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NHS Hospitals Private Finance Initiative Ends in High Court Wrangling

A private finance initiative to provide state-of-the-art new facilities for two hospitals – which was supposed to herald 35 years of amicable relations between developers and an NHS Trust – ended in bitter litigation even before the project’s completion.

The Trust had entered into the PFI with a project company which agreed to design, build and finance the new facilities and employed contractors to carry out the work. The arrangement was that, on completion of the project, the Trust would pay a charge to the company for the use of the facilities over a period of 35 years.

However, the parties fell out over the penultimate phase of the project, which involved the construction of office facilities. The Trust claimed that a number of aspects of the work fell short of contractual requirements and, as a result of the dispute, the new offices had stood empty for two years.

The contracts underpinning the PFI contained provision for the works to be inspected by an independent professional (the tester), who took the view that he could not certify completion of the works in the light of the Trust’s complaints. The contractors launched proceedings in a bid to break the resulting impasse.

In seeking to cut the Gordian knot, the Court issued a declaration as to the correct interpretation of the contracts and gave guidance on the tester’s role. As a matter of business common sense, the Court found that minor or technical flaws in the works should not delay the issue of a certificate of practical completion.

So long as any departure from contractual specifications would not materially harm the Trust’s enjoyment and use of the offices, the tester could certify completion, leaving it open to the Trust to seek its remedy in damages.