Edinburgh hospital deal cut to save private firm going bust - inquiry

NHS Lothian accepted the handover of an unfinished children's hospital to stop the private consortium behind the deal going bust, a public inquiry has heard.

The IHSL group building the Sick Kids in Edinburgh was facing insolvency, just months before the facility was due to open in July 2019.

If IHSL went bust then NHS Lothian faced paying out at least £150m to get the project finished.

The health board took ownership of the building in February 2019.

But four months later last-minute inspections found safety concerns over the hospital's ventilation systems.

The Scottish Hospitals Inquiry heard that the February deal with IHSL, which was agreed despite a number of building works being outstanding, meant monthly payments of around £1.4m to the consortium could commence and the project could be completed.

The inquiry is examining the circumstances behind the postponement of the Sick Kids' opening.

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Susan Goldsmith, who was NHS Lothian's director of finance until she retired in 2022, told the inquiry: "There was a significant pressure to agree the settlement agreement and to get the flow of funds to ensure IHSL stayed liquid."

The deal with IHSL to design, build, finance and maintain the new hospital was under the Non-Profit Distributing (NPD) system, the Scottish government's version of controversial private financing models such as PFI.

The hospital cost about £150m to build, but its full price tag over 25 years, including maintenance and facilities management fees, will be £432m.

The project was already years behind schedule in 2019 and the inquiry heard that NHS Lothian learned that IHSL "faced financial distress and insolvency" without the £1.4m monthly payments it had been expecting.

Building work on the Royal Hospital for Sick Children in Edinburgh faced a series of delays

Ms Goldsmith told the inquiry that if IHSL went out of business then, under the terms of the NPD deal, the fall out of this would bring further significant delays to the project.

In addition, if NHS Lothian wanted to completely take over the project then it would have to pay IHSL's private financiers the £150m price tag for the hospital up front, instead of the mortgage-style deal over the next 25 years.

Ms Goldsmith said that neither the health board or the Scottish government had this money.

The former NHS executive added that funding to finish the outstanding building work would also need to be found.

The deal to hand over the hospital from IHSL to NHS Lothian in February 2019 came after independent testers issued a "certificate of practical completion", which took into account that much of the building work was still taking place.

The issues with ventilation which stopped the hospital opening were uncovered in June 2019, during the building's commissioning phase.

The new hospital provides care for children and young people

Asked to reflect on the Sick Kids project, Ms Goldsmith added: "I don't think NPD is an appropriate model for the delivery of very big and complex acute hospitals."

She was also questioned about infection control experts refusing to sign off the Sick Kids as safe because they had not been able to assess its ventilation risks.

Ms Goldsmith said these checks were not possible at that stage because the hospital "was still a construction site".

IHSL has previously told the inquiry its work on the hospital was signed off as complete by an independent certifier on 22 February 2019, when the building was handed over to NHS Lothian.

The inquiry, before Lord Brodie, continues.