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Interserve

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Interserve is an international support services and construction company headquartered in London. It has 80,000 employees across the globe. The company has numerous subsidiaries both in the UK and internationally, including in construction and engineering, catering, security and support for the MoD, and rehabilitation and health care.

The company has had a presence in the UK healthcare sector for many years and is listed on several framework agreements which enable the company to carry out work under contract to the NHS. There are two aspects to its services - facilities management and health and social care staff. In March 2019, Interserve went into administration and was sold to its biggest lenders, a number of hedge funds and banks.

Strategy

Interserve has been involved with the NHS for many years and has taken full advantage of any opportunities to bid for contracts with the NHS. The company has two arms to its health and social care work - facilities management and, via its Interserve Healthcare subsidiary, health and social care in the community.

Interserve is best known for its work in facilities management which it has acquired both through the tendering process and via its involvement with the private finance initiative (PFI).

Interserve was a leading investor in the consortia that were set up to build hospitals under PFI and as part of Interserve’s investment the company often took on the contract for the long-term facilities management once the hospital was opened. These contracts can cover 20-40 years of work.

Interserve, through its subsidiary Interserve Healthcare, provides staff for both NHS and nursing/care home facilities and it also provides complex care both in a home and community based setting. It operates through a network of branches and works with CCGs, council social services, private and NHS hospitals, nursing homes and learning disability establishments as well as delivering care to private clients in their own homes.

The company views the push for care to take place away from hospitals and in the community as a positive for the company.

Financials

The most recent accounts available for Interserve are for year ending December 2018.  These list revenue as £2,904 million down from £3,250.8 million in 2017. The company’s losses before tax fell from £244.4 million in 2017 to £111.3 million in 2018.

Interserve has extremely high levels of debt, which have built up following delays to construction projects and investment in unsuccessful waste-to-energy projects. In March 2018 it renegotiated this debt, but by December 2018, the company was having to negotiate another deal. The company’s debt was estimated by this time to have risen to over £700 million.

In February 2019 Interserve's board was reported to be struggling to get its shareholders to agree on a restructuring plan, that it said was crucial for the company’s survival.

In March 2019, at an extraordinary general meeting, the US hedge fund Coltrane, the company’s biggest shareholder, along with another US hedge fund Farringdon and some small shareholders voted against the board’s plan for restructuring. As a result, Interserve moved into a ‘pre-pack’ administration managed by accountancy group EY. A debt reduction plan will now be put in place. In effect Interserve has now been sold to the hedge funds and banks, which the company was in debt to. Around 16,000 small shareholders have lost all their money.

Contracts

According to the company in August 2016, Interserve has nine active contracts for facilities management with NHS hospitals, as a result of the company’s investment in PFI contracts. Initially Interserve invested in the consortium to build the hospitals and then at the point when the hospital becomes operational, Interserve then takes over the very lucrative facilities management contracts. Interserve also has contracts for other areas of work within the NHS.

Contracts include:

Patient discharge framework agreement

In April 2019, Interserve were awarded a place on the £200 million NHS Shared Buisness Services framework agreement that will last at least 2 years. Interserve have been listed on each of the three lots that make up the framework agreement. This means Interserve will be included in contracts in helping the NHS discharge patients from hospital to receive care in the community or at home. If Interserve work in the framework, they will work alongside the NHS in supporting patients who are undergoing treatment, before they are fully discharged from hospital.

Glenfield Hospital

In April 2019, Leicestershire Partnership NHS Trust awarded Interserve Group Limited an £8million contract to build a new mental health inpatient facility for children and young people at Glenfield Hospital - the new unit is set to have 15 beds.

Barking, Havering & Redbridge Hospital

In July 2018, Interserve won a five year contract here to provide a full facilities management service, including retail and patient catering, cleaning, security, front-of-house services, waste management, energy management, portering and repair and maintenance. The contract is worth £35 million.

Lewisham and Greenwich NHS Trust

Interserve extended their contract with Lewisham and Greenwich NHS Trust by two years in March 2017. The company, which has worked with the Trust since 2012 will continue to provide catering, logistics, cleaning and portering services.

The services will be delivered at the 500 bed University Hospital Lewisham as well as at five community health centres.

Alder Hey Children’s Hospital

In mid-2012 Interserve won the contract to provide facilities management services to the new Alder Hey children’s hospital in Liverpool which opened in the summer of 2015. The new hospital was built by a consortium of Interserve, John Laing and Laing O’Rourke under a PFI contract. Interserve owns 20% of the consortium.

The contract was worth £50 million and when the hospital opened in late 2015 Interserve became responsible for maintaining the hospital for the next 25 years.

Cumberland Infirmary

Interserve has a facilities management contract with Cumberland Infirmary as part of a PFI contract won in late 1997. The building of the hospital was completed in 2000 and since its completion Interserve has been responsible for facilities management of the building. The PFI contract runs for 35 years and now costs the North Cumbria NHS Hospitals Trust, which runs the hospital, almost £21 million per year. Under the PFI contract, the hospital building itself is owned by Health Management (Carlisle) Ltd (HMC), a joint venture between Interserve and Dalmore Capital Ltd.

UCL Hospital

Interserve has a facilities management contract with University College London Hospital which began in 2005 and is expected to last until 2040. This is part of a PFI contract signed in 2000 in which Interserve was part of a consortium to build the new UCL hospital with Balfour Beatty. In 2012 Interserve sold a proportion of its equity in the PFI contract making £35 million; Interserve has retained a 16.7% share in the PFI contract.

Newcastle NHS Trust

In early 2005 Interserve and its partners (Equion Ltd and the Commonwealth Bank of Australia) were awarded the PFI contract by the Newcastle-upon-Tyne Hospitals NHS Trust for the Royal Victoria Infirmary and Freeman Hospital. The contract was for construction, refurbishment and facilities management services and was valued at £430 million. Mechanical and electrical maintenance, building and civil engineering, grounds maintenance and the provision and operation of the helpdesk were to be included in the work. In mid-2013 the hospital became operational and Interserve took over the facilities management.

Pembury Hospital, Tunbridge Wells

Interserve, alongside John Laing and the Commonwealth Bank of Australia, won the contract for the Pembury Hospital in Kent in 2008. The contract was said to be worth £225 million. Interserve would provide facilities management services in the new buildings over 30 years, a contract worth around £75 million. This included mechanical and electrical maintenance, estates management, grounds maintenance, utilities management and the provision and operation of a helpdesk.

The hospital opened in January 2011.

SW Acute Hospital, Enniskillen

In June 2012 Interserve began the contract to provide facilities management services in the new South West Acute Hospital in Enniskillen, Northern Ireland. The initial contract was a PFI contract begun in 2009. Interserve provides estates maintenance and management services, energy management, grounds maintenance, window cleaning and manage a helpdesk.

Dudley Hospital

In 2001 Interserve won a contract to provide facilities management to The Dudley Group NHS Foundation Trust, under the PFI contract to build the hospital worth £598 million. The facilities management contract began when the new hospital became operational in mid-2015. They provide non-clinical support services including maintenance, security, car parking, catering and portering. Under the PFI agreement the contract is due to end in 2041 and has a life-time value of £530 million.

Concerns

Financial concerns

There have been concerns over the financial viability of Interserve for a number of years; the company gave a profits warning in September 2017. The company had been hit by the delay to several construction projects and a disastrous foray into waste-for-energy projects.

In early 2018, a report in the Financial Times spoke of a special government team being set up to monitor the financial viability of Interserve. This sent the company's share price downwards. The presence of such a team was denied by the Cabinet Office, although the Mail on Sunday reported in March 2019 that it had seen documents outlining a plan for the government to take over important Interserve contracts in the NHS.

A restructuring deal in March 2018 failed to provide the company with a long-term solution; the company had around £700 million in debt  The company found itself having to negotiate another deal in December 2018. Eventually, the failure to find a restructuring deal that would be approved by its largest shareholders, the hedge funds Coltrane and Farringdon, resulted in the company going into administration in March 2019.

Under a ‘pre-pack’ administration deal, the accountancy company EY transferred the company to the hedge funds and banks, that are owed millions by Interserve. As a result the company continued to operate and around 45,000 jobs in the UK are safe for the time being.

Safety Concerns

Interserve finished building the 'Jubilee Block' containing 28 classrooms at Perryfields High School in 2012, but the block had to be shut down in December 2018 as it was "unfit for purpose" according to headteacher of the school, Ian Barton. This ordeal forced the local authority to fork out over £1million on emergency classrooms for the children to continue their learning.

Cumberland Infirmary

There has been regular criticism of the contract with Cumberland Infirmary and calls by campaigners for the Trust to somehow extricate itself from the contract. The hefty management fees are considered to be a major reason for the Trust’s large deficit.  Over the years, and most recently in December 2016, there have been calls to end the PFI contract (and the management contract under the PFI) in order to stop the crippling payments.

Another reason for criticism is that the building itself has been discovered to be sub-standard. In mid-2015 it was discovered by firefighters that the hospital was a major fire safety risk. It was uncovered that the fireproofing materials used by the company were not adequate to allow for safe evacuation of patients and ensure that any fire could not spread across the building.

It was then revealed in early 2016 that HMC and Interserve were aware of the fire safety concerns before they made the NHS Trust aware of them. Despite, work to rectify the problem as the responsibility of Health Management (Carlisle) Ltd (HMC), news articles and HMC’s 2015 annual accounts (accessed via Companies House) appear to indicate that it took the Trust a legal battle to get HMC to pay for the remedial work.

It was reported in June 2017 that despite being aware of the fire safety failures for three years, sprinklers would not be fitted until 2020. The responsibility for the building lies with the PFI company and a union has called for a public inquiry into the safety failures.

In addition to these fire safety hazards, there have also been issues with Interserve’s running of the hospital’s car parking facilities which were highlighted in July 2016. New signs read that it would cost £5 to park for more than 3 and a half hours and this ticket would be valid up until midnight. This resulted in a large number of employees receiving fines if they were working a night shift that ran past midnight. A trust spokeswoman made a statement that this was incorrect and the signs should outline that there would be a charge of £5 to park for 24 hours. This was always supposed to be the policy and Interserve were tasked with replacing the signs to make clear the correct policy.

The prices of staff permits have also been increasing, with a large waiting list to even get one, meaning that many members of staff are having to pay full price to park in the main car park.

Leicester, Leicestershire and Rutland

In 2013 Interserve signed a contract with Leicestershire Partnership NHS Trust, University Hospitals of Leicester NHS Trust and the Leicester City, Leicestershire County and Rutland Primary Care Trust Cluster to improve estates and facilities management services across the cities and counties. The contract was seven years long, worth around £300 million and was expected to save the NHS a significant amount of money.

Interserve were to be in charge of catering, cleaning, maintenance and security across more than 550 NHS buildings and properties.

However, in April 2016 this contract was scrapped four years early due to major problems and poor standards. These included patients in one hospital receiving meals up to three hours late and the merging of cleaning and catering services meaning around 100 people lost their jobs.

The contract was one of the first of its kind in this country. After the contract was scrapped, it came to light that the ex-Interserve staff were getting paid half what the NHS contracted staff were being paid.

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