10 The hospitals are currently due for completion several years late, meaning local patients have to use the existing facilities. Under current plans by the Sandwell and West Birmingham Hospitals NHS Trust (the Sandwell Trust) and the Liverpool University Hospitals NHS Foundation Trust (the Liverpool Trust):
• The Midland Metropolitan Hospital (Midland Metropolitan) is now expected to open in July 2022. This would be a delay of three years and nine months from the original planned opening date, October 2018 (paragraph 3.2).
• The Royal Liverpool University Hospital (Royal Liverpool) is now expected to be completed in autumn 2022. The Trust has not yet set an opening date, but this will be more than five years after the originally planned opening of June 2017. Further work to demolish the old hospital and create a new underground car park and public plaza, was not included in the PFI project and is currently unfunded (paragraphs 2.40 and 3.5).
11 The currently expected total cost to all parties of building the two hospitals has risen 98% since the Private Finance Initiative (PFI) contracts were signed. The construction of the Midland Metropolitan is now expected to cost at least £663 million compared with £350 million in the original business case. This includes £315 million still to be spent to complete the construction, including the Trust's contract with Balfour Beatty and other costs. The construction of the Royal Liverpool is now expected to cost at least £724 million compared with £350 million in the original business case. This includes a currently estimated £293 million for remedial work to the structure and to complete the construction. The cost of maintaining both hospitals has also risen due to changes in the market since the PFI contracts were signed, and the delays have also led to cost increases on other projects (paragraphs 3.9 to 3.13 and Figures 7 and 10).
12 The use of PFI means that the private sector will end up paying most of the cost increase, and the public sector is only expected to pay 1% more in real terms across both projects than was originally expected. Collectively the investors, their insurers and Carillion have lost at least an estimated £603 million across both hospital projects. Once the increased cost of maintenance and the impact of the delay on other projects are taken into account, the currently expected total cost to the public sector of the Midland Metropolitan hospital has risen by 3% and the currently expected total cost to the public sector of the Royal Liverpool has fallen by 1%. The public sector's costs are higher than they otherwise would be because the public sector contribution to the projects was higher than was usual for PFI, in order to reduce the amount of private finance necessary and make the projects more affordable (paragraph 3.14 to 3.18 and Figures 7 and 10).
13 The Trusts now face higher early costs, but will receive additional support from the Departments, so will pay an estimated net £155 million less than planned under the PFIs. The costs above do not take account of when the money will be paid. The new arrangements require the Trusts to pay the construction costs sooner, over the course of the rest of the construction, instead of spreading the costs of the construction over the 30-year operational period of the PFI contracts. However, they have received additional support from NHS England and NHS Improvement (NHSE&I)1 and the Department of Health & Social Care, including additional public dividend capital which acts as a permanent loan, which compensates for having to pay more upfront (paragraphs 3.19 and 3.20 and Figures 9 and 12).
14 Both Trusts will pay for any further costs arising from problems with Carillion's work and there are particularly significant risks of further cost increases and delays at Royal Liverpool. Both Trusts are now directly managing the contracts with new construction firms:
• Balfour Beatty has agreed a 'target price' for its work to complete the Midland Metropolitan, but the Trust may have to pay more for extra work caused by defects in Carillion's work that could not have been foreseen during Balfour Beatty's pre-contract due diligence.
• Laing O'Rourke is acting as a managing contractor and is paid a fee to manage other contractors to complete the Royal Liverpool. Laing O'Rourke has no contractual incentives to manage cost. Some issues which are not yet resolved could increase costs.
NHSE&I has worked with the Trusts to put additional oversight arrangements in place on costs and the Trusts are using an independent construction consultancy to advise on the appropriateness of costs. Both Trusts have also sought warranties from Carillion's subcontractors for work already done (paragraphs 2.29 to 2.40).
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1 NHS England and NHS Improvement, previously two organisations, merged from 1 April 2019.