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Hospitals on the sick list

AGENDA - With PFI hospital schemes failing at an alarming rate in the past few months, Andrew Hankinson looks at what is being done to attract bidders back to landmark projects

IN THE week of the celebrations to mark the two hundredth anniversary of Lord Nelson's most famous victory at sea, one contractor sighed that the Government's new batch of Private Finance Initiative hospitals were 'sinking faster than a Frenchman at Trafalgar' Last week the latest scheme to founder was the £240 million redevelopment of Derriford Hospital, which was put on the market by Plymouth Hospitals NHS Trust in September 2004.

It would seem that the twin problems of a flooded market and muddled thinking by NHS trusts are leaving contractors uninterested in schemes that are worth hundreds of millions of pounds.

Amey had been left as sole bidder for the Plymouth scheme and had endured protracted negotiation before the whole thing was eventually torpedoed.The development will be readvertised as a series of smaller packages this autumn.

The highly ambitious £1 billion Paddington Health Campus also capsized in June.Billed as the Government's flagship health project, it was scuttled after becoming an embarrassing white elephant. Five years of planning and £14 million of taxes were spent but still the trusts could not come up with a coherent proposal.The three hospitals involved will now be redeveloped individually.

The other major recent folly was the £350 million Whipps Cross hospital development in east London, which died in April.The NHS trust pulled the plug after Balfour Beatty quit, leaving Bouygues as a sole bidder.Once again this development is expected to resurface - some time next year.

All this leaves taxpayers out of pocket and contractors scratching their heads.

The head of business development at Bouygues, Ian Gunter, admitted: 'Bidding for Whipps Cross hospital has cost us considerably more than £1 million.'

He warned that the days of two-bidder races could be over. Contractors, he said, are fed up with being let down. He added: 'We put forward several arguments for continuing as the sole bidder.Two project directors for clients at similar schemes told us that, although it is not an ideal situation, they would continue and use it to their advantage.They were enthusiastic that they would be able to get what they wanted as they had the ultimate sanction of being able to halt proceedings.At Whipps Cross there were three schemes near by which could have been used as benchmarks.'

Contractors' frustrations are understandable.According to the Major Contractors Group the Government's PFI hospitals programme is now running almost three years behind schedule and the procurement process is getting slower and slower.

Firms are starting to cherry pick from the £16.5 billion of major PFI health projects as the market lacks the resources to cope with all the work.Mr Gunter said: 'How many contractors will continue bidding for projects once there are only two bidders if this is what happens? I think firms will be shying away unless there are three bidders.With the current market situation there are not many schemes that can attract that much interest.'

Derriford Hospital, the latest scheme to be canned, had been limping along for a while with only one bidder.Last week Plymouth Hospitals NHS Trust told the Spanish Medico Vanguard consortium, which features Amey, that it was surplus to requirements.

Andy Ibbs, the project director at the trust, said: 'It would have been far from ideal to be negotiating with just one bidder on a major project such as this. It would have presented us with problems such as a lack of visible competition and made it very difficult to ensure that what we deliver is the best value for money.

'The lack of interest is difficult to explain. I think over the last 18 months there has been a lot of these schemes. In the end it has come down to an issue of capacity.With this project we spent a lot of time marketing, trying to sell it rather than the other way around.

'A problem particular to this development is that it is in the south-west.

There is no major road link and none of the major contractors are based here, which makes it very difficult to raise interest.

'Another problem was that the focus was on refurbishment, which carries much greater risk and is less attractive to potential partners.The scheme at Whipps Cross had similar problems due to the complications of the site.

'My sense is that the market is beginning to free up again.To improve the scheme's marketability we are doing it in two phases and have reduced the amount of refurbishment.The first part will be worth around £200 million and go to market in autumn.The other part has not yet been costed and will probably get to the market this time next year.'

Despite the positive outlook there is a feeling the NHS is some way short of getting its house in order, despite all the talk of the past few years.

MCG director Stephen Ratcliffe said: 'The process here needs to speed up as contractors are moving abroad where the process is much shorter than in the UK.

'Most contractors have never had it so good.They are becoming much choosier with what they bid for due to the procurement time on major PFI schemes.

'What surprised me is that these projects were scrapped once a bidder was on board.This is the major frustration for contractors.Projects are started and then cancelled halfway through.What is worrying is that the schemes are getting to the market when they are unaffordable.The trusts seem to be hoping that competition and redesign will bring costs down.'

There is nothing in EU procurement rules that says a single-bidder project cannot be pursued.

One industry source said: 'The Treasury published a report on how to handle single bids so there is no excuse for not going ahead should an authority be left in that position. It is up to clients to build market data and use that to measure the bid.With the number of major hospitals being built it is difficult to believe that that data is not available.

'The other problem is that of market capacity.These are very big and expensive builds.The authority in charge, in this case the Department of Health's Private Finance Unit, needs to manage the workflow much more effectively.'

Despite the flood of schemes leaving contractors unwilling to participate, and the massive cost of cancelled procurement, the department does not seem too worried. Nor does it seem to be doing much to support its NHS trusts.

A spokesman at the DoH said: 'The department talks to the market on a continuous basis.Over the past few years market capacity has expanded, with Multiplex and Amey/Ferrovial joining.We also work with Trusts to increase the attractiveness of the scheme or market capacity.

'Single bidders emerge for a variety of reasons.These could include remote location, shortage of market capacity or the attractiveness of the scheme to the bidding market.

'Our position has always been that it is up to the trusts to demonstrate that continuing with a single-bidder represents the most pragmatic and best value way ahead.'

The department can point out that more contractors are bidding work but adding two more firms to the usual roster hardly represents a giant leap forward. It would seem that more hospital schemes will end up with a single bidder.

The department seems to be leaving it to the individual trusts to make do and mend.Or in some cases make it up as they go along.

The MCG's Mr Ratcliffe wants less muddle and more commonality.He said:

'With the number of major hospital developments that have already taken place it should be easy for trusts to use benchmarks.However, with every project it seems that the health trust starts again.There is just too much waste.'