Transferring a General Dental Services (GDS) NHS Contract to a Limited Company
Why transfer a GDS contract to a limited company?
Sole traders or partnerships owning a GDS Contract may prefer their GDS contracts to be held by a limited company for a number of reasons, these commonly include:
- Financial – A limited company may be a more tax efficient vehicle for the receipt of payments due under a GDS contract;
- Legal – A limited company is a separate legal entity to the individual(s) who control or have shares in the Company and correspondingly the Company has the benefits and burdens of that status; and/or
- Practical – There may be practical reasons for a transfer of a GDS contract to a limited company such as ensuring all Practice assets are under “one roof” or to make a sale of the Practice in due course easier.
Whatever the reason for the desired transfer, the process is not straightforward.
The “Problem”
Unfortunately, GDS Contracts do not contain any mechanism to allow the Contract holder to transfer the NHS Contract to a limited company as “of right”. As such the Contract holder has to apply to their Local Area Team (LAT) for permission to transfer.
NHS England’s Policy Book for Primary Dental Services makes it clear that there is no express right to incorporate the Contract. Further the Contract holder should be warned that the LAT could decide to competitively tender the new contracts in accordance with procurement law. However, the Policy Book goes on to state that if the new contract is not likely to be substantially modified, the new provider complies with relevant checks and a contact is needed in the proposed area, there may not be a need for a new procurement procedure.
The Process
Following an application to transfer the Contact to a limited company, the Contract holder will be sent an “assessment template” to complete.
Upon receipt of the completed template the LAT will consider a lengthy list of considerations. These are set out in the Policy Book in full but include: –
- The value of the contract
- The level of market interest (given many reports of Practices handing back their GDS Contracts now may be a good time to approach LATs)
- Payments under the existing contracts and value for money. LAT’s have previously looked at the UDA rate payable under a GDS contract and considered if the Practice enjoys a higher rate than the average for the area. The LAT have previously indicated that consent to a transfer will depend on the Practice agreeing to a lower UDA rate so that it matches the average for the area.
- Benefits to service users of the proposal (will incorporation allow the Contract holder to attract more investment to use in the Practice – for example?)
- Opening hours (can the contract holder offer increased opening hours as a means of encouraging NHS consent?)
- Does the existing contractor have any outstanding debts owing to the NHS (for example previous years’ underperformance)
- Has the existing contractor received breach or remedial notices which, in particular, remain to be complied with?
- Does NHS England/Wales require the existing contractor to guarantee the performance of the limited company under the new NHS Contract? (See below for more on this).
Proposal accepted!
If LAT accepts the transfer, they will not simply transfer the existing contract and will issue a ‘Novation’, of the contract. A Novation is a legal mechanism which transfers a party’s legal obligations and benefits under a contract to a third party. The Novation is seen as an entirely new contract, terminating the last one but incorporating its terms into the new contract.
The NHS will not issue a Novation without looking to add some protections to it. The two most common protections the LAT will want will be:
- A ‘Guarantee’, i.e. that the original provider will guarantee the limited company’s performance under the NHS Contract.
A Guarantee is a promise by one party (the guarantor – the original provider) to another party (the guaranteed party – the NHS) to be responsible for the due performance of the obligations of another party (the principal – the Limited Company). The Policy Handbook notes this is commonly asked to be removed or amended. It states that the decision to remove the guarantee or keep it is a local one. However, the Policy Handbook does state that the local LAT may want to allow for the removal of the guarantee if there is a further change to those in control of the company (with the new incoming owners no doubt being asked to guarantee afterwards).
- A ‘Change of Control’, provision.
The LAT will likely require the addition of a ‘Change of Control’, provision. This will require the Company to inform the LAT in advance of any changes in the Company’s shareholding and ensure that the Contractor cannot change the shareholders of the Company without the prior consent of the LAT. The Policy Handbook states that the consent from the LAT should not be unreasonably withheld or delayed.
Getting it right
If the LAT refuse permission, there is little that can, practically, be done. The only recourse may be a potentially costly, untested and possibly futile judicial review of the LAT’s decision. On the whole an undesirable and messy circumstance.
Proceeding to try and transfer the Contract without LAT prior consent may cause the LAT to issue a Remedial Notice and try to terminate the Contract for breach.
Considering the potentially severe consequences of not transferring the GDS contract appropriately or at all, it is safe to say that it is better to ask for permission than forgiveness.
All in all, much to think about, but with suitable expert advice, contractors who are up to date with their UDAs and any repayments to the NHS, stand a reasonable chance of obtaining permission on reasonable terms.
PFM Dental Legal can help negotiate the conditions imposed to transfer by the LAT, the terms of any Novation Agreements and with the terms of any required guarantee. Please consult us well in advance of any proposal application to the LAT so we can ensure your application stands the best chances of success.
