Public sector doubts delay PFI health bids

Private finance projects in the health sector have stalled despite Government efforts to kick-start the scheme in time for the Tory party conference next month. The Government still hopes to trumpet the signing of a major hospital building project at the conference under the PFI, but obstacles put up by the Treasury and outmoded public sector accounting rules are proving difficult to overcome, experts claim.

The most likely scheme to make the deadline, sources say, is the z???? South Buckinghamshire NHS Trust hospital extension project. Department of Health officials are said to be confident the contract will be signed in time to counter criticism of the PFI during the party political conference season.

But sources insist there is only an outside chance that the Government will make the deadline. So far, the z5bn worth of projects have been signed, but more than z3bn of this is taken up by the Channel Tunnel Link.

The major problem holding up the PFI hospital building programme centres on the Treasury’s demand that private firms acquire all the assets in each project and place them on their balance sheet. Companies are still reluctant to concede to the demands, before certain technical constraints are tackled.

Several banks, in particular, have called for the Government to present a clearer picture of their liabilities should a hospital trust collapse, before signing up. A law passed two months ago to resolve the issue of residual liability has failed to satisfy all the private sector fears.

Legal wrangles at the Norfolk & Norwich NHS Trust, which is building a z170m district general hospital, and other major sites, are likely to hold up contract-signing until nearer Christmas. ‘Norfolk & Norwich is fairly well off the pace,’ said one adviser close to the talks. ‘It is bogged down in technical problems and has got the lawyers crawling all over the contracts.’

Other consortia are also demanding higher returns before accepting the risks. This has led several trusts to revise their budgets, leading to a funding gap.

The Treasury has refused to concede that risks imposed on private contractors should be scaled back. Currently, they have to take on part of the risk for the continued success of the hospital as well as delays and cost overruns in the building programme.