Source · Select Committees · Public Accounts Committee
Recommendation 35
35
Accepted
New Hospital Programme faces significant commercial risks from construction capacity shortages and high inflation.
Conclusion
The NHP team also has to manage a number of commercial risks to the programme which could impact affordability and deliverability. These include a lack of capacity in the UK construction industry, and the significant investment needed in new factory capacity for modular, offsite construction. High inflation in the construction sector (around 14% a year from May to December 2022) might also result in companies being increasingly unwilling to bear the risk of inflation in contracts.77
Government Response Summary
The government agrees that NHP plans and costs should be realistic and commits to continuing engagement with the construction industry through an extensive market engagement strategy to understand and manage capacity constraints and other commercial risks.
Government Response
Accepted
HM Government
Accepted
6.1 The government agrees with the Committee’s recommendation. Target implementation date: May 2024 6.2 The government agrees that the NHP’s programme plan and costs should be realistic and deliverable. In May 2023, the government gave greater clarity on programme scope and funding in its announcement confirming that the NHP is expected to be backed by over £20billion of investment. The department has provided all schemes with an indicative funding envelope on which they can base their programme plans. All trusts will still need to go through business case approval processes. As outlined in response to recommendation 5, the NHP is keeping assumptions on size of future hospitals under constant review. 6.3 The NHP also agrees that it should continue to engage with the construction industry to understand and manage likely capacity constraints and is already implementing an extensive market engagement strategy to this effect. The NHP held a market engagement event in November 2023, which updated industry on the current status of the programme and future plans and was attended by over 300 supplier or business organisations across eight primary market areas. 6.4 The NHP is developing a third version of the programme business case with different options, as is usual practice, with a view to securing approval through the government’s Major Projects Review Group by May 2024 and confirming funding through future Spending Review processes. Once agreed with HM Treasury, the intention is for the programme business case to include a specific amount of proposed funding for the pre-2030 costs of the eight schemes expected to complete after 2030. The government remains committed to all schemes in the NHP, including those expected to complete after 2030.