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Sun November 18 2018

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Laing O’Rourke signs deal to complete Carillion hospital

26 Oct Laing O’Rourke has been confirmed as management contractor for the completion of the stalled Royal Liverpool Hospital construction project.

The new Royal Liverpool Hospital
The new Royal Liverpool Hospital

The new hospital is now expected to open in 2020, three years later than expected when Carillion began building it in 2014.

The Royal Liverpool & Broadgreen University Hospitals NHS Trust decided at the end of September to scrap the private finance initiative contract that it had signed with The Hospital Company back in 2013. The deal had become untenable after the collapse of its contractor, Carillion, into liquidation in January 2018 after construction had already hit problems.

The Trust has taken over responsibility for completing and operating the hospital with Laing O’Rourke taking care of finishing the construction.

The government and regulator NHS Improvement will be working with the Trust to ensure that construction works are restarted as soon as possible. It is hoped that this could be as early as November 2018, with construction work on the new Royal Liverpool Hospital expected to be completed in 2020.

Laing O'Rourke director Paul McNerney said: “Laing O'Rourke is delivering the Clatterbridge Cancer Centre next door to the new Royal and had been working closely with the team there already. The business now looks forward to partnering with the Trust directly to re-start this important works for the local community.”

The government has also yet to finalise details of the funding package that will enable the Trust to complete the project. Taken together with earlier payments made by the Trust, the total whole life cost to the public sector of the new hospital will be lower than envisaged when the project agreement was signed, the Trust said. The original construction cost was £335m, but there were also years of inflated PFI bills for to pay for operational costs.

Construction work began on the new Royal back in February 2014 and was originally scheduled to be completed by March 2017. This was delayed, according to Carillion, due to issues regarding the removal of asbestos from the ground, strong winds affecting the use of cranes and structural issues with a number of beams. A revised completion date of February 2018 was provided by Carillion, but in November 2017 it told the Trust that it could not meet this date. A new completion date had not been provided prior to Carillion entering into liquidation in January 2018.

Under the terms of the original contract, the funders will receive a termination payment from the Trust, which has been agreed at £42m, as well as funding held by The Hospital Company at the time of its winding up. This is required to cover PFI unitary payments that The Hospital Company will no longer receive, and deducts the cost of the remaining construction work, and the projected cost of maintaining the hospital – both of which will now fall to the Trust.

The lenders (the European Investment Bank and Legal & General) have supplied £180m of funding to the project. In line with the risk transfer arrangements agreed in the original contract, the lenders will lose a substantial proportion of the funding they have advanced. In addition, the equity funders (Carillion Private Finance and Pensions Infrastructure Platform) will lose all their investment.

As part of the wider package of support the Department of Health and Social Care is providing the Trust, it has been agreed that the department will cover the termination payment of £42m, following negotiations.

The payment, along with the funding for the remaining construction work identified to date, is being made available to the Trust from the Department of Health and Social Care, through Public Dividend Capital funding.

Trust chief executive Aidan Kehoe said: “We are delighted to announce that we, The Hospital Company, lenders and the government have all signed up to this agreement, that means construction can restart soon and that the new Royal will now be publicly funded. The agreement provides significant savings to the public sector and represents good value for money for the taxpayer. All parties have worked extremely hard to resolve the issues caused by the collapse of Carillion. The lenders in particular have shown considerable goodwill in reaching this agreement.

“Our priority now is for Laing O’Rourke to get work restarted as soon as possible. We hope to be able to continue working with the existing subcontractors so that work can be completed quickly.”

MPU

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