Plans to build a number of new hospitals have stalled as trusts await a ministerial decision on whether the government will underwrite private finance initiative deals.

Previous PFIs have been underwritten by the Department of Health with a “deed of safeguard”, which ensures that contractors are not left unpaid if a trust cannot fulfil its obligations.

The original wording of the Health Bill included provision for insolvency law to be applied to foundation trusts. This implied that a deed of safeguard may not be provided. The government has yet to clarify the situation.

Without backing, large PFI deals are unlikely to get funding from the private sector. Six PFI schemes are currently in development; it is unlikely these would go through without DH backing.

Papworth Hospital Foundation Trust is considering bids on a £165m PFI. But HSJ has learned that the trust concluded it should seek legal advice on the future of the deal if the deed of safeguard is not provided.

North Tees and Hartlepool Foundation Trust drew up a business case for a £299m privately financed hospital build after the government withdrew public funding for a previous £460m scheme last year. At the time, ministers suggested foundation trusts should borrow without state support.

The trust needs confirmation that the DH will back the deal before it can go to the market. HSJ understands the trust expects this confirmation in coming weeks, but the decision has been delayed several times.

Sharon Renouf, partner at law firm Bevan Brittan, said: “The need for a decision is going to become more pressing. There will be a need for this to be grappled with.”

She said the deeds of safeguard could be withdrawn completely or a more robust regime introduced to determine which schemes should get backing. This could lead to further delays. The industry is speculating a new regime could include a strict test to determine the proportion of a trust’s turnover PFI payments could amount to. There would also be scrutiny of deals’ value for money, she said.

A Department of Health spokesman said: “The powers have been retained in the Health Bill to issue deed of safeguard for PFI schemes. Officials have considered the circumstances under which a deed of safeguard could be made available and any conditions that the DH and Treasury may apply; their recommendations are now with ministers.”

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