EASTER ROSS PRIMARY CARE RESOURCE CENTRE PFI DEVELOPMENT

Transcription

1 EASTER ROSS PRIMARY CARE RESOURCE CENTRE PFI DEVELOPMENT FULL BUSINESS CASE

2 List of Contents Appendices - Appendix 1 Appendix 2 Appendix 3 Appendix 4 Appendix 5 Appendix 6 Appendix 7 Appendix 8 Appendix 9 First Year Revenue Costs Capital Costs Estimates Risk Transfer Evaluation Summary Opening Years Revenue Summary including Life Cycle Expenditure Economic Comparison: PSC v PFI Option Quantitative Evaluation of Asset Ownership OJEC Advertisement Diagram of the legal Relationships between the various parties Summary of the main provisions of the Contract Agreement Page No. 1. Executive Summary Background The Preferred Option Summary of Economic and Financial Appraisals of the 2-3 Project. 1.4 Key Milestones and Timetable to Financial Close and 3 Delivery of Services 1.5 Key Points to the PFI Deal 3 2. Strategic Context Description of the Trust Strategic Context Analysis Present Catchment Population Size and Scope of the Project Assessment of Future Delivery of Services 5 3. The Outline Business Case Summary Long List of Options Short List of Options Changes from OBC 9 4. The Preferred Solution The Consortium PPP/PFI Solution Planning Consent Timetable Price Assumed Interest Rate Sensitivity Analysis 11

3 5. The Public Sector Comparator Introduction Transitional Costs Capital Costs Clinical Costs Non Clinical Costs Income Nil Cost Items Risk Adjustment Capital Charges Life Cycle Expenditure Cost Base PPP/PFI Procurement Process Procurement Methodology Advisors Pre-qualification Process Invitation to Negotiate Choice of Preferred Private Sector Partner OJEC advert Appraisal Process 21 7A Financial Process B Economic Appraisal C Risk Analysis Summary of Contract Structure Contractual Framework of the Project Diagram of the legal relationships between the various parties to the deal 8.3 Summary of the main provisions of the Contract Agreement Accounting Treatment Introduction Stage 1: Appropriate Accounting Treatment Stage 2: Qualitative Analysis Stage 3: Quantitative Analysis Stage 4: Accounting Treatment Project Management and Control Arrangements Introduction Construction Phase Operational Phase Benefits Assessment and Benefits Realisation Plan Benefits Delivered under the Project Benefits Realisation Plan 35-36

4 12. Risk Management Strategy Introduction Risk Management Plan Post Project Evaluation Plan Project Objectives Information Management and Technology Strategy Overview The Project Strategy Trust IT Equipment Equipment Equipment within the PFI Contract Equipment Outwith the PFI Contract Personnel Issues Conclusion 41

5 EASTER ROSS PRIMARY CARE RESOURCE CENTRE FULL BUSINESS CASE 1. EXECUTIVE SUMMARY 1.1 Background This FBC makes a case for the redevelopment of the County Hospital, Invergordon into a Primary Care Centre for Easter Ross. The Primary Care Centre will combine a community hospital and a health centre integrating primary and community care into one community health resource Case for Change Hospital County Hospital, Invergordon was originally built as a naval hospital for TB and infectious diseases and the design of the building is in keeping with its original function. The hospital is a collection of buildings scattered throughout the site making access between departments very inconvenient. The hospital has reduced in size since its inception and there are a number of empty buildings on the site. There are concerns regarding the quality of the facility and the consequent service to patients. The site is expensive to maintain and inappropriate for clinical services of the future. Health Centre The Health Centre in Invergordon urgently needs replacing. Primary care services have developed to such an extent that the building is now grossly inadequate for its current purpose. The GPs wish to develop primary care services further, in keeping with national health policy, and are of a view that the lack of facilities in the Health Centre is inhibiting them from developing the services as they would wish Outline Business Case An Outline Business Case was developed by a Steering Group involving GPs, the then Highland Communities NHS Trust, Highland Health Board and Highland Council as well as local community representation through Councillors and the Health Council. The Scottish Executive approved the Outline Business Case in February The principles of the OBC remain valid for the Full Business Case Objectives of the Project The main objectives of the project are:- To enable patient services to be provided from facilities suited to modern clinical practice to provide a range of complimentary and appropriate services of a good standard in an affordable and economic way. 1

6 To provide primary care facilities appropriate to local population needs To provide services as locally as possible so that patients receive a One Stop Shop style service subject to quality, economic and organisational constraints To provide services in flexible facilities which can respond to changing demand, changes in clinical practice and future legislation. Through the provision of a primary care centred service to achieve an appropriate shift of service provision from secondary to primary care. 1.2 The Preferred Option The preferred option proposes a redevelopment on the existing County Hospital, Invergordon site to provide: 32 Care of the Elderly Rehabilitation, GP and Nurse led beds. A Rehabilitation Day Unit incorporating a 20 place day hospital and therapy accommodation to support both day and inpatients 12 elderly mentally ill beds within Wyvis House along with outreach facilities. Primary Care Centre with a shared Outpatient Department where consultant led clinics, community clinics and GP consulting will be provided. Emergency Services in a Primary Care Emergency Centre combining GP out of hours services and a Minor Injuries Unit 1.3 Summary of Economic and Financial Appraisals of the Project In the Outline Business Case the Trust identified a Public Sector Comparator (PSC) with an additional funding requirement of 427K. The requirement has now moved to an amount of 815K recurring baseline from Year 2 onwards (excluding provision for uninsured risks and life cycle maintenance), and will generally be marginally above this level due to these factors. The increased requirement has arisen mainly from a combination of inflation, upward reassessment of pay scales, and an increase in cost estimates. The latter two factors have been given careful consideration, and further revision downwards is highly unlikely. The PFI Option would see the Trust pay a basic annual unitary charge to the Scheme provider. This would commence at 988K, and be indexed to rise at 2.5% over the 25 year project life. This arrangement is considered to be cost neutral in real terms for the Trust. Under PFI, the affordability gap is slightly lower than for the PSC. The Year 1 figures are 753K and 765K respectively. From Year 2, the funding requirement for the PSC moves to 815K, excluding life cycle costs and provision for uninsured risks. Because the PFI solution includes full life cycle costs, its advantage on affordability is maintained over project life. The PFI Option is preferred on affordability criteria. After accounting for the annual building up of the expected fair value of the Centre, which requires crediting the Income and Expenditure Account and making a corresponding entry under Fixed Assets, the PFI solution becomes clearly more attractive. Such adjustment is necessary because the Centre will be handed over to the Trust at nil consideration at the end of the contract term. To determine viability, an economic comparison is made between the PSC and PFI Scheme. This is achieved by comparing analysis of discounted cash flows exclusive to those services that would be undertaken by the PFI Operator. Here that covers 2

7 building, property maintenance, ground maintenance (part), energy (incl. Management), and life cycle replacement for property and most equipment. The result of the comparison is that the Net Present Value (NPV) of the PSC is calculated at 11,012M, which is increased to 12,659M with the addition of the estimated total risk transfer value at 1,647M. This last value represents the NPV of all risks that would be taken over from the Trust under PFI. The most significant risks were found to be those for Construction, Sub Contractor, and Availability. The NPV of the PFI Option was calculated at 12,213M, which is 446M lower than the PSC adjusted for risk. This result means that the PFI Option appears better than the PSC on economic grounds. Of course, this analysis covers the whole 25 year project life. The PFI Option unitary charge has been based on an underlying Reference Interest Rate (RIR) of 6.00%. 1.4 Key Milestones and Timetable to Financial Close and Delivery of Services Milestone Timetable Detailed planning approvals obtained 30 January 2003 Submission of FBC to Highland NHS Board 1 April 2003 Consideration of FBC by Scottish Executive 23 April May 2003 Financial Close End May 2003 Construction Start Date 1 July 2003 Services Commencement September/October Key Points to the PFI Deal The key points to the PFI deal are as follows:- The Project Agreement in relation to the development will be for a set term of 25 years commencing on the services commencement date Project Co undertakes to finance, design, build and maintain hospital and primary care facilities on the present County Hospital, Invergordon site together with alterations to and ongoing maintenance of the existing Wyvis House. 2. STRATEGIC CONTEXT 2.1 Description of the Trust Highland Primary Care Trust was established on 1 April It provides primary care and community based services, community hospital services and mental health and learning disabilities services throughout the Highland region. The Trust employs over 2,500 staff and operates from 16 hospital sites and 38 Health Centres and Clinics. Services are provided through nine Local Health Care Cooperatives and four Clinical Units. The Alness and Invergordon Medical Group has been established as such for over 30 years and provides comprehensive medical services to the area between Evanton and the South and Kildary in the North including the large towns of Alness and Invergordon. The Practice has approximately 12,500 registered patients and also 3

8 provides cover to the present County Hospital at Invergordon. It has 10 partners and currently employs directly a total of 26 nurses, secretaries and receptions as well as being part of the local Primary Care Team and working closely with Trust staff. 2.2 Strategic Context The proposals in this Business Case are consistent with Scottish Executive Health Department policy & guidance contained in Designed to Care, Towards a Healthier Scotland, and the Scottish Health Plan our National Health. It takes into account the national view that planning for health should take place within the established strategic aims of:- Redevelopment of Primary Care Development of Care in the Community Reshaping Hospital Services Tackling Inequalities The emphasis is on patient focussed care and services, which are responsive to local need and delivered at or as near as home as possible, designed and reviewed with the involvement of patients and the public. The proposals within the Business Case are in line with the Highland Health Plan and the provision of an Easter Ross Primary Care Resource Centre has been the top priority for capital investment in Highland since the Outline Business Case was approved. 2.3 Analysis Key Assumptions Underlying the Strategic Analysis The key assumptions underlying the Project Objectives are as follows:- The need to retain a community hospital facility to service Easter Ross The need to replace the existing Health Centre in Invergordon with a facility which will allow the development of primary care services for the area The need to address the poor state of buildings to provide an environment that meets current needs and expectations The wish to achieve an appropriate shift of service provision from secondary to primary care through the provision of a primary care centred service Effects of Changes Since OBC Approval The assumptions outlined in above have not changed. The Government s emphasis on the development of integrated services with the contingent benefits of better communication and a more coherent service for patients has re-enforced the validity of the assumptions. 2.4 Present Catchment Population Catchment Population Patients attending the Resource Centre may originate from anywhere within the East Highland LHCC area. The practice population of the area is 51,846 of which 8,194 are aged over 65. 4

9 2.4.2 Service Activity County Hospital, Invergordon currently provides 44 beds i.e., the number of beds in the proposed development and the occupancy for 2002/03 was 89%. 2.5 Size and Scope of the Project The project involves replacing hospital and primary care facilities in Invergordon by a new build on the present County Hospital, Invergordon site together with alterations to the existing Care of the Elderly Mentally Ill Unit, Wyvis House, which is also situated within the County Hospital site. Specifically the project will provide:- 32 Care of the Elderly Rehabilitation, GP and nurse led beds. A Rehabilitation Day Unit incorporating a 20 place day hospital and therapy accommodation to support both day and inpatients 12 elderly mentally ill beds within Wyvis House along with outreach facilities. Primary Care Centre with a shared Outpatient Department where consultant led clinics, community clinics and GP consulting will be provided. Emergency Services in a Primary Care Emergency Centre combining GP out of hours services and a Minor Injuries Unit 2.6 Assessment of Future Delivery of Services Over the period the catchment population is projected to remain fairly stable but the population aged 65+ is projected to increase to 11,831. The Resource Centre is designed to allow future expansion if required of both the inpatient and Health Centre accommodation. 3. THE OUTLINE BUSINESS CASE 3.1 Summary The Outline Business Case (OBC) was approved by Highland Primary Care Trust in February 1999 and by the Scottish Executive Health Department in February The OBC made the case for the redevelopment of the County Hospital Invergordon into a Primary Care Centre for Easter Ross which would combine a community hospital and a Health Centre integrating primary, community and social care into one community health resource. Specifically the proposal was to provide: 20 GP and 20 Care of the Elderly Beds with associated therapy accommodation and a 20 place Day Hospital. 12 Elderly Mentally Ill beds along with day and outreach facilities. A Primary Care Centre with a shared Out-Patient Dept where consultant led clinics, community clinics and GP consulting will be provided. Emergency services in a Primary Care Emergency Centre combining GP out-ofhours services and a new minor injuries unit. Training and Guidance Unit. 5

10 3.2 Long List of Options Option 1 Do nothing Hospital services provided at current levels from existing County Hospital without modernising or upgrading facilities Community and primary care services continue to be provided at current levels from existing Invergordon Health Centre without modernising or upgrading facilities. Option 2 Do minimum Hospital services provided at current levels from existing County Hospital refurbished to comply with legislation Community and primary care services provided at current levels from Invergordon Health Centre refurbished to comply with legislation. Option 3 Integrated development on County Hospital site Newbuilds 20 GP beds and 20 Care of the Elderly beds. Retains Wyvis House to provide 12 Elderly Mentally Ill beds and day patient accommodation Newbuilds primary and community care facilities, out-patient accommodation, supporting diagnostic and therapy accommodation, 20-place day hospital accommodation and TAG Unit. Option 4 Integrated development on a Greenfield site As Option 3 but additional newbuild to replace Wyvis House Option 5 Separated developed services New builds 20 GP beds and 20 Care of the Elderly beds, 20 place Day Hospital, out-patient accommodation and supporting diagnostic and therapy accommodation on County Hospital site. Retains Wyvis House to provide 12 Elderly Mentally Ill beds and day patient accommodation. Newbuild Health Centre in any acceptable Invergordon location. Option 6 Mixed market of providers All the services open to competition and providers of primary, community, secondary and social care services nationally and locally could bid to provide the services. Option 7 Close and transfer local hospital services Close County Hospital and centralise hospital service provision in Inverness. Newbuild Health Centre in any acceptable Invergordon location. 6

11 3.3 Short List of Options Option 2 Do Minimum HENCEFORTH CALLED OPTION A Option 3 - Integrated development on County Hospital site HENCEFORTH CALLED OPTION B Option 4 Integrated development on a Greenfield site HENCEFORTH CALLED OPTION C Option 5 Separately developed services HENCEFORTH CALLED OPTION D Analysis Non Financial Assessment The identified service benefits were grouped into main headings. Steering Group members and a cross section of clinicians (GPs, Nurses and PAMs) weighted these benefit criteria and then scored each Option against averaged weightings. The summary table below shows ranking of the individual Options in order of benefit criteria scores:- Rank Option Score 1 B Integrated Development on County Hospital C Integrated Development on Greenfield Site D Separately Developed Services A Do Minimum Financial Assessment A full financial analysis of the shortlisted Options was carried out as required by the Scottish Capital Investment Manual. Capital Costs Estimates (CCE) - include the initial projected capital expenditure inclusive of land and/or building where appropriate. Capital expenditure was envisaged for demolition of existing buildings, newbuild, refurbishment and equipment (all where applicable). Capital Receipts were anticipated from sale of a small piece of land on the existing hospital site and from the sale of Invergordon Health Centre and these were deducted from projected capital expenditure to give Net Capital Costs. Further expenditure during the evaluation period was excluded. Whole life Capital Costs included in economic appraisals. Economic Cost Appraisal (ECA) shows total capital and revenue costs discounted to present values and taking account of differing cashflows over the evaluation period. The summary table below shows the outcome for each Option given by the Economic Appraisal. 7

12 Cost Appraisal Options 000s A B C D Net CGE Net ECA Capital Net ECA Revenue = Capital Cost Estimates is the initial capital expenditure for each Option in Year 0, after any receipt for disposal of land is taken account of. These amounts are not discounted. 2. = Capital Cost Appraisal Building maintenance expenditure discounted over 40 years plus equipment replacement every 15 years plus initial capital expenditure less receipts for disposal of land. 3. = Revenue Cost Appraisal Recurring revenue costs less capital charges discounted to present values using the cumulative 40yr discount factor of Preferred Option The Steering Group considered the Preferred Benefits Options together with the financial appraisals and concluded that Option B was to be the Preferred Option for recommendation to the Management Executive. The principle reasons for this choice was that it 1. would best meet the service objectives identified for the project 2. would meet the objectives set out in Highland Health Board s Health Improvement Programme. 3. had the best ranked NPV/Benefits score 4. Had affordable revenue costs Risk Sensitivity Qualitative Risks The benefit criteria weightings given by individuals were reviewed and showed a high degree of agreement for most and least important criteria. It was decided, therefore, that a statistical sensitivity analysis of weightings was unnecessary. To assess risk within the scoring exercise maximum and minimum values were applied to each group of benefit criteria and the results are shown below. This confirmed that although this is a subjective process the preferred benefits Option B was a robust choice. Option Ranking Weighted Scores Original Minimum Maximum Original Minimum Maximum B C D A

13 Financial Risk Financial risk analysis was carried out to test the sensitivity of Estimated Net present Values given changes in some of the underlying financial assumptions. The financial risks were identified as follows:- Loss of income Risk of loss of income due to patients being placed elsewhere by the Health Board/GPs. Nursing staff shortage Risk of nursing staff shortage affecting the provision of the service. Capital cost overrun Risk of building costs being greater than anticipated. Inflation Risk of pay and supplies costs increasing by 1% in real terms over the 40-year period. Capital cost underspend Positive risk that capital costs will be under initial capital estimates Scenario Planning Each risk assessed for shortlisted Options and the financial impact built in using the greatest financial upside and downside risks. The results were run through a Scenario Planning Exercise. The effects of these scenarios were assessed and they showed that the Preferred Option (Option B) would by comparison with a neutral scenario cost: 48K less over 40 years under a positive scenario 2.15M more over 40 years under a negative scenario 3.4 Changes from OBC At the time of writing the OBC it was intended that 20 GP and 20 Care of the Elderly Beds be provided. A subsequent review of bed requirements was carried out and it was agreed that only a 32-bedded unit was required containing a mix of care of the elderly rehabilitation, GP and nurse led beds. It had also been intended to provide a Training and Guidance Unit (TAG) which offers supported learning experiences for adults with mental health problems. However, TAG units are funded on an annual basis partly through the European Social Fund with match funding from various other sources and it was felt that the risk associated with long term funding was such that it should be removed from this PPP/PFI project and provided elsewhere in Invergordon. 4. THE PREFERRED SOLUTION 4.1 The Consortium The preferred bidder is Robertson Group (Scotland) Ltd., who will form a Special Purpose Company (SPC) named Robertson Health (Easter Ross) Ltd. The SPC will enter into the Project Agreement with the Trust and will also enter into two prime contracts to procure the design and construction and FM services of the project. They are:- 9

14 Robertson Group (Construction) Ltd Robertson Facilities Management Ltd Construction Contractor FM Services Contractor The Robertson Group have considerable experience in PFI procurement having previously reached financial close on two health care projects in Scotland including New Craigs in Inverness which is part of Highland Primary Care NHS Trust. 4.2 PPP/PFI Solution The PPP/PFI solution is for the Trust s private sector partner to design, build, finance and provide hard FM services to a Primary Care Resource Centre on the site of the existing County Hospital at Invergordon for a 25 year contract period from services commencement. The PPP/PFI solution will result in the transfer of a significant portion of the risks of constructing and maintaining the facility from the public sector to the private sector and will also meet the affordability constraints of the Trust. It will provide better value for money than the traditional procurement route Design Content The proposed facility involves major refurbishment of the Care of the Elderly Mentally ill Unit Wyvis House with the balance of the facilities provided in a linked new build. All patient accommodation is provided at ground floor level with the exception of two interview rooms on the first floor. Outpatient accommodation, the rehabilitation day unit and health centre are sited adjacent to the main entrance. Consultations in these areas will generally be held during the day. Accordingly, main reception, waiting, children s play area and toilets have been located close by. This area is directly linked to the main street to provide clear circulation routes for patients and visitors. There is a direct link to the dining facility and vending area which will be open to patients and visitors. The design recognises a change in staffing priorities out of hours and accordingly the outpatient area may be closed off at night with the casualty entrance becoming the point of ingress/egress. The staff base out of hours has been located within the 32- bed ward which will provide direct site lines along the street to the casualty entrance. The 32-bed ward comprises 2x4 person bedrooms; 2 twin bedrooms and 20 single bedrooms. All bedrooms have en-suite accommodation. The central staff changing, the staff lounge, the training/library facility and office accommodation for the Integrated Community Team and the Community Mental Health Team are all located at first floor level. Excellent vertical links will be provided directly to the main entrance and main street. The need for any future expansion of the building has been recognised and provision made within the design Facilities Management Service The facilities management service for the Primary Care Resource Centre will be contracted to Robertson Facilities Management Ltd. The facilities management services included in the project are:- 10

15 Management/Admin of the FM Services External Building Structure and Fabric Internal Building Fabric and Fixed equipment, fixtures, fittings and finishes Building Services Systems Hard and Soft Landscaping External Services Systems Road Sweeping and Gulley Cleaning Road Gritting/Snow Clearance Litter Collection Special Deep Cleaning of Laundry and Food Preparation Areas Internal and External Window cleaning 4.3 Planning Consent Full planning consent was obtained on 30 January Timetable 4.5 Price The Trust aims to have the following timetable adhered to: Financial close end May 2003 Construction start July 2003 Services Commencement Sept/Oct 2004 The price will remain open for acceptance by the Trust for a period of 320 days from the tender return date of 17 May 2002, i.e., until 31 March Assumed Interest Rate The accepted PFI Bid assumes a market swap rate of 6.00% per annum, and includes an appropriate bank margin of 1.00% during operations. There is no interest rate buffer included. This underlying rate of 6.00% has been used as the basis for assessing affordability and value for money. The interest rate risk will be borne by the Trust until contract signature 4.7 Sensitivity Analysis The following table demonstrates the sensitivity of the NPV of the unitary charges to a change in interest rates. Underlying RIR NPV of Unitary Charges Change to Base Case Base Case 12,213 N/A 0.00% 6.15% Base Case + 12, % 0.50% Base Case 11, (1.83%) 0.50% Base Case + 12, % 1.00% Base Case 1.00% 11, (3.95%) 11

16 5. THE PUBLIC SECTOR COMPARATOR 5.1 Introduction This Section contains a description of how the Public Sector Comparator (PSC) has been calculated for the Easter Ross Primary Care Resource Centre (ERPCRC). Information on the Financial Appraisal (Affordability) and Economic Appraisal (Value For Money) is contained in Sections 7a and 7b respectively. In the original Outline Business Case (OBC) the estimated Recurring Revenue Cost of the Preferred Option was 2,551,284 at April 1998 Prices. This may be analysed: 000 Costs Retained under PFI 1,948 Costs Transferable under PFI 603 Total Costs pre Risk Transfer 2,551 Risk Transferable under PFI 28 Total Costs post Risk Transfer 2,579 These costs were based upon the prevailing configuration comprising: 20 GP and 20 Care of the Elderly Beds and a 20 Place Day Care Hospital; 12 Elderly Mentally Ill Beds with Day and Outreach Facilities; a Primary Care Centre with Out Patient Department; an Accident & Emergency Centre; a Training and Guidance (TAG) Unit. The Risk value is the Equivalent Annual Cost (EAC) of that part of the Risk Net Present Value (NPV) calculated which is transferable under PFI. The revised configuration provides for the above, except that the Hospital Bed specification now includes 32 Care of the Elderly Rehabilitation, GP and Nurse Led beds. Also, the TAG Unit will no longer be part of the Development. The reconfiguration has resulted in a revised projected Total Revenue Costs per annum from 2,551K to 3,226K. The movement from OBC may be analysed: 000 OBC Recurring Revenue Costs 2,551 Inflation 146 Pay Scale Revision 246 Reconfiguration 10 Cost Revision 273 FBC Recurring Revenue Costs 3,226 The Inflation Adjustment covers Pay and Non - Pay price rises. The Pay Adjustment provides for increased Nursing and PAMs Costs based on revised expected staff placements at or close to the highest point on respective Pay Scales. The Cost Adjustment refers to the variance arising from more rigorous cost estimation. Although the Net Reconfiguration Adjustment is relatively small, it comprises a Staff & Supplies decrease of 206K due to less Patient throughput largely offset by an increase of 216K owing to Capital Charges. The latter adjustment is necessary owing to the combined effect of several factors. These are an increase in the new Centre floor area, higher build costs than formerly anticipated, and the original omission of a proportion of charges that were erroneously considered to be directly allocable to the TAG Unit (now excluded from the project) and the GPs sharing the Centre. 12

17 The Revised Recurring Costs may be analysed: 000 Costs Retained under PFI 2,218 Costs Transferable under PFI 1,008 Total Costs pre Risk Transfer 3,226 Risk Transferable under PFI 129 Total Costs post Risk Transfer 3,355 In contrast to the increase in Revenue Costs of the PSC since preparation of the OBC, the cost of current services has risen only marginally from 2,124K to 2,411K. This has resulted in the additional funding requirement increasing from 427K to 815K. The PFI Solution yields a slightly lower requirement of 803K before annual provision for the Centre, which reverts to the Trust at the end of the contract term. Post provision, the figures becomes 597K. Note that the opening year requirements will be even lower at 765K and 753K ( 547K) because of the phased introduction of the additional PAMS resource. The main reason for the substantial increase in the PSC is the original under estimations of costs for Capital Charges and Property Related Costs including Maintenance. See Appendix 1 for detailed analysis of projected opening year Do Min, PSC, and PFI costs. 5.2 Transitional Costs It is considered that there will be no transitional costs incurred over the early years of the Project. Current staffing levels will be augmented across disciplines to accommodate expected activity increases, so that numbers will never exceed work requirements. There will be no surplus property retained, as the current hospital will be demolished and the Invergordon Health Centre will be sold at an early stage. There will be some decanting costs associated with the movement of patients within the current hospital, as the present hospital is removed to permit the building of the new Centre. These will be met from the Trust s Revenue Budget. 5.3 Capital Costs Capital Cost estimates (inclusive of VAT) are as follows: 000 Land NIL Building 7,251 Equipment 954 Fees 623 Total Capital Cost 8,828 The Total Capital Cost excluding VAT is 7,776K. See Appendix 2 for further Capital Cost details. The new Centre will be built on the site of the present Invergordon County Hospital. No land purchase will be necessary. The Building Cost estimate has been prepared by the Trust s Technical Advisers. It is based on the most recent floor area available from the Preferred Bidder, and has been calculated using Guide Costs relating to each of the identified 7 distinct areas of the Resource Centre. Fees are estimated at 10% of the Build Cost. 13

18 Equipment Costs have been estimated by the Technical Advisers directly from the agreed lists of Group 1, Groups 2,3,4 Equipment, and Laundry & Kitchen Equipment. The Preferred Bidder will provide 100% of Equipment except for Groups 2,3,4 Equipment (90% provided). 5.4 Clinical Costs Clinical Cost estimates are as follows: 000 Medical Staff 138 Nursing Staff 1,189 Hospital Based PAMS Staff 270 Clinical Supplies & Services 208 Total Clinical Cost 1,805 Medical staff costs are based on medical provision for Inpatients (including GP Managed Beds) and Outpatients demand for Mental Health Consultancy.. All relevant Primary Care costs are covered, including Consultancy. However, the Centre will also require input from Acute Consultants. This has been excluded from analysis, as these costs are already met by Highland Acute NHS Trust and do not represent a new development. Nursing staff costs are derived from staffing numbers originally estimated by local Nursing Mangers, and have been recently verified by the relevant Locality Manager. Based on the current staff profile, costs are estimated on the assumption that all nurses apart from additional nursing resource will be funded at top of pay scale. The PAMS costs are based on original OBC estimates carried out by the former Head of PAMS. They have been verified by the Locality Manager. Supplies & Services costs include supplies such as Drugs and Surgical Supplies. The main service is Patient Transport including Ambulance Services (PAS) Non Clinical Costs Non Clinical Cost estimates are as follows: 000 Admin & Clerical Staff 65 Property Facilities Management 373 Other Property Related (Gross) 1048 Non Clinical Supplies & Services 47 Total Non Clinical Cost 1533 The Administration Staff costs have been based on projected Reception and Management Support requirements. Property FM costs are based on staffing estimates of Estates and Hotel Services Managers to provide the projected service volumes in the new Centre. Other Property Related costs is made up largely of Capital Charges estimated for the new Centre, and Wyvis House which will be retained on-site. Further costs included are for Energy, Rates, and Communications. 14

19 Supplies & Services included are for sundry items, including Staff Transport & Travel, Linen & Uniforms, Cleaning Supplies, and Admin Costs. 5.6 Income 000 GP Contribution 112 Advice has been taken from Primary Care specialists in the Trust s Finance Department as to the calculation of the amount likely to be recovered from GPs for Centre accommodation (main component) and those services they will receive. 5.7 Nil Cost Items This Project allows for a number of benefits that have no cost impact on the Trust. The Resource Centre offers accommodation for Community Clinics and Consultants attending Inpatients. Further, a large part of additional costs from local Patient Transport Services required will be negated by a fall in costs attributable to patient journeys to and from Inverness. Only relevant costs have been included. In costing the PSC option, only costs that are directly attributable to service provision and which will impact on the Trust s Budget have been included. In particular, there has been no arbitrary apportionment of central costs or other overheads. 5.8 Risk Adjustment See Section 7c for an assessment for details of how the Risk Transfer has been quantified. The Valuation Schedule is set out in Appendix Capital Charges Capital Charges have been calculated, in accordance with Trust Finance Department advice and guidance, as follows: Buildings Equipment Depreciation based on 60 year useful economic life Finance Charges calculated at 3.5% of average cost in year Depreciation based on 5-year useful economic life Finance Charges calculated at 3.5% of average cost in year 5.10 Life Cycle Expenditure Equipment life cycle expenditure has been estimated by the Trust s Technical Advisers. The timing and costing of expenditure was considered separately for each of the categories: Group 1; Kitchen; and Laundry Equipment (Groups 2,3,4 omitted as such equipment would not be maintained under PFI). Care was taken to provide for a standard of equipment replenishment consistent with the PFI alternative. Besides inclusion of standard property maintenance costs as advised by the Trust s Estates Department, the Trust s Technical Advisers have estimated property life cycle expenditure needed in respect of Building Structure, Interior & Exterior, Internal Finishes, Mechanical & Electrical Services, Lifts, and Landscaping. 15

20 A summary of the Revenue position for the first 6 full operating years for the new Centre, including life cycle expenditure, is given in Appendix Cost Base All cost and income estimates have been based on April 2002 price levels. 6. PPP/PFI PROCUREMENT PROCESS 6.1 Procurement Methodology When approval of the Outline Business Case was received the Trust commenced formal procurement procedures under the European Union Public Procurement Rules using the negotiated procedure. A prior Information Notice was published on 21 September 2000 in the Official Journal of the European Communities (OJEC). The full advertisement was advertised in the OJEC on 17 January 2001 and a copy of the advertisement is attached as Appendix expressions of interest were received and a pre-qualification document was issued to Advisors The Trust appointed legal, financial and technical advisors to assist in the procurement process as follows:- Legal Financial Technical MacRoberts Solicitors Quayle, Munro Ltd Currie & Brown Consulting Ltd 6.3 Pre-qualification Process The pre-qualification document detailed evaluation criteria which would be used to arrive at a short list of bidders. The main categories of evaluation were: Good Standing Criteria Trade or professional registration, where appropriate No insolvency or winding up or dissolution procedures against, or involving, a candidate or any member of its consortium No convictions for any criminal offence relating to the business or profession of a candidate or any member of a consortium Economic and Financial Criteria The financial covenant and resources, including access to and ability to raise finance, to perform obligations reliably and effectively over the full period of the PFI contract, including construction and operation and maintenance tasks. 16

21 6.3.3 Technical Criteria Management Structure A management structure which will facilitate delivery of the project in line with the Trust s requirements, which sets out clearly the roles and responsibilities required to undertake the Project and which allocates these to the appropriate parties Personnel Access to personnel with appropriate skills and experience to finance, design, construct, operate and maintain the Project facilities, or plans to acquire access to people with such skills and experience Design and Construction Understanding of and either experience of, or ability to procure expertise in, the design and construction of works similar to the proposed Project including the refurbishment of any existing facilities. Understanding and experience of phased construction in an operational environment. Demonstration of capability and experience of NHS guidance such as HBN/HTNs Operation and Maintenance Understanding of and either experience of, or ability to procure expertise in, the operation and maintenance of facilities similar to those proposed for the Project facilities. Understanding of and experience of the principle of whole life value for money Safety Understanding of requirements under the CDM Regulations and other regulations relating to health and safety Staff Matters Understanding the process of accepting staff transferred under the TUPE Regulations Statutory Background Understanding of the statutory background to the Project including the relevant legislation on NHS matters Private Finance Initiative Understanding of the principles of the Private Finance Initiative and their application to the Project Conflicts of Interest In the case of consortia, a clear understanding of the separate interests of each member from the others or from those of the Project Company. The ability to identify and avoid any conflicts of interest relevant to the performance by the Project Company of its obligations under the PFI contract. 17

22 The evaluation process was carried out by the Trust and its advisors. A weighted scoring system was used designed to allocate scores out of 100 of which 80 were derived from written submissions and 20 from subsequent interview. The Trust received five submissions from interested bidders. These were:- Portfolio Initiatives Ltd Melville Dundas (Holdings)/Bank of Scotland Canmore Partnership Ltd Robertson Group/Bank of Scotland MJ Gleeson Group/Noble The Trust and its advisors then carried out an evaluation of these written submissions and agreed that all the parties should be invited to interview. Scoring at interview was based on the same criteria, headings and weightings as the written submissions. The results of the scoring on the written submissions was added to the scoring at interview which resulted in the undernoted total scores:- Robertson Group 74 Gleeson/Noble 74 Canmore Partnership 67 Melville Dundas 45 Portfolio Initiatives 44 The top three bidders were selected to move on to the Invitation to Negotiate (ITN) stage. 6.4 Invitation to Negotiate Structure of ITN The ITN was structured as follows:- Volume 1: Background and Instructions for preparing Bids The purpose of Volume 1 was to provide Tenderers with clear and concise instructions to follow when preparing their Tender submissions. It also contains an overview of the Project including: A summary of the Trust s objectives and requirements for the Project; An overview of the procurement process; The requirements for Tender submission; The Trust s approach to Tender evaluation. Volume 2: Output Specification Volume 2 contained the Output Specification for the project and explained the scope of works and services and minimum standards that Tenderers would be expected to meet in their Tenders. It included a Clinical Brief which set out the departmental requirements in the proposed building, their functional content and functional 18

23 relationships. It was anticipated that specifying what was required, rather than how it was to be provided would afford Tenderers the opportunity to prepare effective Tenders and offer innovative solutions that, ultimately, would offer better value for money than the more traditional public sector alternative. Volume 3: Contractual Documentation Volume 3 contained the draft Project Agreement, (which contained inter alia, the draft Finance Direct Agreement), draft Construction Direct Agreement, draft Services Direct Agreement and draft Lease and draft Sub-Lease. During the bidding process it became apparent that the output specification could not be met within the Trust s affordability envelope. This resulted in a subsequent review by the Trust of the Clinical Brief and an amended Clinical Brief was issued as an ITN supplement in March 2002 with a tender return date of 17 May Evaluation Process The ITN made clear to bidders that under the Public Works Contracts Regulations 1991 S.I No (as amended) the Trust intended to award the Contract on the basis of the most economically advantageous offer made by the tenderers. The tender evaluation process was designed to identify this clearly. A preliminary check of tenders identified their completeness and compliance with the requirements of the ITN. In accordance with EU legislative requirements the bids submitted were then evaluated in terms of two broad sets of criteria:- The net costs of the bids put forward by tenderers were estimated under a variety of scenarios in terms of their impact on the financial and operating position of the Trust taking into account other financial and deliverability issues. The non financial benefits of the bids were assessed using weighting and scoring techniques to provide a balanced assessment taking into account issues of importance to the Trust in terms of the project such as clinical relevance, affordability, performance, quality, safety and deliverability Evaluation Criteria A set of principle criteria were identified as the most important criteria drawn from each of the categories financial, technical/clinical and legal criteria and were ranked for the bidders in descending order of importance. These were:- value for money and affordability of proposed charges in each year and over the life of the project (Financial) functionality of design and construction proposals measured against the Trust requirements and Clinical Objectives (Technical: Construction) quality of service proposals measured against the Trust Requirements and Clinical Objectives (Technical: Services) extent to which proposals would ensure continuity of clinical services during construction as well as on default and termination (Technical: Management) acceptance of Project Agreement Terms (Legal) Financial Assessment The financial evaluation was based on price proposals, tender price deliverability, off balance sheet treatment, strength of the project co., robustness of financial projections, deliverability of funding and terms and conditions of funding. 19

24 6.4.5 Technical and Clinical Evaluation Management Criteria (listed in descending order of importance) A qualitative assessment was made of the following factors and the outcome was scored: 1. Proposals for project management arrangements (including key personnel, designers and sub-contractors) and management of risks (including insurances); 2. Proposals for management of interface between live hospital (decant area) and construction site; 3. Proposals for management of interface between live hospital and delivery of (hardfm) Services; 4. Extent and suitability of Quality Management and Health & Safety considerations and proposals; 5. Extent and suitability of Method Statement considerations and proposals; 6. Levels of communication and contact with local planning/building control/authority/archaeology departments and units; and 7. Input from funder, advisors, sub-contractors and funder technical advisor in bid and proposals Construction/Clinical Criteria (in descending order of importance) A qualitative assessment was made of the following factors and the outcome was scored: 1. Functionality of design and construction proposals measured against Trust Requirements and Clinical Objectives of the project; 2. Integration of architectural/building services/civil and structural design and construction solutions; 3. Extent to which design solution offers future flexibility for expansion of primary care facilities; 4. Efficient use of internal and external space ; 5. Proposals for refurbishment or integration of Wyvis House facilities with newbuild; and 6. Construction and Commissioning Programmes and proposals Services/Clinical Criteria (in descending order of importance) A qualitative assessment was made of the following factors and the outcome was scored: 1. Functionality of Services proposals measured against the Trust Requirements and Clinical Objectives of the project; 2. Practicality and suitability of proposals for Programmed Maintenance (including specimen Method Statements); 3. Practicality and suitability of proposals for Unprogrammed Maintenance (including Helpdesk Procedures); and 4. Proposals for Performance Monitoring and Liaison with Trust and/or any Trust Party Legal Evaluation A qualitative assessment was made of the following factors and the outcome was scored: 20

25 extent to which proposals will ensure continuity of service on default and termination risk of loss on default and termination compliance with law and obtaining of consents performance and availability risk acceptance of change in law risk construction completion risk design risk force majeure and relief events risk effectiveness of Trust remedies robustness of the structure of project contracts/guarantees/bonds/warranties effectiveness of Project Co remedies against its contractors and funders 6.5 Choice of Preferred Private Sector Partner The bid from Robertson Group achieved the highest score for each of the principal evaluation criteria and accordingly the Trust Management Team at a meeting on 23 September 2002 approved the appointment of Robertson Group as preferred bidder. 6.6 OJEC advert is shown at Appendix 7 7. APPRAISAL PROCESS 7A 7.a.1 Financial Appraisal Introduction In this section the affordability of the Preferred Option to the Trust and to its Purchasers is considered. 7a.2 Main Purchaser Highland NHS Board ( the Board ) is the main purchaser of Primary Care Services from the Trust. The total value of Budgeted Activity at Invergordon County Hospital in 2002/03, including Administration and Supplies but excluding Property and Facilities costs, is 1, 473K. The GPs will make an annual contribution based on share of new Centre accommodation plus relevant operating costs. As the Board and the GPs are the only purchasers of services, and the Invergordon activity represents a very small part of the Trust s total activity, these are the only bodies that have been asked to confirm support. 7.a.3 Outline Business Case In the Outline Business Case, submitted in March 1999, the Trust identified total project costs of 2551K excluding risk, and a requirement for additional Revenue funding of 427K. (see Section 5.1). The Board formally signed off their commitment to meeting this additional funding requirement with the Outline Business Case being approved by the Capital Investment Panel on this basis. 21