1. business and industrial
2. business operations
3. business plans

Developing Essentia
Full Business Plan
January 2013
Steve McGuire
Executive Director Essentia
Developing Essentia – Full Business Plan – Jan 13
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Contents 1. Executive Summary ......................................................................................................... 4 2. Current Operations .......................................................................................................... 6 2.1 Background .............................................................................................................. 6 2.2 Overview of current operation and external contracts secured ................................ 6 2.3 Drivers for change .................................................................................................... 7 2.4 Essentia’s Vision ...................................................................................................... 8 2.5 Opportunity for the Trust and constraints of current structure .................................. 8 2.6 Workforce considerations ......................................................................................... 9 2.7 Our unique selling proposition and service offer to the Market .............................. 10 3. The Market..................................................................................................................... 12 3.1 Introduction ............................................................................................................. 12 3.2 The market opportunity ........................................................................................... 12 3.3 FM Competition analysis ........................................................................................ 13 3.4 Assessment of IT opportunities .............................................................................. 14 3.5 IT Competition analysis .......................................................................................... 14 3.6 Essentia’s market offering ...................................................................................... 14 4. Operating model ............................................................................................................ 17 4.1 Introduction ............................................................................................................. 17 4.2 High level options appraisal of models ................................................................... 17 4.3 Criteria for developing Essentia’s business form .................................................... 17 4.4 Preferred operating model ...................................................................................... 18 4.5 Essentia Trading Service Offering .......................................................................... 20 4.6 Contractual arrangements between Essentia Core and Essentia Trading ............. 20 4.7 New contracts staffing and TUPE ........................................................................... 21 4.8 Conclusion .............................................................................................................. 22 5. Legal Form and Governance Arrangements ................................................................. 23 5.1 Introduction ............................................................................................................. 23 5.2 Overview of Current GSTT Commercial Structures including Intellectual Property
Policy ................................................................................................................................ 23 5.3 Employee Reward and Incentivisation ................................................................... 24 5.4 Legal form ............................................................................................................... 25 5.5 Board composition and reporting ............................................................................ 27 5.6 Governance arrangements ..................................................................................... 28 5.7 Conclusion .............................................................................................................. 30 Developing Essentia – Full Business Plan – Jan 13
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6. Workforce ...................................................................................................................... 31 6.1 Introduction ............................................................................................................. 31 6.2 Employee and Industrial Relations ......................................................................... 31 6.3 Equal pay ................................................................................................................ 32 6.4 Potential employment arrangements ...................................................................... 33 6.5 Proposed Essentia employment model .................................................................. 34 6.6 Benefits and risks of the recommended employment model/arrangements ........... 35 6.7 Essentia Core and Trading Reward arrangements ................................................ 37 6.8 Conclusion .............................................................................................................. 40 7. Financial Projections ...................................................................................................... 42 7.1 Overview ................................................................................................................. 42 Appendix A............................................................................................................................ 45 The Essentia ‘Employee Promise’ ..................................................................................... 45 Appendix B............................................................................................................................ 47 Essentia Commercial Form Criteria and Evaluation .......................................................... 47 Appendix C ........................................................................................................................... 49 Draft Heads of Terms – Services ...................................................................................... 49 Draft Heads of Terms – Corporate/Management Services ............................................... 51 Appendix D ........................................................................................................................... 53 Chart showing GSTT current structure for commercial enterprises and the potential
inclusion of Essentia Trading. ........................................................................................... 53 Appendix E............................................................................................................................ 54 Essentia Trading Reserve matters .................................................................................... 54 Appendix F ............................................................................................................................ 56 Workforce benefits and risks of the recommended employment model for Essentia Core
and Essentia Trading: ....................................................................................................... 56 Appendix G ........................................................................................................................... 58 Comparison tables showing Market Pricing of Sample Essentia Roles, including Cost
Comparison to AfC ............................................................................................................ 58 Appendix H ........................................................................................................................... 60 Workforce Next Steps and Dependencies required before 1st April 2013 ......................... 60 Developing Essentia – Full Business Plan – Jan 13
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1.
Executive Summary
Essentia is an integral part of the Trust providing and managing all of the infrastructure and
non-clinical services that contribute to the overall success of the organisation. Whilst most
other NHS Trusts have contracted out large parts of their non-clinical services to private
sector providers, we have retained control, improved efficiency and raised quality standards.
The Trust is looking to directorates to support its strategic plan to maintain and grow its
clinical service offering by finding new and innovative ways to generating revenue. In this
document we share our detailed vision for a new and innovative operating model for
Essentia, which will preserve and enhance the high quality standards delivered at Guy’s and
St Thomas’ and across the community, but also has the potential to generate revenue
growth and profit for the Trust. In the current economic environment where, in common with
all parts of the NHS we are required to reduce costs year on year then continuing with
savings targets being achieved through conventional means will result in the department
“running out of runway” in our ability to continue to meet this challenge., There is a
determination not to lower the quality threshold provided for patients and clinical service
teams and sustain a level of service that has been built up over several years. We believe
that the time is right to take the opportunity of income growth in Essentia’s area of expertise
and to secure the skills and talent of our workforce for the future. This document presents
the case for support and investment to make this vision a reality.
Over the past 5 years, Essentia has established itself as a leading provider of non-clinical
support services in the NHS in London and has developed a strong reputation in the sector.
As the health sector reforms in the Health and Social Care Act (2012) are being applied
across the country, NHS Trusts will continue to be under pressure to deliver their services
more efficiently, whilst not compromising on the quality of patient care. The broad intention
of the reforms is for new thinking to drive different, more flexible provider operating models.
For Essentia, this presents a significant growth opportunity in the immediate future, and it is
against this background that we have drafted this Full Business Plan.
We have been successful to date in forming partnerships with other NHS organisations in
the delivery of non-clinical services, improving the quality of service provision at lower cost
but providing an income stream to Essentia. Our ability to provide integrated Infrastructure
solutions through integrated IT technology and
hard and soft facilities management
services is a unique service feature and key selling point. We are being asked to supply an
ever-increasing range of non-clinical services and to operate in diverse structures such as
entering into a long term partnership relationships with other Trusts. From discussions with
potential future clients, flexibility in approach will be an essential aspect of our service
offering going forward. In order to realise our growth ambitions, we will need to address our
current structure. Having the flexibility to bring in specialist skills to provide services such as
project management, and to grow our business, will mean that we are able to motivate our
existing workforce through the ability to grow and develop and attract the right talent by
developing a new culture, employer brand and promise, which defines the relationship
between employee and employer, investment in a new learning development strategy and
promote a stronger performance culture
This Full Business Plan describes how the Essentia business operating model will be
formed, governed and operated.
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It is proposed that Essentia be formed of two elements:

a ‘Core’ organisation comprising existing Essentia services provided to GSTT; and

a ‘Trading’ arm through which future Essentia services provided outside of the Trust
would be contracted.
Over the next few years, the Trading entity will become the growth vehicle for Essentia. New
services and the renewal of existing services would increasingly be contracted through
Essentia Trading and delivered through a mixed resourcing model, using both Trust and
external assets. Our proposal is an innovative departure from the current model, but we
have designed the proposed structure so that Essentia is retained by the NHS but leave the
opportunity for an alternative / scope for movement and continues to delivers services for the
NHS by the NHS, with the provision of infrastructure and services to GSTT our priority.
Section 7 provides detailed financial projections for Essentia, including an Income and
Expenditure model for Essentia Core and a Profit and Loss statement for Essentia Trading
for the five years to FY18. In our scenario, we project that Essentia would make limited
gross profit in year 1 (FY14), but with surplus’ generated in Essentia Core, and profits in
Essentia Trading, growing rapidly thereafter.
There has been a conscious effort to develop the services and staff which constitute
Essentia over the last five years to become more commercial in focus, which has resulted in
a significant contribution to the Trust’s annual surpluses as a result. Other than the funding
identified in this Business Plan for reinvestment in growing the Essentia, all of the surpluses’
and profits generated by Essentia Trading and Core will be reinvested in GSTT to support
the delivery of clinical services and research.
Within the 5 years of the plan it is forecast that Essentia will generate a cumulative gross
profit within Trading of £12.1m, deliver a cumulative surplus of £1.1m in Essentia Core,
repay the SSD loan of £5m, and support the delivery of a 4% annual cost improvement and
efficiency gain in Essentia Core of circa £4m/annum, leading to a cumulative CIP benefit of
£20m over the 5 years.
The total financial gain to GSTT from the Essentia Business Plan is therefore £38.3m.
We are now seeking support to develop the Essentia operating model set out in this full
business plan, to allow the new business model and governance structure to ‘go live’ in April
2013.
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2.
Current Operations
2.1
Background
The Capital Estates and Facilities (CEF) directorate was created in 2003 to bring together
the component parts of soft and hard FM and capital project management within GSTT that
had, for a number of reasons, been managed separately. The Trust’s technical
infrastructure, environmental conditions particularly associated with the patient experience
and the ability to plan and deliver capital development at scale was poor. It was also felt that
the leadership and skill mix were also at that time issues of concern.
The Director of Capital Estates and Facilities was given responsibility in 2007 for the IT&T
functions within the Trust and there was further growth of directorate responsibilities in 201011 when Community Support Services for South West London and South-East London were
added to the portfolio. In 2012, Essentia agreed to host the London Procurement Project
team and this transfer has recently been successfully completed. Having had the luxury of
stability in organisational terms over several years, a model of end to end service delivery
has been designed that is unique within the NHS, in London and beyond.
Growth for the sake of growth has not been a feature of CEF or Essentia to date, but where
it has been appropriate opportunities have been taken. The London Procurement
Programme (LPP), for example, was created to encourage collaborative procurement across
the NHS in London. With an influencible spend of £5bn-£7bn per annum, very significant
savings are possible without challenge to organisational sovereignty. CEF was a founder
member of the LPP and has created and led the second highest performing workstream and
played a significant part in creating savings to date of c£400m. The LPP has also provided a
critical insight into the configuration of the NHS in London, particularly with respect to the
provision of non-clinical support services, which in summary terms is poor, characterised by
weak leadership, poor skill mix, an imbalance in reliance on private sector expertise and
low standards.
It is as a consequence of a positive and mature culture, effective leadership and an
understanding of the market, that there has been a steady growth in Essentia’s traded
income over the last few years, a strategy that has positively supported the Trust’s financial
and operational goals.
In Essentia there is an opportunity to build on a solid platform and create a vehicle
which will:

continue to support the Trust in improving core services;

create a significant revenue stream for the Trust at a time of financial constraint;

positively and materially impact our local communities through increased employment as
a consequence of Essentia’s growth; and

create an opportunity for our staff to benefit through growth and development and
ultimately through links between productivity and reward.
2.2
Overview of current operation and external contracts secured
Essentia currently operates as a directorate of GSTT and has 4 divisions: Asset
Management, Group Operations, Technology (IT&T) and Community (Shared Services).
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The directorate has a revenue turnover of £127m and external income of £30.4m. It has
developed, and is currently delivering an estate and IT capital infrastructure investment plan
of £112.5m in the current year, with investment plans totalling £400m over the next 5 years
which will significantly improve the Trust’s infrastructure and in turn staff and patient
experience. This investment strategy in a large part now drives the Trust’s financial strategy.
The Directorate also provides services into community and primary care across South
London, along with a range of services to a number of London NHS Trusts outside the
confines of South London, and nationally through the support it is providing for the
establishment of the NHS Commissioning Board. This drive to generate income has
established Essentia as a leading provider of non-Clinical support services in London with a
growing reputation for the services it provides.
Essentia supports the Trust’s financial position, having delivered over and above its CIP
target of approximately £7m in 2010/11 and £4.1m in 2011/12. The directorate is on target to
deliver a further £5.5m in 2012/13.
Over and above these CIP achievements Essentia’s contribution to the GSTT 2011/12
surplus target of £20m was £2m, which was further enhanced by an additional £500k
provided through over delivery on its financial plan.
However, whilst Essentia has secured new business and exceeded its financial targets in
each of the past 3 years, without changes in the way the organisation currently operates,
there is a risk that this level of performance improvement will become unsustainable
resulting in Essentia failing to meet its financial targets.
The Essentia Leadership team believe that it is ‘running out of runway’ in its ability to meet
increasingly challenging cost reduction targets. This year, to hit its CIP target, the directorate
will be delivering a 10% savings on influenceable spend. If sustained without credible
alternatives being developed and taking into consideration the severity of the UK economic
climate, this approach will result in a severe deterioration of Infrastructure integrity and of
greater importance, the patient experience.
2.3
Drivers for change
There are a number of fundamental drivers for change, which have been considered in
plotting a direction for Essentia:

The international UK and public sector economic situation will be a catalyst for reshaping
society and the way that we work and live and for certain the way that the public sector
and in particular the way that the NHS is configured.

More locally and immediately there is a need to significantly reduce the operating costs
of the NHS, whilst still supporting front line services. The pending integration of King’s
Health Partners is a good example of how these pressures are shaping the local health
economic, yet presenting an immediate and significant opportunity for growth.

In the field of non-clinical support services in the NHS there is a severe shortage of IT,
technical and general management expertise. This shortage is also present in the
design, construction and service sector in the UK. This raises, as a consequence, a very
interesting market for any organisation within health possessing these skills.
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
We must not lose sight of the moral responsibility that the NHS and its component parts
have, as do other large organisations and employers, with respect to their local
communities, especially GSTT and Essentia’s responsibility to promote careers other
than nursing and medical careers to children of all ages and backgrounds, students,
schools, colleges and universities in two of the most deprived boroughs of London.
2.4
Essentia’s Vision
It is as a consequence of efforts to generate income in support of GSTT and in the context of
the drivers described above, that the concept of developing a trading subsidiary of the Trust
under the brand ‘Essentia’ has been developed with the ambition:
“To become the essential provider of efficient, integrated healthcare infrastructure,
enabling our customers in London and beyond to deliver excellence in patient care.”
Through this approach Essentia will:

specialise in health infrastructure design and delivery with respect to both the built
environment and technology;

grow as a consequence of the market within the NHS;

grow and nurture a workforce drawn from our community at all levels of qualification
and background;

generate income and profit as a result of providing services and expertise to other
NHS/non NHS bodies in London and beyond and as a consequence support GSTT and
create an opportunity for employees of the new organisation to benefit from their own
drive to improve efficiency and productivity and the quality of front line services; and

in general, create a dynamic to produce an alternative to the public or private sector in
the context of a changing world.
Essentia’s Leadership team are committed to applying this unrivalled expertise for the
benefit of GSTT and the wider NHS in London. However, this will take significant effort and
will place additional demands on the team and Essentia’s workforce. The Leadership Team
are keen to ensure that these efforts are recognised and that an appropriate structure is
created, and resourced effectively, to ensure that Essentia can continue to succeed and
capitalise on the opportunities available.
2.5
Opportunity for the Trust and constraints of current structure
The growth potential and opportunity for Essentia is significant. A recent benchmarking
report conducted by CIPFA on behalf of 22 London Trust’s confirms and triangulates a view
that there is a wide range in performance in the delivery of Estate and Infrastructure services
across London. This report and other similar reports and benchmarking data confirm
Essentia’s position as a leading provider of high quality, low cost services in the region and
that many other Trusts would benefit significantly from attaining similar levels of
performance. However, Essentia’s current structure is limiting its ability to take advantage of
these opportunities. In particular:

Essentia staff are employed under NHS National Terms and Conditions which in the
opinion of the Essentia management team can be restrictive in meeting external
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customer requirements as it can restrict opportunities to offer flexible employment
packages and hamper recruitment initiatives;

securing new contracts will involve upfront investment in establishing appropriate
infrastructure, including the capacity to bid for and manage additional customers;

the current management support structures are restrictive, for example, information
systems provide limited contract performance management data and not of the
quality required to manage large scale external contracts; and
Without addressing these barriers, Essentia will not be able to deliver its twin objectives of
greater productivity and growth. The continued performance and efficiency of GSTT services
will be put at risk, as will Essentia’s ability to respond to the increasing number of
opportunities to support the rest of the NHS in responding to requests for support.
Essentia would therefore like to establish new ways to:
1. Motivate and Reward staff appropriately, e.g. for improved productivity and efficiency
Allowing the Essentia Leadership team and staff to be incentivised to create commercial
value and grow revenues and profits;
2. Respond quicker to market opportunities, through access to dedicated
Development support within Essentia
Business
3. Operate with greater autonomy and flexibility than is currently allowable as a pure
directorate of the Trust, to enable more commercially focused investment decisions.
The above will enable Essentia to become the competitive provider of choice, delivering
efficient, integrated healthcare infrastructure in London and beyond.
2.6
Workforce considerations
In developing the baseline information to inform this business plan a series of one to one
interviews and workshops with Senior Managers from Essentia have been carried out in
order to assess key workforce issues that are already affecting the performance of Essentia.
Feedback has shown that there is significant scope to develop the employment model within
Essentia to overcome perceived barriers that exist across some areas of the directorate.
Challenges highlighted include:

Difficulty to attract the right talent in some areas of the business and a need to
streamline the recruitment to improve agility in our response to business development
opportunities;

The need to maintain consistent performance management across all business areas to
deliver services to customers at appropriate standards and to ensure effective staff
motivation and engagement;

The need to explore within the boundaries of Agenda for Change (AfC) alternative
methods of rewarding and attracting high performing staff, to support talent management
and succession planning;

The need to provide a strong focus on learning and development for all Essentia staff,
with everyone given the ability to develop to their maximum potential, to enhance
business performance.
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Over the last two years the Directorate has been working to deliver the current Workforce
Strategy which has included investing in learning and develop through initiatives such as the
Essentia Academy. However, to address the challenges raised above, the Essentia
Leadership team believe they need to move beyond the current operating model and are
developing a number of critical interventions which are seen as priorities over the next two
years.
These priorities are in line with the overall Trust Workforce Strategy which promotes holding
leaders and managers to account for the services they deliver, but encouraging them to take
risks to drive innovation and improvement as well as using our Freedoms as a Foundation
Trust to incentivise staff and build performance improvement. We are committed to
developing a new culture, employer brand and promise, which defines the relationship
between employee and employer and reflects the unique nature of Essentia, its staff and the
services it delivers. We also believe this will differentiate our people and provide the core
building blocks to deliver our vision and expectations of Essentia going forward from a
workforce perspective. This development is being described as the ‘Employee Promise’.
More detail on this is included in Appendix A.
Key elements of the promise will be to introduce a new learning development strategy and
plan, which clearly articulates how Essentia will deliver the skills and capabilities it will need
to provide both existing and new service contracts. Also, based on the feedback from our
staff, we intend to introduce more consistent measurement and management of performance
linking reward to performance to create a stronger performance culture.
Further work will now be required to take these initial ideas and views forward and develop a
Workforce Strategy for Essentia as part of its business development plan. The Trust’s
Workforce Strategy asked for ways in which Directorates are seeking greater flexibilities so
that the Workforce team can help tailor interventions to suit local areas rather than enforce a
single solution, and the Directorate want to work in partnership with the corporate Human
Resource team to deliver the above priorities.
2.7
Our unique selling proposition and service offer to the Market
The time is right for a new business model and commercial form within the NHS, with the
drive to secure better value for NHS bodies. Many Trusts have either partially outsourced
their infrastructure services, or transferred management responsibilities over to PFI
providers, with mixed results. We believe we can offer more, and have a unique selling
proposition to the Market:

Our ability to design, develop, and manage all aspects of health infrastructure
including IT.

Our scale and breadth of value proposition as an integrated provider of Health
Infrastructure services is unrivalled from within and outside of the NHS.

Our team, which is regarded as leading the profession in London, our people
understand how to work with a blend of traditional public ethics, combined with a
growing commercial and performance culture;

Our values, where we can truly offer a high quality, best value service as an
alternative to a traditional outsource to the private sector – a service delivered ‘by the
NHS, for the NHS’. The benefits that a more agile and efficient Essentia business
model delivers being retained by the NHS and its staff.
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Our initial service offer focuses on securing new contracts from the NHS in London, but
could spread to cover other public services in London and beyond and would be delivered
as:

Advisory services – providing advisory and consultative support to clients,
developing new infrastructure schemes from concept through to specification,
business case development, and providing training and people development
services. The potential immediate market size for this type of service offering type is
between £15m and £20m (indicative).

Managed services – supporting interventions to manage services for clients,
contracting to support a client and its teams to improve existing infrastructure
programmes and services. The potential immediate market size for this type of
service offering type is between £10 and £15m (indicative).

Service Operations – Operating infrastructure services, including transferring staff
into Essentia as part of the transfer of employment responsibilities. The potential
market size for this type of service offering type (including current GSTT activities) is
between £100m and £150m (indicative).
Figure 1 - Essentia’s service offering
Essentia
Management
Advisory
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Capital projects
Property services
Engineering
Building maintenance
Policy and strategy
Energy and utilities
Catering services
Security and reception services
Hotel services
Customer services
Sterile services
Waste and support services
Patient transport
Business systems
IT Services support
IT Training
IT Technology design
Information governance
Procurement
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Developing Essentia – Full Business Plan – Jan 13
Capital projects
Property services
Engineering
Building maintenance
Energy and utilities
Catering services
Security and reception services
Hotel services
Customer services
Sterile services
Waste and support services
Patient transport
Portering
Other, e.g. Reprographics
IT Services support
IT Training
Information governance
Procurement
Operations
•
•
•
•
•
•
•
Catering services
Accommodation services
Customer services
Sterile services
Other, e.g. Reprographics
IT Services support
Procurement
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3.
The Market
3.1
Introduction
Essentia is currently an established NHS service provider across London. This market has
been growing steadily at around 14% a year for the last decade and the outlook remains
positive. There is a significant opportunity to expand Essentia’s services in London, and it is
estimated that the size of the addressable market could be between £800m and £1.2bn.
Within this market Essentia is offering a unique alternative to the traditional FM providers, to
deliver services ‘for the NHS by the NHS’.
3.2
The market opportunity
The healthcare facilities management (FM) market is dominated by provision of services to
acute hospitals, but mental health and PCT estates are also large FM markets with high
outsourcing growth potential.
Over the last 10 years, healthcare has grown as an industry sector and in 2010-11 the
healthcare FM markets in England and London were worth £7.1bn and £1.4bn respectively.
In addition to this, we are aware of significant opportunity in the market for IT services, and
our initial estimate suggests that the total size of this market in London is around £300m.
Figure 2 - Health FM market
Total Spend by Trusts in England in Health FM over
the last 10 Years
Total Spend by London Trusts in Health FM over
the last 10 Years
1,600
8,000
£m
6,000
5,000
1,400
1,200
42%
4,000
£m
7,000
2002-11 CAGR:
Total
14%
Hard FM 23%
Soft FM
7%
2002-11 CAGR:
Total
14%
Hard FM 21%
Soft FM
9%
45%
1,000
800
3,000
58%
2,000
600
55%
400
1,000
200
-
Hard FM
Soft FM
Hard FM
Soft FM
Source: NHS Estates Return Information Collection (ERIC) data
Note: Data may be incomplete in some years due to non-returns
Expenditure in hard FM (e.g. maintenance, engineering and capital management) has been
steadily increasing year-on-year, due to increasing investment in high-cost facilities and
more advanced medical technologies. Spend in soft FM (e.g. catering, cleaning and help
desk) has grown at a slightly slower rate of around 9% a year in London.
London Trusts spend more than average across England for contracted services, spending
£7bn on goods and services with external suppliers – Almost a fifth of the total NHS
spending across England.
A number of factors suggest a positive outlook for growth in this market over the next few
years, these include:

growth of outsourced FM contracts;
Developing Essentia – Full Business Plan – Jan 13
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
government’s reliance on outsourcing to offset a decline in funding of public
services; and

greater opportunities for FM in the community setting over the next 5 years.
Looking at the sector more broadly, business services have fared better than most sectors in
the UK economy in the past year.
3.3
FM Competition analysis
Suppliers in this market typically position themselves as either total FM or single service
providers. These markets are highly competitive, dominated by a few large multinational
firms. Carillion, for example, claims to account for 20% of NHS outsourced FM services;
Trillium have a wide offering, mainly in community facilities owning or operates around 50
acute and community hospitals and health centres. Figure 3 sets out the key competitors
and their areas of focus. However, none currently provides a total healthcare infrastructure
support service. None of these offers the full range of health-relevant services currently
provided by Essentia.
Figure 3 - Potential competitors in the health FM market
Competitor
Areas of focus in
Healthcare FM
Comment
Carillion
Total FM and
integrated packages
for PFI
 Claimed to account for 20% NHS outsourced FM
services in 2009
 Heavy reliance on continued government
capital spending
Serco
Total FM for 3
NHS hospitals
 Strong presence in public sector (90% of
company’s revenue)
MITIE
Cleaning and
security services
 FM seen as key development area; company has
particular expertise in schools FM
Trillium
Wide offering, mainly
in community facilities
 No longer bidding on PFI due to low return on investment
Interserve
Wide range FM
services
+ consultancy
 Health consultancy business
 Delivery multi-service contracts (18% group revenue)
 Built on core strengths to now provide wide range hard
and soft FM services
Cleaning services
(inc. washroom mgmt)
as core offering
 Success in contract retention
Dalkia
Energy and utilities
management
 Leading provider energy and utilities mgmt to
health sector
OCS
Wide range single and
bundled FM services
 Wide variety contracts won for different FM services
Sodexo
Catering and
support services
 Successful PFI involvement through specialist business
Initial
 Potential over-reliance on diminishing PFI market
Source: PwC analysis
Developing Essentia – Full Business Plan – Jan 13
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3.4
Assessment of IT opportunities
Strong competition and projected growth in IT spend will make for a highly competitive
market as a combination of old and new IT suppliers compete for market share. Within
Essentia we are proposing a staged growth in IT services outside of GSTT, targeting
customers as follows:
•
Phase 1: Greater London small- to medium- sized Hospital Trusts, Mental Health
Trusts, Local Authorities, Social Care and Commissioning Support Units.
•
Phase 2: UK-wide, same as above plus larger Hospital Trusts.
Based on research using eHealth Insider as the source, it has been identified that currently,
small to medium-sized Trust’s typically spend around 1-1.5 % of turnover on IT, with
contractors capturing around c.50-60% of this spend.
Over the next three years, local NHS Trust spending on IT is set to grow by 3.7% per
annum. This will take the total size of the English NHS hospital and Mental Health Trust IT
market to £883m by 2014-15.
3.5
IT Competition analysis
There are a number of large incumbent private sector IT providers (e.g. CSC, Capita,
SERCO), and these are complemented by public sector agencies operating individually, or
collaboratively as part of a Health Informatics Service (HIS). As part of the latest NHS
reforms there are also new emerging competitors e.g. Commissioning Support Units, who
are looking to provide support into primary care and community sectors.
Essentia will need to establish a credible track record in delivering services for GSTT if it is
to hold its own in the market place. The business plan strategy is therefore for the main
growth in IT service provision to take place from FY16 onwards, when Essentia will have
successfully delivered the GSTT IT Strategy and hence have gained the experience and
reputation that will support market penetration and growth.
3.6
Essentia’s market offering
GSTT has to date retained its non-Clinical support services. Essentia operates a flexible
model to deliver some services in-house and manage contractors for other services. This
has allowed Essentia to build up expertise and maintain a clear focus on improving basic
standards, efficiency and the patient experience. This is unique in NHS terms, many NHS
Trusts having outsourced in parts these functions or relinquished responsibility under PFI,
and will help Essentia to secure and retain new business by offering our clients an
alternative to traditional outsourcing.
Essentia’s Leadership has identified significant opportunities for growth from within the
existing portfolio of capabilities and believes that with the right business model, strategy and
investment, we can build on our reputation and capabilities and differentiate our offering from
other public and private service providers in a market. These include total infrastructure
solutions for Trust’s wanting to work with a partner to run parts of or the whole of their estate,
facilities, and IT&T functions, or individual services from a service schedule as illustrated
below. This framework reflects the existing Essentia Core structure, and may change
subject to the requirements of Essentia Trading. Nevertheless, to make modelling the
projection of the growth of the business more straightforward, we have assumed that
Developing Essentia – Full Business Plan – Jan 13
14
Essentia Trading would initially maintain this framework of operation, but it is recognised that
this will need to change over time.
Asset Management

health planning and the planning, designing and project management of major capital
projects including stakeholder engagement;

advice on Estate/technical compliance;

advice and support on energy and utilities cost control and management;

maintenance services.
Health planning and project management accounts for around 10% of the NHS’ capital
investment budget. In 2010-11, total capital investment in London was £800m which
indicates an addressable market of around £80m for Essentia’s asset management services.
This market has been growing consistently for five years at a rate of 10% per annum
on average.
Group Operations

catering services, making use of the spare capacity we have at present and capitalise
on our experience delivering health specific menus;

customer services (including helpdesk, switchboard and call centres);

sterile services to capitalise on the recent investment in a new facility;

advice on soft FM operational and compliance issues.
The Sterile Services redevelopment business plan estimated the potential identified market
in the immediate area would be worth around £6m per annum in 2013-16. The external
potential is generated firstly by the economies of scale that make small scale
decontamination facilities for low volume users less viable. Secondly, the significant
investment required, and the space needs can present a significant barrier to even large
hospitals creating their own decontamination units.
IT&T

As a national award-winning provider of training and an accredited Microsoft training
academy, there is the opportunity to provide a national training programme;

In the medium-term, following the implementation of our current IT investment
programme, there is an opportunity to provide an integrated support service across
health and social care, as well as advising local government and educational
establishments in the area of technical design;

IT support desk services.
Community (Shared Services)

As an established shared services provider to primary care organisations across both
South West and South East London. There is a potential opportunity to trade the shared
Developing Essentia – Full Business Plan – Jan 13
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service concept and provide customers with a ‘pick and mix’ type offering. We have
identified procurement and provision of advice on, and management of waste services
as potential areas for growth in the short to medium-term. We have the potential to
expand our customer base to new external commissioners (GPs, pharmacists, dentists),
as well as additional Trusts across London and beyond.
In summary, we believe that there is a substantial market opportunity in London in the four
main areas of Essentia’s service provision. Overall, the size of Essentia’s addressable
market is estimated to be around £200m a year, which represents approximately 12% of the
total NHS spend in London on the services provided by Essentia (see figure 4).
Figure 4 - Potential competitors in the health FM market
Source: ERIC and PwC estimates
Developing Essentia – Full Business Plan – Jan 13
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4.
Operating model
4.1
Introduction
Essentia currently manages and operates both internal and external contracts. Whilst this
model has operated successfully to date, it is not ideal. The structure has a number of
inherent operational constraints that is restricting its ability to grow its external business.
These restrictions include an ability to respond quickly to market opportunities and enter into
collaborative arrangements, access alternative funding and more flexibility around working
practices etc. Recognising these constraints, earlier in 2012 Essentia Leadership embarked
on a programme to assess the growth potential in its external NHS business, review its
current operational structure and identify a preferred future operational model.
The initial review concluded that there was significant potential for Essentia to grow its
external NHS business but recognised that the current structure would need to be changed if
this was to be achieved.
This section summarises the work done to date in considering the growth potential for
Essentia, the evaluation of potential operational forms and concludes on a preferred future
operational model for Essentia.
4.2
High level options appraisal of models
In March 2012, Essentia conducted a high level appraisal of a number of potential business
forms drawing on external advice. Each form was evaluated against a set of high level
criteria based around Essentia’s Vision and Value Proposition and focused on the retention
of both aspects of Essentia’s business (GSTT services and externally traded services) within
a single entity. A summary of the criteria and assessment is included in Appendix B.
Following discussions with GSTT senior executives and Board, it was recognised that
Essentia was a valued asset and a critical component in the delivery of GSTT’s core NHS
business, and as a result it was concluded that any future operational form for Essentia must
ensure that GSTT retained ownership of the internal delivery arm of Essentia. It was
recognised that a different form would be required for Essentia’s external services if it was to
deliver its target growth and Essentia was tasked with developing its potential business form
to reflect this.
4.3
Criteria for developing Essentia’s business form
A model has been developed which will deliver the Essentia Vision and Value Proposition
whilst addressing the Trust’s requirement to retain control over Essentia’s internal service
delivery capability. It was advised by GSTT’s Board that the future model would need to
satisfy the following key criteria:

safeguard services, assets and staff within GSTT;

allow Essentia to trade freely with KHP and the wider NHS market including access to
GSTT staff, assets and know how held within Essentia;

incentivise staff, shareholders and leadership of Essentia;

allow Essentia to develop new working practices for both internal and external work to
deliver improved productivity and innovation;
Developing Essentia – Full Business Plan – Jan 13
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
enable Essentia to deliver an ‘Employee Promise’ to its staff, and offer a more flexible
reward structure that allows the workforce to benefit from increased productivity and
the generation of new income; and

provide Essentia with greater financial and decision making autonomy and the ability
to respond quickly to market changes.
4.4
Preferred operating model
The review concluded on a preferred new operating model for Essentia. Under the model
Essentia is made up of two entities, ‘Essentia Core’ and ‘Essentia Trading’ as follows:

Essentia Core will comprise existing Essentia services provided to GSTT and will
continue as a division of GSTT (i.e. remain as is). All existing staff will remain GSTT
employees under existing terms and conditions, but through the development of the
Essentia workforce strategy they will start to benefit from opportunities to motivate staff
within the boundaries of Agenda for Change (AfC), through taking forward the
‘Essentia Promise’. All existing assets and contracts would be retained within
Essentia Core.

Essentia Trading will be formed as a new stand-alone legal entity owned by GSTT
with the intent that future Essentia services provided outside of the Trust would be
contracted through this organisation. Essentia Trading will become the growth vehicle
for Essentia and provide a future income stream to GSTT through the distribution of
profits.
Under the proposed structure Essentia Trading will deliver services via a mixed resourcing
model with some services being provided by staff recruited and employed directly by
Essentia Trading and other services delivered by Essentia Core staff via an arm’s length
Service Level Agreement (SLA). Due to the separate governance arrangements, the SLA
agreements will be legally binding contracts. The figure below illustrates this structure.
Figure 5 - Essentia Trading Operating Structure
Developing Essentia – Full Business Plan – Jan 13
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Essentia Trading will deliver its service contracts to the market using three models:

Model 1 - Where the service requires the use of GSTT assets and infrastructure,
Essentia Trading will subcontract the service delivery to Essentia Core under an SLA
arrangement;

Model 2 - Where the service is delivered using a mixed service delivery. Here, whilst
Essentia Trading will be responsible for the overall service delivery it will subcontract
elements of the service delivery to Essentia Core under an SLA agreement;

Model 3 - Essentia Trading will deliver the service using its own assets and staff.
As the level of trading grows, Essentia Trading will increasingly look to recruit staff directly
for dedicated services to external clients and rely less on services being provided by
Essentia Core, i.e. it will move towards Model 3.
It is envisaged that Essentia Trading will be managed by the current Essentia senior
management team under a SLA, reporting to the Essentia Trading Board. The Essentia
Trading Board will in turn report into GSTT Enterprises Board and through this into the GSTT
Board (see Section 5 on Governance). Operating both businesses with a single
management team is seen as critical in the early period as management will need to have
full visibility of the activities within both operations to:

ensure that Essentia Trading costs are contained;

maximise the benefits of the knowledge and know how generated by Essentia to date;

maximise the use of surplus capacity within Essentia; and

effectively manage staff in both operations.
At launch on 1st April 2013 the current Essentia Senior management team will continue to be
fully employed by GSTT providing their time and services to Trading via an SLA. It is
envisaged that over time as Essentia Trading grows, it will look to recruit a dedicated
management team who will be employed by Trading on a full time basis.
To support the operational model, during the early period, Essentia Trading will purchase
certain support services, such as finance and HR, from GSTT via Essentia Core.
The proposed model provides the following key benefits for GSTT:

allows GSTT to retain direct control of Essentia Core activities, staff and assets;

provides a potential future income stream for the Trust;

enables Essentia Trading to recruit new staff on flexible employment arrangements;
and

provides greater flexibility and autonomy for Essentia in the delivery of external
contracts.
Developing Essentia – Full Business Plan – Jan 13
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4.5
Essentia Trading Service Offering
Essentia Trading will offer 12 services via 4 divisions. The services and divisions follow
Essentia Core’s existing structure and are as follows: Figure 6 - Essentia Trading Service Offerings to be taken forward as part of the Business Plan
Essentia
Trading
Catering
Services
Project
Management
Property
Services
IT Training
Services
Customer
Services
Healthcare
Planning
Environmental
Consultancy
IT Helpdesk
Services
Sterile
Services
Engineering
Maintenance
Procurement
Services
IT Managed
Services
As an asset intensive service, operational services will primarily be delivered by Essentia
Core under an SLA. Initially, IT and existing community focused shared services will be
offered via a blended solution, moving towards an Essentia Trading solution over time, whilst
Asset Management services will mostly be provided directly by Essentia Trading.
Over time, Essentia Trading will look at entering into partnerships with other Trust’s whereby
it can offer the full range of FM services to Trust’s without the need for individual
procurement. Any partnership entered into would be subject to a separate business case.
4.6 Contractual arrangements between Essentia Core and Essentia
Trading
A key feature of the proposed operating model is that Essentia Trading will be drawing on
Essentia Core capabilities particularly during the first few years. Services provided by
Essentia Core will fall into four categories:

Traded Services – whereby Essentia Trading subcontracts the service delivery to
Essentia Core (Figure 5, Model 1 above);

Staff Services – whereby Essentia Trading subcontracts a particular function of service
delivery to Essentia Core to support its blended service solution (Figure 5, Model 2
above);

Corporate Services – whereby Essentia Trading will purchase specific corporate
support services from GSTT (via Essentia Core). It is envisaged that this will include
both finance and HR in the initial years;
Developing Essentia – Full Business Plan – Jan 13
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
Management Services – Essentia Core senior management team will be responsible
for managing the performance of Essentia Trading and will provide this service under
an SLA arrangement.
Separate SLA’s will need to be agreed for each service provided. These will be based on the
GSTT’s standard form agreements and will cover areas such as proposed service, contract
term, pricing, KPIs etc. Consistent with State Aid and Competition rules, a clear commercial
approach will be required with pricing on an arm’s length basis. Draft HoTs for each of the
four service areas are included at Appendix C and have been developed to outline the
commercial approach to be followed when purchasing services between the two entities.
These will clearly identify the pricing basis e.g. a cost plus arrangement based on
predetermined rates. These HoTs will need to be converted into signed SLAs prior to the
commencement of service delivery.
To support the governance arrangements of Essentia Trading in order to minimise the risk of
disputes and service failures, it will be essential that a strong contract management function
is established to oversee the SLA’s between Essentia Core and Essentia Trading. The
function should include monthly performance management meetings to discuss each SLA
and the meetings should involve an independent Trust representative.
The recent Wragge & Co LLP (Wragge report) to GSTT on governance arrangements
recommends that the contract management function for SLA’s which GSTT holds with its
commercial ventures involve the Commercial Directorate and are monitored by both the
GSTT Board and GSTT Enterprises. It is proposed that this approach be adopted by
Essentia for its SLA’s with monthly review meetings being held involving:

the Commercial Directorate;

service lead for Essentia Core;

service lead for Essentia Trading.
This approach is subject to necessary investment being made by GSTT to improve skills and
capacity of the Commercial Directorate to enable it to undertake the function.
4.7
New contracts staffing and TUPE
Essentia Trading will be bidding for services contracts with other NHS entities and
commercial organisations. These contracts will include consulting contracts, management
service contracts, and service delivery contracts. In some instances the contract will involve
the Transfer of Undertakings Protection of Employment (TUPE) with respect to the transfer
of staff. The proposed operating structure provides Essentia flexibility with respect to the
employing entity for staff transferring under such contracts. It is proposed that the decision
regarding which entity employs transferring staff (Essentia Core or Essentia Trading) will
depend on which entity will be responsible for service delivery as follows:

if Essentia Trading has subcontracted the delivery of that type of service to Essentia
Core for other contracts e.g. catering or SSD, it is proposed that staff transferring
under TUPE will join Essentia Core on their existing terms and conditions; or

if Essentia Trading is responsible for service delivery, staff transferring under TUPE
will join Essentia Trading on their existing terms and conditions.
Developing Essentia – Full Business Plan – Jan 13
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Whilst this model ensures that common services are retained within a single entity and
reduces the risk of equal pay challenges, it potentially increases the financial obligations to
Essentia Core and hence GSTT. It will also increase GSTT’s direct headcount.
4.8
Conclusion
In the future Essentia will operate as two entities, Essentia Core delivering internal services
to GSTT and Essentia Trading delivering services to the external market. Essentia Trading
will operate using a mixed resourcing model, utilising Essentia Core assets and resources to
deliver certain contracts under SLA arrangements whilst delivering others using its own
resource or a hybrid. Services between Essentia Core and Essentia Trading will be subject
to SLA and a formal contract management regime will be established under the guidance of
a GSTT executive director. Developing Essentia – Full Business Plan – Jan 13
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5.
Legal Form and Governance Arrangements
5.1
Introduction The previous section identified the preferred operating model for Essentia Trading and the
need for Essentia Trading to be established as a standalone entity. This section identifies
the key aspects of the governance model that will need to be adopted to protect the brand,
reputation and financial risk to GSTT from the formation of Essentia Trading. The section
also considers the preferred legal form for Essentia Trading (LLC or LLP) and sets out
issues to be developed around how Essentia Trading key staff could share in the future
success of the venture.
5.2 Overview of Current GSTT Commercial Structures including
Intellectual Property Policy
GSTT has a number of commercial ventures however it does not currently have a clear
policy with respect to its strategy for establishing such ventures, or a preferred structure and
governance model. Having recognised this as an issue GSTT is in the process of
undertaking a review of its commercial ventures with a view to developing new procedures
and governance arrangements for such ventures. As part of this work, Wragge carried out a
review of GSTT’s main commercial ventures and issued a report (“Towards the Right
Direction”) to GSTT making recommendations regarding the governance and management
of its commercial ventures.
In preparing this Full Business Plan, Essentia has assumed that the main recommendations
of the Wragge review are adopted and implemented by GSTT, particularly the
recommendations regarding:

strengthening the governance arrangements for commercial ventures through GSTT
Enterprises;

strengthening the capabilities of GSTT Enterprises and its Board;

the appointment of new Non-Executive Directors to GSTT Enterprises;

strengthening the Commercial Directorate; and

clarifying the roles different individuals adopt in governance (FT regime, corporate
governance, and contract management).
Under the current arrangements, for projects were GSTT has an equity stake (shareholding)
this is held via GSTT Enterprises Limited, the Trust’s holding company for its commercial
interests. GSTT Enterprises has three main commercial ventures and uses both LLC and
LLP structures to hold its interests in these commercial entities. Appendix D contains a chart
showing GSTT current structure for commercial enterprises and the potential inclusion of
Essentia Trading.
GSTT does not have a preferred legal form (LLC or LLP) for the delivery vehicle used in a
commercial venture as GSTT has preferred to adopt the structure that best suits the
circumstances of each venture. More recent ventures undertaken in partnership with other
organisations e.g. pathology service, have tended to use an LLP structure with GSTT’s
interest in the LLP held via a separate LLC intermediate holding company.
Developing Essentia – Full Business Plan – Jan 13
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In addition to its equity interests in commercial ventures, GSTT also has interests in
Intellectual Property (IP) developed by it, or its staff. GSTT has an existing policy with
respect to commercialising of IP Policy which aims to provide a balance between the Trusts’
need to protect IP developed using its resources, encouraging staff to work creatively to
create new IP, and rewarding staff for their efforts in the creation of new IP. The policy
allows staff to benefit from the creation of IP and share in the upside. The mechanisms vary
but include:

preference to grant licenses for the IP in return for a royalty;

staff benefit from any net income generated by IP they produced which is sold or
licensed. Amount of benefit is based on a sliding scale mechanism;

a right for staff to participate in a spin-out company formed to exploit the IP; and

employee retains ‘right’ to benefit even if no longer a Trust employee.
5.3
Employee Reward and Incentivisation Essentia Trading is looking to grow to be a significant new trading business within the next 5
years, generating revenues of £30m and profits of £5m per annum (as detailed in the finance
section). In addition to profits generated from Essentia Trading, this growth is also expected
to have a significant impact on the income and contribution to the Trust’s overhead recovery
on Core services (efficiency benefit), which will support the delivery of challenging CIP
targets in the future.
The early success of Essentia Trading will be very dependent on the efforts of the staff in
selling the Essentia Vision and Capability and securing and delivering on new contracts. It
will therefore be important to create an environment where these contributions can be
recognised and where necessary rewarded. At present the Business Plan includes the
intention to provide a positive environment for all employees of both Essentia Core and
Trading through the Employee Promise (See Appendix A). The plan includes the
establishment of an Employee Promise fund equivalent to £200/person to support the
delivery of the Employee Promise, and also makes provision for a profit share top-up of 5%
of Trading Gross profit, as a way of boosting the Employee Promise fund and providing a
direct link for all staff, to the success of Trading, and the ability to reinvest in them to further
boost individual and organisational performance.
In addition, as Essentia Trading matures it will need the ability to develop a reward
environment that will allow it to retain and secure key staff. This is something that will be
developed over time, and expert advice to the Trust has highlighted that this is something
that Trading will need to consider in the future if it is to maintain its competitiveness in the
commercial environment it will be operating. Typically reward and benefits should be linked
to business performance, and provision will need to be made within the establishment of the
company to allow this to be developed as the business grows.
It is therefore proposed that the design principles of a future reward structure for Trading
should include:

Ability to retain, incentivise and reward key staff
Developing Essentia – Full Business Plan – Jan 13
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
Strike the right balance and address the potential conflicts between delivering Core
service portfolio (and efficiency targets) whilst seeking to grow the Trading business

Avoid creating incentives that might promote, or lead to, unnecessary risk taking by
management or any employees

Ensure that GSTT’s best interests are at the forefront

Stands up to public and political scrutiny

Is fair and equitable
5.4
Legal form
The current proposal is for Essentia Trading to be established as a standalone trading entity
with its own legal form, either as a Limited Liability Partnership (LLP) or Limited Liability
Company (LLC). The key features of each are summarised below:

Limited Liability Company (LLC) - An LLC is a well-established and understood
mechanism for undertaking commercial trading entities. It is a distinct legal entity
owned by its shareholders via their ownership of the LLC’s share capital and run by its
Directors (who can also be shareholders). The directors are answerable to the
shareholders and must act in their best interest. The shareholders liability to the
company is limited to their investment in the LLC’s shares. An LLC is governed
through its memorandum and articles of association and directors/annual meetings. An
LLC must publish annual accounts and file these with Companies House along with
certain other statutory returns.

Limited Liability Partnership (LLP) - An LLP is a relative new form of business
structure that is generally less well understood. An LLP is a distinct legal entity with its
own members (minimum of two) but it has no shareholders or directors. An LLP’s
member’s liability is limited to the amount they contribute to the assets of the LLP (plus
any guarantees provided) and any debts must be met from the assets of the LLP. An
LLP has more organisational flexibility than an LLC and can adopt whatever internal
structures it likes and set its own rules regarding distribution of profits. An LLP does
not need to publish annual accounts and its internal arrangements can remain private.
An LLP’s constitution and rights and responsibilities of its members are normally set
out in a member’s agreement.
The Trust has used both legal structures when establishing commercial entities in the past
and there are advantages and disadvantages of both forms. An LLC approach would be the
simplest form; however LLP can offer more flexibility and potentially offer some tax benefits.
The table below summarises the main advantages and disadvantages of both options:
Developing Essentia – Full Business Plan – Jan 13
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Figure 7 - LLC Vs LLP Table Limited Liability Company Advantages Disadvantages Proven and well established business and governance Structure less flexible than LLPs structure LLC can be wholly owned by one shareholder Higher tax cost of paying profit share to staff unless they are shareholders Staff profit and share ownership incentives possible Prescriptive disclosure regime via Companies House particularly with respect to Directors Remuneration Liability of shareholders limited to equity subscribed Must have Board of Directors and Company Secretary Established exit mechanism for disposal of shares Exit of individual shareholders can give rise to complications with respect to share buy back arrangements Tax treatment of bonus payments simple for individual Profits are subject to corporation tax recipient Limited Liability Partnerships Advantages Disadvantages Flexible business structure where members can join Business form less established and less well and leave easily. Changes to members arrangements understood and governance structure not prescribed can be quick and easy to implement Members arrangements governed via the members LLPs must have a minimum of two members agreement and can be kept private Profits taxable on member and not subject to Disposal mechanisms can be complicated corporation tax Liability of member limited to capital committed Can be harder to implement a group staff ownership and profit share scheme Limited disclosure requirements Tax treatment of members can be more complicated it they are private individuals Flexibility regarding members profit share and tax Individual members lose some statutory employment efficient payment to members possible protection In practice, there is little to choose between the two forms with the final decision down to a
need to balance the tax and flexibility advantages of LLP against the certainty offered via an
LLC structure. Both LLP and LLC can be structured in such a way as to avoid corporation
tax, hence the key tax consideration is in respect of any staff reward mechanisms. LLC does
however have the advantage of a more formal business structure with statutory provisions,
supported by case law. Having considered both options, it is proposed that the certainty
benefits of a wholly owned LLC structure, and the ability to market services as a business
100% owned by GSTT, outweighs the financial benefits associated with an LLP structure,
Developing Essentia – Full Business Plan – Jan 13
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which would require member directors to be identified as part of the members agreement,
and thus an LLC structure is proposed.
It should also be noted that the proposed LLC structure allows Essentia Trading to enter into
joint venture/partnership LLP’s with other Trusts for the delivery of services. Essentia
Trading would hold GSTT’s interest in the LLP and the structure would be similar to the joint
venture which GSTT has with Serco Limited and Kings College Hospital for the delivery of
pathology services. The use of joint ventures can provide agility, and an alternative to
traditional procurement processes, and may offer Essentia significant future flexibility in
securing new work.
5.5
Board composition and reporting
In order to provide strong and transparent governance which protects the brand, reputation,
competitiveness and financial risk of GSTT, the Wragge report recommends that each
commercial entity has:

its own Board of Directors comprising two executive directors and 2 non-executive
directors;

a Chairman selected from one of the non-executive directors;

one of the executive directors being a representative of GSTT’s finance function;

non-executive directors who are not main GSTT board NED’s; and

a Company Secretary position held by the Trust Secretary.
Essentia’s leadership has considered this recommendation in the context of its proposed
business model. Essentia recognises and endorses the need for a strong Board for Essentia
Trading and supports the need for this to include NED’s and finance representatives.
However, recognising the proposed Essentia business model, the on-going interaction
between Essentia Core and Essentia Trading and the range and complexity of services
offered by Essentia, it believes that the Board should have two representatives from the
Essentia executive team. It is therefore proposing a Board of six directors as shown below:
Figure 8 - Essentia Trading Board Composition
Essentia ‘Trading’ Board
• Non‐Executive Directors need to be independent of GSTT and GSTT Enterprises Boards
• Executive Directors must be independent of other roles in governance of GSTT Enterprises
Non‐Executive Directors
1
Executive Directors
1
Chair
2
Essentia director 1
2
Director 1 3
Essentia director 2
3
Director 2
GSTT Finance Representative
Developing Essentia – Full Business Plan – Jan 13
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It is proposed that the 3 non-executives (one selected as Chair) be skilled and experienced
individuals giving NHS, commercial and FM services experience. The NED’s would be
formally recruited using GSTT’s NED recruitment process and would be independent of the
main GSTT Board NED’s. It is also anticipated that a Company Secretary will be recruited to
service the Essentia Trading Board. The Essentia Board would meet monthly. It would develop the commercial strategy for
Essentia, set the annual business plan, and monitor performance against the plan. It would
also be responsible for formally approving certain matters, for example, contracts above £1
million in value and all capital expenditure. The Board would also be responsible for
reporting Essentia Trading performance against the Business Plan to GSTT Enterprises, and
escalate under performance or contractual issues to GSTT Enterprises or the GSTT Board
as required.
Essentia Core will continue as a directorate of the Trust under the day to day control of the
current Essentia executive team and reporting to the GSTT Board under the current
arrangements. The following chart illustrates how the two reporting functions will operate
alongside each other:
Figure 9 - Essentia Reporting Structure
GSTT Board
GSTT
Enterprises Board
Essentia
business plan
Essentia
‘Trading’ Board
Core activities
Essentia ‘Trading’ Operational Executive Board
Trading
Core:
• Continues to operate as is under the Trustʹs existing FT Governance structure
• Reports to GSTT as a main Directorate
• Existing executive team remain
Trading
• Reports to GSTT Board via GSTT Enterprises
• Governance in line with Wragge recommendations
• Strong Board comprising executive and non‐executives
• New recruited Company Secretary
Contract management
• Strong contract management function to oversee SLAs • Independent input into function to protect Trust position
5.6
Governance arrangements Essentia is proposing a 4 tier governance model in line with the Wragge report starting with
the Essentia Trading executive team for day to day control, and culminating with the GSTT
Board for major matters including the annual business plan approval. The following figure
illustrates the 4 tiers:
Developing Essentia – Full Business Plan – Jan 13
28
Figure 10 - Essentia Trading Governance Arrangements
Essentia Trading will be managed on a day to day basis by its executive directors. The
executive directors will report to the Essentia Trading Board. The Board will meet monthly
and its key responsibilities will include:

determining the strategy and agreeing the Annual Business Plan;

monitoring the financial and operational performance of the business;

approving transactions above a certain value e.g. contracts above £1 million in value;

ensuring that corrective action is taken to rectify poor performance; and

escalate poor performance or contractual issues to GSTT Enterprises or GSTT Board
as appropriate.
The annual business plan is a key document within the governance framework as it will set
out the vision and strategy for Essentia Trading and will set out the financial budget for the
year, and the delegated financial authority. Both Essentia Trading and GSTT Enterprises
Boards will monitor Essentia’s performance against this plan reporting any major deviations
to the GSTT Board. Provided Essentia Trading is operating in line with the budget set in the
business plan approved by GSTT via GSTT Enterprises, it will have freedom to enter into
contracts, recruit staff etc. with limited involvement from GSTT.
However, recognising that Trading will be a subsidiary of GSTT Enterprises, which is in turn
a subsidiary of GSTT, there will be a small number of reserved matters where prior approval
is required. These will include:

taking on new borrowing or finance leases;

incurring capital investment not provided for in the business plan;

entering into contracts (income or expenditure) above £5 million per annum, contracts
with an unusual/high risk profile or contracts with a term in excess of 5 years;
Developing Essentia – Full Business Plan – Jan 13
29

changing the nature of the business or allow it to cease;

changing the name of the business;

acquiring the whole or part of a business;

disposing of the whole or part of the business; and

entering into a joint venture/partnership arrangement.
Appendix E has a full list of the proposed reserve matters.
In addition, it will be an obligation on Essentia Trading to have its annual business plan
approved by GSTT Enterprises and through this the GSTT Board, and it will not be permitted
to make material changes to the business plan without the approval of both organisations.
5.7
Conclusion
It is proposed that Essentia Trading be established as a wholly owned LLC subsidiary of
GSTT Enterprises. It will have its own independent Board of Directors comprising of 3 nonexecutive directors and 3 executive directors. It will report into GSTT Enterprises and
through this into the main GSTT Board. It will agree an annual business plan with GSTT and
provided it is operating within this business plan it will operate autonomously on a day to day
basis. It will need to observe certain reserved matters which will require GSTT approval.
Essentia Core will continue to operate with the existing executive director team as a
directorate of the Trust and will report into the GSTT Board on the current basis.
Developing Essentia – Full Business Plan – Jan 13
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6.
Workforce
6.1
Introduction
This section summarises the workforce issues facing Essentia in developing its business
plan and options available to maximise incentives within both Essentia Core and Essentia
Trading to support the recruitment, retention, and development of staff.
Over the last two years the Directorate has been working to deliver the current Workforce
Strategy which has included investing in learning and development through initiatives such
as the Essentia Academy. However, to address the challenges of delivering the Essentia
Business Plan, we need to move beyond the current operating model and develop new ways
to motivate and incentivise staff.
A key strand of this will be the development of the Essentia ‘Employee Promise’ (see
Appendix A), which will be applied to all Essentia staff. The Essentia leadership team are
committed to developing a new culture, employer brand and promise, which defines the
relationship between employee and employer and reflects the unique nature of Essentia, its
staff and the services it delivers. We also believe this will differentiate our people and
provide the core building blocks to deliver our vision and expectations of Essentia going
forward from a workforce perspective. Key elements of the promise will be to introduce a
new learning development strategy and plan, which clearly articulates how Essentia will
deliver the skills and capabilities it will need to provide both existing and new service
contracts. The Employee Promise will be supported by an investment fund which will be
linked to business success.
6.2
Employee and Industrial Relations
The plans to create Essentia Trading are taking place at a time when there are wider
changes that are occurring in the NHS nationally created by the Health and Social Care Act
2012, which addresses access to the NHS market and competition in the NHS enabling
private providers to provide services. GSTT is also increasingly becoming involved in a
variety of commercial ventures itself, some wholly owned and some with joint venture
commercial partners. New revenue streams are being developed to assist the Trust, and a
commercial strategy is under review and will be shortly agreed by the Trust Board. Many
Trade Unions are pursuing a national agenda in response to current changes in the wider
NHS and are resisting what is viewed as “privatisation of the NHS” and are vocal regarding
the potential for a two tier workforce within the NHS. The Trust Staff Side and their members
need to be reassured that in creating a separate trading entity ‘Essentia Trading’ that:

The security of employment of existing staff in Essentia Core will be preserved and
enhanced;

AfC terms and conditions and entitlements for existing staff will be unaffected;

An unwanted transfer of employment creating unnecessary change and uncertainty to
the existing workforce will not occur;

Essentia Trading employees will not receive better or preferential treatment than
existing Essentia Core staff.
Developing Essentia – Full Business Plan – Jan 13
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Due to current national negotiations it is possible that staff and Trade Unions will be
concerned about Essentia Trading setting its own terms and conditions that are not under
Agenda for Change (AfC) for its staff, however there are benefits to the proposed
employment model for staff in Trading as well as for existing GSTT employees that are
explored later that may be a means of gaining agreement.
Up to this point communications to Essentia Core staff has been at a high level and a
greater and more detailed and specific communications programme will be required to be
undertaken once the business plan, corporate governance and employment arrangements
for Essentia Trading have been agreed. Staff Side and Trade Union colleagues will need to
be consulted and reassured that their members concerns have been considered, discussed
and addressed where possible.
Formal and informal meetings have been held with Trust Staff Side that have covered the
concept or prospect of a separate trading Company. Initial briefing discussions have also
been held with the Chair of Staff Side regarding proposals on the potential employment
model and the need for more flexible reward arrangements. The principle of enabling
another vehicle to go out and win additional business to supplement the Trust and enable it
to achieve its surplus whilst protecting existing Trust services has been well received.
Feedback to date regarding the prospect of non AfC terms and conditions and alternative
employment arrangements has been treated with more caution as it represents a significant
departure from nationally agreed arrangements that have been in place for several years.
6.3
Equal pay
A risk exists that the Trust will find itself exposed to high profile and financially prohibitive
equal pay claims if the employment arrangements regarding Essentia Trading and Essentia
Core are not set up so as to avoid them. Legal advice has been taken from the Trust
employment law advisors (DAC Beachcroft LLP) regarding various employment models
which Essentia may have open to them to support its future growth and development. TUPE
implications have also been considered and advised upon, as well as reviewing the flexibility
that exists within existing AfC terms and conditions. The advice received has informed the
employment arrangements recommended.
Issues considered
The following issues were considered and addressed in reviewing and analysing potential
employment models for Essentia Core and Trading and whether they were fit for purpose.

Achieving the previously expressed desire of the Trust Board and Executive to ensure
that existing Essentia Core staff, assets and services are retained in GSTT;

To guard against equal pay claims between and inside Essentia Core and Essentia
Trading;

Creating positive and identifiable benefits for Essentia Core staff to inform a positive
employee and Industrial Relations climate;

Enabling flexibility in the Essentia Trading employment proposition and working
practises to facilitate the attraction of talent and enable Essentia Trading to be
competitive in the job market place;
Developing Essentia – Full Business Plan – Jan 13
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
Allowing Essentia Trading to gain flexibility outside AfC terms and conditions to enable it
to be market competitive and gain more flexibility on the recruitment and retention of
staff;

Supporting governance and tax advice received by the Trust on its existing and planned
commercial ventures;

Enabling growth projected in the proposed Essentia Trading business plan;

Catering for TUPE dynamics that occur when new business /contracts are won;

Facilitating expertise and resource to be shared from the Trust to assist in the Essentia
Trading growth plan and vice versa.
6.4
Potential employment arrangements
Six potential varying scenarios of employment were examined and the employment risks and
benefits relating to each model were reviewed in detail.
Scenario 1 – All Essentia staff are employed in Core and then ‘seconded’ to Trading (or
provided under a service level agreement) as necessary.
Scenario 2 – Essentia Core retains all staff involved in delivery of services; however sales
and marketing staff, who secure external contracts are TUPE transferred to Essentia
Trading. Staff from Essentia Core will then be seconded over to Trading to deliver services
to external bodies as necessary
Scenario 3 – Essentia Core will retain all staff providing services to GSTT and will manage
and deliver the work to GSTT. Staff working on external contracts will be TUPE transferred
to Essentia Trading and it will manage and deliver all external work to other clients.
Scenario 4 – All Essentia staff are TUPE transferred into Trading and then some employees
will be used to provide services back to Core / GSTT.
Scenario 5 – All Essentia staff are TUPE transferred from Core and employed within a
wholly owned subsidiary of GSTT, Essentia services. Essentia Services would be set up as
a separate legal entity. Staff would be provided to Essentia Core and Essentia Trading as
necessary to service the various contracts.
Scenario 6 - Essentia Trading is a limited liability company wholly owned by GSTT
Enterprises (which already exists). Every time Trading won a contract with a body, it would
set up a limited liability partnership ("LLP") to service that contract (possibly as a joint
venture with the organisation from whom it had won the contract). Staff would be TUPE
transferred to Essentia Trading or, in time, directly to the LLP’s to service the external
contracts.
Five of the scenario’s reviewed were discounted due to the following reasons:

They did not achieve sufficient flexibility to enable Essentia Trading to operate
competitively in the open marketplace;

They involved a full or partial TUPE transfer of existing GSTT staff and it was
considered that this would be unduly disruptive and challenging to achieve;
Developing Essentia – Full Business Plan – Jan 13
33

They would involve the creation of governance structures that would have been complex
and did not fit with the Trust intentions with regard to managing its commercial ventures.
Following detailed discussion and based on advice from Beachcroft’s and Trust HR
workforce staff, a preferred employment scenario was developed which was essentially an
amalgamation of Scenario 3 and Scenario 6 above.
6.5
Proposed Essentia employment model
The proposed employment model/arrangements that the Trust has been advised meet its
business objectives and are manageable in terms of equal pay risks is illustrated in Figure
11 below.
Figure 11 - Proposed Essentia Employment arrangements
The key features are as follows:

Essentia Trading is a limited liability company wholly owned by GSTT Enterprises;

Essentia Trading has its own Board and determines the terms and conditions of
employment for its staff;

Essentia Trading’s focus is on bidding and winning external work and its employees will
be focussed solely on work for external clients;

Essentia Core (i.e. staff remaining within GSTT) retain existing AfC terms and
conditions;
Developing Essentia – Full Business Plan – Jan 13
34

Any amendments within AfC to Essentia Core employees ' terms and conditions will be
in line with any Trust-wide developments;

Essentia Core will be focussed on delivering services to GSTT;

Current Essentia Core employees working on external contracts as well as GSTT
services remain within Essentia Core;

Where external contracts currently serviced by Essentia Core are renewed, the contract
is assessed to determine whether it should be renewed with Essentia Core or Essentia
Trading. If, in order to service the contract, it is necessary to use employees who are
also working on GSTT services, the contract will be renewed with Essentia Core.
However, if the contract requires dedicated employees to work on the particular external
contract only, it is renewed with Essentia Trading;

In relation to future TUPE transfers, staff working on external ring-fenced services
transfer into Essentia Trading on their existing terms and conditions. Over time, as and
when these employees leave or change job, they are replaced by recruits on Essentia
Trading terms and conditions. The option is open to Essentia Trading in the future to
accelerate the move away from AfC by terminating any residual staff on AfC contracts
and re-engaging on Essentia Trading terms and conditions;

Service level agreements (SLA’s) are put in place between Essentia Core and Essentia
Trading to enable staff from Essentia Core to provide expertise to Essentia Trading and
vice versa. This will include specific management time and expertise.
6.6 Benefits and risks of the recommended employment
model/arrangements
The benefits and risks of the recommended employment model outlined above for Essentia
Core and Essentia Trading are outlined in detail at Appendix F.
Anticipated workforce resources plan
The areas of activity proposed to be developed in the business plan mean that the following
categories of staff will be required to be recruited to Essentia Trading over the five year plan.
Project Managers
Healthcare Planning Consultants
Environmental Consultants
Engineering staff
Facilities staff
Procurement/purchasing staff
IT Trainers /IT support staff
Marketing staff
Based on the business plan modelling, recruitment will be phased to match the planned
business growth and Figure 12 below sets out a high level estimate of the number and level
of anticipated resourcing requirements that will be required to achieve the business plan:
Developing Essentia – Full Business Plan – Jan 13
35
Figure 12 – Essentia Trading Recruitment Requirements Resource Profile
Band
FY14
FY15
FY16
FY17
FY18
AfC Equivalent Band 3
3
3
10.8
18.4
18.4
AfC Equivalent Band 4
2
2
8.6
15.2
15.2
AfC Equivalent Band 5
10
10
18.4
23.4
23.4
AfC Equivalent Band 6
0
0
0
0
0
AfC Equivalent Band 7
3.2
3.2
7.6
11.8
11.8
AfC Equivalent Band 8A
8.2
15.4
21.8
28
33.2
AfC Equivalent Band 8B
2.2
2.4
5.4
8
8.2
AfC Equivalent Band 8C
2.4
4.8
5.8
7.2
9
AfC Equivalent Band 8D
0.2
0.6
0.8
1
1.2
Total
31.2
41.4
79.2
113
120.4
In addition to staff engaged on specific contracts, the plan also assumes that a dedicated
Marketing and Business Development team will be created in Essentia Trading from day one
to focus upon external business acquisition and customer relationship management.
Essentia Core resource profile
In addition to the new opportunities created in Essentia Trading, there will be a positive and
significant impact upon additional job roles within Essentia Core if the Essentia Trading
business plan is achieved and deployed via the recommended employment arrangements. It
is anticipated that the potential of additional jobs for existing core staff will provide a very
positive message, as the success of Essentia Trading as a business will create new jobs
and provide security of employment for Staff Side members within Core.
Figure 13 below shows the resourcing profile for growth of staff within Essentia Core who will
be required to support the activities delivered through Trading, and importantly this
demonstrates that significantly more new jobs are created in Core than Trading in the first 5
years of operation.
Figure 13 – Essentia Core Recruitment Requirements Resource Profile
Band
FY14
FY15
FY16
FY17
FY18
AfC Band 1
0
0
0
0
0
AfC Band 2
16
38
51
81
81
AfC Band 3
68.8
95.4
117
130
139
AfC Band 4
12.4
19.8
25.4
34.4
37.6
AfC Band 5
5.8
19
29.8
38
39.8
AfC Band 6
2.4
7.2
10.2
13.2
13.2
AfC Band 7
1.8
5
7.8
9.6
10
AfC Band 8A
2
5
5.6
7
7
AfC Band 8B
0
0
0
0
0
AfC Band 8C
1
2
2.6
3
3
AfC Band 8D
0
0
0
0
0
110.2
191.4
249.4
316.2
330.6
Total
Developing Essentia – Full Business Plan – Jan 13
36
6.7
Essentia Core and Trading Reward arrangements
AfC terms
As already highlighted, it is planned that terms and conditions for existing Essentia Core staff
will be unchanged, and new staff recruited into Essentia Core to support the Essentia
Trading business growth will also be recruited on AfC terms and conditions. Within the
current AfC structure mechanisms already exist to accommodate reward flexibility based on
productivity and performance and this is something that the Trust is keen to explore for all
staff. The Essentia business plan assumes that this is an element of reward that will be
taken forward, and Essentia will look to implement this in line with GSTT policy and Trust
wide negotiations with Staff Side.
In considering reward within Essentia Core, AfC terms tend to deliver total remuneration
which is higher than general market median practice for more middle ranking and junior staff
at Bands 6 and below. This is because AfC terms offer relatively high base salaries,
generous pension and benefits provision and an inbuilt cost escalator via guaranteed pay
progression. Above Band 6 the competitiveness of remuneration starts to reverse, as
managerial and professional staff do not have access to earnings targeted against
performance and other reward incentives such as share plans which are common in the
private sector. At higher levels in the earnings structure, absolute levels of base pay are also
lower.
Benchmarking by external reward experts using market comparison data has been carried
out for the type of roles that Essentia Trading will be seeking to recruit as part of its business
growth plan. These roles are mainly equivalent to Band 5 and across all levels of Band 8’s.
The benchmarking undertaken clearly showed that at more senior levels, for all the roles
benchmarked there is a significant widening of salary potential between AfC terms and the
external market place. This will mean it would be extremely challenging for Essentia Trading
to attract and retain talent unless an alternative and more flexible Reward structure is
developed.
Data tables showing the comparison between market based packages and AfC terms for a
sample of Essentia Trading required roles can be seen at Appendix G.
Essentia Trading Reward proposition
In developing an alternative reward proposition for Essentia Trading the aim has been to
balance the potential tension between competitor employment packages, and equal pay
risks. To ensure that GSTT and Essentia Trading actions are seen as proportionate if equal
pay challenges are made it is planned that reward arrangements within Essentia Trading will
be financially comparable to AfC. To make reward packages in Essentia Trading attractive,
particularly in roles equivalent to AfC Band 6 and above, it is proposed that flexibility is
explored in re-casting the total AfC resource envelope including non-financial benefits such
as Pension to create a flexible reward offering.
Through this approach Essentia Trading will seek to establish an employment and reward
proposition which is more in keeping with its external competitors in its target markets to
enable it to be attractive to a wider variety of staff with scarce skills in the marketplace.
There will be a greater emphasis on performance, individual choice, and the potential to
maximise a cash component. To demonstrate fairness and proportionality in the context of
Developing Essentia – Full Business Plan – Jan 13
37
equal pay claims Essentia Trading will offer a reward package that is financially equivalent to
Agenda for Change (AfC) but which enables choice and flexibility for each employee to
decide how they would like their reward package to be comprised. Many employees are
attracted by choice and flexibility regarding reward options so they can tailor their rewards
depending upon their life stage and personal choices. With a repackaging of rewards and an
element of variable pay, gain sharing can be used to highlight the importance of affordability
and performance management while also acting as a balancing item in the total reward mix.
Together all these features support the Essentia Employee Promise, while delivering more
predictable costs to the business and demonstrate that Essentia Trading is acting
proportionately in relation to the need to develop more flexible reward packages. In terms of
managing the risk of any equal pay claims in relation to the preferred employment model, the
key issues are that:

Essentia Trading will have a separate Board setting the terms and conditions for its
employees;

Essentia Trading employees will be employed on non-AfC terms and conditions and
many will be at different premises to Core employees;

In relation to those employees not working on external sites, they are more likely to be in
sales/marketing roles where there are no comparable roles within Essentia Core.
Figure 14 below shows two worked examples for Band 8c and Band 3 of how the Essentia
Trading Reward proposition could be delivered through ‘Reward Stacks’ of equivalent
financial value to AfC terms.
Figure 14 – Worked Examples of Reward Stacks for Band’s 3 and 8c
Pay Total
£21,120
Developing Essentia – Full Business Plan – Jan 13
Pay Total
£23,450
38
Pay Total
£67,011
Pay Total
£76,500
The Essentia Trading Reward proposition will comprise of four elements (Flexible salary
setting, a Flexible Spending Account (FSA), Pension and life cover and variable pay), with
the combination of the three elements structured to be financially equivalent to the value of
AfC terms including pension’s provision. The elements of the proposed reward package are
outlined in more detail below:
1. Salary setting
The Essentia Trading Reward proposition will seek to provide employees with a spot rate for
their salary that is set by reference to the market. Below Band 5 roles will be lower base
salaries or equivalent to the bottom of the AfC banding. Above Band 6 base salary setting
may be higher. This more flexible pay setting approach would be accompanied by
progression based on merit only and no automatic salary increments. Salary increases
would be reviewed in the light of company performance, affordability and market rate
information for skills.
2. Flexible Spending Account (FSA)
Essentia Trading employees would have access to a “Flexible Spending Account” (FSA) with
a specified level of cash including a default defined contribution pension and a specified
holiday entitlement of 25 days. New Essentia Trading employees would be able to “trade” on
holiday entitlement levels and pension options within the FSA to create a personalised
Reward package.
3. Pension/Life cover
As Essentia Trading intends to apply for ‘directional status’ the NHS defined benefits
pension scheme will also be available to any new joiners as a personal choice.
Developing Essentia – Full Business Plan – Jan 13
39
Equivalent cash values will be placed in each employee reward proposition upon joining that
represent the employer and employee contributions of the NHS Defined Benefits Pension
scheme but employees will have the cash sum reduced by the cost of the DC scheme by
auto enrolment upon joining. The FSA would then enable the employee to “trade” for either
more holiday, opt out of the pension scheme by choice and release cash to enhance their
base salary or trade up to the NHS DB pension if they so wish.
4. Variable pay/Gain sharing
An element of variable pay via gain sharing would be available to Essentia Trading
employees that would be awarded against the achievement of a balance scorecard of
company performance measures. The element of variable pay would not always be paid on
all occasions. If Essentia was not performing against its projected business targets overall
then the variable pay element may not be achieved at all. Further work is required regarding
the details of how a gain sharing model may operate.
The proposed Reward Model is summarised in Figure 15 below.
Figure 15 – Essentia Trading Proposed Reward Model
Next Steps and Workforce Dependencies
In order to ensure the successful management of the identified workforce issues and
implementation of the recommended employment models for Essentia Core and Essentia
Trading by the 1st April 2013, there are a number of workforce issues and critical
dependencies that will need to be in place, and these are outlined at Appendix H.
6.8
Conclusion
From the research completed thus far, it is clear that there are significant opportunities to
develop an attractive employment model and reward structure for Essentia Trading, where
proportionate actions can be demonstrated in relation to equal pay challenges by ensuring
Developing Essentia – Full Business Plan – Jan 13
40
that reward packages are equivalent to the packages available within AfC, but which utilises
the flexibilities available to Essentia Trading operating as an arm’s length trading entity of
GSTT.
The senior leadership team within Essentia believe that without exploiting the freedoms
available to Essentia Trading in terms of the reward model, Essentia will struggle to
successfully recruit to the higher banded specialist roles that underpin the business plan.
Working with Staff Side and the corporate Human Resources Team significant work is still
necessary to ensure that all of the workforce issues are dealt with to ensure Essentia
Trading employment proposition is ready for launch on 1st April 2013, but there is a very
positive workforce message that underpins this business plan.
From a workforce perspective, the Essentia Trading growth plan will unlock new employment
opportunities within Essentia Core and Essentia Trading at a time when other Trust’s will be
looking to rationalise and downsize their non-clinical support services teams. It should also
create a dynamic environment where staff are valued and developed to deliver to their
maximum potential in an environment which has a focus on customer service and quality,
where staff can readily identify the links between performance, success and reward.
Developing Essentia – Full Business Plan – Jan 13
41
7.
Financial Projections
7.1
Overview
This chapter considers the financial position and workforce implications of establishing
Essentia Trading. It also looks at the downside risk of Essentia Trading assuming that the
business does not grow as anticipated. In developing the financial projections, the directors
of Essentia have considered the potential business activities and modelled revenue based
on assumptions of contracts expected to be won over the next five years, FY14 to FY18. The
financial projections show that Essentia Trading will grow into a business with revenues in
excess of £30m and annual profits in excess of £5m by FY18 generating a cumulative net
profit of £12.1m over the period as shown in Figure 16.
As discussed in Chapter 4 - Operating Model, Essentia Trading will use a mixed resourcing
approach for the delivery of its services using Essentia Core staff and resources to deliver
some of its contracts under SLA arrangements. Recognising this, in addition to describing
the financial projections of Essentia Trading, this chapter also considers the incremental
impact of Essentia Trading on Essentia Core. The projections show that the cumulative
additional contribution1 to Essentia Core, from the SLA arrangement with Essentia Trading,
is £1.1m by FY18. This is also shown in Figure 16.
Profits and contributions accrued to both parts of Essentia (Core and Trading) are expected
to contribute to GSTT’s income stream and are shown in the table below.
Figure 16 - Annual profit and contribution profiles of Essentia Trading and Essentia Core, FY14 to FY18
Source: Income and expenditure model v 7.5 (2012) To support the delivery of new contracts won, the financial projections also consider the
workforce implications. The number of jobs created from new hires to Essentia Trading and
Essentia Core2 is expected to be around 450 staff by FY18 across both entities, as shown in
1
This includes SSD loan repayment. The workforce profile in ‘Core’ is driven by new revenue and does not reflect future improvements in labour productivity of ‘Core’ staff.
2
Developing Essentia – Full Business Plan – Jan 13
42
Figure 17. Essentia believes that an expanding workforce will create new opportunities to
motivate and retain existing Essentia staff.
Figure 17 - Resource profiles of Essentia Trading and Essentia Core, FY14 to FY18
Source: Income and expenditure model v 7.5 (2012)
With the establishment of the trading relationship between Essentia Trading and Essentia
Core, GSTT also benefits from “efficiency gains” in Essentia Core. This “efficiency gain”
arises from Essentia Core resources being used more intensively under the SLA
arrangement to support the delivery of Essentia Trading contracts and thus enabling the
combined Essentia business to contribute more towards GSTT’s central overheads.
Figure 18 shows that cumulative efficiency gains to the Trust is expected to be c. £1.7m by
FY18.
Figure 18 - Efficiency gain to the Trust
Source: Income and expenditure model v 7.5 (2012)
In addition to considering Essentia Trading’s growth potential, Essentia directors have also
considered the potential downside scenario from establishing the business. Under this
Developing Essentia – Full Business Plan – Jan 13
43
scenario, Essentia has assumed that Essentia Trading is not successful in winning any new
contracts and a decision is taken to wind up the business at the end of the first year of
operation. Under this scenario, the total cost over the first year is estimated to be around
£1.0m.
Due to the confidential commercial nature of the remainder of this section this is included in
a separate Confidential Board briefing pack covering the following sections:

Details of the Income and Expenditure Model

Revenue Assumptions

Resource Profile

Overhead details

Financial Projections
- Profit and loss Statement for Trading
- Income and Expenditure Statement for Core

Downside scenario financial assessment

Pricing

Taxation

Cost Improvement Targets and Efficiency Improvements

Appendices covering
- Global Financial Modelling Assumptions
- Revenue Assumptions
- Detailed resource profile by Staff bands
- Overheads
- Full Essentia Trading Profit & loss statement
- Full Essentia Core Income and Expenditure account
- Essentia Trading Tax Considerations
- Essentia Core Pricing
Developing Essentia – Full Business Plan – Jan 13
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Appendix A
The Essentia ‘Employee Promise’
As a service provider, the staff involved in delivering services to the Trust and a growing
client base are at the core of everything we do, and are therefore a significant consideration
for the Essentia Leadership team. It is in this regard that the Essentia Academy was created.
Whilst still early in its life, the Essentia Academy’s ultimate role is to become a vehicle for the
development of our current workforce and through better links with local schools, colleges
and universities, create a pipeline for the supply of staff in the future. Work has begun with
this and with the recruitment of Ambassadors from our current workforce and the start of
development programmes for our managers and staff.
An overarching objective of Essentia is to create and sustain a buoyant, motivated and
enthusiastic workforce within an environment of balanced and consistent management
optimism and opportunity.
Our staff are therefore critically important to the success of Essentia and its future, and so
through developing Essentia we will develop and take forward an ‘Employee Promise’ which
will create a positive employment environment, unique to Essentia and its purpose. Through
this we will create an environment where staff feel valued, supported, and developed, in an
environment which attracts and retains the best.
We want to reward our staff appropriately, both financially and non-financially.
Our staff have the right to expect:

management that is able to reward good performance but who will not reward poor
performance, that are visible, accessible, friendly and professional;

to be informed and involved and to understand our performance and our plans;

to have the opportunity to influence the shape and direction of Essentia and what we do;

to have access to the opportunity to grow, develop and learn;

consistency in treatment, regardless of role, location or background; and

a working environment that is professional, challenging but fun.
Essentia has obvious merits with respect to its commercial potential but has a range of
defining features which set it aside:

respect for each other at all levels within Essentia is something of high importance. To
the Essentia management team. Equally respect for those that we work with is important
as is respect for our people by those outside of Essentia

doing the right thing does not always mean doing the easiest thing. Constant attention to
detail and self-analysis have become defining features of Essentia and its people and
means that there is recognition of the need to constantly improve and to resist
compromise where compromise could result in deterioration
Developing Essentia – Full Business Plan – Jan 13
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
focus and action should never be slowed down by unnecessary bureaucracy

people may do different jobs but are equal and should be treated as such

everyone has the right to develop

There is belief that what we do we do well and as a consequence of this there is a strong
sense of pride in being part of the NHS and of Essentia

Structures and processes have been designed to be scaleable. By this we mean that
growth does not necessarily mean that things have to be taken apart, redesigned
or restructured

Fun is not a word which features regularly in documentation written to describe aspects
of work in the public sector or NHS specifically. In Essentia we believe that people work
best when they are happy and that contentment does not always result from pay
structures. Pride in consistent delivery, resistance to hierarchy and the freedom to enjoy
work and work colleagues are positive and commendable features.
Developing Essentia – Full Business Plan – Jan 13
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Appendix B
Essentia Commercial Form Criteria and Evaluation
Summary criteria and assessment of potential commercial form for Essentia
High Level criteria based around Essentia’s Vision and Value Proposition:

Assets

Workforce

Ownership

Governance

Risk Profile
Summary assessment of the potential commercial form for Essentia:
Division within GSTT
Trading subsidiary
Social enterprise e.g. CIC
Joint venture
Outsourced
/ MBO
• No transfer
• Some transfer
• Transfer dependent on form
• Transfer dependent on model
• Transfer dependent on model
• No transfer
• Some transfer, same Terms & Conditions
• Transfer, initially same Terms & Conditions
• Transfer dependent on model
• Transfer dependent on model • 100% GSTT
• 100% GSTT
• Dependent on form
• Balance dependent on form
• No GSTT ownership
Assets
Workforce
Ownership
• New legal entity
• New legal entity • Delegated
• Devolved
Governance
• GSTT
• GSTT
Risk profile
• Dependent on stakeholders
• More complex
• Shared, dependent on form (e.g. limited by shares or guarantee)
• Shared
• Contractual
• Two or more management teams
• Transferred
Assessment criteria:

safeguards services, assets and staff within GSTT;

meet GSTT, KHP and Essentia’s future objectives;

allow Essentia to trade freely with KHP and the wider NHS market including access
to GSTT staff, assets and know how held within Essentia;

comply with public sector procurement rules;

incentives for the staff, shareholders and leadership of Essentia;
Developing Essentia – Full Business Plan – Jan 13
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
allow for the introduction of flexible working practices within Essentia

does not place undue additional risk to working practices within GSTT

allow Essentia to develop new working practices for both internal and external work
to deliver improved productivity and innovation;

enables Essentia to deliver an “Employee Promise” to its staff, and offer a more
flexible reward structure that allows the workforce to benefit from increased
productivity and the generation of new income;

provides Essentia with greater financial and decision making autonomy and the
ability to respond quickly to market changes;

provides Essentia with more flexibility with respect to staff retention and recruitment;
and

provides Essentia with access to additional capital to fund business development
activity/new contracts.
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Appendix C
Draft Heads of Terms – Services
These Heads of Terms cover the contract between Essentia Core and Essentia Trading for services
that will be provided by Essentia Core to directly support a contract which Essentia Trading holds with
a third party e.g. supply of sterile services to another Trust.
Area
Position
Service to be Provided
Description of service to be provided
Term
Term to mirror main contract
Pricing
Service to be priced on a full cost basis plus mark-up
[6%].
Cost to be calculated on the same basis as main
agreement i.e. unit cost or total service delivery cost
Price to remain for term of contract subject to any cost
improvement provisions (see below)
Indexation
Indexation to follow provision in main contract
Cost Improvements
Provisions to mirror main contract but Essentia Core must
agree prior to contract signature
Payment terms
To be discussed but suggest paid [30] days following
receipt by Essentia Trading from customer
Payment Mechanism
Proposed payment mechanism
Variations
Proposed mechanism to deal with variations
Liability
Full flow down, unlimited or capped to contract value
KPIs
Provisions to mirror main contract but Essentia Core must
agree and approve prior to contract signature
Facilities and equipment
Essentia Core responsible for the provision of the facilities
and equipment to deliver the service
Maintenance
Essentia Core responsible for the maintenance of all
facilities and equipment
Insurance
Essentia Core responsible for insuring its assets
Staffing and training
Essentia Core responsible for the provision of the staff
and training to deliver the service
Key Employees
No change to key employees without the express
approval of Essentia Trading
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Materials
Essentia Core responsible for sourcing all the materials
required to deliver the service
Subcontracting
Essentia Core not to subcontract any aspect of the service
provision without the express permission of Essentia
Trading
Reporting
Provisions to mirror main agreement
Capital Investment
Essentia Core responsible for any additional capital
investment unless expressly agreed otherwise
Branding
Service to be branded as Essentia Trading
Termination
Provisions to mirror main contract
Mobilisation
Essentia Core to fund any mobilisation/pre contract costs
for its element of the service
Review
Monthly review of service provisions involving Essentia
Core, Trading and independent representative of GSST
Indicative activity and prices confirmed 2 month prior to
year end for following year
Forecasting
Rolling forecast of activity for 12 month period refreshed
monthly
This must have mirror provisions in main agreement
Exclusivity
Essentia Core to have exclusive rights to deliver the
services to Essentia Trading
Intellectual Property
Essentia Core to retain any IP created from the delivery of
the service
Exit Arrangements
To mirror arrangements in the main contract
Service Manager
Manager responsible for service to be expressly identified
Disputes
Proposed dispute resolution mechanism
Terms and conditions of
employment
Employee to remain an employee of GSTT and subject to
its terms and conditions of employment
Work hours and location
To be agreed on a case by case basis
Recruitment
Essentia Trading unable to recruit any Essentia Core staff
who are working for it under a service contract without
express approval of Essentia Core and GSTT HR team
(NB – suggest only applicable to staff above a certain
grade)
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Draft Heads of Terms – Corporate/Management Services
These Heads of Terms would be used to cover the provision of corporate or management support
services by Essentia Core or GSTT to Essentia Trading. The terms would need to be included in a
contract between the two organisations. Examples of services include finance and HR services and
senior team management of the business.
Area
Position
Staff service to be provided and by who
Description of service to be provided and name, grade
etc. for staff members responsible for delivery of service
Term
To be agreed on a case by case basis
Suggest max term of 12 months
Pricing
Price is total employment cost plus [10%] for overheads,
profit etc.
Variations
Proposed mechanism to deal with variations
Indexation
Price to be adjusted annually to reflect average Trust pay
increases
Payment
[30] days
KPIs
To be agreed on a case by case basis
Facilities and equipment
Essentia Core responsible for the provision of the basic
facilities and equipment required by the staff member in
the delivery of the service e.g. computer, desk, telephone
etc.
Specialist equipment for delivery of this specific service to
be provided by Essentia Trading
Maintenance
Essentia Core responsible for the maintenance of all basic
facilities and equipment used in the delivery of the service
Essentia Trading responsible for the maintenance of any
specialist equipment it has purchased
Insurance
Essentia Core and Trading responsible for insuring their
respective assets
Staffing and training
Essentia Core responsible for any training required for
staff provided
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Area
Position
Performance Management
Essentia Trading to provide performance appraisal
feedback for the work undertaken, to contribute to GSTT
performance appraisal system.
Disputes
Proposed dispute resolution mechanism
Key Employees
No change to key employees without the express
approval of Essentia Trading
Materials
Essentia Trading responsible for the provision of any
materials required for the delivery for the service
Reporting
To be agreed on a case by case basis
Capital Investment
To be agreed on a case by case basis
Termination
To be agreed on a case by case basis but suggest three
month notice by either party as base position
Terms and conditions of employment
Employee to remain an employee of GSTT and subject to
its terms and conditions of employment
Work hours and location
To be agreed on a case by case basis
Recruitment
Essentia Trading unable to recruit any senior Essentia
Core staff who are working for it under a service contract
without express approval of Essentia Core and GSTT HR
team
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Appendix D
Chart showing GSTT current structure for commercial enterprises and the potential
inclusion of Essentia Trading.
Developing Essentia – Full Business Plan – Jan 13
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Appendix E
Essentia Trading Reserve matters
This appendix contains an illustrative list of reserve matters for consideration
Number
Reserved Matter
Approver
1
Approval of the rolling 3 year business plan
Annually by GSTT Enterprises
Limited
Approval to be granted 2 months
prior to commencement of year
2
Materially amending the business plan or taking action that
would:

Lead to a material deviation from the business plan

Is not in keeping with the business plan
GSTT Enterprises Limited
3
Appointment or removal of Directors
GSTT Enterprises Limited
4
Taking on new material borrowing
GSTT Board
5
Entering into significant leases not envisaged in the
business plan
GSTT Board
6
Taking on material long term liabilities not envisaged in the
business plan
GSTT Enterprises Limited
7
Allowing the business to cease to trade
GSTT Board
8
Changing the name of the business
GSTT Enterprises Limited
9
Approval of contracts:

Up to £1 million
Essentia Trading Executive Team

Between £1 million and £5 million
Essentia Trading Board

Over £5 million
GSTT Enterprises Limited
10
Approval of bid submissions involving services not
envisaged in the business plan
GSTT Enterprises Limited
11
Approval of bid submissions involving:
GSTT Enterprises Limited
12

a onerous or unusual terms and conditions; or

a high risk profile; or

contract term in excess of [5] years
Approval of a bid submission requiring significant capital
investment by Essentia/GSTT
Developing Essentia – Full Business Plan – Jan 13
GSTT Enterprises Limited
54
13
Making material amendments to contractual documents not
envisaged in the business plan
GSTT Enterprises Limited
14
Entering into material contracts not envisaged in the
business plan
GSTT Enterprises Limited
15
Entering into any of the following which was not envisaged
in the business plan or are material to the business
GSTT Enterprises Limited

Changing support services agreements or
major changes to external contracts

Acquiring the whole (or part) of any
business or undertaking of any other
person

Disposing of all or part of the business to
another person

Disposing of a significant asset or IP to
another person

Participating in a joint venture agreement or
partnership
16
Making or proposing to make material changes to the terms
of employment of any employee or group of employees
GSTT Enterprises Limited
17
Entering into any contract or arrangement which is not on
an arm’s length basis or which falls outside the ordinary
course of business.
GSTT Enterprises Limited
18
Provision of performance guarantees
GSTT Board
19
Introducing additional services not envisaged in the
business plan
GSTT Enterprises Limited
20
Making redundancies that lead to material redundancy
costs not envisaged in the business plan
GSTT Enterprises Limited
21
Making capital investments in excess of [£x] or not
envisaged in the business plan
GSTT Enterprises Limited
22
Material changes to financial procedures and processes
GSSST Enterprises Limited
23
Issuing new shares in the organisation/introducing new
members
GSTT Board
24
Entering into arrangements with third parties for services
that could be provided by Essentia Core
GSTT Enterprises Limited
It has been assumed that decisions involving GSTT Enterprises will be made by GSTT Board until
such time as the new Board of GSTT Enterprises Limited has been recruited.
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Appendix F
Workforce benefits and risks of the recommended employment model for Essentia
Core and Essentia Trading:
Benefits
Risks
Essentia Trading acts as a contract winning
vehicle that boosts Essentia Core employee,
job security and employment prospects by
providing additional work where contracts are to
be delivered via GSTT existing infrastructure.
There is an Inherent risk of equal pay claims in
offering differing terms and conditions to
Essentia Trading employees to that of Essentia
Core which cannot be entirely eliminated. The
risk will be reduced by Essentia Trading
employees being based at different premises,
being employed on non AfC terms and Essentia
Trading setting its own employment terms and
conditions.
Existing Essentia core employees are
unaffected by the changes in that they remain
employed within the Trust on their existing AfC
terms.
It may be challenging to identify and assign
incoming staff to internal/external contracts and
allocate them to Essentia Core or Essentia
Trading.
Essentia Core will retain all existing staff
providing services to GSTT and will continue to
manage and deliver work to GSTT without any
loss of service or priority.
Future contract renewals may prove more
complex and will need careful assessment on a
case by case basis.
Any staff who will use Trust infrastructure to
deliver their service or who will work alongside
existing core staff will be TUPE’d into GSTT on
AfC terms. This should avoid employee
resentment within the Trust and internal
comparison issue.
Essentia Trading will be required to manage the
day to day issues of staff transferring in to the
new Company on AfC terms and working
alongside other directly recruited staff on more
flexible terms.
The Essentia Trading Reward proposition will
equate to the AfC value envelope and
demonstrate that the steps being taken in
Essentia Trading in relation to reward are
necessary, fair and proportionate along with
other factors to deal with market forces.
Essentia Trading may not acquire directional
status on the NHS pension scheme due to being
a “For profit” company however it is judged that it
is more likely that directional status will be
granted if Essentia is wholly owned by GSTT
and the connection between the entities is clear.
A significant proportion of employees in
Essentia Trading may be working on external
clients sites which will assist in demonstrating
that Essentia Core and Essentia Trading
employees are employed by different
establishments for equal pay purposes.
Developing Essentia – Full Business Plan – Jan 13
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Benefits
Risks
Equal pay risks have been identified to be “low
and manageable” for the employment model by
the Trusts employment law advisors.
The” corporate veil” is maintained and
governance and tax advice received regarding
how the Trust need to manage its commercial
ventures is upheld.
The Essentia Trading brand will be more easily
developed if all of the staff in it are focused
upon winning and servicing new external
contracts.
The Essentia Trading employment terms can be
offered to those that TUPE into Essentia
Trading on AfC terms as an employee choice
over a period of time.
TUPE is a legitimate defence against equal pay
meaning this will apply to Staff who TUPE into
Essentia Trading inside a specific service and
Equal pay claims on the basis of TUPE alone
will not be possible.
Provided that NHS services are provided for the
NHS by Essentia Trading and the surplus is
returned to the NHS then Essentia Trading has
a good case for applying for directional status
on pensions which will enable inward TUPE
transfers. The ability is retained to review
Pension arrangements at a later stage of the
business development if non NHS market
opportunities are developed.
Essentia Trading is able to create its own
employment terms and conditions that are of
equivalent value to AFC but with more market
flexibility on package and enhancements.
Secondments are not utilised/required and
pension issues for Trust staff are avoided.
Provision of services and expertise is facilitated
by the use of service level agreements.
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Appendix G
Comparison tables showing Market Pricing of Sample Essentia Roles, including Cost
Comparison to AfC
Developing Essentia – Full Business Plan – Jan 13
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Developing Essentia – Full Business Plan – Jan 13
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Appendix H
Workforce Next Steps and Dependencies required before 1st April 2013
Actions

Development of a suite of material factors (not related to gender) that justify differences
in the Essentia Trading terms and conditions and pay. This information will be required
to demonstrate reasonable business justification should any equal pay claims be
submitted.

An analysis of market pay rates for specific roles included in the categories already
mentioned in the Essentia Trading business plan will need to be undertaken to inform
justifications. This work will need to be reviewed by Trust Employment law advisors to
test it is robust.

Development of a full suite of Essentia Trading employment policies that are distinct and
different from AFC terms along with an approach to job grading and the establishment of
new job roles.

Development of TUPE transfer criteria and guidance for Core and Essentia Trading.

Guidelines on Service Level Agreements for the provision of staff services between
Core and Essentia Trading and vice versa.

An application is drawn up and submitted to the NHS Pensions Agency for directional
status on the NHS pension scheme to be awarded to Essentia Trading.
Critical dependencies

That the Essentia Trading reward package is designed to be of equivalent financial
value to AfC terms but in a more flexible format and that the alternative Reward
package, once developed, is tested with Trust employment law advisors to test its
robustness in terms of Equal pay challenges before use.

That Essentia Trading gathers evidence to justify why different terms and conditions and
pay rates for specified roles are to be offered. Market factors and business reasons
need to be developed that will need to be assessed by Trust Employment law advisors.
Procedures will also need to be put in place to ensure that terms and on-going pay
differential awards are monitored to ensure they remain justifiable over time.

That Essentia Trading is set up from a Governance perspective so that its Board has
clear responsibility and discretion in setting its own terms and conditions of employment.

That a full suite of employer terms and conditions and policies are created for Essentia
Trading along with a separate non AfC grading system.
Developing Essentia – Full Business Plan – Jan 13
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
That each TUPE transfer as it occurs is reviewed carefully against an agreed set of
guidance and criteria for transfers. The transfer criteria need to be adhered to in order to
preserve the business employment model and minimise potential equal pay claims.

That managerial complexity between Essentia Core and Essentia Trading, particularly in
relation to future contract renewals is given careful consideration and each contract
renewal and consequent TUPE transfer is considered on a case by case basis.

That the benefits of the preferred employment approach for existing Essentia core staff
are highlighted and discussed with Trust staff and Trade Unions to influence a positive
employeel relations climate and reduce any opposition to separate terms and conditions
from Trade Union colleagues or existing Essentia Core staff.

That SLA’s are set up for Core Trust staff (particularly in the management grades) to
provide expertise to Essentia Trading and assist in its growth and development. The
SLA’s will require meticulous management and review, performance levels and
contracted services. Trust staff will be required to adopt a customer approach towards
service delivery to Essentia Trading. SLA arrangements will be terminated when
functionality is recruited direct in Essentia Trading over time and services are no longer
required.

That an Intelligent resourcing system is developed in Essentia Core to enable
identification/allocation of resourcing onto varying contract work. This will enable
onwards TUPE if contracts are lost upon rebidding.

That Trust developments on pay, reward and productivity are utilised as they occur and
are utilised to improve service levels and productivity in Essentia core.

That Essentia Trading applies for and is granted directional status and then provided
access to the NHS Pensions scheme on the basis of being “By NHS for the NHS” and is
provided with support and advice from Its legal employment advisors to maximise the
chance of a successful application.
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