The Bermuda Hospitals Board recently fleshed out some of the details concerning the $313 million revamp of King Edward VII Memorial Hospital.

The existing building will be renovated to the tune of $53 million. This will be financed using traditional methods by the BHB itself, which also hopes to get charitable support.

The $260 million construction of the new wing of the hospital will be financed and carried out through a mechanism known as a private public partnership.

PPPs, or Private Finance Initiatives (PFIs) as they are known in the UK, broadly work like this:

Government, or a public agency like the BHB, contracts with a private consortium to finance, design to the client's specifications, build and maintain a new development.

The private consortium puts up the money for the design, construction and maintenance of the development over a period of years, which in the BHB's case could be as many as 30.

The client then pays the consortium back over a period of years until the end of the contract. In the BHB's case, repayment would start in five years time, or about two years after the development is supposed to be completed.

The advantage of such a mechanism is that a public agency or government does not have to finance the project itself, either through taxation, borrowing or diverting funds from other functions.

In principle, the risk that the developer takes on means that the project will be managed efficiently, because if it is not, the developer will lose money. Similarly, because the management contract goes beyond the construction period, the developer will also be responsible for any problems that may arise, and this would also limit the temptation to cut corners.

All of that sounds pretty good, and should be a win-win for the public and the private developer.

That's not quite the whole story, however. Because the developer is doing the project for profit, it is likely that it will cost more than a contract administered directly by a government or public agency would pay if it was financing the project directly, through direct borrowing or other means.

And the fact that the payback is deferred does not mean there isn't any payback. It simply means that repayment is spread over a longer period, which in turn means it will cost more, just as the interest paid on a 30-year mortgage is much greater than it is on a five-year loan.

And there is still the risk, especially if there are major problems with the project, that the developer will walk away, leaving the taxpayer holding the bag, and the BHB scrambling for someone to complete the contract.

PPPs have also been criticised because they have been seen as a way for governments to fund capital projects without having to show the financing for the projects as a debt, at least at the outset.

In Bermuda's case, when the Government, which is the ultimate guarantor of this project even if the direct client is the BHB, has a statutory debt ceiling of $550 million, this might be seen as being rather convenient, especially when an additional $250 million to $300 million would breach the ceiling.

Not so, say supporters of the project. Leaving the debt question aside, they say PPPs can deliver public projects more efficiently than a traditional, direct financing method can, and the long period of repayment is akin to a mortgage. Yes, you are going to pay more for it, but as inflation kicks in, the real cost of repayment will decline over the life of the contract.

And, unlike traditional construction projects, where the contractor stops being responsible for the project on completion, in a PPP, the consortium retains responsibility, albeit for a fee which is yet to be determined.

The other concern, which was acknowledged by the team commissioning the project, is that raising any money in the current economic climate is not easy.

But the team noted that infrastructure funding is slightly different from ordinary investing, because of the long term of the investment and because it is backed by a government, which is unlikely to default.

Indeed, as the US and other governments pour money into infrastructure projects as they bid to boost employment and liquidity in their economies, it may be that this area of investment will become popular. Further, funding for the project is not needed for some time, by which time it is hoped the global climate will have improved.

In all, it appears that the BHB has done its homework on the idea of a PPP. But these are uncharted waters for Bermuda (and there is talk of the Causeway being financed in the same way), so it is critical that the Board gets it right. After all, you only have one chance with a hospital.