The government has confirmed it will directly fund the completion of Carillion’s Midland Metropolitan Hospital project.
The Department of Health and Social Care said the agreement will see the hospital delivered by 2022.
Sandwell and West Birmingham Hospitals NHS Trust had explored the possibility of a new PF2 deal to replace the one that collapsed following Carillion’s liquidation.
However, this option was abandoned due to the high construction costs caused by the risk involved to the contractor, as well as a general lack of support for the PF2 approach in the market, the trust said.
CN reported earlier this month that analysis by Deloitte put the cost of completing the hospital through a contract procured by a public sector client at £319m, based on estimates from a major contractor.
When Carillion collapsed in January, the firm had carried out £205m of work on the new hospital.
Based on Deloitte’s estimates, the hospital’s total construction cost under the deal announced today would be £524m – a 50 per cent increase on the original £350m budget.
If the hospital had been progressed under a new PF2 deal, which would have placed more risk on the contractor, Deloitte quoted the additional cost at £424m – which would have taken the total to £629m.
The DHSC said today: “The government has thoroughly assessed their proposal and concluded that the only viable option was for the public sector to bring in its own contractors and that a one-off funding agreement would therefore be in the best interest of patients and taxpayers alike.”
Procurement for a new contractor will start soon, with an appointment to be made by November this year.
Trust chief executive Toby Lewis said: “We will continue to engage with the construction market over coming weeks and build towards a formal procurement by November this year.
“We always said Midland Met would be delivered and the doubters were wrong.”
The trust is currently looking for an interim contractor to carry out some remedial and enabling works before a new contractor is appointed.
The cost of this is estimated to be £21.5m, with the contractor element worth £13m.
A tender for this was launched on 6 August and the contractor is expected to be appointed in September.
Midland Metropolitan Hospital: Timeline
- April 2015 – Carillion left as sole bidder for the job after Laing O’Rourke and Interserve pull out
- August 2015 – Carillion wins £350m construction contract with completion set for mid-2018
- Early 2017 – Delays push completion back to spring 2019
- 15 January 2018 – Carillion enters liquidation
- 12 March – CN reveals Kier and Skanska are in the running to finish the hospital
- 15 March – Skanska takes pole position to complete the project after CN reveals Kier has pulled out
- 20 April – Midland Metro mayor Andy Street writes to government urging Skanska’s appointment
- 24 May – NHS trust say appointing a new contractor is being held up by the Treasury
- 8 June – The Treasury and five banks jointly agree to terminate the PF2 deal
- 6 July – The trust and Treasury approach contractors and funders about setting up a new PF2 deal
- 2 August – Trust board papers reveal a major contractor has quoted between £319m to £424m to complete the hospital
- 16 August – Government agrees to directly pay for costs to complete the hospital
- November 2018 – A contractor to finish the hospital expected to be appointed
- 2022 – Scheduled completion, four years later than originally planned