The Treasury has approved public funding for a £353m “PF2” hospital rebuild in the West Midlands – the first NHS project to get the green light under the government’s successor to the private finance initiative.

The government will provide £100m to the Sandwell and West Birmingham Hospitals Trust rebuild, with the remainder of the finance sought from private sector lenders.

The inclusion of public funding under the PF2 deal is intended to reduce the costs of the private finance.

The Treasury decision, announced yesterday, brings one step closer the trust’s plans to downgrade its two existing hospitals and concentrate services in the new Midland Metropolitan Hospital, which is expected to open in autumn 2018.

The trust has issued a prequalification questionnaire for potential lenders, builders and associated contractors. It must appoint a private consortium to finance, build and provide some “heavy” facilities management services to the hospital within 18 months, or the government will reallocate the £100m.

PFI projects have proven contentious in the NHS for tying trusts to inflexible and expensive facilities maintenance deals over prolonged periods, particularly for “soft” facilities management services such as cleaning and catering.

Sandwell and West Birmingham chief executive Toby Lewis told HSJ the deal he hoped to strike for the organisation would avoid these problems.

George Osborne

George Osborne launched PF2 in the 2012 autumn statement

Mr Lewis said the trust’s pioneer status with PF2 should mean they attract the best talent in the PFI consortia industry.

He said his organisation would be looking for continuity from a bidder, because in previous NHS PFI schemes there had been a “different team at the bid stage, at the build stage and the operational stage”. There would also be “real emphasis” on the hard facilities management contract in the first year, he said.

Sandwell already owns the land on which the new hospital will sit and has designs for the building. Mr Lewis said there were already 200 architectural drawings of the new facility that would be released to bidders to see if they could improve them, rather than asking for something designed from scratch.

The deal will have a term of 30 years, which is standard for PFI agreements.

Mr Lewis said “pace” was a key part of his team’s approach to the rebuild.

“It’s very important people feel engaged but time is money,” he said, “We have to make sure we are building our teams now because we will be working in a different way in the new hospital.”

Mr Lewis, former manager of the PFI built Royal London Hospital, said the move would allow a greater separation of elective and emergency work and help the trust adopt best practice on seven day working.