Provider collaboration may be enabled via two types of joint venture, either a contractual joint venture or a corporate joint venture.
Contractual joint venture
What is a contractual joint venture?
A contractual joint venture is simply a collaboration of providers underpinned by a partnership or collaboration agreement. The key feature of a contractual joint venture is that the organisations will agree in a legal document how they are going to work together. There is no fixed legal form or prescribed documentation for a contractual joint venture, which can be used alongside many of the models outlined in this guide.
The governance of the arrangements is usually in the form of a partnership board (though other names may be used), with terms of reference set out within the contract. Such 'boards' are a contractual construct, and so there is no restriction on FTs' participation[1] as the scope of decision-making of this board is limited to matters under the contract. There is no formal delegation of functions or decision-making.
One of the providers will usually be designated as 'host' and provide legal personality[2] for the joint venture to eg employ staff and enter into contracts for services. The member organisations will often have a service level agreement with the host for the provision of services back to the members. Where the host holds a commissioning contract for the provision of services and subcontracts to the other members of the joint venture, this is also known as a lead provider arrangement. So, a lead provider arrangement is a type of contractual joint venture.
Can new powers under the 2022 Act be used?
The new powers in section 47A of the NHSA allow an FT to enter into arrangements for the carrying out any of its functions jointly with any other person.
In the NHS at present, contractual joint ventures are often used for back-office services such as procurement and IT support, and successfully used by many pathology networks. The legislation enables greater scope however, such as in Mid and South Essex NHS Foundation Trust where the joint venture agreement is underpinned by quality concordats that enable, for example, the introduction of single points of access for different clinical services.
Considerations
- Membership of a contractual joint venture is not limited to NHS providers and can include independent health providers and the voluntary sector. This a key advantage of this approach.
- Providers and ICBs are accustomed to and understand contractual bases for service delivery: this is a familiar approach and as oversight and control methods are reasonably well-understood in contract delivery, governance arrangements can be relatively simple and aligned to delivery of activity.
- Formal delegation from boards to committees or individuals is not required, and existing programme and project management reporting lines can be used.
- Provider boards and organisations clearly remain autonomous and responsible for activity outside the contract specifications as well as managing the contract.
- The contractual basis lends itself well to definition of the scope and objectives of the collaboration, and also to adaptation over time as renegotiation of the terms of engagement or dissolution of the contract is relatively simple (as opposed to trying to reverse a merger or withdraw from joint ownership of a company, for example).
- Where services are transferred to a host organisation this may involve a transfer of staff under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) as well as separately negotiated asset transfers between the member organisations.
What is an example of contractual joint venture?
The Mid and South Essex Community Collaborative
Lead provider model (lead provider contractual joint venture)
What is a lead provider model?
A lead provider model is where one organisation holds the contract with commissioners for all services and then subcontracts to the other providers within the collaborative.
Underpinning these arrangements, there needs to be a robust agreement between providers to ensure:
- Governance arrangements for overseeing the contracts and services are clear.
- The lead provider is insulated from the risks it is taking on under the commissioning contract.
- The subcontracted providers are protected if the lead provider breaches the terms of the commissioning contract.
- The subcontracting arrangements must remain in place so that the lead provider cannot choose to provide all services under the commissioning contract itself.
We consider the various available contractual arrangements in the Collaboratives and Contractual Arrangements section below.
A lead provider model is usually underpinned by a collaboration agreement setting out the terms of engagement (which may be called a MOU or joint venture agreement, among other possibilities). Decisions about the contract can be made by a 'management board', which is a contractual construct with responsibility for overseeing the services. The management board can take binding decisions about the services but does not have any delegated functions. Depending on the remit of the management board set out in the collaboration agreement and/or contractual arrangements between the parties certain decisions may be reserved to the participating organisations' boards. The management board cannot exercise delegated functions unless it is also operating as committees in common or a joint committee.
The NHS Long Term Plan introduced NHS-led provider collaboratives for groups of providers of specialised mental health, learning disability and autism services, using the lead provider model. The ambition supported partnerships of providers to take on new responsibilities for pathway, commissioning, and budget management for specialised services. It also allowed providers from a range of backgrounds, including third sector providers, other NHS and independent sector providers to collaborate. The lead NHS provider remains accountable to NHSE for the commissioning of services.
Considerations
- Lead provider arrangements are reasonably well-understood having been used in the NHS for some time.
- This model is not limited to NHS providers and therefore allows for collaboration with independent and voluntary sector organisations.
- Many providers and ICBs are familiar with and understand contractual bases for service delivery. Likewise, oversight and control methods are reasonably well-understood in contract delivery.
- As in any structure, a collaboration agreement and relevant contracts will need to be clearly defined, accountabilities and liabilities clearly articulated, and risks effectively managed.
- Ideally, providers involved should have sufficiently mature relationships to successfully move to an arrangement where only one provider holds a contract with commissioners.
- Provider boards and organisations clearly remain autonomous and responsible for activity and their organisations outside the contract specifications.
- Putting services under a single commissioning contract with subcontracting arrangements between the lead provider and other partners can create shared responsibility between providers for the provision of services. There can be shared decision-making about the contract.
What is an example of a lead provider model?
South West Provider Collaborative
Corporate joint venture
What is a corporate joint venture or jointly owned company?
A corporate joint venture is where the participating organisations form a company or limited liability partnership[3] (sometimes referred to as a special purpose vehicle). The legal language used to describe the relationship of the participating organisations to the company depends on the type of company formed. For a company limited by shares, the participating organisations are the shareholders. For a company limited by guarantee or a limited liability partnership, the participating organisations are known as members. In any case, the participating organisations control the company for legal purposes. The company can take on responsibility for the provision of a specific set of services by entering into contracts with the members (to subcontract services) or with commissioners.
What are the powers of an NHS trust to participate in companies?
An NHS trust has limited powers to set up a corporate subsidiary. It may set up a company limited by shares for the purpose of additional (ie non-NHS derived) income generation but may not otherwise do so without a direction of the secretary of state for health and social Care. See HM Treasury guidance. It should also be noted that in accordance with NHSE guidance, all subsidiary transactions, including setting up a new company, are reportable under the Transactions Guidance. Where the joint venture company includes non-NHS participation the HM Treasury guidance will also need to be followed.
What are the powers of an FT to participate in companies?
An FT has a wide discretionary power to set up a subsidiary company for the purposes of or in connection with its functions[4]. It is not restricted to doing so for the purpose of additional income generation. It should be noted that in accordance with the Transactions Guidance, all subsidiary transactions, including setting up a new company are reportable. Where the joint venture company includes non-NHS participation the HM Treasury guidance will also need to be followed.
Considerations
- A corporate joint venture is a separate legal entity to that of the participating organisations. In theory, it allows the company to employ staff, hold assets and enter into contracts, in practice, such apparent flexibility may not be realisable as transfers of staff and assets to the company would take them outside of the NHS and often meets significant opposition.
- The corporate joint venture can take on responsibility for the provision of a specific set of services through subcontracting arrangements with its parent organisations or directly contracting with commissioners. Depending on how the company is set up, it may be awarded contracts by the participating organisations without the need for a separate public procurement process.
- NHS providers are unable to delegate the exercise of NHS functions to the corporate joint venture.
- Corporate joint ventures are relatively complex to set up and to dissolve. For example, set-up requires clear articulation of its powers, an agreed overarching constitution (articles of association), a shareholder or members agreement setting out matters reserved to the participating organisations and decisions need to be made about funding, staffing etc. In addition, NHSE requires a trust-approved business case to be submitted detailing the nature of the proposal and its inherent risks for NHSE transaction review.
- Governance of the corporate joint venture is through its board of directors, who are accountable to its shareholders or members (ie the participating organisations). The board of directors do not need to be directors of the participating organisations and the directors can make decisions about the company and the services it provides. The shareholder or member organisations will need to pay careful attention to retaining oversight of the quality of company’s outputs and establish suitable reporting and accountability mechanisms to do so.
- The powers of NHS trusts are insufficient to enable NHS trusts to participate in establishing a group structure by way of a corporate joint venture.
- Local authorities have acquired experience of establishing joint venture vehicles to deliver services and the Public Accounts Committee has highlighted governance concerns around:
- conflicts of interest and confusion of roles and responsibilities (where the participating organisation may be simultaneously owner, funder and commissioner)
- probity in relation to the control of public funds and awarding of any contracts
- taking on commercial risk while experiencing financial challenges
- Corporate joint ventures can have private sector participation (though this may impact on the treatment of the company for procurement purposes) and HM Treasury guidance will need to be followed when setting up companies between the public and private sector.
- NHS providers should always assess the potential impact of VAT when considering if companies are a suitable alternative vehicle for the provision of NHS services.
[1] ie Paragraph 15 of schedule 7 of the NHSA does not apply
[2] A contractual joint venture creates a form of partnership and while that partnership may operate at arm’s length from the participating organisations (often using a brand name) it is not recognised as a “person” in law.
[3] For ease we use companies in this section to refer to all types of corporate bodies that can be used.
[4] s.46 of the NHSA