2.33 As part of its termination agreement, the Royal Liverpool PFI company agreed to transfer ('novate') several contracts to the Trust including those with Arup as the structural engineers and with Laing O'Rourke as the 'managing contractor'.
2.34 These appointments were without any competition and were not advertised, which is contrary to the requirements of the public procurement regulations to competitively tender the work or explain the legal basis for not doing so, in the advertisement of the contract award. The Trust's board recognised that the transfer of these contracts could be challenged and sought legal advice on this. The board decided to go ahead with the contract transfers as part of the termination agreement, so that construction could restart as soon as possible and warranties for work before Carillion's collapse could be maintained. The Trust told us that it estimated the costs of delay at more than £2 million per month.
2.35 As the managing contractor, Laing O'Rourke is responsible for identifying and rectifying issues with the hospital building and finalising the construction project by managing some 140 other contractors, each of whom will be contracted through a work package separately contracted with the Trust. The Trust has worked with Laing O'Rourke to re-engage as many of the original Carillion subcontractors as possible to maintain warranties for works already carried out. By June 2019 about 40 work packages were in place. Each work package was awarded through a single tender action without competition.
2.36 In May 2019 the Trust told its board that a few of the 140 work packages exceeded European Union procurement thresholds and that it had sought legal advice on the risk of challenges to the procurements. This advice acknowledged that the Trust's preferred way forward, of taking on the contracts itself, could be subject to a successful legal challenge, but soundings of the market suggested strongly that the risk of other contractors challenging the Trust was low. As in the case of the novated contracts, the board wanted to avoid adding extra time and costs to the hospital's completion and maintain warranties for work before Carillion's collapse, where possible.
2.37 Laing O'Rourke has already stripped out fittings on two of the ward floors and the plant and equipment floor to access the structure. The remaining work at Royal Liverpool includes:
• reinforcing the structure with steelwork and additional reinforced concrete, to address the shortcomings that Arup's 2018 work described;
• repeating the interior fit-out for three floors, to replace fittings and decoration which have been removed to carry out the reinforcement work;
• fire testing all fixtures and fittings;
• reinstalling the plant and equipment; and
• replacing exterior cladding, which does not conform to current fire regulations.
2.38 Although the Trust has sought to get a fixed price for each work package, it has no certainty over the total amount of work, the number of work packages needed or the total cost of completing the hospital. This exposes the Trust to the risk of increases in the current cost estimate, including any discovery of further problems with Carillion's build. Laing O'Rourke has no contractual incentives to manage costs.
2.39 The Trust has recognised the extent of this risk and engaged the construction consultancy Gleeds to manage the construction cost of the project. Each piece of work is assessed by both the Trust and by NHS England & NHS Improvement's (NHSE&I) estates team before being commissioned from either Laing O'Rourke or the other contractors. In addition to the warranties and guarantees from Carillion's subcontractors who originally did the work that the Trust purchased from the PFI company, the Trust has also sought to obtain new warranties and guarantees from Carillion's subcontractors, where it has been able to reinstate them to complete the hospital. In some cases subcontractors are repeating work that they had already done for Carillion.
2.40 Phases 2 and 3 of the Royal Liverpool project - to demolish the existing hospital and develop an underground carpark and landscaped public plaza in its place - are currently unfunded and subject to future business cases. The cost of this was not included in the PFI project and is currently estimated at £38 million.