Laing O’Rourke to restart stalled Royal Liverpool Hospital

Aaron Morby 6 years ago

Laing O’Rourke has secured the management contract to finish the Royal Liverpool Hospital project, which stalled in January when Carillion collapsed.

Work could restart within the next few weeks
Work could restart within the next few weeks

The firm has been hovering around the project since work stopped while the hospital trust sought to find a way to restart the project.

The Trust has now formally terminated its existing PFI agreement with The Hospital Company (Liverpool) and key lenders, the European Investment Bank and Legal and General.

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 next month, with construction work on the new Royal expected to be completed in 2020.

The Government is now finalising details of a new funding package that will enable the Trust to complete the project.

Taken together with earlier payments made by the Trust, the total cost to the public sector of the new hospital is expected to be lower than envisaged when the project agreement was signed.

Paul McNerney, director at Laing O’Rourke, 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.”

PFI termination and transfer arrangement

Under the terms of the original 2013 contract, the funders will receive a £42m termination payment from the Trust – funded by the public purse – as well as all 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 key lenders have spent £180m on the project. In line with the risk transfer arrangements agreed in the original contract, they will lose most of this funding.

In addition, the equity funders  – Carillion Private Finance and Pensions Infrastructure Platform – will lose all their investment.

The Trust is now responsible for completing and operating the hospital. THC will now transfer their contracts to the Trust, which include a deal with Laing O’Rourke to become management contractor.

Once the new Royal has opened, the current hospital will be demolished and landscaped to provide underground car parking and space for the creation of the Liverpool Health Campus

Aidan Kehoe, chief executive of the Royal Liverpool and Broadgreen University Hospitals NHS Trust 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.”

Background to construction delay

Construction work began under a £335m contract on 3 February 2014 and was originally scheduled to be completed by March 2017. This was delayed, according initially to Carillion, due to issues regarding the removal of asbestos from the ground and strong winds affecting the use of cranes.

It later emerged that Carillion also knew about major structural defects in transfer beams in the hospital back in November 2016. At the time Carillion said remedial works to eight cracked transfer beams would put the project opening back to June 2017.

But it became clear the faults required full remodelling of the building’s concrete frame and would cost £20m to fix.

As these works were getting underway a new revised completion date of February 2018 was provided by Carillion.

At the end of November 2017 Carillion informed the Trust that they would be unable to meet this date as work was still ongoing fixing the crack beams.

According to a survival business plan put to Government in a last roll of the dice for a taxpayer bail-out, the board believed it could claim £43m on the delayed Royal Liverpool Hospital PFI contract, including recovery of claims from third parties of £34m following problems with the concrete beams.

A new date had not been provided prior to Carillion finally entering into liquidation in January 2018.

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