The Free State Province in South Africa, with the provincial capital at Bloemfontein, is home to 2.8 million people. But only 13 per cent have private health insurance with most relying on government-operated facilities for their healthcare needs. There are two academic public hospitals in Bloemfontein: Pelonomi and Universitas. In 1997, the government was unable to raise the estimated R825 million needed towards the major renovation of Pelonomi hospital and a partial upgrade of Universitas Hospital. The solution emerged through a public-private partnership between the Philippine national government and the private sector. The PPP was structured for the hospital redevelopment project between three partners. The Free State Health Department (FSHD) is the provincial government department that oversees all public health facilities. The FSHD selected its partner through a competitive tendering process supported by experts from the Victoria State Health Department in Australia. The selected private partner was a consortium made of two healthcare companies - one a South African black empowerment company, holding a 40 percent stake in the consortium and the other multinational healthcare company with another 25 percent of shares. The remaining 35 per cent of shares were later offered to investors, doctors, and the state. After 10 months of negotiations, the official agreement was signed between the two partners on November 25, 2002. Under the 16.5 year contract, upgrades to Pelonomi and Universitas Hospitals were to be financed and completed by the private partner. The private partner also has responsibility to maintain functional facilities at both hospitals throughout the length of the contract. When the contract expires, all facilities will then be returned to the health department. For the duration of the contract, the health department and the private partner will share access to facilities such as lifts and clinical services such as radiology. Many of these clinical services require extremely expensive equipment, which when shared significantly reduce operating costs. The private partner was granted use of the 500 beds that exceed the need of the public sector. Five operating theatres are also for private use. FSHD's only job in Pelonomi and Universitas hospitals was to provide patient care; the private partner was responsible for all renovations and upgrades. Approximately R100 million was invested in the hospital to correct and upgrade the physical condition of the facilities. By February 2005, the private partner had invested R23 million in the refurbishing process. Universitas Hospital received upgrades to the orthopaedic, physiotherapy, and occupational therapy as well as external infrastructure. To complete the construction, the private partner hired local contracting companies. During one phase of construction, 26 Bloemfontein companies were subcontracted for about eight months. This phase of construction amounted to over R10 million (about Sh100 million) going into the local economy. The Universitas Private Hospital first admitted private patients beginning in October 2003. The first private patients admitted to Pelonomi Private Hospital were admitted in September, 2005. The Free State Health Department receives monthly concession fees from the private partner for the bed and operating theatre space it uses in both hospitals. The private partner pays variable fees as well, which are set at two percent of patient turnover. By including variable payments related to the private partner's earnings, some of the operational risk is transferred to the FSHD because a portion of the revenues depends on the success of the private partner. By leasing the extra space to a private company, FSHD could generate capital to help offset the cost of hospital operation, while the private company would gain space for private healthcare services at a lower cost because of not needing to build new facilities. One of the initial and major challenges for this PPP was the need for passage of requisite legislation. In 1999, the national government passed the Public Finance Management Act 1 setting out a clear step-by-step process for the development and oversight of PPPs. In retrospect, the PPP for Pelonomi and Universitas Hospitals has been extremely successful. Pelonomi and Universitas Hospitals received the needed renovations at no cost to the province government, which was unable to fund the project. Duplication of services was eliminated and there was available space in the two hospitals equivalent to 500 beds. Operating room access and other specialised facilities could be shared on a fee basis. Both hospitals now have modernised facilities that are totally functional and the PPP was able to reduce costs for both the FSHD and the private partner. The private partner was also able to reduce the costs of providing private healthcare to citizens in Bloemfontein because they did not have to build a new hospital. Dr Macharia is a principal of Scion Real, a construction project management firm.