MegaProject 1339: Carillion collapse sees second multi-million pound hospital PPP terminated in the UK
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The Royal Liverpool and Broadgreen University Hospitals National Health Service (NHS) Trust has announced that its Board of Directors has decided to terminate the PPP contract to construct and maintain a new hospital in its service area.
The 30-year contract, structured under the UK government's PPP model - Private Finance Initiative (PFI), was awarded to Carillion in May 2013. Estimated to cost GBP335 million (US$440 million), the 646-bed hospital was originally scheduled to be completed and handed over to the Trust in March 2017. The completion date was pushed back three times before Carillion went into compulsory liquidation earlier this year.
The Trust's statement on the decision to terminate the contract details that the collapse of Carillion created an unprecedented situation with numerous complex legal and commercial issues. Despite this, a statement released earlier this month disclosed that the main funders of the project, the European Investment Bank (EIB) and Legal and General pensions, remained committed and were prepared to invest significant additional funding to achieve completion.
However, the Trust's priority is restarting construction as soon as possible. The Board of Directors has concluded that this cannot be achieved within the existing PFI agreement. The termination date of 30 September corresponds to the long-stop date in Carillion's original contract.
Subject to detailed government approvals and legal agreements being finalised, the Trust intends to commence a managed termination process after 30 September, by which the benefit of the analyses and pre-works discussions by the lenders will be transferred to the Trust. This will see the special purpose vehicle (SPV) hand over its contracts for construction, supply chain and facilities management, to the Trust, over the course of the next few months.
Subject to legal agreements being reached, the Trust is hoping for construction work to restart in November. If this is the case, the new hospital will be completed in 2020.
Last month, a similar decision was taken by the Sandwell and West Birmingham Hospitals NHS Trust to terminate Carillion's 30-year contract to deliver and maintain a new hospital, which was two-thirds complete when the company went into liquidation in January.
The total construction cost of the Midland Metropolitan hospital is now expected to be between GBP500 million (~US$655 million) and GBP650 million (~US$855 million). This is a huge increase on the estimated total investment at the time of the award (August 2015) - GBP350 million (now US$460 million).
The Royal Liverpool and Broadgreen University Hospitals National Health Service (NHS) Trust have not released cost estimates for the new Royal Liverpool hospital, but the figures above indicate that the collapse of Carillion will have had a significant detrimental impact.