Outline Business Case for Ballymena Health & Care Centre VERSION 3 SEPT 2009

Transcription

1 Outline Business Case for Ballymena Health & Care Centre VERSION 3 SEPT

2 CHAPTER 1 EXECUTIVE SUMMARY 1.1 Introduction This document sets out the Strategic content and Outline Business Case for the proposed development of a Health and Care centre in Ballymena It has been produced by the Northern Health and Social Care Trust (NHSCT) with input and advice from the Health and Social Services Board (HSCB). This Outline Business Case conforms to the guidance laid out in the Business Case section of the NHS Capital Investment manual and the HMS Treasury Guidance (Green Book). It has been amended in accordance with comments provided by DOH Health Estates and Economists in February Background This Outline Business Case builds on the HSCB PCCI Outline Business Case 1 which was approved by the Department in October It sets out the NHSCT and HSCB s views on the service reforms and capital investment required to modernise primary and community care services within the NHSCT area. It includes the development of a Health and Care centre in Ballymena to replace the current health centre and co locate and integrate the Trust s community teams and services through reducing the number of leased buildings in the Ballymena area. The centre will provide accommodation for the Trust primary and community care services within Ballymena Council area and will include locally accessible hospital clinics and diagnostic services as well as general practitioner services. 2

3 1.3 Strategic Context The Strategic Context establishes the Case for Change through an analysis of the national, regional and local strategies and policies, describing the scope and shape of future service provision which will help to determine service demand levels The strategic context concludes that the development of local, accessible, flexible and integrated primary health and community care services is central to national and regional policy. The proposed development of the Ballymena Health and Care Centre seeks to build upon the current thrust of modernisation and service redesign and enable the Trust to promote further integration of services within a new purpose built facility for the population of the Ballymena Council area. 1.4 Project Objectives and Constraints The aims and objectives of the PCCI Programme were reviewed and agreed across the region by all the Health Social Care Trusts (see OBC one) and used to set the objectives for the Health and Care Centres within the PCCI Programme For this project, 5 specific objectives have been identified and used to define the Ballymena project. They are: Objective 1 Accessibility To achieve maximum access to Trust services provided for the local Ballymena population Objective 2 Efficiency To rationalise the Trust s premises facilitating a real reduction in overall Trust estate related costs within 3 years of operation of the new facility. 3

4 1.4.5 Objective 3 Quality To facilitate the provision of services through the development of a high quality functionally designed environment which enables services to be delivered flexibly in a way which promotes inter service and inter agency working and supports the development of new models of care Objective 4 Timeliness To provide facilities which will extend the capacity of the Primary Care, Community Care and selected Acute Services to meet the health needs of Ballymena Borough Council area residents within 4 years of approval of the outline business case Objective 5 Integrated services To deliver service models which meet the Regional Priorities and the Objectives of the Main Commissioner in relation to the Strategies A Healthier Future, Caring for People beyond Tomorrow and Equal Lives. 1.5 Identification of Options A number of options for capital development were identified and sifted. Full description of all options is continued in Section 6.4. The shortlisted options following this exercise were: Option 1 Maintain the Status Quo-Upgrade the existing building estate housing current services. This option, while it complies poorly with the objectives, been retained as a cost comparator Option 4: Reconfigure and extend existing estate on Braid Valley Hospital site only the original store workhouse was identified as an element which could re-utilised. The majority of this option would be a new build extension around a refurbished stone workhouse. The rest of the Main Hospital would be demolished. 4

5 1.5.4 Option 5: New Build on the Braid Valley Hospital site. To provide a new build facility on the northern half of the site allowing the majority of the estate to remain in operation during the construction period The theme for this option is to build a new Health and Care Centre where the Braid Valley Hospital Outpatient departments one and two are situated, decanting those services into the Main Building together with the temporary relocation of other services such as Ambulance depot, X-ray, Estates and Stores. The new build will meet the all objectives and also support the implementation of new technology Option 6 - New build on Green field site/brown field site. The Property & Land Services were unable to carry out a search for land within the timescale available for this study. The design team carried out their own investigation under the guidance of a Local Property Agent. The investigation highlighted a total absence of Brown field sites and only 2 Green field sites available of a suitable acreage. The Health Estates Agency elected the Site Development & Analysis Team to consider the Council owned land adjacent to the ECOS Centre site, deeming the other possibility to be too remote from the main population. 1.6 Assessment of Non-monetary Costs and Benefits A weighting and scoring exercise was undertaken to assess the nonmonetary costs and benefits of each option. The criteria used relate to the ability to deliver the new service models, accessibility, acceptability, support of further integration, provision of a safe environment, speed of implementation, and level of disruption. 5

6 Table 1: Non-financial analysis Rank Score Option Option 5 New Build on Braid Valley Hospital site Option 6 New Build on a green field/ brown field site Option 4 Reconfigure and extend existing estate on Braid Valley site Option 1 Status Quo The preferred option within the Non Financial Analysis has been identified as Option 5 New Build on the Braid Valley Hospital site. 1.7 Financial Analysis Summary Capital Costs The capital costs for the proposed Health and Care Centre have been prepared by the architects/concept design team appointed by Health Estates. All the capital costs have been validated by Health Estates and are based on a building size of 7,264 m 2 for options 5 and 6 which are new build. The floor area for Option 4 is 8,750m 2 with 4,300 m2 being retained of the existing hospital and a new build of 4,350 m2. The additional area required has been largely dictated by floor plate inefficiencies in the old hospital building. The methodology for determining the capital cost has been as follows. Costs reflect the schedule of accommodation. Fees are calculated as a percentage of construction costs as determined by Health Estates. Equipment costs included are group 1 & 2. Group 1 category encompasses items which are supplied within the terms of the building contract e.g. blinds, built-in cupboards. Group 2 are those items which are fixed within the terms of the building 6

7 contract, but not supplied within building contract arrangements. Equipment costs are calculated as a percentage of departmental costs as per OB2, (refer to appendix 8.10 for OB forms). A planning contingency of 6% of the costs of construction, non works costs and fees is included in the OB forms from Health Estates. The contingency costs, however, have been excluded from the financial analysis as per guidance from DFP The capital costings have been prepared in accordance with guidance issued by the Department of Health and have been indexed to Median Index Public Sector (MIPS) 508 (3 rd Quarter 09). Table A illustrates the projected capital costs for each option for the Ballymena Health and Care Centre, analysed by construction cost and fee elements. Health Estates have provided OB 1 Forms for all of the options and these are included in Appendix Table A - Capital Costs (Pre Optimism Bias Adjusted) Option 1 Option 4 Option 5 Option 6 Cost Element Purchase of land ,250 Sale of Land Construction Cost 1,502 19,586 15,063 18,084 Professional Fees - 3,526 2,259 2,713 Non Works Costs Equipment - 1,958 1,958 1,958 TOTAL 1,502 25,569 19,657 24, Project Support Costs Under the sliding scale of project support charges set out in the Health Estates Development Department guidance dated 2 nd June 2005 project support costs for this business case would be 29,400 per annum. These have been included for Years 1 to 5 of the project. 7

8 1.9 Residual Value The residual value of each option has been calculated for inclusion in the Net Present Cost calculation using the following assumptions; The capital cost for new or reconfiguration of existing buildings will add equivalent capital value; In line with DHSSPS guidance, for a new build depreciation is calculated on a straight line basis over 60 years for buildings with equipment depreciated on a straight line basis over 10 years; for a refurbishment depreciation is calculated on a straight line basis over 25 years; Depreciation charges commence in the year following completion of the capital spend, and Equipment will be replaced every 10 years. The residual Value calculations for each Option are included in Appendix Life Cycle Costs Life cycle costs are the ongoing costs of maintenance and refurbishment work that will be required to maintain the buildings in a similar state and condition as when the proposed development is completed. These costs have been calculated using a model provided by Health Estates. The costs have been treated as revenue costs and have therefore not been adjusted for optimism bias nor have they been included for the purposes of calculating future capital charges A summary of life cycle costs over the 25 years of the appraisal are summarised in Table B below. A detailed analysis is contained in Appendix

9 Table B - Life cycle costs over 25 years Option 1 Option 4 Option 5 Option 6 Cost Element Life cycle costs over 25 years 1,840 1,840 1,840 1, Opportunity Cost The opportunity cost for options 4 and 5 which use the existing Braid Valley site is based on a land valuation of 1.25 million for the 2.03 hectare site required for the construction as provided by the LPS in June In addition the Net Book Value of the land and buildings for those buildings which will be vacated once the HCC is constructed, have also been included as opportunity costs. The net book of the land and buildings for the opportunity cost for Option 6 is 1.25 million for the 2.03 hectare site required at the ECOS Centre. The LPS valuation letters are included in Appendix REVENUE Baseline Revenue Costs The current costs of services transferring into the new Health and Care Centre are based on Pay, Non Pay and Premises running costs relating to the services that will be transferring in to the HCC Pay Costs It is assumed that existing staff will transfer into the new buildings to provide existing services. However, projections have been carried out to determine service requirements until 2015 and the subsequent requirement for additional staffing, taking account of population projections and the changes resulting from a shift from secondary to a more primary/community care based service Investment in additional staff and staff training will be required to meet the anticipated growth in the demand for primary and 9

10 community care services. Without this investment there is a risk that the benefits associated with the new service model will not be realised. The cost of these additional staff are included in the business case to reflect the full cost of the Health and Care Centre in 2015 as required by Green Book guidance. However, it is assumed that these additions will be funded through service development proposals and will be subject to further detailed discussion between the Trust, the Commissioner and Department. A second phase of capital investment may be required to accommodate these service developments in the future It is assumed that current pay revenue costs will be incurred in existing buildings until the capital works are completed, and this assumption has been included in the NPC calculations. The costs associated with the additional staff are assumed to be phased equally over the succeeding eight years from April 2014 with completion of the building works estimated as March Detail of the pay costs are contained in Appendix 8.1 and these are summarised in Table C below. These costs reflect Trust staff who are based in the Health and Care Centre and do not therefore include the staff who provide outreach clinics in the HCC, or staff who are not employed by the Trust e.g. nursing students. The current number of Trust staff who are transferring into the HCC is wte staff. It is projected that these will increase by wte to wte and it is assumed that pay costs will increase proportionately. Payroll costs are at a 9/10 price base and do not take into account future pay awards or inflation. (Any difference between the total figure in Appendix 8.1 and Table C are do to rounding). 10

11 Table C Pay Revenue Costs Option 1 Option 4 Option 5 Option 6 Clinical Admin Support Community Dental Community Paediatric Medicine Community Midwives Health Visitors District Nurses Learning Disability Nurses Domiciliary Care Team Elder Care Team Community Rehab Team Occupational Therapy Orthoptics Physiotherapy Podiatry & Gait Analysis Speech & Language Therapy Learning Disability Social Workers Community Addictions Team Challenging Behaviour Team Specialist Nurse Diabetes Treatment Room Nursing Radiology Out Patients Audley Terrace MH Team 962 1,106 1,106 1,106 Older Peoples Mental Health Team Total ,795 9,795 9, In addition to the staffing referred to in the table above, staff will be required to manage the building and its accommodation. The Trust has therefore included additional costs of 86,222 per annum for the following staff from when the HCC opens in April x Porter/Storeman (Band 3) 1 x Centre manager (Band 6) 1 x Admin support (Band 3) 11

12 Non Pay Costs Non-pay costs associated with staff include travel costs and other overheads with direct correlation to staff numbers i.e. stationery, telephone etc. It is assumed that non-pay costs will increase proportionately with staff numbers and this has been factored in using the same methodology. It has been assumed that there will be an amount of 1k per additional w.t.e. for I.T. costs which equates to 36k for an additional 36 w.t.e Table D below provides an indicative estimate of the non-pay revenue costs associated with each option for the Ballymena Health and Care Centre. It is assumed that income currently received from GPs for rent and rates will remain at the current level but will be subject to further review Table D(a) - Non-Pay Costs Option 1 Option 4 Option 5 Option 6 Cost Element (Recurring) Staff non-pay cost 1,316 1,507 1,507 1,507 IT Costs Heat light and power Building & Engineering Rates/Insurance Cleaning Water Rates Lease costs Income (GP) TOTAL 1,593 2,191 2,073 2, Staff non pay costs are the same for Options 4 6 as the numbers of staff are the same for all options. There are increased running costs associated with Option 4 when compared to Options 5 and 6 because of the increased floor space. 12

13 It is assumed that current non-pay revenue costs will be incurred in existing buildings until the capital works are completed, and the additional running costs have been factored in to be incurred from April 2014 with the additional staff non pay and IT costs being phased in over an 8 year period In addition to the non-pay costs contained in the table above, there are further costs incurred as a result of the reconfiguration of services as part of this project. These are part recurring and part non-recurring and are set out in the table below Table D(b) - Non-Pay Costs (As a result of Decant) Option 1 Option 4 Option 5 Option 6 Cost Element (Recurring) Lease costs TOTAL Option 1 Option 4 Option 5 Option 6 Cost Element (Non-Recurring) Relocation costs TOTAL The Lease costs relate to the services that as a result of this project will have to relocate from their current base to leased accommodation. In relation to option 4, this includes Finance & Estates departments and in relation to options 5 & 6, this relates to Medical Records. These costs are recurring The relocation costs are non-recurring and include the one off set up costs for the services in their re-located base and also staff excess travelling for four years. 13

14 Premises Running Costs It is recognised that the development proposed for Ballymena Health and Care Centre will have an impact on the Trust s estate revenue base. Due to the potential scale of costs associated with the increase in the size of the building footprint of the new estate, compared with the current provision, an approach has been taken to focus on these revenue costs, to identify the minimum revenue cost uplift required to provide existing services within a new building, plus the cost of maintaining the new estate at its opening date. Details of the funding associated with the current premises from which services are to be transferred is included in Appendix The projected premises costs for the new build options take the following points into consideration. Changes in space standards with a proposed floor area of 7,264m 2 for new build options 5 & 6. For Option 4, however, the floor area would increase to 8,750 m 2 to take account of and redress floor plate inefficiencies of the existing buildings. Design standards will be much higher in the new accommodation increasing the proportion of communication and circulation space. Current accommodation is cramped. In order to provide modern clinical facilities and adequate office space additional area is required These factors will contribute to the increased space required in all the accommodation options, and as a result there will be additional revenue cost implications associated with maintaining this space. The increased footprint will impact directly on heat light and power, water, rates, maintenance and cleaning costs. The additional 14

15 revenue costs associated with the running of the building have been assumed to occur from April The following rates per square metre have been used for the running costs of the buildings and these are based on figures provided by the Trust s Facilities and Estates Department managers. Heat light and power per square metre; Rates/insurance per square metre; Cleaning per square metre (see paragraph below). Water Rates per square metre The building running costs referred to above have been subject to a thorough review. This included making comparisons against other Northern Trust facilities as well as obtaining figures from other health and well being centres. As a result of this work, the running costs have been restated. A specific area that has been reviewed extensively is cleaning and the Trust s Domestic/Cleaning senior managers are firmly of the opinion that the resources identified for the new centre are essential to meet the minimum cleaning standards. The staffing and rotas which they provided as part of this has been costed and are reflected in the rate per m2 shown above. Energy & Rates/Insurance costs have also been revised to reflect the trust actual historical rates Health Estates provided general maintenance costs per annum as part of the Life Cycle Maintenance Costs. The annual premises running costs for each option are included in Table E below; 15

16 Table E Premises Running Costs Option 1 Option 4 Option 5 Option 6 Heat, Light & Power Building & Engineering Rates/Insurance Cleaning Water Rates Leasing charges It is assumed that current non-pay revenue costs will be incurred in existing buildings until the capital works are completed, and the additional running costs have been factored in to be incurred from April 2014, for all options Economic Appraisal Cash flow projections covering capital and revenue expenditure over a 25-year period have been prepared for the short listed options. A discount rate of 3.5% has been used to determine the net present values for each of the options, which are summarised in Table F below: The option with the lowest NPC which meets the project s objectives is Option 5. Details of DCF calculations are included in Appendix Table F - Net Present Costs (Pre Optimism Bias Adjustment) Option 1 Option 4 Option 5 Option 6 Cost Element Net Present Cost (excluding optimism bias) 178, , , ,276 16

17 1.16 Risk Appraisal All large capital developments carry significant risk. In this section, the risks associated with this primary and community care infrastructure project, for both capital and revenue costs are evaluated Optimism Bias Adjustment The New Green Book explicitly addresses project risks following a study by Mott MacDonald 1 which identified the tendency for project appraisers to be overly optimistic, overstating benefits and understating timescales and costs. To redress this tendency, HM Treasury have developed an approach which requires appraisers to make explicit adjustments to determine a suitably optimism biased adjusted capital cost and Net Present Cost for each option A high proportion of the investment proposed is to be located on existing sites which are tight and will require specialist design considerations These sites have been identified as non-standard buildings. The option for a new build on a Greenfield site is classified as standard. Equipment costs included in the OB1 and OB2 are group 1 & 2. Group 1 are items which are supplied within the terms of the building contract e.g. blinds, built-in cupboards. Group 2 are those items which are fixed within the terms of the building contract, but not supplied within building contract arrangements. This type of equipment is not therefore subject to a separate optimism bias calculation for equipment/development, but is included in the capital calculation. 1 Mott MacDonald (2002), Review of Large Public Procurement in the UK, Mott MacDonald (2002) 17

18 There are no recommended upper and lower amounts within Green Book guidance for operating costs and benefits (except IT outsourcing), therefore no specific uplift figure has been applied to revenue costs The degree to which contributory factors to optimism bias can be reduced has been carefully assessed. No risk management costs have been identified for any of the factors perceived to influence optimism bias. Appendix 8.6 calculates the optimism bias percentage for the options. The following factors were taken into account in calculating the level of perceived bias for construction costs It is assumed that Option 6 new build on a Greenfield/Brownfield site will be a standard building with an upper bound optimism bias of 24%. The other options are assumed to be non-standard with an upper bound optimism bias of 51% For each of the options the mitigated optimism bias percentage is applied to the Net Present Cost construction and equipment costs. The impact of the residual optimism bias on the NPC is summarised in Table G. Revised discounted cash flow schedules are contained in Appendix Table G Optimism Bias Adjusted Net Present Costs Original Optimism Optimism Bias Option NPC Bias % Adjusted NPC Option 1 178, % 179,108 Option 4 219, % 223,637 Option 5 208, % 211,378 Option 6 211, % 212,533 18

19 1.18 Preferred Option The strategic context outlined a compelling case for investment in primary and community care infrastructure due to the additional demands that will be placed on the sector in the future and the current unacceptable standard of estate. The financial and economic cases set out a range of options for meeting this need and Table H provides a summary of the key costs and benefits. The costs include optimism bias Table H - Summary of Costs and Benefits Option 1 Option 4 Option 5 Option 6 Cost Element Non-Financial Benefit Score Net Present Cost including optimism bias() 179, , , ,533 NPC per Benefit Score 1, From the above summary, Option 5 the new build single building on the Braid Valley site is the preferred option Affordability Capital Charges It is acknowledged that the current building stock is of considerable age and in many cases in poor condition. Accordingly this is reflected in lower capital valuations and existing capital charges. Therefore the capital charge implications of each option will be substantial given the high level of new capital investment required on the site. The net increase on capital charges cannot be accurately calculated until the final configuration of the site is 19

20 finalised. Capital charges for the preferred option are therefore included using the following assumptions: the capital cost for new or reconfiguration of existing buildings will add equivalent capital value; interest is calculated at 3.5% of the average net book value for land and buildings; interest charges commence in the year when capital spend occurs; in line with DHSSPS guidance, depreciation is calculated on a straight line basis over 60 years for buildings with equipment depreciated on a straight line basis over 10 years; depreciation charges commence in the year following completion of the capital spend; equipment will be replaced every 10 years, and capital charges are calculated on the optimism bias adjusted cost The capital charges associated with the preferred option for Ballymena Health and Care Centre are presented in Appendix 8.8. A summary of the average charge per year taken over 10 years from the opening of the building in 2014/ is shown in Table I below Table I Average Capital Charges for the preferred option over 10 years Capital Charges Depreciation 584 Interest 763 Total average capital charges 1,347 20

21 Affordability of Capital & Revenue Table J presents the affordability of the preferred option. Affordability relates to inescapable costs incurred on day one, including non-pay costs. A detailed Affordability Schedule is included Appendix Table J Affordability Option 1 Option 5 Difference Do Nothing Preferred Cost Element Capital Costs (including OB) 1 1,757 23,438 21,681 Life Cycle Maintenance Costs 1,840 1,840 - Pay Revenue Recurring 2 8,481 9,881 1,400 Non-Pay Revenue Recurring 2/3 1,593 2, Non-Pay Revenue Recurring (As a result of Relocation) Non-Pay Revenue Non- Recurring Capital Charges , The project s preferred option requires m of capital funding. Although table J shows the gap to be m, funding for the full capital sum will be required. TOTAL 14,199 38,928 24,729 2 The preferred option requires recurring pay revenue funding of 1.400m per annum. Of this, 1.314m is investment in additional staff who will be required to meet the anticipated growth in the demand for primary and community care services. Without this investment there is a risk that the benefits associated with the new service model will not be realised. The cost of these additional staff is included in the business case to reflect the full cost of the Health and Care Centre in 2015 as required by Green Book guidance, but it is assumed that these additions will be funded through service development proposals and will be subject to further detailed discussion between the Trust and 21

22 the Commissioner. The remaining 0.086m is the recurring revenue required to employ three additional staff to manage the building and its accommodation from the opening of the HCC in April The Non-pay recurring revenue affordability gap is 0.480m per annum. Of this, the non pay cost associated with additional staff is 0.227m covering expenditure headings such as travel expenses and other staff related goods and services. It is assumed that these additions will also be funded through service development proposals and will be subject to further detailed discussion between the Trust and the Commissioner. 3 The remaining Non-Pay Revenue costs relate mainly to the property and its associated utilities. The amount of funding required for these is 0.253m per annum. 4 An additional recurring 0.091m per annum is required to lease premises for relocated services. 5 There are non recurring costs to be funded totalling 0.156m, including 0.078m set up costs for Medical records in year 3 and excess staff travel of 0.078m spread over years 3 to 9. 6 Capital charges for affordability purposes are taken as those in the first year of the new HCC opening Financial Summary In summary, the funding requirements are as follows. Capital m Revenue (Recurring) m ( 0.086m m m) Revenue (Non-Recurring) m This leaves a further investment of 1.541m requiring future service development funding to meet to meet the anticipated growth in demand for primary and community care services. 22

23 1.21 Project management, monitoring and evaluation The project management monitoring and evaluation arrangements for the proposed development have been described in the Project Execution Plan. The plan defines the organisational structure for the implementation of the capital development and the roles and responsibilities of the individuals involved. The Plan also includes a project programme and details on the procurement route. Details are also provided on the success by which the facility will be judged over the first year of operation Conclusion The conclusion following the assessment of the financial implications and economic appraisal of each of the shortlisted options of the Ballymena HCC project, including capital costs, revenue implications and adjusting for optimism bias, is that Option 5 is the preferred option. 23