2.3 Carillion's collapse meant both PFI companies were at risk of running out of money. Because PFI companies are designed with little contingency funding as they pass the risks to their contractors, the PFI companies were reliant on Carillion's commitment to finish the hospitals at the agreed price. However, as Carillion had been making a loss on both contracts when it collapsed, it was likely that any replacement contractor would charge the PFI companies more to finish the work.
2.4 As a result, it became highly unlikely the PFI companies would return any money to their shareholders or pay their lenders in full. This put the lenders, in effect, in charge of the PFI companies. From June 2018, when the Official Receiver stopped funding maintenance of the sites, the lenders funded all work on the sites through the depletion of their existing funds in the PFI companies.
2.5 The Department of Health & Social Care advised the Minister of State for Health in January 2018 that the cost to complete the Midland Metropolitan Hospital (Midland Metropolitan) exceeded the funds available to the PFI company, by up to £145 million. Without further intervention, the PFI company could not complete the hospital.
2.6 Meanwhile, with Royal Liverpool already nearing completion, the lenders, the Liverpool Trust and the central government Departments - the Department of Health & Social Care, NHS Improvement, HM Treasury and the Infrastructure and Projects Authority (IPA) in the Cabinet Office - worked on the basis that the Royal Liverpool PFI company would be capable of replacing Carillion and completing the hospital with the remaining funds left to the company, the extra costs covered by the lenders getting a reduced return. It was not until July 2018 that the full extent of the problems at Royal Liverpool began to be known. Figure 4 overleaf summarises the timeline of events during 2018. We set out what was happening at each stage below.