Carillion collapse led to delays and extra costs

The NAO report on the construction of the new Royal Liverpool University Hospital and Midland Metropolitan Hospital added there were significant risks of further delays and additional costs.

Carillion was part of the consortia building the new hospitals – the Royal Liverpool, which was being built under the private finance initiative, was due to open in July 2017, but is now forecast to be completed in autumn 2022. The Midland Metropolitan, which was being built under the PF2 initiative (where the government took an equity stake), is also due to open in 2022 – around four years later than planned.

Carillion went into liquidation in January 2018 and, several unsuccessful attempts to rescue the projects followed. Work at the sites was suspended during this period. In September 2018, the government stepped in. The private finance schemes were terminated, and public funds were provided to complete the projects.

However, the report added that the government has ensured most of the increased construction costs are being borne by the private investors and Carillion.

Under the initial scheme, the Royal Liverpool was due to cost £746m to build and run. These costs include items such as maintenance and facilities management, as well as construction costs. But it is now predicted to cost more than £1bn. It is expected the taxpayer will pay £739m of this £1bn; a 1% reduction on original plans. The Midland Met is now expected to cost £988m to build and run – around £300m more than planned. The taxpayer is currently expected to pay £709m of this – an increase of 3% on the original plans.

The net additional cost to the public sector for both hospitals is currently forecast to be £16m. However, the report said that once cashflows are discounted to take account of more costs being paid up front, the net present cost to the taxpayer increased by 15%.

The trusts will now have to pay VAT on the construction and will pay a dividend on the public dividend capital given to them by the centre to support immediate costs. Even so, they will be better off financially than under a private finance deal, the report said.

The NAO estimates the private sector shareholders, investors, insurers and Carillion made estimated losses of at least £603m on the construction of both hospitals.

Unite assistant general secretary Gail Cartmail said the report made for grim reading. She added: ‘The responsibility for these delays has to lie squarely at the door of the government, which consistently failed to prioritise the overriding need that these hospitals had to be built. While the report notes the financial cost of the projects the human cost of the delays of completing the hospitals has not been recognised.’