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New PPP model for £1bn Watford hospital

A £1 billion hospital-led regeneration scheme in Watford is set to become one of the largest deals yet to be delivered using a so-called Local Asset Backed Vehicle structure.

The Watford Healthcare Campus, which was granted outline planning permission last week, features a new acute hospital for the city along with redevelopment of Watford Football Club’s Vicarage Road stadium, 500 new homes, a hotel, primary care facilities and as a series of infrastructure packages to provide transport and services for the site.

With planning approved the nine organisations involved in the campus - including local councils, NHS trusts and the football club - are all now considering how to deliver the scheme.

Campus project director Kyle McClelland said: “We could all now go our separate ways but we are investigating the possibility of forming a single development organisation, like a Local Asset Backed Vehicle, using new procurement methods.

“One big decision will be whether we keep the hospital in the development organisation or outside. If it is outside it could be delivered using Private Finance Initiative funding but if we retain it, it could be that it is funded and delivered by our development partner.”

LABVs allow public sector clients to form a joint venture with a private sector developer, with the public sector offering its assets in return for equal investment in regeneration work by the developer, with both sides sharing in any profits.

Another early trial of the LABV structure will next month see either John Laing or Land Securities Trillium chosen by Croydon Borough Council in south London to redevelop its town centre and council offices.

Earlier this year the campus team received reports from accountants Ernst & Young, lawyers Trowers & Hamlin and property experts Savills about how the single development organisation could be set up, and is now in the process of securing further consultants to supplement that work.

It has also carried out soft market testing with a range of major developers, contractors and consultants to check the viability of its proposals.

It is planned that the project organisation will be set up by the end of the financial year, allowing it to proceed with procurement of a development partner.

The business case for the hospital is set to be submitted for go-ahead by late 2009 - a decision is due in the first quarter of 2010. Overall work on the campus is expected to take around a decade to complete.

Analysis: Complex approach not always correct

By Chris Pratt

The idea of public sector assets being developed in partnership with the private sector, with the private sector taking some risk in return for a share of the return, is now established.

It has been used on a number of projects that prove that it works.

Key to making the Watford scheme work will be the public sector knowing what is important to it
and ensuring that these factors are central to its approach.

LABVs are complex and should not be used if a simpler approach will work. There needs to be good reasons for using them.

For both the private and public sector this is an expensive way to become involved in a project so it all needs to be tested.

The partners need to know their risks and the return.

If this is a simple property transaction there are faster and cheaper ways of achieving the objectives that should be considered.

But if the public sector wants to share profits and retain control of a range of project deliverables, the starting point of a LABV structure is what is needed.

Chris Pratt is managing director of King Sturge Financial Services

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