Government has said the redevelopment of King Edward VII Memorial Hospital will be financed through Bermuda's first public-private partnership.

A public-private partnership (PPP) is a contractual agreement between Government and a private sector entity to deliver a facility for the use of the general public. Through this agreement, the skills and assets of each sector are shared and each party shares in the risks and rewards potential in the delivery of the facility.

The Government has chosen to go with the PPP model known as design, build, finance, maintain. The Bermuda Hospitals Board CEO David Hill said it is the model recommended by business advisers KPMG, and that it offers better value for money than any of the other options.

He said it will work as follows:

l The first payment for the new construction is in about five years, once the buildings are completed to BHB's specifications. Further payments are spread over years, easing the financial burden of such a large project on the taxpayer.

l Many of the risks are transferred to the private partner including potential construction delays or cost-overruns

l The new buildings are constructed to BHB's specifications

l BHB retains ownership of the facilities and keeps direct control over all operations that touch the patient, allowing BHB to improve patient care

l The buildings are maintained by the PPP partner at a mutually-agreed standard over a lengthy concessionary period, giving the partner a vested interest in building quality facilities.

However, some critics believe PPP schemes cost more than conventionally funded projects because governments can borrow at much lower rates than the private sector. Start-up costs can also be much higher because these deals often require the services of highly specialised legal and financial consultants.