The two PFI (Private
Finance Initiative) hospitals that Carillion was building at the time it
collapsed - Royal Liverpool University Hospital and Midland Metropolitan
Hospital - are currently due for completion several years late.
However, the
government has ensured that most of the increased construction costs so far
have been borne by the private PFI investors and Carillion, rather than the
taxpayer, according to a new investigation by the National Audit Office (NAO).
The
NAO’s report finds that the 646-bed Royal Liverpool, which was due to open in
June 2017, is now forecast to be completed more than five years late, in the
autumn of 2022, and the Liverpool University Hospitals NHS Foundation Trust has
not yet set an opening date. It is now predicted to cost a total of £1,063
million to build and run compared to the original £746 million.2 The taxpayer is currently expected to pay £739 million of this, a
reduction of 1% from what was originally planned.
The
669-bed Midland Metropolitan, which was originally due to open in October 2018,
is now expected to open in July 2022. The hospital is due to cost at least £988
million in total to build and run - over £300 million more than the original
£686 million.3The
taxpayer is currently expected to pay £709 million of this, an increase of 3%
from what was originally planned.
The private sector has
borne most of the cost increase: shareholders, investors, insurers and
Carillion have lost at least £603 million on the construction of both projects.
The government wanted to ensure the private sector honoured its contracts and
rejected proposals that it should provide more public funding to ‘bail out’ the
PFI schemes or reduce the risk that lenders were exposed to.
Unite, the UK and
Ireland’s largest union, says the report highlights the government failures to
get the two flagship Carillion hospitals built, creating misery for patients
and staff forced to cope with failing buildings.
Some of the delay was
a result of the government being initially still wedded to completing both
projects under the Private Finance Initiative (PFI). However the problems were
so great that not only could PFI not be used for the two hospitals but the government
has scrapped in its entirety.
The report does
highlight that the government wrongly paid £42 million in compensation to the
private investors on the Royal Liverpool. If it had delayed paying the
compensation until it was fully aware of the cost of the project to complete,
the money could have been saved.
Unite assistant
general secretary Gail Cartmail said: “The report makes for grim reading and
endorses what hospital patients and NHS staff in Liverpool and the West
Midlands already knew.
“Two desperately
needed hospitals are going to be years late and in the meantime local
communities are left with facilities that are no longer fit for purpose.
“The responsibility
for these delays has to lie squarely at the door of the government, which
consistently failed to prioritise the overriding need that these hospitals had
to be built.
“While the report
notes the financial cost of the projects the human cost of the delays of
completing the hospitals has not been recognised.”
The NAO
reveals that there were significant construction problems and delays before
Carillion went into liquidation on 15 January 2018 but the contractor’s
collapse created more delay. Work on both sites stopped while the hospital
Trusts, government and the private investors attempted to rescue the projects.
By September 2018, these attempts had failed; government decided to terminate
the PFI schemes and provide public financing to complete the hospitals. It has
then taken time to put in place new contracts and restart the projects.
The full extent of
construction problems at Royal Liverpool began to emerge after Carillion
collapsed and over the course of 2018. The new construction contractor has had
to strip out three floors of the building and start major work to reinforce the
structure with steelwork and additional reinforced concrete.
The Department of
Health & Social Care (DHSC) paid £42 million compensation to Royal
Liverpool’s investors to terminate the PFI contract. The contract required the
Trust to pay compensation to the PFI company’s lenders, based largely on the
estimated cost to complete the hospital, before the actual cost to complete the
hospital was known. Had the Department and Trust better understood the cost to
complete the hospital, they may not have paid anything to the lenders. The
estimated cost of completing the hospital has risen from £117 million in
September 2018, when DHSC agreed the termination payment, to £293 million now.
The new suppliers for
both the Trusts were chosen without competition. After the termination of the
PFI contract, in order to restart the Liverpool project without further delay,
the Liverpool Trust agreed contracts with several new suppliers without a public
procurement process. The Sandwell and West Birmingham Hospitals NHS Trust ran a
public procurement for the contract to complete Midland Metropolitan taking 15
months, which only attracted one viable bidder.
There are significant
risks of further delays and added costs at the hospitals, although their
situations are different. Both Trusts are now directly managing the contracts
with new construction firms.
At Midland
Metropolitan, the Sandwell Trust has negotiated a ‘target price’ for work by
its new contractor, Balfour Beatty, and prices should not rise unless the Trust
changes the scope of the project or there are unforeseen problems with
Carillion’s work.
At Royal Liverpool,
the new main contractor, Laing O’Rourke, has no contractual incentives to
control costs. NHS England and NHS Improvement has worked with the Liverpool
Trust to develop additional oversight arrangements such as using an independent
construction consultancy to advise on the appropriateness of costs.
