Delays and increased costs at former Carillion projects

A National Audit Office (NAO) report published on 17 January reveals that the two PFI hospitals Carillion was building at the time of its collapse – the Royal Liverpool University Hospital, and the Midland Metropolitan Hospital – are currently due for completion over five years, and nearly four years late, respectively.

However, says the report, Investigation into the ‘rescue’ of Carillion’s PFI hospital contracts, the government has ensured that most of the increased construction costs to date have been borne by the private PFI investors and Carillion, rather than the taxpayer.

The 646-bed Royal Liverpool, originally due to open in June 2017, is now forecast for completion over five years late, in autumn 2022, with the Liverpool University Hospitals NHS Foundation Trust having not yet set an opening date. The hospital is now predicted to cost over £1 bn to build and run, compared with the original £746 m – of which the taxpayer is expected to pay £739 m, a 1% reduction from the amount originally planned.

The 669-bed Midland Metropolitan, which was set to open in October 2018, should now open in July 2022, and cost at least £988 million to build and run – over £300 m more than the original £686 m – of which taxpayers are expected to pay £709 m, 3% up on the original figure. To date, shareholders, investors, insurers, and Carillion have lost ‘at least £603 m’ on the construction of both projects.

The full extent of construction problems at Royal Liverpool began emerging after Carillion collapsed, and during 2018. The new construction contractor has had to strip out three floors and start major work to reinforce the structure with steelwork and additional reinforced concrete.

The Department of Health & Social Care (DHSC) paid £42 m in compensation to the Royal Liverpool’s investors to terminate the PFI contract, which required the Trust to pay compensation to the PFI company’s lenders, based largely on the estimated completion cost, before that actual cost was known. The NAO says that, had the Department and Trust better understood this cost, ‘they may not have paid anything to the lenders’.

The new suppliers for both the Trusts were chosen without competition. After the termination of the PFI contract, the Liverpool Trust agreed contracts with several new suppliers without a public procurement process so as to restart the Liverpool project without further delay, The Sandwell and West Birmingham Hospitals NHS Trust ran a 15-month-long public procurement for the contract to complete Midland Metropolitan, attracting just a single viable bidder.

The NAO says ‘there are significant risks of further delays and added costs’ at the hospitals, although ‘their situations are different’. Both Trusts are now directly managing the contracts with new construction firms. At Midland Metropolitan, the Sandwell Trust has negotiated a ‘target price’ for work by Balfour Beatty. The NAO maintains that ‘prices should not rise unless the Trust changes the project’s scope or there are unforeseen problems with Carillion’s work’. At the Royal Liverpool, new main contractor, Laing O’Rourke, ‘has no contractual incentives to control costs.’ NHS England and NHS Improvement have worked with the Liverpool Trust ‘to develop additional oversight arrangements’ – such as using an independent construction consultancy ‘to advise on the appropriateness of costs’.