The government has approved a £425m private finance initiative rebuild of the Royal Liverpool Hospital, following delays.

It had previously been hoped approval would be gained in time for construction to begin in spring this year.

Now it has been approved, work is expected to begin early next year and be completed in mid-2017.

The Department of Health confirmed to HSJ sister title Construction News last week that both the department and Treasury had approved the draft business case for the redevelopment.

Bidders for the £280m construction contract were asked to make final bids quickly, and a preferred bidder is expected to be announced “in the coming weeks”.

The two bidders for the construction deal are Carillion and Horizon. The latter is a consortium, made up of Interserve, John Laing and FCC.

The DH approved Royal Liverpool and Broadgreen University Hospitals Trust’s business plan in February, and passed it to Treasury, which has now also cleared it.

The trust said in a statement: “The next step is for us to assess the final bids by our two bidders – Carillion and Horizon. We will then make a decision in the next few weeks on which one of these bidders will design and build our new hospital.

“After the bidder is appointed, we will obtain final planning permission and sign contracts, with work on the hospital expected to begin early next year. The new Royal will then open in 2017.”

Chief executive Aidan Kehoe said: “I am delighted that we are now just weeks away from unveiling the design for our new hospital.

“The new Royal is at the very heart of our city and this is a significant step forward in the creation of our world-class hospital.”

He said it also brought the trust “one step closer” to creating a proposed “Liverpool BioCampus, which has the potential to transform the city, propelling us onto the world stage along with Boston and Singapore”.

Once a preferred bidder is selected and confirmed by government, the trust and the bidder will run a competition to select a funder for the project.

The trust said the cost of construction would be around £280m. The trust itself will make a capital contribution, and said it expected its PFI annual unitary payment to represent about 6 per cent of its annual turnover.

A trust spokeswoman said: “We will give full details about the funding structure/package at the same time as we announce the preferred bidder.”