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Treasury agreed to terminate PFI on Midland hospital

The decision to end the PFI deal on the Midland Metropolitan Hospital following Carillion’s collapse was made by the Treasury as well as the banks involved, Construction News has learned.

It had previously been reported that the decision to scrap the PFI deal was made by the consortium of five banks – the European Investment Bank, Credit Agricole, KfW IPEX, DZ Bank and Sumitomo Mitsui – which were part-funding it.

However, Construction News has learned the decision to end the deal was mutually agreed between the banks and the Treasury – which has a £100m stake in the project.

A source close to the deal said the banks “had been keen” to reach an agreement to complete the hospital, but a solution could not be agreed with the Treasury.

As a result, the Treasury and the banks jointly agreed to terminate the deal.

CN understands that the government is now exploring the possibility of putting a new PFI deal together to finish the job and is going to the market to discuss this option.

If a new PFI deal cannot be agreed then it will most likely be completed as a government-procured construction job.

A government spokeswoman said: “We remain absolutely committed to getting the new hospital built as quickly as possible – and are supporting the trust to achieve this while also ensuring that taxpayers’ money is spent appropriately.”

Carillion signed a £350m deal to build the hospital in 2015 with a 30-year agreement to carry out facilities management.

In early January prior to its collapse, Carillion asked the Cabinet Office for £125m to cover costs on the Midland Metropolitan Hospital in exchange for a further equity stake, which the government declined.

After the contractor entered liquidation the Sandwell and West Birmingham NHS Trust tried to strike a deal to keep Carillion staff working on the job.

Skanska was understood to be lined up to take over the project, with West Midlands metro mayor Andy Street urging the Treasury to confirm its appointment.

However, a replacement contractor is now not expected to be named until new funding is agreed.

In a recent update for Sandwell Council, the trust warned costs to repair work that had deteriorated since Carillion left site would be “eight figures”.

Completion of the hospital was initially pushed back to 2020 when Carillion collapsed, but the trust now believes a 2022 opening is “the most likely scenario”.

A recent report from the National Audit Office into contractor’s collapse said the firm lost around £48m on the job in 2017.

The report said the structural design was poor, critical design elements were 17 months late in being completed, and there were difficulties fitting the plant and machinery into the building.

Meanwhile the benefits of PFI deals for the public sector have been questioned again in a report from MPs on the public accounts committee.

The report published last week found PFI deals were “not working for the taxpayer” and that the lack of PF2 projects in the pipeline showed “the government has lost faith in its own usage of PFI”.

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