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Private sector bidders yesterday failed in a controversial bid to build the first fully privatised NHS hospital at Stonehaven near Aberdeen. Instead Grampian Healthcare, an NHS Trust, was selected in a pounds 4m private finance deal. Part of the package, however, includes the construction of a 15 to 20-bed private nursing home alongside the 50-bed community hospital. It will be run by Community Health Services, which will manage the building and ancillary services.

Dr Alex Taylor, the Trust's chairman, said: "It is encouraging to know that we can compete with the private sector.". Michael Forsyth, Secretary of State for Scotland, is believed to have favoured a fully private deal. But Stephen Dorrell, the Secretary of State for Health said recently that it was "no part of the Government's policy" for the private sector to provide clinical services. Nicholas Timmins