Using Esher Groves as a case study, over a series of four articles, we sketch out some important issues and processes you will need to consider if you decide to acquire, develop and trade from your own clinical property.
In the second article of the series we considered the planning system and some of the hurdles practitioners need to consider if they want to apply for funding. In this article, the third of the series, we consider some points on the CQC process, the construction phase and development funding options.
CQC regulation process
The CQC regulation process needs to be tailored for each individual practice. It will depend on the particulars of the practice, who they treat and what treatment they offer. In general, the more complex the medical offering, the more complicated the CQC regulation process.
In principle all applicants are required to meet CQC fundamental standards. These are high level concepts including person-centred care, consent, safe care and treatment, premises and good governance amongst others. The inspection process follows key lines of enquiry and practices are judged to be safe, effective, caring, responsive and well led. It’s a complicated process involving a fair amount of paperwork. Practices need to understand what applies to their particular circumstances and what they need to do to achieve regulation and keep compliant.
After having spoken to several practitioners on this subject, their experiences share one common overriding theme. The best way to explain it is this. You’re setting up your business and you are in the thick of it: working out a multitude of different things, the premises, recruiting staff, marketing the business, refining the business plan, juggling accounts etc. The regulation process forces you to stop, step outside of yourself and document every aspect of your business and how your business will operate. All the information is in your head, committing it to paper requires grit and determination!
The documentation process is multifold. Lets look at one example, which would apply to all practices, complaints. The business will require a complaints policy document setting out a system for identifying, receiving, handling and responding to complaints. A complaints register will record complaints, the particulars of each case and the subsequent outcomes. The business compliance plan will set out your general approach to complaints and how the business will review procedures and systems over time. This last point is important since legislation is always developing. A case in point is the recent move to replace the Data Protection Act 1998 guidelines with new standards set out in the General Data Protection Regulation. All documentation relating to record keeping will need to be updated to reflect the new standards. Keep in mind the general idea; if its not written down the CQC can’t assess it, if it can’t be assessed, it can’t be regulated.
Every property is unique and every site will have its own construction issues. Access is a familiar problem on sites particularly in built up urban areas and it applied to our case study at Esher Groves.
The property is end of terrace. The rear is accessed via a narrow lane from the street, with the Grade II listed church grounds located on the adjacent side. Given the majority of construction was to the rear of the property, getting material onto site and off site was a real problem. In our previous article we discussed the neighbours right of way, so the laneway had to been kept accessible for them as well.
The contractor had to meticulously organise material onto and off site for the build to work. This meant smaller deliveries and a series of drop and load skips to take material away. This of course increased costs since the frequency and number of skips required went up. It’s a very important issue for sites located within the M25. We have worked with clients who have had to mothball sites because access had a significant impact on the build costs.
How you decide to structure the relationship with the contractor will depend partly on the size of the build. If the build is considerable and involves ground up works, many practices choose to employ a dedicated project manager. There are several such companies who specialise in healthcare development and understand the nuances involved with medical properties.
If the build is less complicated, as in the case of Esher Groves, you may want to have a direct relationship with the contractor. A simple way to structure this is using a JCT agreement. It is best to try and document as much detail in the schedule of works as possible at the beginning of negotiations. There’s usually a certain amount of contingency and add on costs involved on any site, so it is beneficial to try and minimise these from the start. If you would like to keep some space between yourself and the contractor, consider retaining your architect to certify works as they are completed. Payment is then controlled subject to receipt of the architect’s certificates. The architect can also act on your behalf if there is a contentious problem on site.
There are two types of finance clients usually secure when they build out their premises, short-term bridging finance or traditional development funding. Each type of finance is structured differently and as a consequent is suited to some types of build and not others. Bridging loans are secured on the existing day one value of the property and complement refurbishment and extension works especially if the works can be completed in relatively short periods of time. Development loans are structured on the gross development value or end value of the property when all the works have been completed. They are more relevant for projects where land is acquired and property is built out of the ground.
The general perception is bridging loans are more expensive than development funds. However, the lending market is much more nuanced in practice and pricing covers a range of values for both types of finance. Citron Singer can source bridging and development funds from anywhere between 5% and 18% per annum.
Its more informative to discuss what factors will impact pricing. The first to consider is loan quantum. For example, a simple straightforward well-located development which only requires £150,000 will be priced mid range. An equivalent site requiring £1.5M will achieve better pricing. The second consideration is LTV (Loan to Value). Leverage or the proportion of debt to value correlates with pricing, as one goes up so does the other. When the lender funds at higher loan to values, their risk increases and that risk is compensated with a better return. This principle is applied in general by lenders who will risk assess each project on a case-by-case basis. Therefore, if the location, nature of the build or track record of the developer raises risk concerns, the pricing will be adjusted accordingly.
In the next article…
In the fourth article, we showcase the finished property. Esher Groves is in business! We look at different marketing strategies to attract clients as well as building up a clinical network with related primary and secondary care providers located nearby. Ian Drever, principle of Esher Groves, offers some words of advise now that he can reflect on successfully acquiring and developing his own clinical practice.