance and background on NHS Capital Investment Loans (CILs). NHS Trusts are now able to retain cash generated through operations (principally depreciation) for reinvestment, and, subject to demonstration of ability to service debt as assessed by the PBA set out in paragraph 2.12, they can borrow to finance further capital investment. CILs form an important part of the NHS Trust capital regime going forward: National Loan Fund (NLF) interest rates are used (paragraph 2.78). loans are made at a fixed rate of interest for the loan period; repayments are made twice yearly and are made up of equal instalments of principal (paragraphs 2.86 to 2.88) A CIL facility can accommodate multiple drawdowns within a spending review period to match staged progress of a capital programme Repayments of principal can be made from capital or revenue cash but need to be identified in a NHS Trusts capital cash management plan as submitted to the NHS TDA. This means that both the cash received from an asset sale and cash associated with the charge for depreciation can be used for repayments The NHS TDA will fulfil the assurance role in the approval of CILs and, working with NHS Trusts, will provide assurance that: 10 of 46

15 the loan is required to fund capital expenditure; the loan is affordable in terms of cash to meet principal repayments; the loan is affordable in terms of revenue to cover interest charges and additional running costs; an appropriate term for the loan has been chosen, taking account of the life of the asset(s) the loan is to fund; the NHS Trusts plans for this year and beyond take into account the impact of the repayments of this loan on the financing available to fund future capital expenditure. Planning for Capital Investment Loans 2.68 Where a NHS Trust has long term financial plans contained in a LTFM, which is expected to be in most cases, it is anticipated that LTFMs will include planned CILs. In addition loan applications for planned loans (of all types) should be included within NHS Trust planning forms (Trust Financial Management System) submitted to the NHS TDA in January to early April of each financial year. A central database of all planned loans will be collated from NHS Trust plan submissions and will be used to inform negotiations with the DH around loan requirements for forthcoming financial years. NHS Trusts should not automatically assume that loans will be approved and therefore should not incur expenditure in advance of loan approval. If loans for the NHS Trust sector exceed DH funding availability the NHS TDA will work with DH to review affordability. The NHS TDA will manage NHS Trust loans within the overall affordability envelope Unplanned loan requests that emerge in-year will need to be discussed with the NHS TDA Corporate Finance Team and Business Support as to how NHS Trusts should proceed and as to whether these loans can be afforded within the overall funding envelope given that they will not have been flagged at plan stage. The NHS TDA Corporate Finance Team will advise as to whether these loans should be included in a Trusts Financial Management System (TFMS) returns Should it become clear at the time of planning for the future financial year that the NHS Trust is going to need additional cash to service their forthcoming capital plan, then the NHS Trust should apply for a CIL to address the shortfall. NHS Trusts should discuss the need for a CIL with the NHS TDA to establish support Where this support is given, the NHS Trust should identify the loan requirement in both the cashflow statement and capital cash management plan within their annual financial plan The NHS TDA will consider the affordability of the loan against the available PBA of the individual NHS Trust and the total capital resource available for all NHS Trusts that year. Prudential borrowing limits will be issued annually to NHS Trusts. 11 of 46

16 2.73 Successful applications will be notified by the DH to the NHS TDA who will contact the appropriate NHS Trust. A loan facility agreement will then need to be duly completed and authorised before the process can be completed as set out in paragraph 2.77 below A positive adjustment will then be made to the NHS Trusts NBR loan, the CRL and the EFL. This gives the NHS Trust the authority to draw down from the DH and spend the resource. Loan term 2.75 The term of the loan will need to be agreed between the NHS TDA and NHS Trust. This will determine the interest rate and enable the loan agreement to be pre-populated. (Note: provisional repayment schedules can be requested to aid this decision if required). As a general rule the loan term for capital loans cannot exceed the useful economic life of the underlying asset or investment Once set in the agreement, the loan term cannot be changed other than where an overpayment settles the loan in full. Final repayment dates are either 15 September or 15 March each year. Loan facility agreement and interest rate 2.77 The loan facility agreement is a legal document produced by the DH, which is populated jointly by the DH, NHS TDA and the NHS Trust seeking the CIL. It details the specifics of the loan, including the amount, the draw date, and interest rate applied to the facility. It is normally released for full population from the DH three weeks ahead of the anticipated loan being let The interest rate is set at the prevailing NLF rate for the day the loan facility agreement is being issued. The rate used is the Equal Instalment of Principal (EIP) rate of the Public Works Loan Board (PWLB), specific for the term of the loan. The daily NLF interest rates are available on the UK Debt Management office website at the following link: df&p 2.79 Within the schedules of the agreement is a business case that must be completed by the NHS Trust and submitted to the NHS TDA. For the agreement to be considered complete, it must also have a copy of the resolution of the Board of Directors of the borrowing NHS Trust and the original pen to paper signature (in blue ink) of the NHS Trust Chief Executive or Director of Finance representing the borrower s agreement to the loan It is recommended that these sensitive documents be sent by special delivery After examination, a duly completed loan agreement will be authorised by DH. Should any errors or omissions be identified then the NHS TDA will contact the NHS Trust immediately to resolve. 12 of 46

17 2.82 Two copies of the completed and verified loan agreement will be sent to the NHS TDA by special delivery within two weeks of the drawdown date. One will be retained by the NHS TDA, the other will be forwarded on to the NHS Trust. Drawing of loan 2.83 NHS Trusts will be able to draw CIL s on a monthly basis with effect from 1 April On a monthly basis these are likely to be on the working day closest to the 15 th of the month However, if there is a need for funding between these dates then the NHS Trust should contact the NHS TDA in order to discuss the possibility of a Temporary Borrowing Limit (TBL). The process for accessing a TBL can be found in the NHS TDA financing guidance A Drawdown Request Form L2 (or forms where multiple drawdowns are a feature of the loan) is contained in the loan facility agreement, and, once completed, provides the DH Cash team with the authority to fund the NHS Trusts Citibank account. Repayments of interest and principal 2.86 Repayments of principal and interest against the CIL are collected twice yearly, 15 September and 15 March (or the next working day). The scheduled repayment of interest is calculated daily on the reducing balance The first repayment falls due at the 15 September where loans are drawn in March or July, and 15 March, where they are drawn September or December Amounts of loan principal and interest to be recovered can be derived from the repayment schedule contained in the loan agreement. These repayments will be taken directly from NHS Trust Citibank accounts by Internal Direct Debit (IDD). However, the NHS Trusts will be reminded of the amounts to be debited from their Citibank account in the week before the payment is taken. Failure to meet repayments 2.89 As set out in The NHS in England: The Operating Framework for 2009/10, defaulting on the terms of an existing loan, most probably by a NHS Trust moving into deficit and so not being able to make planned repayments from generated surpluses will be referred immediately to the NHS TDA. Overpayments 2.90 The NHS Trust as borrower may, if it gives the lender (DH) not less than 14 days notice, prepay the whole or any part of any loan (being a minimum amount of 250,000), on the September repayment date of any financial year. Overpayments on the March repayment date in any financial year will only be permitted at the discretion of the DH agreed through the NHS TDA with notice being given no later than the submission of Quarter 2 TFMS forms for that financial year. 13 of 46

18 2.91 The overpayment of principal will be credited against the outstanding principal balance of the CIL and the remaining scheduled repayments will be revised down to accommodate this change. Please note that overpayments do not alter the outstanding term of a loan unless such an overpayment results in full and final settlement of the loan. A new repayment schedule will be made available to the NHS Trust, reflecting the new repayments NHS Trusts may not repay loans simply to obtain a lower loan rate i.e. if the loan rate falls NHS Trust may not take a further loan at the lower rate simply to repay the existing loan. Effect on PDC dividend payments 2.93 PDC dividend payments are calculated upon average net relevant assets, and therefore a capital investment loan as a liability to the NHS Trust will reduce the PDC dividend payable each year by 3.5% of the average principal outstanding. Full and final settlement 2.94 Once the loan has been settled in full, either by reaching the end of the term or via a final overpayment, then the NHS TDA and NHS Trust will receive written notification from DH that the debt has been settled in full. 3. Delegated Limits for Capital Investment and Property Transactions 3.1 The delegated limits for capital investment and property transaction approvals in the NHS have previously been set by the DH (as described in Delegated Limits for Capital Investment published by the DH in December 2010). The setting of delegated limits post 1 April 2013 will become the responsibility of the NHS TDA, in addition to the subsequent approval of NHS Trust capital business cases up to the value delegated to the NHS TDA by the DH. 3.2 The levels of authorisation for NHS Trust capital investment and property transactions contained within this guidance provide clarity on the levels of delegated authority NHS Trusts and the NHS TDA will have post 1 April 2013 and the process for scrutiny that needs to be applied to capital investment and property transactions prior to authorisation. 3.3 NHS Trusts will have delegated authority to approve capital investment business cases with a financial value for the proposed capital investment or property transaction up to a value of 5 million or 3% of turnover whichever is the lower. Turnover will be measured based upon the turnover of a NHS Trust within its financial accounts for the previous financial year. The NHS TDA Director of Finance will have delegated authority to approve business cases between 5 million, or 3% of turnover whichever is the lower, and up to a value of 10 million. Decisions regarding approval of business cases for capital investment and property transactions over a threshold of 10 million and up to a threshold of 25 million for NHS Trusts will be made by the NHS TDA Capital Investment Group. Decisions regarding approval of business cases for capital investment and property transactions over a threshold of 14 of 46

19 25 million for NHS Trusts will be made by the NHS TDA Capital Investment Group and will require full approval by the NHS TDA Board. 3.4 The NHS TDA will have powers of approval for NHS capital business cases up to a 50 million limit delegated by the DH to the NHS TDA. Any capital business cases over 50 million will require a further stage of approval by the DH before submission to HM Treasury. 3.5 The authorisation levels for NHS Trusts are summarised in table 1 below: Table 1: NHS Trust and NHS TDA Delegated Limits Financial Value of the Capital Investment or Property Transaction Up to 5 million or 3% of turnover whichever is the lower 1 Between 5 million, or 3% of turnover whichever is the lower, and 10 million Approving Person or Group NHS Trust Board NHS TDA Director of Finance 10 million to 25 million NHS TDA Capital Investment Group 25 million to 50 million Over 50 million NHS TDA Capital Investment Group and NHS TDA Board NHS TDA Capital Investment Group and NHS TDA Board and DH 3.6 Irrespective of the delegated limits set out in this paper the relevant NHS TDA Director of Delivery and Development, or the NHS TDA Director of Finance may refer any NHS Trust capital investment scheme or property transaction proposal deemed to be novel and contentious, regardless of size, to the NHS TDA Capital Investment Group or NHS TDA Board for a view and/or approval decision. 3.7 NHS Trusts reporting a year end deficit in its most recent audited accounts, forecasting an outturn deficit for the financial year or with an in-year deficit should note that at the discretion of the appropriate NHS TDA Director of Delivery and Development or the NHS TDA Director of Finance a NHS Trusts delegated limits can be lowered. Where this is the case all schemes over 500k in value will need agreement to proceed from the relevant Director of Delivery and Development. Where this applies NHS Trusts will be notified in writing by the NHS TDA. 3.8 For I.T., leased equipment and leased property, the limits apply to whole life costs, not capital cost. For leased property, the limits apply to the whole-life cost of the transaction, rather than just capital cost. 1 Turnover will be measured using the NHS Trusts previous years financial accounts turnover figure. 15 of 46

20 3.9 Where two or more schemes have similar timelines and strategic rationales and it makes sense to batch them together to achieve best value for money due to economies of scale, it is recommended that they are batched together. In these circumstances, the business case approval process should not be circumvented by progressing schemes singly Further definitions and technical guidance regarding delegated limits is contained within Appendix Capital Investment and Property Transactions Business Case Approvals Process 4.1 The NHS TDA recognises that accessing capital will be key to improving services and infrastructure for some NHS Trusts, particularly, where access to capital has been limited in the past. The process described within this part of the document attempts to provide a balance between allowing NHS Trusts, through their delegated limits, the freedom to manage their own capital investment up to an agreed limit and ensuring that there is sufficient governance and assurance around the approval of capital investments. Achieving sufficient assurance and governance at the same time as enabling investment to develop NHS Trusts in a sustainable way will be an extremely important strand of the NHS TDA work going forward. 4.2 More specifically the NHS TDA will require assurance that a capital investment business case has been through an appropriate level of scrutiny and governance within the NHS Trust proposing the investment, before the case is submitted to the NHS TDA. The NHS TDA will ask for NHS Trusts to demonstrate that: the investment proposal is consistent with the NHS Trusts clinical strategy and supports the provision of high quality care; the investment proposal demonstrates a high level of engagement with clinical staff and the use of appropriate staff and patient feedback; the quality, safety, productivity, affordability, value for money and workforce implications associated with the investment proposal are robust, well thought through and described within the business case; there is a clear and credible approach to enhancing the delivery of patient care and performance standards; issues relating to the sustainability of the wider local health economy have been addressed and the proposed solution adequately assists the health economy in managing present and future issues. the NHS Trust has the resource and capacity to deliver the investment programme within a realistic timeframe. 16 of 46

21 4.3 The NHS TDA will require evidence that the proposed scheme has had an appropriate level of NHS Trust Board scrutiny before the capital investment business case is reviewed by the NHS TDA. 4.4 The NHS TDA will be keen to assess innovative business cases which demonstrate a NHS Trust has put patients at the centre of their investment proposal with the aim of delivering the highest standards of NHS care. 4.5 In addition, the NHS TDA will seek assurance that a NHS Trust has subjected the business case to an appropriate governance and clinical engagement process and that the proposed investment is affordable and represents good value for money to the taxpayer. 4.6 This section of the guidance details the levels of documentation required at key stages of the business case development and will ensure that an appropriate level of scrutiny is put in place as part of the review process. 4.7 All cases, at each key stage, for example, Strategic Outline Case (SOC), Outline Business Case (OBC), PFI/ PF2 Appointment Business Case (ABC), Full Business Case (FBC), PFI/ PF2 Confirming Business Case (CBC) (for the purposes of this document PFI/ PF2 includes LIFT) are required to be produced using the standard five case model and will be reviewed using the appropriate business case checklist. 4.8 It is good practice for NHS Trusts to produce a SOC for significant business cases for their own governance and assurance purposes. It will not be necessary for NHS Trusts to submit SOCs to the NHS TDA, unless specifically requested to do so, for business cases with a capital financial value of under 10 million. SOCs will, however, be required from NHS Trusts for business cases with a capital value over 10 million. 4.9 As a minimum the NHS TDA will expect to have a SOC, an OBC and FBC (or equivalent for PFI/PF2 preferred solutions i.e. ABC, CBC, LIFT (Stage 1 and 2) etc.) submitted for all business cases with a value that exceeds 10 million. In addition NHS Trusts will need to complete the generic business case checklist contained within Appendix 2 and this will need to be submitted with each OBC and FBC version of the business case submitted to the NHS TDA for all business cases over the NHS Trusts own delegated limits and up to the NHS TDA s delegated limit of 50 million. For all major schemes in excess of 50m, that also require DH sign off, there are four separate DH checklists that will be required for each stage of the business case process (OBC public funded/ PFI/ PF2 checklist, PFI/ PF2 ABC checklist, PFI/ PF2 CBC checklist and FBC Public Funded checklist). For copies of business case checklists for schemes over 50 million NHS Trusts will need to contact the NHS TDA Business cases submitted to the NHS TDA must have been approved by the relevant NHS Trust Board and the NHS Trust must submit a copy of the Board minute recording approval Business cases submitted to the NHS TDA by NHS Trusts must be congruent with the NHS Trusts Integrated Business Plan (IBP) and LTFM and this will be tested as part of the business case review. 17 of 46

22 Table 2: Business Case Key Stage Documentation Financial Value of the Capital Investment or Property Transaction Up to 5 million or 3% of turnover whichever is the lower Between 5 million, or 3% of turnover whichever is the lower, and 10 million 10 million to 25 million 25 million to 50 million Over 50 million Key Stage Documentation NHS Trust internal governance process OBC and FBC required SOC, OBC and FBC required (or SOC, ABC, CBC or LIFT stage 1 and 2 equivalent for PFI/PF2 or LIFT) SOC, OBC and FBC required (or SOC, ABC, CBC or LIFT stage 1 and 2 equivalent for PFI/ PF2 or LIFT) SOC, OBC and FBC required (or SOC, ABC, CBC or LIFT stage 1 and 2 equivalent for PFI/ PF2 or LIFT) 4.12 Detailed guidance for NHS Trusts on the production of business cases using the 5 case model can be found on the Treasury website at the following weblink: Table 3: Primary expectations for key stage documents Key Stage Document Strategic Outline Case (SOC) Outline Expectation Strategic rationale and benefits of the investment are clearly set out and demonstrate underlying health need for the investment; Description of the current service, understanding of best practice and the consequences of the Do Nothing option; Confirmation that one or more deliverable and affordable solutions exist to deliver the strategic objective before cost is incurred preparing an OBC; Proposed timetable for the business case is set out including when the NHS TDA can expect to receive the business case; Indicative financial value of investment is included; Project management arrangements for the business case are outlined; Intended procurement methodology is set out. 18 of 46

23 Key Stage Document Outline Business Case (OBC) 2 Full Business Case (FBC) Outline Expectation Five case business case model is used covering strategic, economic, financial, commercial and management cases; Executive summary is clear regarding recommended solution; Strategic context, rationale and benefits of the investment are clearly set out and demonstrate underlying health need for the investment; Options for appraisal are formulated and described in sufficient detail; Benefit criteria against which options are to be evaluated has been developed and leads to a clear preferred option; Criteria has been provided to measure success of the development; Overall impact, financial and non financial (including full Quality Impact Assessments), has been assessed and evaluated; Clear statement of affordability and funding sources is provided for capital and revenue; Operational considerations covering dependencies, assumptions and any risks to operational delivery. Self-assessment business case checklist is complete and returned. As OBC above with content updated or confirmed for final version of the business case; Executive summary is clear regarding recommended solution; Financial figures are confirmed and final; Clear statement of affordability and funding sources is provided for capital and revenue; Outstanding issues from OBC stage review by NHS TDA have been addressed; Self-assessment business case checklist is complete and returned. NHS TDA Business Case Approval Process Directors of Delivery and Development and their teams 4.13 Directors of Delivery and Development and their teams will have a portfolio of NHS Trusts and will perform the business case review and assurance process for capital investment and property transactions for business cases submitted by NHS Trusts within their portfolio. Directors of Delivery and Development will be supported by the Business Support team and Corporate Finance team in the review of capital business cases. 2 The generic business case checklist contained in Appendix 2 gives more details of the areas that need to be addressed as part of the OBC and FBC business cases. 19 of 46

24 4.14 Directors of Delivery and Development and their teams will scrutinise all relevant financial and non-financial aspects of a proposed project (both the project itself and how the project fits into the overall strategy of the organisation) to ensure that the best possible solution is selected for a given set of circumstances. The NHS TDA process will ensure that capital business cases are subject to an appropriate level of scrutiny and provide appropriate assurance regarding the investment proposal The NHS TDA generic business case checklist is contained within Appendix 2 to this paper and NHS Trusts will need to assure NHS TDA Directors of Delivery and Development and their teams that the checks contained within this list are satisfied to a level that allows the business case to proceed through the authorisation process. NHS Trusts will be required to perform a self-assessment of this checklist in the first instance and submit this selfassessment with all OBC and FBC versions of their business case. The checklist is intended as a guideline to assist in highlighting areas of business cases that the NHS TDA will be looking for as a minimum level of assurance. The checklist is not exhaustive, and therefore issues may arise in relation to individual business cases that require clarification over and above the business case checklist, and equally the generic checklist may contain areas that are more relevant to some business cases than others If a NHS Trust is submitting a business case relating to a recommended PFI/ PF2 the existing DH business case checklists will need to be completed by the NHS Trusts for review by the Director of Delivery and Development teams. There are four separate DH checklists (i.e. OBC checklist public/ PFI/ PF2, PFI/PF2 ABC, PFI/ PF2 CBC, and FBC public) Only business cases supported by the Directors of Delivery and Development will be submitted to the NHS TDA Director of Finance and NHS TDA Capital Investment Group for approval. Business Support and Corporate Finance Team 4.18 The Business Support and Corporate Finance Team will support the Directors of Delivery and Development review the business case and will in particular review the following areas within the business case approvals process: perform the financial and affordability review of business cases in line with the financial position of the NHS Trust and in collaboration with Directors of Delivery and Development teams; ensure the business case is congruent with the NHS Trusts LTFM; ensure external funding sources assumed are realistic and achievable. NHS TDA Capital Investment Group and NHS TDA Board 4.19 The NHS TDA Capital Investment Group and NHS TDA Board will review and approve business cases (including PFI/ PF2) for capital investment and property transactions in line with the delegated limits described within this paper (paragraph 3.5). 20 of 46