Private provider Circle is set to run Hinchingbrooke Health Care Trust in Cambridgeshire for 10 years under an operating franchise.

The company’s deal beat Serco, which bid in partnership with Peterborough and Stamford Hospitals Foundation Trust. Circle is now the preferred - and only - bidder for the franchise.

The contract is due to be signed in February. It is expected to require that Circle maintains accident and emergency, maternity and other services at the hospital, which has a historic debt of £38.8m against a 2009-10 turnover of nearly £80m.

NHS East of England director of strategy Stephen Dunn said the plan the strategic health authority had agreed with Circle would see the trust’s debt paid off within 10 years.

“They are planning to pay off the debt over the life of the franchise” he said, but added that the final decision on the length of the pay-back was “ultimately up to the Treasury and Department of Health”, which now need to approve the business case.

He said: “There are no guarantees, no subsidies” for Circle.

There will be no change to staff terms and conditions and staff will remain part of the NHS. Any surpluses will be shared between Circle and the SHA.

Dr Dunn said: “We have got an incredibly good deal for the NHS. [Circle] gave us the best chance of repaying the debt and possibly more.”

HSJ understands the terms of the deal prevent Hinchingbrooke becoming a foundation trust. As a result there will have to be a clause in the Health Bill allowing it to remain as a standard NHS trust for the duration of the contract. The government is likely to legislate that all other trusts must become foundation trusts, or part of foundation trusts, by 2013. A “very small, residual” board will manage the franchise with Circle.

The contract will initially be held by the SHA until its abolition, when it is expected to pass to the DH or to a potential new central provider agency.

The deal is the first of its kind in the country. Consultancy firm Secta’s deal with Good Hope Hospital Trust in 2003 was a management franchise which did not grant the same freedoms and did not see surpluses split between paying down the debt and the operators.

Circle managing partner Ali Parsa said he would “absolutely” extend the opportunity to join Circle’s staff ownership model to Hinchingbrooke staff, but said “what we can’t do under the terms of the contract is run the whole hospital as a mutual because the assets still belong to the NHS”.

Referring to one of Circle’s independent treatment centres, he added: “We have had a 22 per cent productivity gain in Nottingham in one year”.

The provider will need to tackle the hospital’s underlying operating deficit. At the end of October it had overspent by £1.75m.

The trust has also reported its commissioners may withhold payments because its standardised mortality ratio was higher than required during the first quarter of the year, and that recruitment has been affected by the cap on immigration.