There are “significant risks” of yet more delays to the crisis-hit Midland Metropolitan Hospital with costs now approaching £1 billion.
A probe into the fallout of the collapse of construction giant Carillion has shown the taxpayer will have to foot the bill for about an extra £20 million.
The National Audit Office has examined efforts to get the project, already delayed by four years, back on track by the Government and Sandwell’s NHS trust after the collapse of Wolverhampton-based Carillion two years ago.
And it said it could not rule out even more delays because of the complexities of the scheme.
The hospital is currently scheduled to open in summer 2022.
The Midland Met, a state-of-the-art acute care unit set to transform healthcare in the West Midlands, is still no closer to completion than when the firm went bust in January 2018.
It will now cost £988m to build and run the hospital – £300m more than originally expected, the NAO revealed.
About £700m of this will be met by the taxpayer, a rise of three per cent from when the project launched.
However, Government precautions to protect the taxpayer through the PFI scheme, through which the Midland Met was built, mean much of the losses have been suffered by shareholders, investors and insurers.
The Government abandoned attempts to rescue the PFI arrangement – as it did not have enough money – and decided to use public money instead to ensure the hospital, on Grove Lane, Smethwick, could be completed.
Work on the Midland Met is set to resume over the next few weeks after agreement with Balfour Beatty.
The NAO said: “The Sandwell Trust has negotiated a ‘target price’ for work by Balfour Beatty, and prices should not rise unless the trust changes the scope of the project or there are unforeseen problems with Carillion’s work.”
Government bail out
The Government was forced to bail out the stalled Midland Metropolitan Hospital after refusing to put any more money into a failed finance scheme that was supposed to pay for it.
The state-of-the-art hospital will now cost £988 million to build and run. It was originally expected to cost £686m when it was launched through a PFI scheme, meaning the bulk of the cost would be covered by shareholders and investors.
In the event of any problems with the contractor those involved in the PFI were supposed to find a new builder to ensure the job could be completed.
But when Carillion collapsed the dangers of PFI, which has since been ditched by the Government, were exposed. Investors did not have enough money to pay for the rising costs associated with rescuing the project.
It left the Government with a choice of ploughing more money than the £215m they had already put in to the PFI or abandoning the scheme and covering the costs itself.
A report from the National Audit Office (NAO), which investigated the handling of the PFI contracts following Carillion's collapse, revealed then-Chancellor Philip Hammond refused to release funds to the PFI over concerns it could "set a precedent", essentially blocking attempts to re-start work on the hospital.
The decision caused frustration among bosses at the Sandwell and West Birmingham NHS Trust which was keen for the Government to top up PFI cash, believing it would ensure the completion of the hospital 18 months earlier.
The cost of building the Midland Met also rocketed, almost doubling from £350m to £663m.
The report said: "The Department of Health & Social Care, the Cabinet Office and HM Treasury were concerned that additional public funding would not be value for money and would set a precedent for similar bailouts of other PFI contracts, by breaking the principle that PFI investors bear the risk of their projects."
It continued: "In May 2018 the departments rejected the Sandwell trust’s proposal to rescue the Midland Metropolitan PFI company through additional Government funding, although the trust believed this could have led to the completion of the hospital 18 months earlier than under public financing."
While admitting his frustration over delays to get work started again, trust chief executive Toby Lewis has publicly refused to criticise the Government.
But the NAO's report shows the reservations bosses had about the Government's decisions, which the trust says further held up the scheme.
Following the decision, the trust "expressed concerns to the Department of Health and Social Care about the need to work better together to find a solution".
The report also said that the trust believed "that the need to put together a new business case for the hospital and run a full procurement process has delayed restarting construction by 15 months".
After a short period of exploring the possibility of setting up a new PFI scheme, the Government decided it would finance the completion of the hospital, announcing the injection of £350m in October.
Balfour Beatty has been appointed to complete the project, with work due to begin over the next few weeks.
Following the release of the NAO report, which also assessed the Royal Liverpool Hospital, another failed Carillion scheme, the Unite union's assistant general secretary Gail Cartmail said: “The report makes for grim reading and endorses what hospital patients and NHS staff in Liverpool and the West Midlands already knew.
“Two desperately needed hospitals are going to be years late and in the meantime local communities are left with facilities that are no longer fit for purpose.
“The responsibility for these delays has to lie squarely at the door of the Government, which consistently failed to prioritise the overriding need that these hospitals had to be built.
“While the report notes the financial cost of the projects the human cost of the delays of completing the hospitals has not been recognised.”
Midland Met 'still remains value for money'
Toby Lewis, Chief Executive of Sandwell and West Birmingham NHS Trust, which will manage the hospital, said: “We welcome publication of the report into the collapse of Carillion, and the impact on two vital hospital projects.
“The report makes very clear the significant differences between the two schemes and outlines the risk management arrangements in place with Balfour Beatty.
"The detail of the report makes clear the due procurement processes followed by the trust for Midland Met both at the outset of the project and following Carillion’s liquidation.
“It also explains our success in obtaining warranties for prior work done by our sub-contractors, many of whom continue to work on the project, ensuring local jobs and continuity of expertise.
"As we articulated in public board papers during 2019, the need for a second contract has not led to an enormous increase in expenditure when compared to the lifetime cost approved in 2014.
“If we account for the long term cost of money over a thirty year term we expect that the cost of the project will be around £70m above expectations then and the report narrates how that cost is split between public sector funding and private sector losses.
"We remain clear, as are national authorities, that Midland Met remains value for money.
“We are delighted that we have received funding to maintain our existing hospital buildings since 2018, and funding to complete the Midland Met in 2022.
"We signed a life cycle contract with ENGIE UK to ensure that the new hospital is sustained for the long term.”