A consortium of Stanhope, investment bank Schroder and contractor Bovis had been expected to sign a deal with SmithKline to finance, build and operate the 79 000 m2 complex at Brentford.
Under the planned deal, SmithKline would have leased the building from the consortium for £18m a year. Stanhope and Schroder would have raised funding and it would have been built by Bovis.
A spokesman for SmithKline said: "Dialogue with the Stanhope consortium has ceased. We are currently looking at different options for funding the project. In the next couple of weeks, we will be able to state how future investment will take place regarding the site."
PFI not to blame
Stanhope was chosen as preferred bidder in April ahead of four other consortia. One of the other teams was led by Amec; another by Development Securities, which planned to use Mace as construction manager; and a third by developer Heron with contractor Mowlem. Details about the fourth team are not known.
The Stanhope consortium made its best and final offer two weeks ago. It is understood that, after considering this bid, SmithKline decided to abandon PFI-style procurement in favour of a more traditional route.
Bovis and Mace are now set to compete to carry out the £135m construction element of the project.
A source at Stanhope said of the collapse of the talks: "One is always disappointed when one doesn't do transactions."
Asked if the breakdown of negotiations with SmithKline was a bad omen for further corporate PFI deals, the source said: "It was nothing to do with the concept of corporate PFI. It was to do with the particular deal put together by SmithKline Beecham."
What broke the deal
The source also denied industry speculation that the autumn 2001 completion date had been a stumbling block, but said there was no chance of negotiations resuming. He said: "SmithKline changed its mind and it is proceeding along a more regular route."
A spokesman for Bovis said: "We are still talking to SmithKline Beecham about building and managing the project. As for financing the project, I cannot comment."
Preparation for the scheme, designed by US architect Hillier Group with British firm RHWL, started on site in April. PJ Carey is groundworks contractor and Mace is construction manager for this early phase.
A design team source said the collapse of the funding deal would not hinder the design development. He said: "All the base building teams are appointed.
We have placed orders for some of the major elements of the building. The funding side of the project is continuing on a completely different track."
Corporate PFI in doubt?
Industry leaders have expected the private sector to be the next big market for PFI-type deals, where a party raises funding, then builds and manages a project. They have argued that companies do not want to tie up money on building projects that could be invested in core businesses.
But no private PFI deals have been struck and there is some suspicion that the private sector is put off by the cost of having a developer and contractor fund a project that it might be able to fund more cheaply itself. Developers are also concerned that PFI-style client firms may not be around at the end of the deal.