Taxpayers will foot bill for shortfall on PFI hospital upgrades

Tens of millions of pounds of taxpayers' cash will be needed to bring the Royal Infirmary of Edinburgh (RIE) up to scratch when it transfers to public ownership next year, BBC Scotland can reveal.

The RIE was built in 2002 using the Private Finance Initiative (PFI) model which saw operator Consort Healthcare receive around £1bn to build and then maintain the hospital over 25 years before handing it back to the NHS.

NHS Lothian and Consort were locked in a four-year dispute about maintenance standards at the RIE but have now reached a deal where Consort will set aside up to £86m for upgrades.

However, an NHS Lothian assessment said this sum is "anticipated to fall well short" of what is needed.

The hospital building has been subject to a number of safety enforcement notices from Scotland's fire service and work to comply with the necessary upgrades is likely to top £90m alone, according to health board documents.

Other required improvements include new lighting, ventilation and electrical systems.

Some of the works are already under way while others will stretch beyond the date of the official handover to NHS Lothian.

Experts have questioned the value to the public purse from the handover deal with Consort, which they describe as "too little, too late".

However, NHS Lothian has said it is the "best value option" and represents a significant investment that may not have been secured otherwise.

The PFI deal, signed by Tony Blair's Labour UK government, is expected to have cost the taxpayer more than £1bn by the time it expires in December next year.

The hospital has faced a number of maintenance problems since opening, including a series of power outages in 2003.

Consort was handed a list of infrastructure issues that needed rectified by NHS Lothian in 2022.

BBC Scotland understands the volume of issues with the building in recent years triggered something in the PFI contract called a "serious issue event" which would have allowed the health board to walk away from the deal and find another provider.

However, it was decided that the potential disruption to both clinical care and the ongoing programme of maintenance meant this was not worth pursuing.

The deal agreed between NHS Lothian and Consort means the private finance consortium will keep receiving monthly PFI payments until December, 2027 but it is not allowed to pay any dividends to its shareholders or get into further debt.

The value agreed on for covering the outstanding maintenance, known as the "Available Sum", was up to £86.3m, but £23.4m of that has already been spent on improvements.

A report to NHS Lothian's finance committee in June stated: "This sum is anticipated to fall well short of the required fire safety works and outstanding life cycle works funding required to be invested in the RIE over the coming years".

It added that "considering all expenditure to date, and items currently identified to be addressed, a deficit of £9.7m is predicted".

The deficit does not include the cost of further fire preventative measures - which the report suggests "will significantly exceed the Available Sum" - or unanticipated future works due to system failures.

Anne Stafford, professor of accounting and finance, at the University of Manchester, said the deal struck with Consort "represents a case of too little, too late".

She added: "The RIE documentation suggests that significant infrastructure risks, asset obsolescence and maintenance liabilities had accumulated to the point where major replacement programmes for critical systems - such as ventilation systems and fire safety measures - were only being addressed in the final years before hand back.

"The implication is that a substantial proportion of the costs associated with restoring the estate to an acceptable standard may ultimately fall on the public sector after contract expiry.

"Rather than receiving an asset that has been systematically renewed throughout the concession period, the public sector faces the prospect of inheriting significant residual investment needs, creating additional pressure on public finances and potentially delaying wider service improvements."

Craig Marriott, NHS Lothian Director of Finance, said a detailed assessment of the building's condition was carried out in 2022 to ensure contractual obligations would being met ahead of next year's handover.

"This identified shortfalls in fire measures which were reported to the Scottish Fire and Rescue Service, Consort and other stakeholders," he said.

"Following extensive negotiations and advice from legal, technical and financial experts a handback agreement was recommended as the best value option. Alternative approaches carried risks, including potential disruption to patient care.

"While the agreed funding may not cover every identified issue, it represents a significant investment in the facility that may not have otherwise been secured."

Consort Healthcare declined to comment when approached by BBC Scotland.