PFI contract for Royal Liverpool hospital officially terminated

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The Royal Liverpool and Broadgreen University Hospitals NHS Trust has announced that the PPP contract to construct and maintain a new hospital in its service area, awarded to Carillion in May 2013, has been officially terminated. The Trust has signed the legal agreement to terminate the contract.

This agreement was reached in principle at the end of September, after the Trust Board agreed to the termination, and will take effect immediately. The project company established by Carillion will now transfer their contracts to the Trust, which has appointed Laing O’Rourke as Management Contractor.

Construction is expected to commence on site from November, with the new hospital expected to be completed in 2020.

The project will now be publicly funded. Funding for the remaining construction work identified to date is being provided by the UK government's Department of Health and Social Care (DHSC), through Public Dividend Capital funding.

Under the terms of the original contract, the funders will receive a termination payment from the Trust (provided as above, by the DHSC), which has been agreed at GBP42 million (US$53.9 million), as well as funding held by the project company at the time of its winding up, following Carillion's liquidation in January this year.

This is required to cover unitary payments that the project company will no longer receive, and deducts the cost of the remaining construction work, and the projected cost of maintaining the hospital – both of which will now fall to the Trust.

Taken together with earlier payments made by the Trust, the total cost to the public sector of the new hospital will be lower than envisaged when the project agreement was signed. The government is currently finalising details of the funding package.

In line with the risk transfer arrangements agreed in the original contract, the lenders will lose a substantial proportion of the funding they have advanced. In addition, the equity funders (Carillion Private Finance and Pensions Infrastructure Platform) will lose all their investment.

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