1  The role of local management in the Paddington Health Campus scheme

1.  The Paddington Health Campus scheme was an ambitious attempt to replace and renew the estate of two large run-down NHS Trusts. The original vision for the scheme was strong with significant commitment from the trusts involved. The goal was to build state of the art clinical accommodation and research facilities which would address the need for clinical and academic reconfiguration and concentrate specialist services in north-west London at a reduced number of sites. However, the Campus partners were never able to persuade the Department that they had an affordable scheme to match this vision.2

2.  The 2000 Outline Business Case had an estimated capital construction cost of £300 million (£411 million at 2005 prices) but the full valuation for the scheme was £894 million in 2005. In 1999, our predecessors said it was a disgrace that the Guy's Hospital Phase III project cost £115 million against an approved original estimate of £35.5 million and looked to the Department to ensure that priorities were based on realistic cost estimates. The Campus partners accept that the 2000 Outline Business Case was inadequate but it was still approved by the Department.3

3.  The Campus partners now accept that they submitted what they describe as a 'highly unusual and high-level' business case to the London Regional Office of the Department. It was only after the Regional Office approved the scheme (Figure 1) that the Campus partners engaged with their doctors and nurses to determine the clinical content the scheme would require. 4

4.  The original vision was to use the St Mary's site in Paddington for the Campus with clinical content requirements determining the land required. As the details of the clinical content requirements emerged and their impact on the Campus were better understood, the inadequacy of the available land and the impact of planning constraints became evident. The Royal Institute of British Architects told us that early and thorough testing of a design brief could have been used to test the capacity of the land at an earlier stage. St Mary's NHS Trust acknowledged that not understanding the full scale of the task at the approval stage in 2000 had hampered the scheme from the outset.5

5.  The Campus partners also recognised from the start that they did not have the skills necessary to develop a robust scheme on the scale of the Paddington Health Campus without the support of expert advisers. The 2000 Outline Business Case was developed with the assistance of experienced management consultants. As the scheme progressed it became clear that the first Project Director, appointed in October 2000 lacked the skills to do a job of this magnitude. In October 2002, therefore, after two years of disappointing progress in meeting project milestones his contract was terminated by mutual consent. Further experts were engaged to give advice on specific aspects of the scheme at a cost of £7.8 million, with advice on procurement of consultants and property advice from Partnerships UK from November 2002 onwards. Overall the Campus partners spent £14.9 million on developing the scheme (Figure 2).6

Figure 2: Expenditure on developing the Paddington Scheme

Source: Note to Q 92

6.  The resources available for development of the Outline Business Case were capped by the capital value of the approved Outline Business Case at approximately £6.3 million. This sum was insufficient to develop a scheme of this scale and inadequate funding handicapped the scheme's management capability throughout the planning phase. Only £4.9 million development funding from the co-sponsor of the scheme, Partnerships UK, allowed the scheme to be developed further. Even then, in 2004 the scheme opted to defer implementing embedded risk management on what was by then a £900 million scheme because it could not be afforded at the same time as developing a new Outline Business Case.7

7.  When the original Outline Business Case was submitted in 2000 the Department approved it, with reservations, but now recognises that the scheme should arguably not have gone ahead at that stage. The Campus partners also agree that the scheme should have been either cancelled or resubmitted in early 2003 when costs had doubled and there was no planning permission for the scheme. Following a critical report from the Department, the Treasury and the National Audit Office in October 2004, further consideration was given to stopping the project. But, at all of these points, the Campus partners continued with the scheme believing that the vision was worth the effort, although the Department accepts that, with hindsight, the process went on too long.8

8.  In October 2003 the Treasury requested a new Outline Business Case to replace that drawn up in 2000. A new Case was submitted by the Campus partners in December 2004, with assumptions on balance sheet treatment and affordability that were not acceptable to the Department. The Campus partners resolved to cancel the scheme but, with the consent of the Department, accepted an offer from Westminster City Council to assemble a package of land for the site. They believed that such an offer could turn the economics of the scheme upside down and therefore felt it ought to be considered.9

9.  The Campus partners could not agree on the affordability of the final scheme in May 2005. While the scheme was more affordable than the December 2004 Outline Business Case, the constantly changing forecasts of revenue, based on evolving Departmental guidance, and the cost of the land deal undermined the confidence of the North West London Strategic Health Authority and Royal Brompton and Harefield NHS Trust Board in the financial robustness of the scheme. The Department told us it had expressed very significant reservations about the affordability of the scheme in January 2005, after receiving the December 2004 revised Outline Business Case.10

10.  The immediate cause of the collapse of the scheme in May 2005 was the failure of the two NHS Trusts to agree on an Addendum to the December 2004 Outline Business Case. The principal difference between the Trusts was Royal Brompton and Harefield NHS Trust's concern that there was inadequate land available for the scheme, given planning constraints, and that without land the required facilities could not be built. This left the scheme dependent on Westminster City Council and the property developer who owned the land required.11

11.  The scheme originally planned for 1,000 beds in 2000, then 1,200 by November 2002, 1,088 in October 2003 and 835 NHS beds in May 2005. The North West London Strategic Health Authority was responsible for bed capacity planning at a strategic level but the Strategic Health Authority and St Mary's NHS Trust were using different planning assumptions. The Department took the view that it was up to the local NHS organisations to make their own assumptions in planning capacity, even though they had no track record on which to base their assumptions. 12

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2  Qq 2, 9, 13, 21 and 116, C&AG's Report, para 5.1

3  C&AG's Report, para 3 and Appendix 5, Qq 5, 76

4  Qq 133-134

5  Qq 9, 48, 127-135, C&AG's Report, para 1.5

6  C&AG's Report, paras 2.9 and 2.24; Q 86-92 and Note to Q 86

7  C&AG's Report, paras 22, 2.14-2.21, Q182

8  C&AG's Report, Appendix 1, Qq 1, 25-26, 93-104, 143-145

9  C&AG's Report, para 3.2, 3.9-10, Q1

10  Qq 141-143, 154, C&AG's Report, para 17

11  C&AG's Report para 3.1 and Q117

12  Qq 20, 27-34, 56-59, 176-178, C&AG's Report, para 3.27