Healthcare construction has always been demanding, but as healthcare facilities grapple with ageing infrastructure and urgent rebuilds, new Building Safety Act requirements are adding significant time to project timelines.
Working within live clinical environments and managing competing operational priorities leaves little margin for financial error. Yet cost overruns remain stubbornly common, driven by the complex, multi-stakeholder nature of the work and a rapidly changing regulatory landscape. Below are the five most common sources of cost loss in healthcare build projects – and how to avoid them:
ONE: Failing to extend planning horizons
The most significant change affecting healthcare construction today is the Building Safety Act, which classifies any building over 18 metres as a high-risk building and subjects it to a multi-stage gateway approval process. Since virtually all major acute hospital facilities are five storeys or more, the overwhelming majority of significant healthcare projects now fall within scope of these regulations. The gateway process, and Gateway 3 in particular, which has yet to be tested for a new build hospital, has the potential to add considerably more time to projects.
The cost implications can also be severe. Projects may reach physical completion, with wards fitted out and equipment purchased and delivered, yet remain unable to become operational while awaiting Gateway 3 approval. Extended pre-construction periods may inflate professional fees, but this investment pre-construction can offset the risks of achieving signoff, which in turn could add additional costs.
The solution is to extend usual planning horizons. If a facility needs to be delivered in two years, design needs to begin now. This represents a significant cultural shift away from the traditional approach of establishing the clinical model and then engaging the project team. The design process should ideally run in conjunction with clinical planning, rather than following it, to ensure all stakeholder requirements are embedded in both the design and operational planning phases at the earliest possible stage.
Cash flows should ideally be modelled across two to three years
TWO: Treating Gateway 3 as an afterthought
Of the 158 Gateway 3 applications submitted last year, 55 took more than three months to receive a decision, against an intended eight-week target. No new-build high-risk buildings that have gone through Gateway 2 have yet applied for Gateway 3, meaning the sector is heading into uncharted territory at precisely the moment when the pipeline of major hospital builds is growing, with the onset of the first wave of schemes to be delivered through the New Hospital Programme (NHP).
A central requirement of Gateway 3 is the maintenance of the "golden thread", a comprehensive, accurate and up-to-date electronic record of the building that demonstrates compliance with Building Regulations throughout the project lifecycle. Organisations that treat this as a documentation exercise to be completed at the end of a project, rather than a continuous process maintained from day one, will face delays and additional costs at the submission stage.
Planning for Gateway 3 from the outset, and ensuring that safety information is created, maintained and shared electronically throughout the project, is the best solution.
THREE: Failing to account for regulatory timelines in financial planning
NHS financial planning has traditionally operated on annual cycles. This model is arguably incompatible with a regulatory environment in which gateway approvals can now take 12 months or more in complex cases.
Business cases and funding applications must work best in the current environment if they build in realistic assumptions about regulatory delay from the outset. Cash flows should ideally be modelled across two to three years to give trusts meaningful visibility of their expenditure, and gateway milestones need to be incorporated into financial planning at the earliest possible stage rather than retrofitted when programmes slip.
FOUR: Not planning far enough ahead for maintenance and backlog budgets
While a focus on large capital programmes is understandable, significant cost losses can also occur in the planning and delivery of routine maintenance and backlog works, particularly around failing infrastructure and urgent demands. Trusts receive annual budgets to fund essential ongoing work such as fire door upgrades, infrastructure renewals and statutory compliance schemes, and these projects that keep hospitals safe and operational also require planning rigour.
When these budgets are not planned sufficiently in advance, the consequences are unpredictable and costly. A project taken to market too late in the financial year will attract limited contractor interest, reducing competitive tension and undermining value for money. Trusts have gone to market with budgets of over a million pounds and received a single tender return, leaving them no meaningful basis on which to negotiate.
The solution is early engagement. Conversations with consultants, the wider estates and facilities teams and the supply chain should begin before the start of the financial year, to identify how budgets will be deployed over the following 11 months. This avoids the poor outcomes of last-minute procurement, and would identify any works that are required to be completed urgently, due to risks such as fire safety and protection of vulnerable patients
The most significant change affecting healthcare construction today is the Building Safety Act
FIVE: End-of-year financial pressure
The annual financial year cycle creates a persistent problem in NHS construction, and routinely leads to poor procurement decisions and compressed timescales. This often leads to rushed procurement in a market where the supply chain can ‘pick and choose,’ projects, and this leads to inflated costs in order to expend budgets before the end of the financial year.
Protective mechanisms such as performance bonds or project bank accounts can be used to ensure budgets are expended prior to the end of the financial year, but they are still used relatively rarely in NHS capital delivery.
Early engagement with advisers, robust cash flow modelling and a clear commitment to deploying budgets in a planned and sequenced way throughout the year will reduce the pressure that drives poor end-of-year decision-making.
Healthcare construction operates in an increasingly complex regulatory environment. Those that manage costs most effectively will be those that plan further ahead, engage their supply chains earlier and build regulatory and financial realities into their programmes from the outset.