Trust told it could cost more than £400m to finish Carillion hospital
August 03, 2018 – A contractor said it would charge £424m to finish the Midland Met if procured through a new PF2 deal
A major contractor has quoted between £319m and £424m to finish Carillion’s stalled Midland Metropolitan Hospital job, according to a financial assessment by Deloitte.
The analysis was published ahead of today’s meeting of board of the Sandwell and West Birmingham NHS Trust and showed a strong market reluctance to take on the job as part of a new PF2 deal.
The contractor’s £319m price tag for the job is based on the job being completed under a straight construction contract.
If the job was to be let under a new PF2 deal the unnamed contractor said the construction cost to complete the half-built building would rise to £424m.
The report which was commissioned by the hospital trust said: “The construction contractor market tested has indicated a clear aversion to proceeding with a PF2 contract with an indication the costs would be significantly higher under Option B1 [PF2] as compared to Option C [straight construction].”
Carillion won the job under a £350m PFI contract in 2015 and had been paid £205m when it went bust.
The analysis said based purely on funding and prices PF2 remained the hospital’s preferred financial option, though only by £19m or 3.7%.
But when the risks around the two options were factored in a straight construction contract became the preferred option by £29.4m or 5%.
Another piece of analysis from the Department for Health and Social Care said the completion cost would be £300m regardless of the way the job was procured.
Toby Lewis, chief executive of the Sandwell and West Birmingham Hospitals NHS trust, said the shift to a straight construction contract would be recommended at today’s meeting.
He said: “We will consider an executive recommendation to complete the Midland Metropolitan Hospital construction under direct contract, using public money from national sources.
“This would be in preference to procuring a new private finance vehicle.”
Greg Craig, the chief executive of Skanska, which had been talking to the trust about taking over the job before discussions broke down at the end of May, told Building this week: “We came to a position where we could complete building for the trust in a very low risk manner [but] it turned out that wasn’t what all of the backers wanted.”
And Bruno Dupety, the chief executive of another possible replacement builder, Vinci, said any attempt by the trust to transfer the historic liabilities being faced by Carillion on to a replacement contractor would be a “deal-breaker”.
Lewis said if the board agree to ask the government for a bailout, he expected a decision “in the coming weeks”.
Funding was pulled from the project in June when the European Investment Bank, which was part of a consortium of five banks that loaned the NHS trust £107m to pay for the construction work, confirmed it had terminated the deal.
In June, a National Audit Office report revealed that Carillion had lost £48m alone on the scheme last year and said it had been blighted by a 17 month delay to “critical” design elements, poor structural designs and spatial constraints that made it difficult to fit all the plant machinery necessary on site.