Department of Health: The Paddington Health Campus Scheme

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appendix fourAppendix fourThe opportunity cost of delay in taking forward theCampus scheme1 The opportunity cost of the failed project is likelyto be greater than the simple £14.9 million direct costof the project itself. Delay is expensive when buildingcost inflation is running ahead of general inflation inthe economy. While it is difficult to be precise about thecosts of delay on a scheme which was never static, forillustration, had the project eventually gone ahead inMay 2005, in substantially the same form it had reached byOctober 2003, then that 17 month delay would have addedapproximately £103 million to the cost of construction(construction tender prices exceeding general inflation bysome 13 per cent during the period) (Figure 12). The costof borrowing has the capacity to offset the impact of capitalcost increases, if rates fall, or indeed add to the cost, ifrates rise, although the degree of offset /cost would not beknown until financial close.2 This amount is illustrative and is not a cash cost, as theeventual project configuration by May 2005 differed fromthat in October 2003, partly to accommodate affordabilityconcerns. However, it does demonstrate quite clearly howquickly costs would have risen in this case, at that time. Thisunderlines the importance of factoring likely cost increasesinto decisions on whether to proceed with a project whenthere have been material changes to the key factors thatdetermined its original viability.12Construction Costs Inflation between October 2003 and May 2005Cost, £ millions1000950MIPS900850RPI800750Oct2003Nov2003Dec2003Jan2004Feb2004Mar2004Apr2004May2004Jun2004Jul2004Source: Office of National Statistics, Paddington Health Campus documentationAug2004Sep2004Oct2004Nov2004Dec2004Jan2005Feb2005Mar2005Apr2005May2005NOTERPI is the all-items Retail Price Index and MIPS is the Median Index of Public Sector Building Tender Prices published by NHS Estates based on informationcompiled by the Department of Trade and Industry.the Paddington Health Campus scheme 47
appendix fiveAppendix fiveRelevant recommendations from previous Committee ofPublic Accounts’ reportsDepartment of Health: The Chelsea andWestminster Hospital 131 In July 1988, the North West Thames Regional Health Authority submitteda proposal to the Department for a 665-bed hospital at a cost of £136 million.The Regional Health Authority aimed to have the hospital open to patientsby September 1992. By the end of 1992, the total estimated cost had slippedto £236 million and the expected opening time had been pushed back toMarch 1993. The Committee of Public Accounts’ report included thefollowing recommendations:iiixixviWe are concerned that the health authority assumed that planningagreement would be forthcoming and were therefore unprepared for thedifficulty and consequent delay that actually occurred at a cost of some£16 million.We expect the NHS in future to take a more cautious approach onprojects which rely on the property market to fund developments.We also expect to see a full sensitivity analysis on all major capitalprojects to establish the impact of any problem in financing the projects.We wish to emphasise some themes which emerge from our examinationof this project which would be relevant to any major construction projectfinanced from public funds. They are:abethe agreement of the planning authority must be clearly establishedin a formal way before significant expenditure is incurred fordetailed design and development work;the project should be considered in the broadest geographicaland organisational context and not limited to narrow local factors,however attractive the proposals may be to local interests;there should be a full sensitivity analysis to establish the impact ofany problems in financing the project.13 Committee of Public Accounts (1993) The Chelsea and Westminster Hospital, Twenty-Sixth Report 1992-93 (London: HMSO).48the Paddington Health Campus scheme
Page 1 and 2: department of healthThe Paddington
Page 3 and 4: DEPARTMENT of healthThe Paddington
Page 5: Part 3The Campus partners were unab
Page 8 and 9: summary8 While the Campus partners
Page 10 and 11: summary21 Ultimately, in addition t
Page 12 and 13: part onePart oneThere was a strong
Page 14 and 15: part oneThere were strong clinical
Page 16 and 17: part twoPart TwoThe way the Campus
Page 18 and 19: part two2.6 Securing planning permi
Page 20 and 21: part twoRisk management2.14 The NHS
Page 22 and 23: part two2.28 Public support for the
Page 24 and 25: part three3.1 The Royal Brompton an
Page 26 and 27: part three3.12 The PDCL negotiator
Page 28 and 29: part three3.24 All Campus partners
Page 30 and 31: part threeThe changing proposals fo
Page 32 and 33: part three6A comparison of capital
Page 34 and 35: part fourAccountability for the sch
Page 36 and 37: part four4.8 Some of the advice and
Page 38 and 39: part five5.1 Both NHS Trusts contin
Page 40 and 41: glossaryLondon Regional OfficeMemor
Page 42 and 43: appendix oneAppendix oneChronology
Page 44 and 45: appendix one2004 (continued)JulyChi
Page 46 and 47: appendix two7 It was the view of th
Page 50 and 51: appendix fiveDepartment of Health:

Department of Health: The Paddington Health Campus Scheme

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