What the New Hospitals UK PPP Model Could Mean for Construction and Operational Services Contractors

The UK Government is developing a new public–private partnership (PPP) model in England to support delivery of NHS infrastructure, responding to long‑standing capital constraints, inflationary pressures and the deteriorating condition of the health estate. While early policy focus has been on neighbourhood health centres, the 2025 Autumn Budget and subsequent commentary confirm that the model may in the future also be applied to acute hospitals, wider NHS estate renewal, retrofit programmes and potentially infrastructure associated with the New Towns programme.[1]

With classic “wait for ages and two come along” timing the Scottish Government has also announced that it is exploring alternative revenue-based financing approaches lead by the Scottish Futures Trust including the Mutual Investment Model (MIM) (that has been used in Wales) for its Primary and Community Care Investments Programme through three initial projects expanding to a wider portfolio if successful[2].

For both construction and operational services contractors, this development signals a potentially significant new pipeline across healthcare and adjacent public infrastructure sectors.  For many it is welcome news – offering the potential to develop a model allowing private investment to help deliver much needed public infrastructure and (the Government will hope) resulting in growth and social benefits for the country. 

However, it also re‑opens questions that were central to the historic Private Finance Initiative (PFI) and more recently MIM projects: how risk is allocated, whether contractors are expected to invest equity, how lifecycle and facilities maintenance (FM) obligations are treated, and how procurement for the right partners will be structured.

Why the Government Is Revisiting PPP

In many countries with a large number of PPP projects, such as Canada, a PPP model has continued to be developed and part of governments’ toolbox for infrastructure delivery. By contrast, the UK adopted a “hard stop” to PFI when the conservative chancellor Philip Hammond cancelled the programme in 2018. Indeed, PFI has had a number of vocal critics – including in the contractor community - given a number of high-profile disputes on operational PFIs, imminent handback issues for 100s of PFIs and widely documented solvency issues for contractors that were heavily involved in PFI – most notably Carillion’s collapse in 2018. 

The renewed interest in PPP reflects structural pressures rather than a simple policy preference and reflects a commitment from the current Labour government to look at all potential levers for growth: particularly through infrastructure delivery.  It comes after a period of review and revamping of how the Government delivers infrastructure. This is headlined in the Government’s 10-year infrastructure strategy and establishment of the National Infrastructure and Service Transformation Authority (NISTA) to deliver it.  The NHS faces a significant maintenance backlog, rising demand, and constrained public capital budgets. At the same time, delivery capacity in the construction market has tightened, with contractors operating under more conservative risk and balance‑sheet constraints than during the peak PFI era in the 1990’s/early 2000s.[3] As the UK construction market has consolidated it has become increasingly important, from a value for money perspective, that large projects are also attractive to major international contractors as well as the national market, whilst maintaining opportunities for British businesses and SMEs. 

Against this backdrop, government and industry leaders have argued that private capital can play a complementary role, provided that new models learn from the shortcomings of previous PFI. Public statements consistently emphasise that the emerging PPP model is intended to be distinct from historic PFI; with greater flexibility, improved risk alignment and stronger public‑sector oversight. Government has stated that any new PPP model will be developed through joint business case work, market testing and by building on lessons learned from past PFI experience and models currently used elsewhere in the UK – including the RAB model used for mega projects including Thames Tideway, Sizewell C and, it is expected, the Lower Thames Crossing.[4] In many countries PPP never went away as a crucial part of many governments’ infrastructure toolbox (so much so that FIDIC is expected to be preparing the release of its updated PPP 2.0 Model Contract this year).

Comparing PFI, MIM and the Emerging PPP Model

For contractors (both for construction and operational services) assessing potential participation, it is helpful to compare the emerging model with its predecessors at a high level: 

Lessons from the Welsh Mutual Investment Model

The Welsh MIM provides the most recent UK precedent for large‑scale PPP delivery. MIM has been used for major infrastructure and healthcare projects, including the New Velindre Cancer Centre (due to open spring 2027) and the A465 Heads of the Valleys dualling scheme (fully opened in May 2025). These projects demonstrate that PPP structures remain capable of delivering complex assets at scale.[5] Sector commentators have contrasted the underfunded and delayed New Hospital Programme in England with the relative delivery success of Welsh PPP-type approaches. For example, the NHS Confederation report notes “The delayed and underfunded New Hospital Programme, with spiralling costs for poor return, demonstrates the limits of the pure public capital approach”.

However, recent reporting highlights challenges in MIM projects directly relevant to contractors. Commentary from the construction contractor, FCC Construción, on the A465 scheme indicates that technical complexity, inflationary pressures and long‑term risk pricing tested the limits of the funding and risk structure, raising questions about sustainability under stressed market conditions.[6] A key challenge here, from the construction contractor’s perspective, appears to have been the tension between price certainty required under the contract and model, and cost pressures caused by external events that the contract did not provide relief for. 

Welsh Government soft market testing for MIM projects further revealed bidder concern around equity structures and long‑term obligations, with some proposed approaches (particularly third party equity competition) viewed as deterrents to market participation.[7] Clearly, the Department for Health and Social Care (DHSC) will need to address such concerns in its ongoing market engagement to ensure a ready contractor market for private investors to work with. 

What the Emerging Model May Mean for Construction and Operational Services Contractors

Several themes emerge from policy statements and recent PPP experience. Risk allocation will be decisive. Contractors are unlikely to accept a return to PFI‑style full risk transfer, particularly in relation to variations/change control, estate constraints and lifecycle performance.

Equity participation by construction and/or operational services contractors is unlikely to be mandatory or expected by either the public sector or private investors. If such contractors do intend to have an equity stake they will want certainty about the identity of fellow equity investors. Evidence from MIM soft market testing points to limited appetite for compulsory equity stakes and an aversion to third party equity competitions that might decrease the cost of capital but create governance challenges and constrain risk‑adjusted returns. However, this may develop as likely investors are identified. 

Early contractor engagement is likely to be a defining feature of the new approach. The DHSC and NISTA have launched preliminary market engagement exercises explicitly inviting contractor and supply‑chain input prior to procurement. [8] However, it remains to be seen if this will be a developed and detailed approach to early contractor involvement taking its lead from recent models (i.e. a formal early contractor involvement model as is becoming increasingly common and effective across the world on major infrastructure projects). [9]

PPP and MIM models have historically required fixed-price construction contracts for fundability. The viability of this approach in any new model (particularly for retrofit and live-estate projects) depends on early engagement, scope discipline and balanced risk allocation to ensure construction contractors can make fixed price offers resulting in affordable deals.

Lifecycle and FM exposure will remain sensitive issues. Under both PFI and MIM, long‑term performance and hand-back obligations have been a significant source of concern. Although the Government has not yet published a definitive contract model for the new NHS PPP framework, public policy commentary and sector reports strongly signal an intention to avoid rigid, PFI-style bundling of long-term operational risk with construction delivery. The NHS Confederation, for example, calls for an outcomes-driven contract approach and enhanced public sector oversight rather than strict service transfer, implying that long-term facilities management may be handled differently under the emerging PPP model.

Practical Steps for Contractors Now

Construction and Operational Services Contractors considering future NHS Healthcare PPP in England and opportunities in Scotland may wish to:

• Proactively participate in the procurement process - engage early and selectively in market engagement processes if not already involved;
• Define internal red lines on equity participation, lifecycle exposure and change risk;
• Prepare for early contractor involvement;
• Monitor outcomes from Welsh MIM projects, Scottish MIM and early English pilots;
• Align commercial, legal and operational teams early; and
• Upskill junior team members – the gap in new UK PPP projects in the past 10 years has resulted in a relatively small pool of professionals with direct experience. 

We would be delighted to discuss your level of current involvement and interest in future PPP models for social infrastructure in the UK. Please get in touch with me at Eleanor.Kerslake@twobirds.com for further details.