A Hinchingbrooke-style private franchise could take over Peterborough and Stamford Hospitals Foundation Trust’s main site, Monitor has confirmed.

The regulator’s chief executive David Bennett made the revelation during a press conference at which the conclusions of a contingency planning team that had been sent into the debt-plagued foundation trust were revealed.

He said the foundation trust must run a £2.5m procurement exercise to allow another provider - potentially from the private sector - to use some of its surplus estate at Peterborough City Hospital.

The regulator later confirmed that this exercise could lead to a “third party operator” taking over the entire hospital.

The legal structure for such an arrangement has not yet been worked out as it is the first time it has been considered for a foundation trust.

Peterborough and Stamford has been in significant breach of the terms of its authorisation since 2010 as it has struggled to make unitary payments on its private finance initiative arrangement, recording a deficit of £40m in 2012-13.

Mr Bennett stressed that the procurement would invite expressions of interest for different ways of helping the trust improve its financial position, and could see far smaller bids to run smaller numbers of private beds.

The procurement exercise is currently expected to conclude in September 2015.

Monitor’s five-year recovery plan commits Peterborough and Stamford to “a comprehensive programme of cost savings to make the trust more efficient and cut £10m off the annual deficit”.

Monitor’s report said of the procurement exercise: “This is a new departure for a foundation trust and will be open to any qualified providers, from other NHS trusts and the independent sector.

“This may well create a novel business model designed to tackle a unique financial problem.”

Monitor’s report said an extra 100 beds that could be put on Peterborough City Hospital’s fourth floor, which was currently being used as offices.

It said: “The expert team did consider whether the trust itself could develop the fourth floor without going into partnership with another organisation, but ruled this out as impractical. The trust is already expanding some services, for example radiotherapy. However there is unlikely to be substantial extra local demand, since NHS funding is tight and commissioners want to shift activity away from acute hospitals into community settings.”

The report goes on to say that the option of hosting Papworth Hospital Foundation Trust at Peterborough had been considered but that the Papworth board thought it better to co-locate with Cambridge University Hospitals Foundation Trust.

Monitor’s report pointed out that approval for PFI funding for Papworth’s plan was still outstanding from the Treasury.

Peterborough and Stamford’s board will appoint a director and team to “draw up the scope of the tendering exercise” and run the process to award a contract.

Circle Health took over Hinchingbrooke Health Care Trust in Cambridgeshire in February last year in the first such franchise arrangement for an NHS hospital.