MegaProject 1307: UK health authority scraps retender of cancelled US$450 million hospital PPP
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Sandwell and West Birmingham Hospitals (SWBH) National Health Service (NHS) Trust has recommended that the Midland Metropolitan hospital, located in Smethwick, in the West Midlands region of England, be completed using public funds. The local health authority awarded a 30-year contract for the design, construction, financing and maintenance of the hospital to Carillion in August 2015.
The hospital was two-thirds complete when Carillion went into compulsory liquidation in January, due to its GBP900 million (then US$1.2 billion) in debt and a GBP587 million (then US$800 million) pension deficit. Since then, all works have stopped.
In June, it emerged that the UK Treasury was intending to procure a new private partner to take over the project, having rejected an early works contract to be awarded to Skanska to restart construction.
However, further analysis has caused SWBH NHS Trust to prioritise speed of implementation, as continued time delays will increase costs. The authority believes that public finance will enable completion of construction sooner than the selection of a new private partner. The hospital was initially scheduled to open next year, but this has now been pushed back to 2022.
Private finance would also be more expensive. Analysis by Deloitte, commissioned by the Trust, concluded that the hospital would cost GBP319 million (US$416.7 million) to complete with standard public sector procurement, and GBP424 million (US$553.8 million) if completed under a new PPP contract. The increase is due to the increase in risk for a contractor under a PPP contract.
A separate analysis by the UK government's Department of Health and Social Care estimated the cost of completing construction by either a publicly or privately procured contractor would be GBP300 million (US$391.7 million).
Considering the costs incurred by Carillion in the two-year construction period up to its liquidation, the total construction cost of the hospital is now expected to be between GBP500 million (~US$650 million) and GBP650 million (~US$850 million). This is a huge increase on the estimated total invesment at the time of the award - GBP350 million (now US$457.2 million).
If SWBH NHS Trust's recommendations are approved by its Board, it is expected to ask the Treasury for GBP150 million (US$195.9 million) to finish construction. This still leaves a significant funding gap, so it remains to be seen whether the new plans will indeed deliver the hospital without further delay.