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Full Business Case
The Modernisation and Re-design of Primary and Community Health and Social Care in Mid Argyll
Version 22
28 April 2003
Contents
Contents Page No
1 Executive Summary 1
2 Strategic Context 8
3 The Outline Business Case 20
4 The Preferred Solution 22
5 The Public Sector Comparator 27
6 The PPP/PFI Procurement Process 30
7 The Appraisal Process 36
8 Summary of Contract Structure 52
9 Accounting Treatment 55
10 Project Management Arrangements 55
11 Benefits Assessment and Benefits Realisation Plan 58
12 Risk Management Strategy 62
13 Post Project Evaluation Plan 70
14 Information Management and Technology Strategy 71
15 Equipment 74
16 Personnel Issues 76
17 Conclusion 78
18 Specific Statements 78
19 Financial Appendices
Page 1 of 78
1 Executive Summary
1.1 Background & objectives of the project
1.2 The Modernisation and Redesign of Primary and Community Health and
Social Care Services in Mid Argyll is a project that is responding to local
health and social needs. It proposes plans for service change that will enable
appropriate and sustainable health and social care service to be provided for
the local community of Mid Argyll for the next 30 years and beyond.
1.3 The purpose of the project is to enable and facilitate fundamental change in the
way in which health and social care is delivered to the people of Mid Argyll.
The underlying aim is to redesign services from a patient‟s point of view.
Health and social care services will be shaped around the needs of patients and
clients through the development of partnerships and co-operation between
patients, their carers and families and NHS staff; between the local health and
social care services; between the public sector, voluntary organisations and
private providers to ensure a patient-centred service. Overall, the project aims
to substantially increase services and the amount of care that is delivered
locally. The project will establish this new service model and develop
facilities that can support it effectively.
1.4 The objectives for the project were identified as follows:
To enable the Trust to provide a modern service that integrates primary
care, community health and hospital services and social services.
To focus services on health maintenance and ill health prevention.
To provide accessible services.
To maximise clinical effectiveness through developing new and innovative
models of service delivery and new ways of working that put the patient at
the centre of the service.
To improve the quality of the service available to the local population by
providing modern purpose built facilities.
To enable the Trust to provide an efficient and effective service.
To provide flexibility for future change.
To provide a facility that is acceptable to patients, staff and public.
To provide a contemporary and modern facility, which will support Health
and Social Care services over at least the next 30 years.
1.5 The redesign of services described above and the improvements in service
effectiveness and quality that arise from this redesign simply cannot be
Page 2 of 78
delivered unless the project proceeds. The very poor condition and functional
suitability of the existing Mid Argyll Hospital, which is over 100 years old,
provides a serious constraint on both the continuing provision of existing
services and even more so on the development of improved and new services.
1.6 The Preferred Option
1.7 The preferred option for delivering the new service model is the development
of a single new facility on the site of the existing Mid Argyll Hospital that will
replace:
The existing 100 years old Mid Argyll Hospital and peripheral
PAMs departments i.e. X-Ray, Physiotherapy, Speech and
Language Therapy and Community Dental all of which are in very
poor physical condition.
The Duncuan Care of the Elderly Unit (located approximately 200
metres from the Mid Argyll Hospital
Part of an existing Elderly Dementia Ward in the Argyll & Bute
Hospital. Although this is a relatively small part of the Argyll &
Bute Hospital, it an essential element in the overall strategy for the
closure of this Hospital and the disposal of this large site for which
substantial sale proceeds are expected.
Primary Care – GP and Dental Surgeries in Lochgilphead
1.8 The preferred route for procuring the new facilities is through the
Government‟s Private Public Partnerships/Private Finance Initiative
(PPP/PFI). This approach has been tested against the conventional public
sector procurement route and found to offer better value for money and will
enable significant risks associated with the delivery of the project to be borne
by the private sector partner.
1.9 The Trust followed the European Procurement Regulations Negotiated
Procedure to select a private sector partner who will design, construct, equip,
operate (hard facilities management services) and finance the project. The
partner will comprise a consortium whose members are shown in the table
overleaf.
Page 3 of 78
1.10 Since being identified as the preferred partner the Consortium has worked with
the Trust to develop this FBC and a detailed planning and design solution that
meets the project brief. Throughout this process the consortium has
demonstrated the following strengths and qualities:
Financial and commercial soundness.
Extensive experience of healthcare PFI.
Specific experience of the PFI development of Community
Hospital services.
Understanding of and empathy with the service aspirations of
NHS Argyll and Clyde in relation to this project.
1.11 The design solution developed in collaboration between the Trust and
Canmore Partnership represents an innovative approach to integrating and co-
locating a range of primary care and supporting community hospital based
health and social care services. It will provide the full functional content
specified and meet all key operational policies set out in the project brief. It
will achieve this by exploiting the topography of the site to create a low rise
building that will cluster services in logical groupings and minimise patient
and visitor movement within the building. The scheme provides
approximately 7,000 sq.m of accommodation on two floors.
1.12 The Trust and the Consortium have maintained a close working relationship
with the Argyll and Bute Council as the statutory planning and highways
authority. A formal application for planning consent was submitted on 24
December 2002. Sub sequentially approval of the scheme was delegated to a
sub-group comprising a local planning officer and two local councillor
members of the Planning Committee. The Trust and the Consortium have
worked with the sub-group over the last three months to clarify all the
planning requirements for the scheme. Only two minor issues of access
Consortium Member
Consortium promoter/Bid Coordinator Canmore Partnership
Builder/Contractor Balfour Beatty
Funder/Senior Debt Bank of Ireland plc
Financial Adviser Canmore/Operis Group
Legal Adviser Dundas and Wilson
Architect HLM
Quantity Surveyor Capita Cost Management
M&E Services Engineers DSSR/FES
Structural Engineers Oscar Faber
Facilities Manager Parsons Brinckerhoff
Healthcare/Medical Planner WS Atkins
Equipment Specialist MPM Capita/UME
Page 4 of 78
remain outstanding and the Trust and the Consortium are confident that these
will be resolved shortly and will have no detrimental affect on financial close.
1.13 Since appointment as Preferred Bidder, the Canmore planning and design team
have worked with the Trust‟s Project Team and Departmental User Groups to
develop the preferred design solution. As a result of this extensive work
programme the FBC is based on 1:200 scale drawings and detailed room data
sheets including 1:50 scale room layouts for all key rooms which have been
approved and “signed off” by the Trust.
1.14 Value for money
1.15 Comparison between the Canmore PFI option and the Public Sector
Comparator is shown in the tables below where the Net Present Cost (NPC)
and Equivalent Annual Charge (EAC) are shown for both the 33 year term of
the proposed contract and the 60 year economic life of the building.
Figure 7-11 - NPC analysis
33 year analysis 60 year analysis
Net Present Cost PFI PSC PFI PSC
£’000 £’000 £’000 £’000
NPC of project cashflows 20,185 18,829 21,199 19,499
NPC of retained risk 3,965 5,911 4,805 6,751
Risk-adjusted NPV of project 24,150 24,740 26,004 26,250
Figure 7-12 - EAC analysis
33 year analysis 60 year analysis
Net Present Cost PFI PSC PFI PSC
£’000 £’000 £’000 £’000
EAC of project cashflows 1,325 1,236 1,235 1,136
EAC of retained risk 269 400 280 394
Risk-adjusted EAC of project 1,594 1,636 1,515 1,530
1.16 The analysis shows that the PFI option asset offers both the lowest NPC and
the lowest EAC, and therefore best value for money, over both the contract
period and the economic life of the building.
1.17 The preferred solution (the PFI solution) demonstrates better value for money
than the PSC because, whilst the individual cost elements of the PFI solution
are not significantly cheaper than the Public Sector Comparator equivalents,
the overall quantum and timing of costs, taking into account the significant
amount of risk assumed by the private sector, delivers a better overall package
than a publicly funded route.
Page 5 of 78
1.18 Affordability
1.19 Since the submission of the OBC a number of changes to the scheme have
occurred including:
Additional accommodation to enable the number of GPs to increase
from 6 to 10 and the number of GP trainees from 2 to 3.
Additional treatment rooms to allow for the extension of nurse
practitioner roles.
Additional accommodation for the Scottish Ambulance service to
enable the relocation of Para-medical teams adjacent to the A&E
Department and to enable the garage/workshop to move to more
suitable accommodation more closely linked to the main service
base.
An increase in the size of physio gymnasium to support its use for
progressive rehabilitation and assistance with self care.
Decontamination/Sterilising rooms for dental surgery and podiatry
to comply with emergent SEHD guidance on the decontamination
of surgical instruments.
Minor adjustments to departmental areas as a result of development
of the operational policies post OBC
1.20 These changes have added 1373 square metres of departmental area to the
schedule of accommodation on which the PSC was based. The PSC has been
updated to take account of the changes in the scheme including the additional
capital and revenue costs arising from these changes. It should be noted that
additional costs arising from the additional accommodation for SAS, Social
Services and GPs will be offset by increased rental charges for these parties.
1.21 Further non-service led changes to the PSC have also occurred since
submission of the OBC:
Change of tender price inflation projection from the OBC business
case level (MIPS 325) to current forecast for the start on site period
(MIPS 383). Hence, this will set the PSC costs at a comparable
level with the PPP/PFI cost level.
Update of the Planning Contingency to accurately reflect the risk
profile of the project that has now been established as a result of
developing the FBC.
1.22 The table overleaf shows the overall costs associated with the preferred PPP/PFI
Option and compares it in overall cost terms with the updated PSC and the original
OBC revenue profile. It is important to note that the Trust did not incorporate the
impact of residual interest under land and buildings guidance as part of the original
cost envelope for the project. This incorporates the impact on both core services and
services within the scope of the PFI deal as described in 7.5.
Page 6 of 78
Figure 7-6 – Overall FBC Affordability
Revenue Profile
Capital
Charges /
Unitary
Charge
Capital
Charges
Savings from
Demolitions
Service
Costs
External
Income
Additional
Revenue
OBC (as approved) 1,044 595 (250) 1,389
Updated PSC to MIPS 383 (ref Fig 7-2) 1,717 (106) 631 (441) 1,801
Preferred PPP/PFI Option 1,689 (106) 528 (441) 1,670
The Unitary Charge already includes provision for Hard FM; to avoid double counting the Hard FM costs included in the PSC have
been netted off against service costs (i.e £631k - £103k per the PSC) for the PFI option.
1.23 The conclusions reached from the affordability analysis are that the scheme is
broadly affordable when comparing Canmore‟s tariff against the updated PSC
resource envelope (exclusive of the impact of residual interest). There is some
further scope for improving the affordability position in the likely event that
the agreed senior debt interest rate at financial close is lower than the modelled
rate of 5.3% which included a 0.5% buffer.
1.24 The PPP/PFI Contract
1.25 This project has been progressed primarily using the Standard Form Contract
documentation issued by the NHS Executive as last updated in October 2000
and recommended for use by the Scottish Executive Health Department in
Scottish PFI/PPP projects.
1.26 The duration of the Project Agreement will be divided into two phases:
Construction phase
Operational phase
1.27 The construction phase will last two years during which the a Special Purpose
Company “Project Co”, set up to deliver the project, will build the facility,
procure and install all Group 2 & 3 equipment, fully commission and test the
buildings and equipment to ensure that they are fit for purpose can be brought
into full operational use by the Trust.
1.28 The operational phase will last thirty years and during this period “Project Co”
will make the buildings and equipment available to the Trust for occupation
and use. The “Project Co” will also provide building and engineering
maintenance services (hard facilities management) during this phase but not
soft facilities management services nor equipment maintenance, repair and
replacement which will be provided by the Trust. The Trust will pay a single
unitary payment monthly in arrears from the date of commencement of this
service. The payment will be adjusted to take account of the availability of all
or part of the building and the performance of the Consortium in delivering the
service.
Page 7 of 78
1.29 Timetable to financial close and delivery of the service
1.30 The timetable from approval of the Final Business Case through financial
close to service commencement is set out overleaf:
NHS Argyll and Clyde Board Approval of FBC 12 May 2003
SEHD Approval of the FBC 14 May 2003
Financial Close 28 May 2003
Complete Construction 31 May 2005
Service Commencement 1 July 2005
1.31 Public/Staff Engagement
1.32 Since the Outline Business Case was approved the Trust has continued to fully
engage staff and the local community in the project. In parallel with the
development of the FBC and the procurement of the private sector partner the
Trust has been implementing its Project Public/Staff Engagement Plan. This
has enabled and facilitated extensive public/staff participation in the planning
and design of the facilities, the decision making on service delivery models
and the selection of a private sector partner. The project now enjoys a very
high public profile throughout Mid Argyll.
Page 8 of 78
2 Strategic Context
2.1 NHS Argyll and Clyde is responsible for maintaining and improving the health
of the people who live in Argyll and Clyde which is an area of approximately
2,880 square miles. This area includes the towns of Paisley, Greenock,
Dumbarton and Helensburgh that are located on the edge of the Clyde
conurbation and rural towns such as Oban, Dunoon, Campbeltown, Rothesay
and Lochgilphead. It also covers remote and island areas featuring up to 24
inhabited islands.
2.2 The main role of NHS Argyll and Clyde is to assess health needs, commission
health services to meet these needs, promote healthy living and plan future
health services for the people who live in this area.
2.3 Lomond and Argyll Primary Care NHS Trust is responsible for the
development and delivery of local hospital services and primary care,
community and mental health services. It works in partnership with a number
of agencies including Argyll and Bute Council and West Dunbartonshire
Council.
2.4 The Modernisation and Redesign of Primary and Community Health and
Social Care Services in Mid Argyll is a project that is responding to local
health and social needs. It proposes plans for service change that will enable
appropriate and sustainable health and social care service to be provided for
the local community of Mid Argyll.
2.5 The objectives for the project were identified as follows:
To enable the Trust to provide a modern service that integrates primary
care, community health and hospital services and social services.
To focus services on health maintenance and ill health prevention.
To provide accessible services.
To maximise clinical effectiveness.
To improve the quality of the service available to the local population by
providing modern purpose built facilities.
To enable the Trust to provide an efficient and effective service.
To provide flexibility for future change.
To provide a facility that is acceptable to patients, staff and public.
To provide a contemporary and modern facility, which will support Health
and Social Care, services over at least the next 30 years.
Page 9 of 78
To achieve these objectives by fundamental redesign of service delivery to
take account of the patient/user‟s viewpoint at all times, and to develop
flexibility in the use of the facility and ways of working.
2.6 A number of factors identified in national and local strategies and plans and
analysis of health care need influenced the proposals in the Outline Business
Case for this project. These factors indicated how the need for health and
social care is changing and the opportunities that are emerging to provide
services in different and better ways. They strongly supported the role of
community hospitals as focal points for the provision of modern health and
social care in remote communities and the need for modern premises to enable
this. These factors remain valid at Full Business Case stage and are restated in
the following.
Our National Health – A plan for action, a plan for change
The key themes of the National Health Plan that are most relevant to the
radical service changes that will be enabled by this project include:
Modernising services.
Locally appropriate services – improving access.
Community and public participation in service design and
provision.
Seamless care – tailor-made care pathways.
Integrated services – partnership with Local Authorities and
other organisations.
Unified NHS – National standards.
Staff Partnership – involvement and support to provide new
flexible and effective ways of working.
Addressing the priorities of heart disease, cancer and poor
mental health.
Improved care for the elderly and younger people.
The White Paper “Working together for a Healthier Scotland”
The Outline Business Case evidenced the significant contribution that local
healthcare services can make to the aspirations of the White Paper “Working
together for a Healthier Scotland”. It demonstrated the need to redesign local
services to provide an extended range of healthcare service, integrated with
housing and social services, general dentistry and other Primary Care Services.
It also demonstrated the key role that the Trust‟s Community Hospitals at
Lochgilphead, Campbeltown, Islay, Mull, Bute and Dunoon can play in
supporting this new service by facilitating integrated working and by
providing practical locations for the development of local “intermediate care”.
The development of such hospitals will enable NHS Argyll and Clyde to
exploit the strategic opportunities offered by:
Technological advances in teleradiology, video conferencing and
information and communications technology generally to benefit the
Page 10 of 78
people that use its services and reduce the professional isolation of its
staff. Community hospitals will therefore become the core facility to
support development of telemedicine services.
Evidence of how extended primary health care teams with nurses,
allied health professionals and social care professionals working
together can provide accessible, integrated and clinically effective
services.
The White Paper “Designed to Care”
The Outline Business Case highlighted how the proposal would fit with the
aims of the Government‟s White Paper “Designed to Care” particularly in
relation to:
Joint investment planning and commissioning of services.
The need to make better use of the resources including staff
skills and time.
To drive efficiency through a rigorous approach to
performance.
Equitable services availability and accessibility.
Goodness of fit between major capital investment decisions and
Health Improvement Programmes.
Ensuring that quality is the driving force for decision making.
The project is also consistent with the following National Plans and Strategies:
“Caring for Scotland” a strategy for Nursing and Midwifery.
Primary Care Modernisation Group “Making the
Connections - Developing Best Practice into common
Practice,
RARARI report “ Solutions for the provision of Health
Care in the Remote and Rural areas of Scotland in the 21st
Century”,
Temple Report “Future Practice – A Review of the Scottish
Medical Work Force”.
Local Health Plan
In this plan, NHS Argyll and Clyde acknowledged the need to replace the
Community Hospital facilities in Mid Argyll and to include the project under
the national priority of Reshaping Hospital Services. The Health
Improvement Programme stated that “the proposed redevelopment of Mid
Argyll Hospital, Lochgilphead, offers the potential to significantly improve
Page 11 of 78
and reshape services in the area and, subject to the revenue and resource
transfer consequences being affordable the Board would wish to support the
final business case submission”. The Mid Argyll project was the top priority
in the capital programme for two years prior to submission of the OBC.
The Trust’s Implementation Plan
Lomond and Argyll Primary Care NHS Trust‟s Implementation Plan
1999/2003 stressed the need and prioritised as number one the replacement of
Mid Argyll Community Hospital facilities and commits to the submission of
the Trust‟s Full Business Case for approval by the Board in March 2003.
Argyll and Bute LHCC Plan 2000
The Argyll and Bute LHCC plan identified the development of Care of the
Elderly services as its top clinical priority, focusing on:
Support and develop Community based services.
Increase rehabilitation services, such as OT, physiotherapy.
Review of clinical leadership.
Response to SHAS findings.
The Plan also set a target for the replacement of the 103-year-old Mid Argyll
hospital by 2003.
Mid Argyll Community Hospital Review
A review of Mid Argyll Hospital was commissioned in 1999 to assess the
appropriateness of facilities, skills, case mix advice, transfer criteria, use of
protocols and advice on a model of care development. Professor Lewis Ritchie
conducted this review and whilst he identified general clinical and equipment
developments, he confirmed that the range of service provided was appropriate
but a “replacement Mid Argyll Community Hospital development with
associated on-site services should be pursued as soon as funding allows.”
The Scottish Health Advisory Service
The SHAS report “Service for Older People in Lomond and Argyll” March
2000 (and in 1996) identified that the existing Care of the Elderly
accommodation (Duncuan Ward) is an isolated building not appropriate for
rehabilitation or continuing care. The accommodation comprises a mixture of
multi bedded bays and two single rooms with a lack of patient storage or
personal space, there are no separate OT or Physiotherapy facilities these
being provided at other buildings on the hospital site.
The Trust’s Mental Health Strategy
NHS Argyll and Clyde‟s key objectives in this service are to deliver the
strategic direction for mental health services established in the Mental Health
Page 12 of 78
Framework and Argyll and Clyde Health Board‟s response “Climbing the
Framework – a Way to Go”. This Strategy envisages the replacement of the
Argyll and Bute Hospital with a smaller facility that will meet the functional
needs of the service in the 21st Century. This re-provision envisages a
redistribution of beds for the confused elderly in order to provide satellite
residential facilities associated with Community Hospitals. The Strategy also
envisages the integration (including physical) of mental health services with
Primary Care, Social and Local Authority services.
The Trust’s Property Strategy
Prior to the submission of the Outline Business Case, Lomond and Argyll
Primary Care NHS Trust completed a rigorous appraisal of its entire property
portfolio and from this it has developed a comprehensive Property Strategy
that aims to progressively improve the condition and performance of its estate
and to improve its effectiveness and efficiency in supporting service delivery.
The existing Mid Argyll Hospital was identified as a poor performer in terms
of physical condition, energy performance, functional suitability, space
utilisation and compliance with fire and statutory standards. The expenditure
required to bring this poor performance back to a satisfactory level was
estimated to be in excess of £2.5 million (as at 2000). However, the Property
Strategy recognised that even this level of expenditure would not fully address
issues of functional suitability and therefore proposed the replacement of the
Hospital as the only practical way forward.
A recent (2003) review of the condition of the existing Mid Argyll Hospital
facilities has identified that if the procurement of the proposed new facilities
are delayed beyond 2005 then it is inevitable that expenditure will be required
to maintain the existing buildings in operational use. A broad estimate of the
minimum requirement is shown in the table below.
Expenditure Category Capital
expenditure
£ million
Backlog maintenance 2.50
Compliance with Disability
Discrimination Act
0.50
Upgrading/refurbishment to bring
environmental quality to an acceptable
level
1.00
Additional temporary accommodation 1.00
Total: 5.00
2.7 Key assumptions underlying the analysis of the strategic contect
2.8 The key assumptions underlying the analysis of the strategic context were:
Page 13 of 78
It will increasingly be possible to provide services safely and effectively
closer to peoples‟ homes and this will benefit people who use the services
by improving access.
Interagency collaboration, multidisciplinary working and service
integration are vital to the effective provision of services for many groups
in the population.
Transport services in rural communities cannot realistically improve to
the point where access to services in distant population centres becomes
convenient.
Medical, information and communications technology will continue to
improve and create opportunities for improving local access especially to
diagnostic services.
Peoples‟ expectations about the services that they receive and where and
when they receive them will continue to increase and meeting these
expectations will remain a social policy priority.
Nurses, Allied Health Professionals and Social Care Professional will
continue to develop their roles in providing care in the context of
extended primary care teams.
Improvement of service through the design of programmed packages of
care for older people and children will remain national priorities. This
will also apply to the improvement of services for people with a range of
diseases that cause premature death or reduce peoples‟ functioning or
quality of life (e.g. CHD, cancer).
The demand for locally based services will increase and this will mean
using facilities and staff in an imaginative way to expand capacity to
meet this demand.
Significant and sustained improvements in health and well being are
achieved through supported self care and services and facilities are
needed to motivate people to look after themselves and to help them to
do this.
2.9 Since the Outline Business Case was approved these assumptions have either
remained valid or become strengthened by changes such as the issue of further
government policy in the form of National Service Frameworks or increasing
evidence of the feasibility and safety of providing access to a range of services
in local community hospital settings.
2.10 This statement is evidenced by the recently published White Paper
Partnerships for Care. This paper confirmed many of the themes on which
the assumptions underpinning the case for change in this FBC are based.
These include:
The high priority attached to improvement of peoples‟ health and
improvement of community services.
A re-emphasis of the attributes of a whole systems approach to the
provision of services. These include empowered self care, redesigned
care pathways and the breaking down of barriers and tackling weakness
Page 14 of 78
at the interfaces between primary and secondary care and health and
social care organisations and professions.
The need to design sustainable and flexible services and facilities that
can absorb rising expectations and demand, especially to meet needs for
increased programmed care for chronic disease.
The opportunities offered by technological and medical advances to
improve both the process and outcome of care. Investment to take
advantages of this opportunity will be geared to the reform agenda. It
will be expected to enable service redesign, improved care and shifting
care closer to home.
Increasing expectations that service design will be driven by best
evidence and patients‟ needs and will mean new ways of working to
achieve these ends.
2.11 Outline Business Case approval gave many staff encouragement to pursue the
underlying aim of the OBC - to fundamentally redesign the way health care
has been delivered locally. A lot of work has been done by many staff groups
to plan future service delivery from the patient/user‟s perspective. This will
be achieved by removing traditional boundaries between health and social care
professions, developing new ways of working, building on clinical/care
networks that already exist, using new technology to support the process, and
using patient/user input and feedback imaginatively. Flexible use of space in
the new facility will be a key feature of the fundamental changes that are
planned to facilitate the “one stop shop” approach to service delivery, and to
achieve best use of resources.
2.12 Sustainability of services in general, including remote and rural areas, has
become even more of a concern since the OBC was approved. The proposals
in this FBC will encourage sustainability by removing boundaries between
primary and secondary care, medical and nursing care, and health and social
care, allowing the full potential of clinical/care networks to be realised. This
will allow staff to maintain and develop patient/user services while sharing
workload (including out of hours) and reducing professional isolation. Service
development and education of students and staff have been shown to improve
sustainability of potentially fragile services, by encouraging recruitment and
retention.
2.13 An important development since the Outline Business Case approval has been
the need to find space in the new facility for a Resource Centre comprising a
suite of four meeting rooms (which can be joined together by removing
partition walls) and a multidisciplinary library. The space for this facility has
been found by adopting flexible use of all consulting, treatment and clinical
office space, with no departmental or staff designation, and this flexibility on
the part of all staff has allowed this development without any increase in the
size of the building. The Resource Centre will be available to all staff and
patient groups, and will allow a full range of health promotion activities,
professional and student educational activities and meetings. It will make this
Page 15 of 78
building a teaching and learning facility for patients, students of all disciplines,
and all staff.
2.14 Since the Outline Business Case was approved the Trust has continued to fully
engage the public in the project. In parallel with the development of the FBC
and the procurement of the private sector partner the Trust has been
implementing a Public/Staff Engagement Plan. This has enabled and
facilitated public/staff participation in the planning and design of the facilities,
the decision making on service delivery models and the selection of a private
sector partner. The project now enjoys a very high profile throughout Mid
Argyll.
2.15 Present levels of service activity
2.16 Lomond and Argyll Primary Care NHS Trust serves a population of circa
140,000 that is unevenly spread across large towns such as Dumbarton,
Alexandria and Helensburgh that are located on the edge of the Clyde
conurbation, rural towns such as Oban, Dunoon, Campbeltown, Rothesay and
Lochgilphead and remote and island areas featuring up to 24 inhabited islands.
2.17 The Trust‟s current activities include Primary Care Services comprising
General Practice, Community Dentistry, Community Services and Community
Hospitals throughout Lomond and Argyll. The Trust is also responsible for
Mental Health Services and for the development and implementation of Joint
Local Mental Health Strategies with Argyll and Bute Council and West
Dunbartonshire Council.
2.18 The Mid Argyll Hospital inpatient activity for the period 1992/1993 to forecast
2002/2003 is shown in the tables below.
2.19 GP Acute
Inpatient Activity ; April 1992 to March 2002 ; GP Acute
Mid Argyll Hospital 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 Forecast 02/03*
Bed Complement 15 15 15 15 15 15 15 15 15 15 15
Avg. Staffed Beds 15 15 15 15 15 15 15 15 15 15 15
Avg. Occupied Beds 10 9 9 10 9 10 11 10 9 10 9
Inpatient Discharges 335 374 377 433 411 493.0 581.0 561.0 506 438 467
Occupied Bed Days 3551 3441 3431 3767 3247 3552 3816 3454 3285 3559 3175
% Occupancy 65 63 62.6 68.3 59.5 64.9 69.7 62.9 61.4 65.7 57.3
Avg. LOS 10.6 9.2 9.1 8.7 7.9 7.2 6.6 6.2 6.7 8.4 6.1
Turnover Interval 5.7 5.4 5.4 4 5.4 3.9 4.2 3.6 4.2 4.2 5.1
2.20 The table shows significant improvement trend in activity performance over
the last ten years in terms of average length of stay and turnover interval.
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2.21 This performance is reflected in the bed occupancy figures of the ward, which
suggest that on average ten of the beds are normally occupied. This average
masks the variability in daily bed usage as a frequency analysis of this
covering the period April 1999 – September 2000 shows that there were 52
occasions when 12 or more beds were in use. Furthermore, the pattern of this
covered both the winter and summer, which directly correlates with the busy
Argyll tourist industry and winter pressure peaks.
2.22 The reason why there has been a fall in inpatient activity in 2000 – 2002
directly relates to the impact of the Foot and Mouth Disease crisis on the
Tourism industry in Argyll. Activity has recovered for 2003/03.
2.23 It is also noted that a significant proportion of the Mid Argyll‟s catchment
population from Tarbert and Inveraray who require medical inpatient services
by pass the Mid Argyll Hospital and proceed directly to DGHs in Oban (37
miles) or Alexandria (65 miles).
2.24 A CSA Information Services Division analysis of inpatient admission codes
identified that between 100 and 150 patients could receive their care in their
local Community Hospital if the bed complement was increased with an
enhanced medical and nursing staff establishment. This is a national and local
priority, which the Trust and the LHCC wish to see developed.
2.25 The Trust and the locality have modelled the impact of these additional
patients on the acute bed complement. Taking into account planned
performance improvements regarding throughput and lengths of stay this
increase in activity can be met within the existing 15 GP acute bed
complement.
2.26 Elderly Assessment
Inpatient Activity; April 1992 to Forecast March 2003 Elderly Assessment
Mid Argyll Hospital
92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 Forecast 02/03*
Bed Complement 6 6 6 6 6 6.0 6.0 6.0 6 6 6
Avg. Staffed Beds 6 7 7 8 7 7.0 7.0 7.0 6 6 6
Avg. Occupied Beds
4 6 6 8 6 6.0 6.0 6.0 5 4 4
Inpatient Discharges
41 63 92 92 73 60 59.0 44.0 60 46 31
Occupied Bed Days
1636 2161 2153 2935 2270 2313 2227 2041 1825 1250 1405
% Occupancy 75 89 85.6 97.2 88.9 92.5 92.3 92.6 77.5 57.1 63.9
Throughput 13.5 9.5 13.3 11.1 10.4 10.0 9.8 7.3
Avg. LOS 39.9 34.3 23.4 31.9 31.1 38.6 37.7 46.4 30.1 27.2 45.8
Turnover Interval 6.8 4.1 3.9 0.9 3.9 3.1 3.2 3.7 8.7 20.4 25.9
2.27 Elderly Assessment activity over the last two years has been affected by the
work conducted in the locality to speed assessment and prevention admission
to the hospital. The recruitment of a Consultant in Elderly Medicine by the
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Acute Trust together with a new Clinical Nurse Manager in Elderly for the
Duncuan Unit has helped protect assessment beds from continuing care
occupancy. It is expected that this development will continue to impact on
assessment beds used in the new hospital.
2.28 Elderly Long Stay
Inpatient Activity; April 1992 to Forecast March 2003 Elderly Long Stay
Mid Argyll Hospital
92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 Forecast 02/03*
Bed Complement 24 24 24 24 24 24.0 24.0 24.0 24 24 24
Avg. Staffed Beds 24 23 23 22 23 23 23 23 24 24 24
Avg. Occupied Beds
23 19 16 18 20 21.0 21.0 20.0 20 22 19
Inpatient Discharges
19 15 11 16 12 13 22.0 44.0 9 9 7
Occupied Bed Days
8425 6927 5750 6640 7140 7606 7581 7413 7300 8052 6863
% Occupancy 96 82 68.2 83.5 84.9 90.0 88.8 84.5 86.1 91.9 78.3
Throughput 0.8 0.6 0.5 0.7 0.5 0.6 1.0 2.2
Avg. LOS 443.4 461.8 523 415 595 585.1 344.6 168.5 825.2 894.7 1029.4
Turnover Interval 0 103.6 244 82.3 105.6 64.9 43.4 30.9 133.1 20.4 285.2
2.29 The table for the Elderly Long Stay Services shows that until 99/2000 there
had been a significant reduction in length of stay and improvement in turnover
interval. However, a period of nearly two years without consultant input and
nurse specialist support coupled with the absence of a nursing home in Mid
Argyll has had an adverse effect on performance. In addition 2002/03 has
seen a phased reduction in bed numbers to prepare for the temporary decanting
of the elderly to temporary accommodation at the end of March 2003.
2.30 One of the factors responsible for increasing demand on long stay beds has
been the steadily declining number of nursing home and residential home beds
available in the area.
2.31 The service recognises however, that the type and range of care it currently
offers does not meet modern requirements for this patient group. The recent
SHAS report on Elderly Care services within Lomond and Argyll Primary
Care NHS Trust identified the absence of adequate facilities to support the
service.
2.32 The service recognises that modern Elderly Care services requires not only
appropriate accommodation but new models of integrated service provision
tailored to meet individual patient/client needs supporting the principle of
maintaining elderly patients independence within their own homes. This will
require changes in the existing resource utilisation (a reduction of 6 Elderly
Care beds) and reinvestment in Rehabilitation, Nursing and Social Care
services. This process has already commenced via the integrated interagency
Winter Plan arrangements, which has seen investment in additional
rehabilitation, social services and nursing services.
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2.33 NHS Argyll and Clyde recently completed a balance of care study (December
2002) which proposes a 51 continuing care bed reduction across Argyll and
Bute with patients transferring to more appropriate care settings. This
reduction calculated on a Health Board population basis, equates to a 5.4 bed
reduction in Mid Argyll. The Mid Argyll locality in anticipation of the new
hospital building commencing has during 2002/03 commenced the reduction
in long stay beds and so by April will have achieved this target. In practical
terms the bed numbers will reduce even further during the construction period
to 20 beds as the alternative accommodation identified can only house 20
beds.
2.34 The service has identified a possible transfer of elderly care activity to the GP
Acute ward due to the reduction in elderly beds. The service will however,
monitor the impact of this linked to it community infrastructure developments.
2.35 The Interagency Winter Plan addresses winter pressures by preventing
admission and reducing delayed discharges. The closure of 6 beds has allowed
the identification of £148,000 to support the development of community
services to support this. However, this resource release is at marginal cost and
further service development and investment will be required to obtain the
benefits identified within the project.
2.36 Outpatients and Accident and Emergency Services
2.37 The table below shows an increase in activity for Accident and Emergency
and Outpatient services at Mid Argyll Hospital over the period. The last two
years show fluctuations in activity in AHP‟s and Outpatients due to service
cessation as a result of recruitment and retention of staff difficulties and
reductions in outreach service linked to junior doctor hours changes in
Orthopaedics, ENT and Dermatology.
Year 95/96 96/97 97/98 98/99 99/00 00/01 01/02 Forecast
02/03
A&E 3,289 3,589 3,306 3,372 3,440 3727 3659 3639
New Outpatients 3,383 3,781 3,343 3,410 3,478 3040 3006 3902
AHP Outpatients 14129 16604 15546 15857 16174 17044 15624 14127
Total: 20,801 23,974 22,195 22,639 23,092 23,811 22,289 21,668
2.38 Argyll and Bute has the highest mortality rate for vehicle accidents in
Scotland. Argyll and Clyde Health Board‟s Annual Report of the Director of
Public Health 2000 identified a Standardised Mortality Ratio (SMR) of 109 for
Argyll and Bute compared with range of 64 to 84 in the other four Argyll &
Clyde Council areas. Lochgilphead‟s location at the centre of Argyll and the
Junction of road networks results in a higher incidence of accidents and
fatalities. Fatal road crashes and numerous injuries are dealt with by the
emergency services and Medical and Nursing staff at the Mid Argyll Hospital.
The small medical and nursing establishment are committed to the
continuation of this life saving service.
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2.39 It is expected that more and more follow up activity will be conducted at Mid
Argyll using the developing skills and resources of the primary care team, with
where appropriate, use of Telemedicine Technology.
2.40 The Outpatient service will provide increasing work up services locally as part
of developing Managed Clinical Networks and standardisation of care
protocols. This will help reduce the number of journeys patients have to make
to specialist services in the centre, reducing their inconvenience and distress. It
will also reduce the “patient pin cushion” effect of duplicating diagnostic tests
at secondary and tertiary centres, which not only benefits patients but frees up
capacity and better utilises scarce resources. It is expected that this initiative
will also branch over into Day Case activity as appropriate.
2.41 Midwifery Services
2.42 Currently Midwifery services in Mid Argyll are provided centrally from Mid
Argyll Hospital, Lochgilphead. The annual caseload is 100 pregnant ladies
with a local delivery rate of 22 in 1999.
2.43 The Trust has conducted surveys of women‟s expectations from the service
and these have consistently identified the following requirements:
Continuity of care from midwives who are practised and up to date.
Midwives to give complete and unbiased information about all
aspects of the maternity event.
Midwives to be flexible in outlook.
Unless complications arise, that midwives should be the main
provider of ante natal, intra partum and post natal care.
2.44 The main areas of Mid Argyll are divided into three in terms of maternity
services:
Lochgilphead and Ardrishaig
Inveraray
Tarbert
2.45 All three areas have the same midwifery provision in terms of antenatal and
postnatal care.
2.46 In the main, the “specialist” services for Lochgilphead, Ardrishaig and
Inveraray are provided by the Vale of Leven Hospital, Alexandria (80+ miles
from Lochgilphead). The Tarbert area has historically had specialist input
from the Southern General Hospital, Glasgow (100+ miles away).
2.47 Unmet Demand for Services
2.48 There is some evidence that the limited range and scale of services currently
provided by the Mid Argyll Hospital results in people travelling further afield
to access services. For instance, people living in the southern part of the area,
such as Tarbert, will travel to Oban to access some services. If the services and
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facilities proposed in this business case were available, then it is likely that
these people would prefer to travel less distance and access the services in
Lochgilphead.
3 The Outline Business Case
3.1 The Outline Business Case defined the purpose of the project as enabling and
facilitating fundamental change in the way in which health and social care is
delivered to the people of Mid Argyll. The underlying aim is to redesign
services from a patient‟s point of view. Health and social care services will be
shaped around the needs of patients and clients through the development of
partnerships and co-operation between patients, their carers and families and
NHS staff; between the local health and social care services; between the
public sector, voluntary organisations and private providers to ensure a
patient-centred service. Overall, the project aims to substantially increase
services and the delivery of care locally.
3.2 The Trust developed a long list of options for addressing the gaps between the
service needed and the current service. These were as follows:
• Closure of Mid Argyll Hospital.
• Do nothing.
• Do minimum – address the backlog of maintenance on the existing
Mid Argyll Hospital and the Duncuan Care of the Elderly Unit.
• Upgrade and extend the existing Mid Argyll Hospital and the Duncuan
Care of the Elderly Unit and provide a 12 bed Elderly Dementia Unit.
• Provide a modern, purpose built facility to accommodate a range of
Primary Care, Community Health and Social Care Services for Mid
Argyll in Lochgilphead.
3.3 A broad assessment of the options on the long list was undertaken to
determine:
• How well they would meet the service need.
• The service benefits that could be expected.
• The technical feasibility.
• The expected capital and revenue cost.
3.4 A number of options were rejected for the following reasons:
• The option to close Mid Argyll Hospital was rejected, as it would very
significantly reduce accessibility to services for the population of Mid
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Argyll and seriously undermine the viability of this rural community. It
would have meant unacceptable travel distances and times to the nearest
alternative available services.
• The “Do nothing” option was rejected on the grounds that it would fail
to address the very significant issues in relation to the current gap between
the modern service needed supported by new ways of working and current
provision. Additionally, the already unacceptable physical condition and
functional suitability of the existing facilities would continue to deteriorate
and this will effectively result in the need to close the Hospital in the
longer term.
• The option of extending and upgrading the existing Mid Argyll
Hospital and the Duncuan Unit were carefully considered in terms of
technical feasibility, financial impact and service fit. It was shown to be
technically feasible. However, it was likely to mean serious compromises
in terms of the building layout and functional suitability for modern
healthcare service delivery, because the existing buildings cannot easily be
adapted to meet the new requirements without significant structural and
building services changes. The cost of such changes, added to very high
backlog maintenance expenditure required on both of these buildings
would mean an overall capital cost almost equivalent to a new building
cost. It would have meant a high capital cost that would achieve few of
the benefits of a new building. Hence, this option would provide poor
value for money in comparison to the “new build” option.
3.5 It was clear from the appraisal of options that there were two broad options for
the Trust to consider:
Option 1: “Do minimum”. Despite the “Do minimum” approach, this
option would involve substantial expenditure on backlog maintenance
and future life cycle building and engineering replacement costs to
ensure that the existing buildings could remain operational. In addition
to retaining the existing Mid Argyll Hospital, this option would entail
the retention of a number of other buildings in the Lochgilphead area
including the existing GP and GPD surgeries and social services
building. This option would inevitably be broadly similar in terms of
model of service provision to that which currently exists.
Option 2: Provide a modern, purpose built facility to accommodate
a range of Primary Care, Community Health and Social Care Services
for Mid Argyll. This option would facilitate and enable the
development of new models of service provision, allowing the
integration of primary and community health and social care services.
3.6 An extensive search for suitable sites for the location of the new facilities
proposed in Option 2 was conducted and led to the identification of six
potential sites in and around Lochgilphead. Technical and feasibility studies
of these sites led to a number of them being rejected and a shortlist of three as
follows:
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Option 2A – the existing Mid Argyll Hospital site
Option 2B – Whitegates site
Option 2C – Baddens site.
3.7 The shortlisted options were the subject of an option appraisal exercise carried
out by the Trust in accordance with the Scottish Capital Investment Manual.
This examined the non-financial benefits and full life (capital and revenue)
costs of each option. A summary of the results of this are shown in the table
below.
Option
No Description “Weighted Benefit
Score”
Full life costs (NPC)
£millions
1 Do minimum 388 33.82
2A Existing Mid Argyll Hospital site 687 53.33
2B Whitegates site 786 53.66
2C Baddens site 672 55.89
3.8 The table shows that the “Weighted Benefit Score” for the three variations of
Option No 2 were all substantially greater than Option No 1: Do Minimum.
This confirmed that Option 2, irrespective of the site chosen would be capable
of delivering substantial benefits compared to the existing situation and
therefore that the project is worthwhile.
3.9 Whilst “Whitegates” site had the highest benefits score there little to choose
between the variations of Option No 2 in terms of non-financial benefits.
Similarly, the choice of site for Option 2 does not greatly influence the overall
lifecycle costs of this option.
3.10 During the course of developing the OBC, the “Whitegates” site was sold and
was no longer available to the Trust. Therefore, the Project Team made the
decision to select the “Existing Mid Argyll” site as the preferred site for the
inclusion in the OBC.
3.11 The review of the OBC has shown that the fundamental decisions made at that
time remain robust at this FBC stage of the project.
4 The Preferred Solution
4.1 As part of the process of developing this FBC the Trust continued the
development of the preferred option of developing new facilities on the
existing Mid Argyll Hospital site. In parallel with this work the Trust
successfully identified a private sector partner to design, construct, finance and
operate the proposed new facilities in accordance with the Government‟s
Private Public Partnerships/Private Finance Initiative (PPP/PFI). The preferred
solution for procuring the project is now through the PPP/PFI procurement
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route using a consortium led by Canmore Partnership. The composition of the
consortium members is set in the table below.
Consortium Member
Consortium promoter/Bid Coordinator Canmore Partnership
Builder/Contractor Balfour Beatty
Funder/Senior Debt Bank of Ireland plc
Financial Adviser Operis Group
Legal Adviser Dundas and Wilson
Architect HLM
Quantity Surveyor Capita Cost Management
M&E Services Engineers DSSR/FES
Structural Engineers Oscar Faber
Facilities Manager Parsons Brinckerhoff
Healthcare/Medical Planner WS Atkins
Other MPM Capita/UME
4.2 Since being identified as the preferred partner the Consortium has worked with
the Trust to develop this FBC and throughout this process the consortium has
demonstrated the following strengths and qualities:
Financial and commercial soundness.
Extensive experience of healthcare PFI.
Specific experience of the PFI development of Community
Hospital services.
Understanding of and empathy with the service aspirations of
NHS Argyll and Clyde in relation to this project.
4.3 The design solution developed in collaboration between the Trust and
Canmore Partnership represents an innovative approach to integrating and co-
locating a range of primary care and supporting community hospital based
health and social care services. It will provide the full functional content
specified and meet all key operational policies set out in the project brief. It
will achieve this by exploiting the topography of the site to create a low rise
building that will cluster services in logical groupings and minimise patient
and visitor movement within the building.
4.4 Externally the solution will provide landscaping that will complement the
natural features of the surrounding area. This will sustain the high quality of
the external environment to the benefit of staff, patients and the visiting
public. It will also provide car parking that will be situated to give convenient
level access to the designated entrances to the proposed building. The solution
will also create car parking provision for people with disabilities that will
minimise travel distances and ensure level access to the proposed building.
All patient and public accesses to the building will be from traffic routes that
do not carry goods traffic.
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4.5 The accommodation will be provided over one full floor at ground level and
one half floor at lower ground level. Each floor will have direct external
access. At each level there will be separate access for patients and goods and
at ground floor level separate entrances for Accident and Emergency (A&E)
patients and other patients and the general public are proposed. There will be
separate A&E entrances for emergency and non-emergency patients. There
will also be separate entrances for goods inwards and goods outwards
movements. The principal patient and visiting public entrances will be
situated on the elevation that will face the main car park and front on to the
main access road for pedestrians, car drivers, ambulances and public service
vehicles.
4.6 The design promises to give patients and the visiting public convenient and
weather protected access to a building with an external appearance that is as
welcoming and as domestic in character as the building materials dictated by
the local climate will permit. The welcoming and domestic features will
continue to be apparent on entering the building due to an interior design that
fosters a sense of familiarity.
4.7 On entering the building through the main entrance patients and the visiting
public will enter an area that will:
Be on a primary care scale.
Give immediate access to all primary care departments including
those providing nurse and allied health professional led services
and social care.
Give immediate access to a range of support facilities, such as a
children‟s‟ play area and a cafeteria.
4.8 There will be easy access from this area to the departments providing in
patient and more specialist care. Vertical and horizontal circulation routes are
to be arranged to ensure that there is minimal conflict between access routes
for goods and other non-patient traffic and those for patients.
4.9 Departmental designs and adjacencies have incorporated a number of aspects
of modern practice, including:
The provision of non-designated generic consulting spaces for
use by general medical practitioners, visiting consultants and
other professionals.
Non-cellular space for clinical administration, research and
teaching and meetings.
The provision of space that is capable of flexible use to cope with
variations in demand for work streams such as inpatient
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admission and day hospital based therapy and emergency and
elective ambulatory care.
Integration of reception and patient administration functions for a
range of clinical health and social care services.
4.10 On entering the appropriate A&E entrance patients will have immediate access
to the A&E department and easy and discrete access to the obstetric delivery
area. Staff working in A&E treatment rooms will have immediate access to
the staff and facilities of key related functions such as generic nurse treatment
areas and radiology.
4.11 Patients and the visiting public needing access to the lower ground floor will
have direct access at that level and via either stairs or lift from the ground floor
main entrance. These routes will provide access to an area accommodating
functions that combine to offer an integrated service for older people,
including those with a mental health problem. These functions will provide an
integrated response that will meet the complex needs of older people whether
for focused intermediate care or for longer term support.
4.12 The design solution also satisfies the need for safety, security and dignity in a
number of important ways including:
Discrete and lockable facilities for the collection and disposal of
clinical waste.
Enclosed provision for the decontamination of instruments used
in dental and podiatry procedures.
Encouragement of safe wandering by older patients.
Discrete and separate routes for the removal of cadavers from
A&E and inpatient areas.
Access to all parts of the proposed building for fire appliances
and level evacuation routes from all departments in the event of a
fire or other emergency.
Provision of very high levels of en-suite single bed room
accommodation in all inpatient areas.
Provision of sound attenuation at the main reception counter to
ensure privacy for patients and/or visitors when in conversation
with reception staff.
4.13 The Trust and the Consortium have maintained a close working relationship
with the Argyll and Bute Council as the statutory planning and highways
authority. A formal application for planning consent was submitted on 24
December 2002. Sub sequentially approval of the scheme was delegated to a
sub-group comprising a local planning officer and two local councillor
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members of the Planning Committee. The Trust and the Consortium have
worked with the sub-group over the last three months to clarify all the
planning requirements for the scheme. Only two minor issues of access
remain outstanding and the Trust and the Consortium are confident that these
will be resolved shortly and will have no detrimental affect on financial close.
4.14 Since appointment as Preferred Bidder, the Canmore planning and design team
have worked with the Trust‟s Project Team and Departmental User Groups to
develop the preferred design solution. As a result of this extensive work
programme the FBC is based on 1:200 scale drawings and detailed room data
sheets including 1:50 scale room layouts for all key rooms which have been
approved and “signed off” by the Trust.
4.15 The timetable from approval of the Final Business Case through financial
close to service commencement is set out below:
NHS Argyll and Clyde Board Approval of FBC 12 May 2003
SEHD Approval of the FBC 14 May 2003
Financial Close 28 May 2003
Complete Construction 31 May 2005
Service Commencement 1 July 2005
4.16 A Base Date of 1st March 2003 has been adopted for the price quoted in the
PPP/PFI bid with an assumed RPI rate of inflation of 2.5% for the full Unitary
Charge.
4.17 Given a projected service commencement date of 1 July 2005, the Unitary
Charge requires to be indexed from March 2003 to July 2005. Indexation will
occur at the commencement of a new project financial year and with a year
end of May this will be for 1 July of each year.
4.18 The price quoted in the Consortium‟s bid is fixed until financial close.
4.19 The assumed interest rate on which the price of the scheme is based, including
the interest rate buffer is shown in the following table.
Interest Rates – Senior Debt
LIBOR Swap Rate 4.8%
Buffer 0.5%
Margin (construction/operations) 1.00%
Credit Spread 0.10%
MLA 0.04%
4.20 A margin of 0.50% is included in Canmore‟s senior debt funding proposals to
act as a buffer against short-term increases in interest rates. It is therefore
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unlikely that the cost of their bid will increase prior to financial close. The
Trust has carried out sensitivity analysis to assess the impact of reduction in
interest rates prior to financial close. The results of this are shown in the table
below.
Sensitivity of Unitary charge to Interest Rate Reductions - £’000
Rate Unitary charge
Reduction in Unitary Charge
compared with base
£’000 £’000 %
Standard model 5.3% 1,689
0.25% reduction 1,660 29 1.70
0.50% reduction 1,634 55 3.25
4.21 It can be seen that valuable affordability savings would be achieved if the
interest rate buffer is reduced prior to financial close.
4.22 A review of market rates has been undertaken to assess the current position.
The prevailing market rate for a 28 year swap arrangement proposed by
Canmore as at 24th
April 2003 was 4.92%. This represents a 0.38% reduction
in the rate used to calculate the Canmore base unitary charge at current interest
rates. This indicates that there is provision within the unitary charge used for
determining the affordability of the scheme.
5 The Public Sector Comparator
5.1 Development of the PSC
5.2 The Public Sector Comparator (PSC) is used to test the value for money of
Private Finance Initiative (PFI) proposals. The preferred PFI solution must not
only represent the best value for money of all the PFI options, but also show
better value for money than the most realistic public funded scheme. It also
represents the most developed expression of the Trust‟s design requirements
and is therefore of great use in guiding the PFI bidders in the development of
their design. This section describes the content of the PSC and how it has been
developed.
5.3 Following approval of the OBC the Trust carried out a number of technical
and design feasibility studies based around the OBC preferred option of
developing an integrated health and social care facility on the existing Mid
Argyll Hospital site. These studies led to three clear planning and design
options emerging:
Option 2A/1: A three zoned design solution on the lower part of the
site.
Option 2A/2: A compact, integrated design solution on the higher part
of the site.
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Option 2A/3: A design solution located on the higher part of the site
that would involve linking together a number of buildings with
corridors.
5.4 The Trust engaged a wide range of professional and public representatives in
this exercise of further developing the preferred option through a series of
open meetings, roadshows and workshops. This culminated in a major
workshop event on 7 December 2001 which evaluated the three planning and
design options for developing on the Mid Argyll Hospital site and identified a
preferred option which was to become the Public Sector Comparator (PSC).
5.5 The approach adopted for the evaluation of the options was similar to and
consistent with the option appraisal methodology described in the Scottish
Capital Investment Manual. The options were evaluated in terms of the non-
financial benefits that can be expected from implementing the options and a
weighted benefit score was determined for each option as shown in the table
below.
5.6 The option appraisal exercise showed that under three scoring scenarios
(consensus, optimistic and pessimistic) Option 2A/2 was the option most
likely to maximise the non-financial benefits from the project.
5.7 This appraisal was the main contributor to the decision making process that
has steered the choice of design solution in the Public Sector Comparator and
the subsequent development of an output specification and operational policies
that formed part of the Invitation to Negotiate that was issued to potential
private sector partners.
5.8 The following service changes have taken place from the preferred option in
the OBC to the current PSC:
Additional accommodation to enable the number of GPs to increase
from 6 to 10 and the number of GP trainees from 2 to 3.
Additional treatment rooms to allow for the extension of nurse
practitioner roles.
Additional accommodation for the Scottish Ambulance service to
enable the relocation Para-medical teams adjacent to the A&E
Department and to enable the garage/workshop to move to more
suitable accommodation more closely linked to the main service
base.
An increase in the size of gymnasium to support its use for
progressive rehabilitation and assistance with self care.
No Description Consensus Optimistic Pessimistic
2A/1 Three zones - lower site 649 659 639
2A/2 Integrated, compact - higher site 768 786 735
2A/3 Linked buildings - higher site 587 587 564
Option Overall Weighted Benefits Score
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Sterilising rooms for dental surgery and podiatry to comply with
emergent SEHD guidance on the decontamination of surgical
instruments.
Minor adjustments to departmental areas as a result of development
of the operational policies post OBC
5.9 These have added 1373 square metres of departmental area to the schedule of
accommodation on which the PSC was based.
5.10 Further non-service led changes to the PSC are as follows:
Change of tender price inflation projection from the OBC business
case level (MIPS 325) to current forecast for the start on site period
(MIPS 383). Hence, this will set the PSC costs at a comparable
level with the PPP/PFI cost level.
Update of the Planning Contingency to accurately reflect the risk
profile of the project.
5.11 The comparison of the OBC and PSC costs are shown in the table below.
OBC Agreed Funding Levels and Update to PSC
Total Total Revenue Profile
Gross Capital Capital Service External Additional
Area Cost Charges Costs Income Revenue
(m2) (£m) £'000 £'000 £'000 £'000
OBC (as approved) 6,158 13,234 1,044 595 (250) 1,389
Adjustments at ITN / preferred bidder
stage :-
Additional functional content and
amendment to asset life 896 1,893 324 324
MIPS 325 to 372 2,393 210 210
Pay and prices to 2002/03 36 36
Total Adjustments 896 4,286 534 36 570
Gross Affordability Envelope at
2002/03 outturn prices & MIPS 372 7,054 17,520 1,578 631
1 (250) 1,959
Adjustments at Full Business Case
stage:-
Additional functional content inc SAS
depot and garage 407 1,011 91 91
MIPS 372 to 383 668 48 48
Total Adjustments 407 1,679 139 139
Gross Affordability Envelope at
Quarter 2 2003 capital cost base
(MIPS 383)
7,461 19,199 1,717 631 (250) 2,098
Additional Contributions :-
Page 30 of 78
Capital charges savings on demolition (106) (106)
Additional external contributions (191) (191)
Total Additional Contributions (106) (191) (297)
Inflation adjusted year 1 affordability
envelope at MIPS 383 7,461 19,199 1,611 631 (441) 1,801
1 Includes £103 K of Hard Facilities Management services at 2002/3 prices
6 The PPP/PFI Procurement Process
6.1 The Trust adopted a PPP/PFI procurement process based on European
Procurement Regulations Negotiated Procedure.
6.2 The advisers used by the Trust were as follows:
Project management, technical and healthcare planning consultancy support:
STRATEGEM Management and Technical Consultants Ltd
31 Station Road
Steeton
West Yorkshire
BD20 6RL
Legal advisers:
Central Legal Office
Common Services Agency for NHSScotland
Trinity Park House
South Trinity Road
Edinburgh
EH5 3SE
The financial adviser appointed to assist the Trust is:
Secta
Tribune Court
2 Roman Road
Glasgow
G61 2SW
6.3 The Trust placed a Services Negotiated Procedure Contract Notice in the
Official Journal of the European Community (OJEC) on 17 January 2002. The
Contract Notice invited suitably qualified consortia/companies to express
interest in the provision of the services for the design, construction, finance
and operation of serviced accommodation for the provision of primary,
community health and social care facilities in Mid Argyll.
6.4 Prior to issuing the Contract Notice the Trust had carried out a value for
money review of soft facilities management services for the proposed new
facilities. The Trust was assisted in this review by external management
Page 31 of 78
consultants and facilities management specialists. The review concluded that
the current provision of soft FM services from the adjoining Argyll & Bute
Hospital was most likely to provide best value for money for the proposed new
facilities. The review report was presented to the Trust‟s Board at a meeting
on 27 November 2001, at which meeting the Board accepted the
recommendation that the soft facilities management services should be
excluded from the PPP/PFI contract.
6.5 In accordance with Government guidance on PPP/PFI contracts, clinical
services were also excluded from the contract.
6.6 Pre-qualification questionnaires (PQQ) and a memorandum of information
(MOI) were sent out to all eighteen organisations that expressed an interest in
the project. Six organisations completed the PQQ and provided the required
information by the deadlines set by the Trust.
6.7 The Trust‟s Project Board/Steering Group established an evaluation panel to
consider the responses to the Contract Notice and the Pre-qualification
questionnaires. The evaluation panel comprised:
Mr R Arbuckle – Acting Head of Service
Mr G Morrison – Deputy Director of Finance
Dr M Simpson – GP/Clinical Director
Miss C Pollock – Trust Non Executive Director
The Very Rev R Flatt – Public Member
Mrs K Murray – Public Member
Mr S Whiston – Head of Planning & Performance
Mrs J Bett – Locality Manager
Mr S Wilson – Trust Estate Manager
Mr J Mungall – Director of Acute Services Planning Argyll
& Clyde Health Board
6.8 STRATEGEM Management & Technical Consultants facilitated the
evaluation process and provided technical support to the panel but did not take
part in the scoring of bidder‟s responses.
6.9 The expressions of interest were assessed and evaluated using a methodology
based on EC Procurement Regulations which require the following criteria to
be used:
Exclusions – bankruptcy etc
Professional certification
Financial and economic standing
Technical capability and capacity
6.10 The evaluation process led to the following three consortia being invited to
negotiate for the contract:
Canmore Partnership
Page 32 of 78
Melville Dundas
Barr Holdings
6.11 Invitations to negotiate (ITN) were issued to the three short listed
organisations on 31 April 2002.
6.12 The Invitation to Negotiate comprised a suite of documents that included:
Output Specification – a detailed performance specification outlining
the scope of the project and performance standards required by the Trust
Project Agreement – a draft document including schedules that
described the legal framework and agreement upon which the Trust
intended to contract with a private sector partner.
Operational Policies – detailed descriptions of how the Trust will
operate the services it intends to provide from the proposed new
facilities
Generic Room Data Sheets – descriptions of the detailed functional
requirements of all the key rooms in the proposed facility
6.13 All three short listed consortia initially responded positively to the ITN and
took part in a series of clarification meetings with the Trust and it‟s advisers.
However, Barr Holdings subsequently withdrew prior to the deadline for
submission of responses to the ITN (2 August 2002).
6.14 The two remaining shortlisted organisations submitted bids prior to the Trust‟s
deadline of 2 August 2002. An initial evaluation of these submissions
confirmed that both bidders had submitted compliant bids.
6.15 The Trust adopted a rigorous but equitable methodology for the detailed
evaluation of the two bids received in response to the ITN.
6.16 The evaluation methodology provided for each bid to be assessed under four
main headings and responsibility was allocated to different member of the
Project Team for each aspect of the bid as follows:
Non-financial factors – Trust‟s Evaluation Panel
Design and Services – STRATEGEM Management and Technical
Consultants
Financial Criteria – Secta, Financial Advisers
Legal Criteria – Central Legal Office, Common Services Agency for
NHSScotland
6.17 The diagram overleaf shows the ITN evaluation process and evaluation criteria
adopted for the selection of preferred bidder and the relative importance
(weights) of given to each aspect of the bids.
Page 33 of 78
Page 34 of 78
6.18 The results of the evaluation of the Canmore and Melville Dundas responses
to the ITN against the weighted criteria are given below.
Non-Financial Benefits Total Score
Available
Weighted Benefit Score
Canmore Melville
Dundas
Clinical Effectiveness 10.5% 7.2% 6.3%
Accessibility to services and facilities 9% 6.2% 4.8%
Effective and efficient service delivery 8.5% 5.1% 5.0%
Flexibility for change 8% 3.6% 6.0%
Acceptability to patients, staff and public 7.5% 5.5% 4.3%
Quality of Physical Environment 6.5% 5.0% 3.8%
50% 32.6% 30.2%
Design Reflects Operational Policies Total Score
Available
Weighted Benefit Score
15% Canmore Melville
Dundas
Design reflects operational policies 15% 10.2% 9.15%
Design and Layout Total Score
Available
Weighted Benefit Score
13% Canmore Melville
Dundas
Facilities are secure, efficient, flexible
and easy to maintain
3.25% 2.50% 2.34%
Building services achieve physical
integration with building
2% 1.7% 1.26%
Good planning logic of entrances, main
circulation routes and key spaces
2% 1.56% 1.11%
Facility provides appropriate level of
accommodation for functional content
and activity levels
3.25% 1.79% 2.11%
Capable of flexibility in space and usage 1.25% 0.79% 1.04%
Building and external landscaping reflect
locality, architectural style and blend of
clinical efficiency and aesthetics
1.25%
0.91%
0.94%
13% 9.25% 8.80%
Page 35 of 78
Specification Issues Total Score
Available
Weighted Benefit Score
Canmore Melville
Dundas
Design and specification demonstrates
best practice
6.5% 4.23% 4.88%
Aesthetically pleasing materials used 2.5% 1.50% 1.75%
Creative use of natural light and
materials
1% 0.80% 0.70%
10% 6.53% 7.33%
Site Issues Total Score
Available
Weighted Benefit Score
Canmore Melville
Dundas
Solution maximises potential of site 0.5% 0.50% 0.50%
Solution is sensitive to local environment 0.5% 0.25% 0.50%
Location permits possible future sale of
spare land
0.5% 0.50% 0.50%
Capability for future expansion 0.5% 0.25% 0.50%
2% 1.50% 2%
Management and Service Method
Statements
Total Score
Available
Weighted Benefit Score
10% Canmore Melville
Dundas
Contract management 1.5% 1.07% 1.05%
Repairs and maintenance 4% 3.00% 3.12%
Grounds maintenance 1.5% 1.13% 0.80%
Furniture and equipment 3% 1.14% 2.1%
6.34% 7.07%
6.19 The final outturn evaluation scores for non-financial factors, design and
development objectives and management and service method statements are
outlined in the following table.
Overall Evaluation Scores Total Score
Available
Weighted Benefit Score
100% Canmore Melville
Dundas
Non-Financial Benefits 50% 32.6% 30.2%
Design Reflects Operational Policies 15% 10.2% 9.15%
Design and Layout 13% 9.25% 8.80%
Specification Issues 10% 6.53% 7.33%
Site Issues 2% 1.50% 2.00%
Management and Service Method Statements 10% 6.34% 7.07%
66.42% 64.55%
Page 36 of 78
6.20 On the basis of the above evaluation results, Canmore was identified as the
bidder most likely to meet the Trust‟s technical and design requirements but
by a narrow margin compared to Melville Dundas.
6.21 The financial evaluation of the bids identified that the unitary charges in both
bids were in excess of the costs associated with the updated PSC. In the case
of Canmore the unitary charge was £170,000 in excess of the PSC and
Melville Dundas was £375,000 in excess of the PSC.
6.22 The value for money analysis of the bids indicated that the Canmore bid had
marginally lower Net Present Costs than the PSC whereas the Melville Dundas
bid had higher Net Present Cost than the PSC. Therefore, the Canmore bid
offered marginal value for money against the PSC whereas the Melville
Dundas bid did not.
6.23 The legal evaluation of the bids indicated that both bids were broadly
acceptable.
6.24 On the basis of the above evaluation, Canmore were identified as the preferred
bidder with Melville Dundas held in reserve. The Trust‟s Project
Board/Steering Group accepted the Evaluation Panel‟s recommendation that
Canmore be selected as the preferred bidder.
7 The Appraisal Process
7.1 Financial Appraisal (Affordability Analysis)
7.2 The purpose of the financial appraisal (affordability analysis) is to assess the
impact of the scheme on the Trust‟s future income and expenditure position.
The affordability analysis is therefore an absolute measure of the scheme on
the financial viability of the Trust. Because of this it includes, where
appropriate, transfer payments such as capital charges.
7.3 The affordability analysis has been based on financial models provided by
Canmore on 25 April 2003 (file reference Lochgilphead Final 05.xls) which
reflects the most recent capital, lifecycle and operating cost estimates. It is
accepted that further analysis and change of this models may take place over
the period between submitting the FBC and financial & commercial close as
part of the normal contract negotiations. Any changes which do take place in
this period will be described in the FBC – PPP/PFI Addendum to be submitted
on financial close.
7.4 Capital charges have been calculated using a 6% rate of return.
7.5 Baseline Costs for Mid Argyll Hospital
7.6 Figure 7-1 shows the baseline costs, at 2000/01 prices, for the services that are
provided by the Trust which are included in the scheme. These have been split
between:
Page 37 of 78
Core services – these are services that will remain with the Trust
regardless of the procurement route. These include clinical services, as
well as soft facilities management services such as cleaning, catering and
portering;
Services within scope of PFI – these are services that are currently
provided by the Trust, but would be provided by Project Co under the
Project Agreement. These include hard facilities management and
capital charges for both estate and equipment.
Figure 7-1 - Baseline Costs of Services at 2000/01 prices
Core Services
Services
within scope
of PFI
Total
£000 £000 £000
Capital charges 108 108
Pay and non pay costs 2,047 98 2,145
Total Baseline costs 2,047 206 2,253
The services within the scope of PFI under Pay and non-pay costs relate to building and engineering maintenance
7.7 Funding agreed at OBC stage
7.8 Figure 7-2 shows the funding envelope that was agreed with commissioners at
Outline Business Case stage. Within the OBC funding envelope the Trust
anticipated that the required income contributions from third parties were
secure. Analysis of the income position is provided in sections 7.15 to 7.18.
7.9 In developing the PSC as part of the bidder selection process, the Trust
subsequently updated the OBC to reflect amendment in the functional content
and price inflation. Price inflation included an increase in capital and revenue
costs to MIPS 383 and 2002/3 outturn prices respectively.
7.10 It is important to note that the Trust did not incorporate the impact of residual
interest under land and buildings guidance as part of the original cost envelope
for the project.
Figure 7-2 - OBC Agreed Funding Levels and Update to PSC
Total Total Revenue Profile
Gross Capital Capital Service External Additional
Area Cost Charges Costs Income Revenue
(m2) (£m) £'000 £'000 £'000 £'000
OBC (as approved) 6,158 13,234 1,044 595 (250) 1,389
Adjustments at ITN / preferred bidder
stage :-
Additional functional content and
amendment to asset life 896 1,893 324 324
MIPS 325 to 372 2,393 210 210
Pay and prices to 2002/03 36 36
Page 38 of 78
Total Adjustments 896 4,286 534 36 570
Gross Affordability Envelope at
2002/03 outturn prices & MIPS 372 7,054 17,520 1,578 631
2 (250) 1,959
Adjustments at Full Business Case
stage:-
Additional functional content inc SAS
depot and garage 407 1,011 91 91
MIPS 372 to 383 668 48 48
Total Adjustments 407 1,679 139 139
Gross Affordability Envelope at
Quarter 2 2003 capital cost base
(MIPS 383)
7,461 19,199 1,717 631 (250) 2,098
Additional Contributions :-
Capital charges savings on demolition (106) (106)
Additional external contributions (191) (191)
Total Additional Contributions (106) (191) (297)
Inflation adjusted year 1 affordability
envelope at MIPS 383 7,461 19,199 1,611 631 (441) 1,801
1 Includes £103 K of Hard Facilities Management services at 2002/3 prices
7.11 In Figure 7-2 the affordability envelope has increased due to amendment in
functional content, amendment of the lives used to calculate capital charges
and inflation (both capital and revenue). This has been partly offset by the
impact of additional capital charge savings (calculated @ 6% rate of return)
accruing from an extension to the proposed demolition programme.
7.12 The costs associated with the Scottish Ambulance Service (SAS) depot and
workshop were not included in the proposed development at the time of
developing the original PSC as part of the bidder evaluation process.
7.13 The affordability envelope has been updated to reflect the capital costs at
MIPS 383 for the 2nd Qtr 2003. This provides consistency with the price base
used by Canmore for developing their unitary charge and as used in their
financial model.
7.14 In addition the costs of the Scottish Ambulance Service (SAS) depot and
workshop have been incorporated. It has been assumed that the additional cost
of this space is fully recovered from SAS as outlined in the next section.
7.15 The Outline Business case incorporated estimates of likely income
contributions accruing from third party tenants, specifically :-
General practitioners;
Dental services;
Scottish Ambulance Service (embedded accommodation and garage /
depot) and,
Argyll and Bute Council Social Work department
Page 39 of 78
7.16 These contributions have been reviewed in light of the changes that have taken
place since the development of the OBC. Additional contributions of £191k
were built into the PSC to reflect the additional space allocated to third parties.
7.17 A breakdown of the required contributions is provided at Figure 7-8. These
take account of anticipated usage of both exclusive and shared
accommodation.
Figure 7-8 – Analysis of Third Party Income Contributions
Component of
Unitary Charge
GP’s
Dental
Services
SAS
(embedded
space)
Social
Work
SAS
(depot &
garage) Total
(Ref Fig
7-2)
Rental 184.0 30.0 31.0 75.0 46.3 366.3
Hard FM 28.0 5.0 5.0 11.0 7.1 56.1
Insurance 9.0 1.5 1.5 4.0 2.3 18.3
Total 221.0 36.5 37.5 90.0 55.7 440.7
7.18 Notices have been issued to the tenant partners and the Trust are in the process
of securing formal agreement with each party and the District Valuer.
7.19 PSC PFI Resource Envelope
7.20 The costs associated with the PSC that will be used to compare against the PFI
unitary charge is presented below. This will be used as the basis for assessing
the affordability of Canmore‟s unitary charge.
Figure 7-3 – PFI Resource Envelope Relative Affordability
Affordability Element Resource Expressed @
2002/03 Outturn Prices
£’000
Gross capital charges Ref Figure 7-2 1,717
Hard facilities management Ref Figure 7-2 103
Total PSC Affordability 1,820
The Hard facilities management figure has been updated to 2002/03 price base
7.21 Capital charge savings accruing from demolitions have not been netted off
against the gross capital charges for the PSC to ensure comparability with the
PFI solution.
7.22 The remaining elements of the overall PSC affordability not included in Figure
7-3 relate to the cost of core services, which will continue to be delivered by
the Trust.
7.23 Proposed PFI Unitary Charge
7.24 The Year 0 unitary charge proposed by Canmore is £1,689k at 2002/03 outturn
prices. This incorporates a prudent 0.50% buffer on the senior debt interest
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rate to protect the scheme affordability against increases in prevailing rates up
to financial close. The unitary charge is subject to indexation by the Retail
Price Index (RPI). The payment is a single tariff, subject to availability and
service performance.
7.25 The main assumptions underpinning Canmore‟s unitary charge (extracted
from their latest financial model – file name Lochgilphead Final 05.xls) are set
out in Figure 7-4.
Figure 7-4 – Canmore Baseline Financial Model Assumptions
Category Canmore
Headline Information
Concession Period Construction period plus 30 years operating
period
Senior Debt funder Senior debt funding proposed from Bank of
Ireland Equity provided by Canmore and third
party investors.
Year 0 Unitary charge 3 £1,689m
Year 1 Unitary charge (1/8/05 to 31/5/06) part
year effect 4
£1,485m
Year 2 Unitary charge (1/6/06 to 31/05/07) 5 £1,826m
Capital costs (inc equipment but excl rolled
up interest) 6
£14.937m
Lifecycle capital costs (construction only) 7 £3.782m (1 June 2005 price)
FM costs (over operating period). Nominal
value 8
£5.808m
Libor SWAP rate incl. 0.50% buffer &
margin/MLA
6.44% (detailed analysis below)
Senior debt life 28 years
Interest Rates – Senior Debt
LIBOR Swap Rate 4.8%
Buffer 0.5%
Margin (construction / operations) 1.00%
Credit Spread 0.10%
MLA 0.04%
Total (construction /operations) 6.44%
Subordinated debt 13.13%
Construction and Development Costs
3 This value has been re-calculated to derive the tariff at 31 March 2003 prices.
4 Values taken from Canmore‟s financial model
5 Values taken from Canmore‟s financial model. The model assumes 2.5% indexation subject to RPI inflation
6 Values taken from Canmore‟s financial model
7 Values taken from Canmore‟s financial model
8 Values taken from Canmore‟s financial model
Page 41 of 78
Category Canmore
Capital costs (excl rolled up interest and
group 2 & 3 equipment)
£13.849m
Group 2 & 3 equipment £1.088m
Construction period 24 months
Internal Rates of Return (IRR)
Project IRR – pre tax (real) 6.03
Project IRR – pre tax (nominal) 8.85
Equity IRR – post tax (nominal) 30.19
Blended IRR (real) 11.34
Banking Ratios and Fees Minimum
Required Model Average
Model
Minimum
Annual debt service cover ratio (ADSCR) 1.15 1.231 1.150
Loan life cover ratio (LLCR) 1.25 1.453 1.234
7.26 Two further comments regarding the above latest financial model are outlined
below.
The nominal equity IRR (post tax) is still at the higher range and MLA
margin is high but Secta consider that the combination of these two
provide an overall acceptable IRR.
It is noted that the minimum LLCR is not met but this is marginal issue
that should not impact upon the Unitary Charge.
7.27 Composite Trader (Contract Debtor) Approach
7.28 Canmore have provided a financial model that incorporates a contract debtor
approach. They have however been reluctant to pursue formal Inland Revenue
approval for this tax treatment of the scheme. This results from uncertainties
in relation to the standing of a licence in Scots law, which is a critical factor in
securing contract debtor status for the scheme. Consequently Canmore require
that the Trust accept an amendment to the Project Agreement which would
compensate them if, following financial close, the inland revenue refuse to
approve the SPV as a composite trader. The Trust has sought the view of
Private Finance and Capital Unit on this matter. They have indicated that this
is not acceptable and contrary to guidance.
7.29 Canmore and specifically, their senior debt funder, Bank of Ireland have
offered only a marginal reduction, less than 1.5%, in the tariff through the
adoption of contract debtor. Whilst few health PFI projects have reached
financial close adopting a contract debtor approach, early indications suggest a
range of 1.6% to 3.0% reduction in the tariff could be achieved through the
adoption of a contract debtor approach, compared with a traditional capital
allowances approach.
Page 42 of 78
7.30 On the basis of Canmore‟s stance on this issue and guidance from the Private
Finance and Capital Unit, the Trust are concerned that undue delay associated
with concluding this issue to the satisfaction of both parties would
undoubtedly result in Canmore requiring to review their costs, specifically
capital costs. The likely impact of this would be to increase the unitary charge
which would in turn dilute any benefit accruing from composite tax treatment.
7.31 The Trust propose that the issue of contract debtor will continue to be pursued
with Canmore post financial close. Should the licensing issues be concluded
to the satisfaction of all parties then there would be an opportunity to secure
retrospective approval from the Inland Revenue. This could result in a
reduction in the unitary charge.
7.32 The financial model used for the purposes of conducting the financial
appraisal has been constructed using a traditional capital allowances taxation
approach. During the course of negotiations with Canmore on composite tax it
has proved possible to drive out some improvements in the unitary charge
arising from detailed discussions with their funder, the Bank of Ireland. This
has allowed a review of the funding structure of the project to be carried out,
the outcome of which has delivered some small improvements in the tariff.
7.33 Affordability of Canmore’s PFI Proposal
7.34 The revenue implications of the proposed PFI unitary charge as measured
against the relevant comparable elements of the PSC are set out in Figure 7-5.
Figure 7-5 – Relative Affordability of Canmore PFI Proposal Compared with PSC
7.35 This illustrates that the scheme would be broadly affordable if the proposed
unitary charge can be covered from the resource envelope restated using the
second quarter 2003 capital price base. This provides consistency with the
price base used by Canmore for developing their unitary charge and as per
their financial model.
7.36 It is important to note that the Trust did not incorporate the impact of residual
interest under land and buildings guidance as part of the overall cost envelope.
7.37 The affordability position set out above is subject to agreement of third party
income contributions.
Resource Expressed @
2002/03 Outturn Prices
£’000
Canmore Unitary Charge 1,689
Affordability envelope Ref Figure 7-3 at MIPS 383 1,820
Scheme Affordability Surplus 131
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7.38 Overall Affordability of the Project (excluding residual interest)
7.39 The table below shows the overall costs associated with the preferred PPP/PFI Option
and compares it in overall cost terms with the updated PSC and the original OBC
revenue profile. It is important to note that the Trust did not incorporate the impact of
residual interest under land and buildings guidance as part of the original cost
envelope for the project. This incorporates the impact on both core services and
services within the scope of the PFI deal as described in 7.5.
Figure 7-6 – Overall FBC Affordability
Revenue Profile
Capital
Charges /
Unitary
Charge
Capital
Charges
Savings from
Demolitions
Service
Costs
External
Income
Additional
Revenue
OBC (as approved) 1,044 595 (250) 1,389
Updated PSC to MIPS 383 (ref Fig 7-2) 1,717 (106) 631 (441) 1,801
Preferred PPP/PFI Option 1,689 (106) 528 (441) 1,670
The Unitary Charge already includes provision for Hard FM; to avoid double counting the Hard FM costs included in the PSC have been netted off against service costs (i.e £631k - £103k per the PSC) for the PFI option.
7.40 The affordability position set out above is subject to agreement of third party
income contributions.
7.41 Sensitivity Testing of Affordability
7.42 A margin of 0.50% is included in Canmore‟s senior debt funding proposals to
act as a buffer against short-term increases in interest rates. The Trust has
carried out sensitivity analysis to assess the impact of reduction in interest
rates prior to financial close.
7.43 The prevailing market rate for a 28 year swap arrangement proposed by
Canmore as at 7th
February was 4.80% which has been used as the planning
assumption in Canmore‟s modelling. This gives an overall base senior debt
rate of 5.3% (excluding margins, credit spread and MLA adjustments) when
the interest rate buffer is incorporated.
7.44 The Trust has requested that Canmore run a number of interest rate
sensitivities to assess the impact of changes in interest rates prior to financial
close. These have been modelled as a series of reductions in the base rate (inc
interest rate buffer) used in Canmore‟s core model. The impact of these
sensitivities on the level of unitary charge is shown in Figure 7-7.
Page 44 of 78
Figure 7-7 - Sensitivity of Unitary charge to Interest Rate Reductions - £’000
Rate Unitary charge
Reduction in Unitary Charge
compared with base
£’000 £’000 %
Standard model 5.3% 1,689
0.25% reduction 1,660 29 1.70
0.50% reduction 1,634 55 3.25
7.45 It can be seen that valuable affordability savings would be achieved if the
interest rate buffer is reduced prior to financial close.
7.46 A review of market rates has been undertaken to assess the current position.
The prevailing market rate for a 28 year swap arrangement proposed by
Canmore as at 24th
April 2003 was 4.92%. This represents a 0.38% reduction
in the rate used to calculate the Canmore base unitary charge at current interest
rates. This indicates that there is provision within the unitary charge used for
determining the affordability of the scheme.
7.47 Technical Issues
7.48 A number of technical issues have arisen in respect of the PFI. These
include:-
Treatment of Land and Buildings in PFI Schemes
Impact of the introduction of 3.5% rate of return
VAT treatment
7.49 Land and Buildings in PFI Schemes
7.50 Under the „Standard Form‟ Contract, facilities revert to trust ownership at the
end of the tariff period. Because this is at no cost, part of the unitary charge
that the trust is paying to Project Co is, in effect, a payment to acquire the
facility at the contract end. In accordance with Treasury Technical Note No.1
(Revised) the residual interest of the asset must be built up over the life of the
contract in order to ensure a proper allocation of payments made between the
cost of services under the contract and the acquisition of the residual.
7.51 The residual interest is required to be recognised in the appropriate heading
within tangible fixed assets in the Trust‟s balance sheet. Residual interests fall
within net relevant assets and are subject to capital cost absorption duty. The
impact of residual interest has not been included within the OBC or ITN by
the Trust.
7.52 Figure 7.8 shows the estimated impact of this capital cost absorption
requirement on the Trust, assuming a 6% rate of return. This assumes that at
handover the capital value of the building mirrors the original construction
cost. This analysis is based on an annuity approach. Further discussions with
commissioners are required to determine how this gap would be funded.
Page 45 of 78
Figure 7-8 –Residual Interest Capital Cost Absorption Charges (full cost)
Residual Interest Year
1
£’000
2
£’000
5
£’000
10
£’000
20
£’000
30
£’000
Annual cost @ 6% 4 13 45 115 363 877
Cumulative cost @ 6% 4 18 119 544 2,910 9,057
7.53 Whilst the value at handover will ultimately be determined by the District
Valuer there is potential that the building could be handed over in Estatecode
Condition B standard. A sensitivity has been modelled on the basis that the
value on handover is only 38% of the initial cost. The results of this are
shown in Figure 7-9.
Figure 7-9 –Residual Interest Capital Cost Absorption Charges (38% cost)
Residual Interest Year
1
£’000
2
£’000
5
£’000
10
£’000
20
£’000
30
£’000
Annual cost @ 6% 2 5 17 43 137 333
Cumulative cost @ 6% 2 7 45 207 1,105 3,442
7.54 Impact of the introduction of 3.5% rate of return
7.55 In January 2003 HM Treasury published a new edition of The Green Book –
Appraisal and Evaluation in Central Government.. Revised interim guidance
under HDL(2003)13 has recently been issued to cover the specific
requirements of the new green book and comes into effect from 1 April 2003.
7.56 The revised guidance alters the procedures for appraisal and evaluation in
health. One of the key changes introduced under this guidance is a revised
discount rate of 3.5% for economic appraisal of options. In line with the
guidance as the project has reached Invitation to Negotiate (ITN) prior to 1
April 2003, previous guidance should continue to apply. There is therefore no
requirement as part of this FBC to adopt the new guidance.
7.57 VAT Treatment
7.58 The Trust has appointed specialist advisers Liaison VAT Consultancy Limited
to ensure that the Trust can maximise the benefits it can receive in relation to
VAT treatment of the scheme. These advisers are part of the Trust‟s
negotiation team that is progressing the project to financial close.
7.59 Conclusions from the Financial Appraisal (Affordability Analysis)
7.60 The conclusions reached from the affordability analysis is that the scheme is
broadly affordable when comparing Canmore‟s tariff against the updated PSC
resource envelope (exclusive of the impact of residual interest). There is some
further scope for improving the affordability position in the likely event that
the agreed senior debt interest rate at financial close is lower than the modelled
rate of 5.3% which included a 0.5% buffer.
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7.61 Economic Appraisal (Value for Money Analysis)
7.62 The purpose of the value for money analysis is to rank the Options, in terms of
their relative Value For Money (VFM). The VFM is measured by the Net
Present Value (NPV) or Net Present Cost (NPC) of the scheme, or for projects
with different life spans, by the Equivalent Annual Cost (EAC). The EAC is
calculated by dividing the NPV by the cumulative discount factor, for the
relevant period of time.
7.63 All relevant actual cashflows are taken into account and consequently indirect
taxes such as VAT and non-cash financial items such as capital charges are
excluded. The time-value of money is taken into account by the use of an
appropriate discount rate. For real cashflows this discount rate is 6%. In any
one year the discount factor to be applied is given by the following formula:
DFn = 1 / ( 1 + r )n
Where;
DFn is the Discount Factor for year n
r is the appropriate discount rate (in this case 6%)
n is the year
7.64 Nominal cashflows are deflated by 2.5% to give real cashflows (i.e base year
price level), which is then discounted at 6%, in line with current Treasury
guidance. The project that has the lowest NPV and/or EAC is deemed to
deliver the best Value For Money.
7.65 The evaluation has been carried out in accordance with the Scottish Capital
Investment Manual (incorporating interim capital planning guidance issued in
NHS HDL (2002) 87), HM Treasury‟s “Appraisal and Evaluation in Central
Government” (“The Green Book”), and the guidance on PFI from the Scottish
Executive Health Department (SEHD) Private Finance and Capital Unit.
7.66 The costing methodology has been developed with the involvement at all
stages of our advisers and where appropriate, employees and advisers have
worked together to quantify the financial effects of the options being
modelled.
7.67 Description of Assumptions Made for Economic Appraisal
7.68 All the expenditure and income cash flows represent only those directly
related to the project.
7.69 The cash flow analysis must also include an assessment of the cash flows
related to risk. This is because under the PFI option some risks (or parts
thereof) are borne by Canmore and not the Trust. The transfer of these risks
has an economic value to the public sector that must be reflected in the
analysis. The Trust undertook a detailed risk assessment to identify the value
and timing of the risks under the two options. The methodology behind this
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process is detailed in Section 7.79. The financial results of the risk evaluation
are incorporated in the value for money analysis.
7.70 Key assumptions are shown in Figure 7-10.
Figure 7-10- Key Assumptions for Economic Appraisal
Category Assumption Option
Price base Prices are based on 2002/03 Both
Time period The analysis has been carried out over both 33 and 60
year periods. Thirty three years is the life of the
concession, excluding construction. Sixty years is the
deemed useful economic life of the building. This is
therefore the relevant evaluation period for the asset.
Both
Capital,
lifecycle and
FM costs
The capital, lifecycle and equipment costs for the PSC
have been provided by the Trust‟s design and technical
advisors, STRATEGEM Consultants.
PSC
MIPS index The capital cost has been calculated at a FP MIPS
index of 383. This has been updated from the OBC
level of 325 to reflect capital construction inflation.
PSC
Unitary
Payment
The PFI model presents a year 0 Unitary Payment of
£1,685 expressed at 1 March 2003 price base. This
has been updated to 2002/03 outturn prices for
comparability purposes. This value is £1,689k.
PFI
Discount
Factors
Discount factors are calculated using a discount rate of
6%. This is the standard Treasury rate used for all
public sector economic appraisals.
Both
Transfer
payments
Transfer payments e.g. VAT have been excluded from
the analysis. To the extent that VAT is not recoverable
by Canmore, this will be reflected as a cost within
their model, and will flow through to the Unitary
Payment. However, from the Trust perspective all
VAT is excluded from the analysis.
Both
7.71 VFM Results
7.72 The results of the Net Present Cost (NPC) and Equivalent Annual Cost (EAC)
analysis are summarised in Figure 7-11 and 7-12. Further details of the risk
analysis is provided in section 7.83. A detailed breakdown of the NPC and
EAC calculations can be found in the financial appendices.
Figure 7-11 - NPC analysis
33 year analysis 60 year analysis
Net Present Cost PFI PSC PFI PSC
£’000 £’000 £’000 £’000
NPC of project cashflows 20,185 18,829 21,199 19,499
NPC of retained risk 3,965 5,911 4,805 6,751
Risk-adjusted NPV of project 24,150 24,740 26,004 26,250
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Figure 7-12 - EAC analysis
33 year analysis 60 year analysis
Net Present Cost PFI PSC PFI PSC
£’000 £’000 £’000 £’000
EAC of project cashflows 1,325 1,236 1,235 1,136
EAC of retained risk 269 400 280 394
Risk-adjusted EAC of project 1,594 1,636 1,515 1,530
7.73 The analysis shows that the PFI option asset offers both the lowest NPC and
the lowest EAC, and therefore best Value For Money, over both the contract
period and the economic life of the building.
7.74 The preferred solution (the PFI solution) demonstrates better Value For
Money than the PSC because, whilst the individual cost elements of the PFI
solution are not significantly cheaper than the Public Sector Comparator
equivalents, the overall quantum and timing of costs, taking into account the
significant amount of risk assumed by the private sector, delivers a better
overall package than a publicly funded route.
7.75 Description of the quantification of costs and benefits included in the
appraisal
7.76 The costs and benefits in the appraisal include all the relevant cash flows
associated with the project, and the cash-value of the risk transferred to the
private sector. Cash flows that have been excluded from the assessment
include those that effectively represent flows from one government department
to another, such as VAT and capital charges.
7.77 Sensitivity Testing of VFM Analysis
7.78 In common with the work undertaken as part of the affordability analysis, the
Trust has carried out sensitivity analysis to assess the impact on project VFM
of movement in senior debt in interest rates prior to financial close.
7.79 The results are summarised in Figure 7-13 and Figure 7-14
Figure 7-13 - Sensitivity of NPC to Interest Rate Reductions
Rate
33 year analysis 60 year analysis
NPC
£’000
Reduction on Base
NPC
NPC
£’000
Reduction on Base
NPC
£’000 % £’000 %
Standard model 5.3% 20,185 21,199
0.25% reduction 19,842 343 1.7 20,852 347 1.6
0.50% reduction 19,718 467 2.3 20,728 471 2.2
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Figure 7-14 - Sensitivity of EAC to Interest Rate Reductions
Rate
33 year analysis 60 year analysis
EAC
£’000
Reduction on Base
EAC
EAC
£’000
Reduction on Base
EAC
£’000 % £’000 %
Standard model 5.3% 1,325 1,235
0.25% reduction 1,303 22 1.7 1,215 20 1.6
0.50% reduction 1,295 30 2.3 1,208 27 2.2
7.80 The sensitivities modelled illustrate that the VFM position would improve if
interest rates were below 5.3%. Canmore‟s model currently assumes a base
interest rate of 4.8% plus a prudent buffer of 0.5%. As stated earlier the base
rate prevailing on 24 April 2003 was 4.92% which is 38 base points below the
rate currently adopted in the model..
7.81 Summary
7.82 The results of the VFM analysis indicate that the PFI solution offers better
overall value for money when compared to the PSC over both 33 and 60 year
appraisal periods. The base case incorporates a significant buffer to protect
the Trust against interest rate movements prior to financial close. Based on
prevailing rates at the time of completing the FBC there is the potential that
the overall VFM could be improved from the baseline position set out. This is
supported through sensitivity testing.
7.83 Risk Analysis
7.84 Overview
7.85 In order to carry out a valid comparison of overall cost between the PSC and
the PFI proposals, the value of risk inherent in the project is valued. The party
bearing that risk is identified and the overall cost of the PSC and PFI options
are adjusted by value of the risk borne under each.
7.86 A detailed risk valuation exercise was undertaken by the Trust and its advisers,
using SEHD guidance, identifying a range of risks present during the design,
construction and operational phases of the project. Probabilities of these risks
being realised were computed, along with an assessment of the likely impact,
to produce an overall forecast value of the risk.
7.87 The total value of risks identified in the project is £6.751 million. Of this sum,
it was determined that the private sector will bear £1.946 million of this under
the contractual arrangements that will apply, with the Trust retaining £4.805
million. The Value For Money analysis in section 7.71 is based on a PSC
adjusted by this risk value as compared to the PFI proposals. Further details of
the quantification and allocation of risk is provided in section 7.95.
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7.88 Risk Allocation
7.89 The objective of performing a risk analysis is to enable a more complete
assessment of the total relevant cost of the options under consideration. It is
used within the Value For Money analysis to show which option demonstrates
the best Value For Money, and also forms the basis for the assessment of
accounting treatment.
7.90 Our treatment of risk is based on the PFI guidance “Public Private
Partnerships in the National Health Service: The Private Finance Initiative”.
This guidance splits the project risks into ten broad categories and these
categories are subdivided into individual risks. The ten categories are:
Design Risks
Construction and Development Risks
Availability and Performance Risks
Operating Costs Risks
Variability of Revenue Risks
Termination Risks
Technology and Obsolescence Risks
Control Risks
Residual Value Risks
Other Project Risks
7.91 For each risk an expected value was derived based on a three-point analysis
and an assessment was made of the likely proportion that would be retained.
The expected values were extrapolated over the period to which they pertained
and discounted at 6% (refer Value For Money Analysis for a description of
discounting technique). Monte Carlo simulation was then conducted to derive
Net Present Values (NPVs) of the risks. For the PFI proposal it was assumed
that the risk profile for the PSC could be used as a proxy to extend the analysis
for the PFI to 60 years, to provide the most appropriate like-for-like
comparison.
7.92 The risk quantification group consisted of the Trust FM and operational
managers, technical advisers, and financial advisers.
7.93 The risk analysis contains the following information:
Risk reference number
Risk name
Risk description
Range of possible outcomes (minimum, medium, maximum)
Likelihood of occurrence (minimum, medium, maximum)
Expected value of total risk
Percentage risk retained under PSC
Percentage risk retained under PFI
Start and end years
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7.94 The risk matrix shows which party is responsible for managing which risk
(public sector, private sector, or shared). Details of the risk analysis can be
found in the financial appendices.
7.95 Quantitative Risk Analysis
7.96 The results of the discounted cashflow appraisal of risk indicate that a
significant proportion of the risks under the PFI option are assumed by the
private sector, whereas under the public sector comparator (a traditional
develop and construct contract) the Trust retains more of the risk. This
satisfies the principle that risk should be borne by the party best able to
manage and control it.
7.97 The comparative NPVs of the risks under the two options are detailed in
Figure 7.15.
Figure 7-15 – Comparison of Project Risk NPV
Net Present Value (simulated
values)
33 year analysis 60 year analysis
PFI PSC PFI PSC
£’000 £’000 £’000 £’000
NPV of project risks
- Retained 3,965 5,911 4,805 6,751
- Transferred 1,946 1,946
Total 5,911 5,911 6,751 6,751
7.98 The net present value of the Unitary Payment under the PFI contract (60 year
base case analysis) is approximately £21.2 million. This gives an overall risk
transfer of 9.2% calculated as:
Risk transfer = NPV (risk transfer) divided by NPV (Unitary Payment)
7.99 Figure 7-16 provides a breakdown of the risks retained by the Trust for each
category of risk. Further details can be found in the financial appendices.
Figure 7-16 - Risks Retained by the Trust
Risk Category
NPV over 33 year analysis NPV over 60 year analysis
PFI PSC PFI PSC
£’000 £’000 £’000 £’000
Design 36 152 36 152
Construction and Development 143 801 143 801
Availability and Performance 2 335 93 425
Operating Cost 425 1,128 617 1,320
Variability of Revenue 3,263 3,287 3,820 3,845
Termination 0 0 0 0
Technology and Obsolescence 0 0 0 0
Control 0 0 0 0
Residual Value 0 0 0 0
Other Project 96 208 96 208
Total 3,965 5,911 4,805 6,751
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7.100 As the table clearly shows, the majority of the risk transfer is associated with
the design, construction, performance and operating cost risks. As expected,
significant risk transfer comes from:
placing the onus on the operator to correctly interpret the output
specification for the building;
responsibility for time and cost overruns being assumed by the operator;
responsibility for the performance and availability of the facility being
assumed by the operator;
exposure to incorrect estimates for FM and lifecycle being assumed by
the operator.
7.101 Switching Point Sensitivity
7.102 The NPVs of the project risks in Figure 7-16 are based on the expected value
of the risks (i.e. the statistical mean based on the assumed size of risk,
likelihood of occurrence and distribution across the possible range of
outcomes).
7.103 To assess the overall reasonableness of the risk transfer, the switching point
i.e. the point at which the PSC becomes better overall VFM than the PFI, has
been calculated. This would indicate that the risk transfer under the PFI
contract would have to fall from 9.2% to 8.0%.
7.104 Summary
7.105 Whilst it is true that this scheme is relatively small in capital value and
contains only hard FM services, and that both these factors tend to indicate
less risk transfer, nevertheless the overall level of risk transfer to the PFI
provider appears to be is appropriate in light of the overall nature of the
project.
7.106 At this stage the Project Agreement has not yet been finally agreed and
therefore each risk identified in the risk register has not been linked to clauses
or schedules in the Project Agreement. Once this is closer to agreement then
individual risks will be linked to the Project Agreement.
8 Summary of the contract structure
8.1 This project has been progressed primarily using the Standard Form Contract
documentation issued by the NHS Executive as last updated in October 2000
and recommended for use by the Scottish Executive Health Department in
Scottish PFI/PPP projects.
8.2 The following is a diagram showing the legal relationships between the
various parties in the project.
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CONSTRUCTION PHASE OPERATING PHASE
Trust
Project Co
Construction
Contractor
Hard FM
Contractor
Funder
Direct
Agreement Direct Agreements
The Parties:- Trust: Lomond & Argyll Primary Care NHS Trust Project Co: Lochgilphead Healtcare Services Limited Construction Contractor: Balfour Beatty plc Hard FM Contractor : Parsons Brinckerhoff Funder: Bank of Ireland
Page 54 of 78
8.3 The following is a summary of the main provisions of the contract agreement,
the position reached on the key issues and a note of those matters still
outstanding.
The principle applied in this project was to adhere to the terms of the Standard
Form Project Agreement with project specific matters being incorporated
through bespoke drafting. Given this principle, it is not intended to set out the
terms of the Standard Form documentation in detail where they have been
adopted without material change.
The Standard Form Contract documentation has been departed from only in
the following respects:-
1. Payment Mechanism – the Standard Form Payment Mechanism
currently in use throughout the UK has not been adopted for this
project. Instead a payment mechanism has been specifically drafted for
this project. The payment mechanism provides for deductions from the
Monthly Service Payment in the event of failures in Availability and
Performance. Detailed criteria for determining Unavailability have
been established and are set out in the Payment Mechanism.
2. Energy Costs - it has been agreed that all energy costs and property
rates will be paid directly by the Trust. Project Co are obliged to design
and construct the Facility in such a way as to meet the energy
consumption and effeciency targets set out in the Trust‟s
Requirements. In the event that the Trust reasonably believes that these
targets are not being met, the parties will carry out a test of the energy
consumption under controlled conditions and agree a remedial plan to
be undertaken by Project Co if appropriate.
3. Composite Trader Tax Treatment – it is proposed that this tax
treatment not be adopted in this project at the outset. However, in the
event that Project Co do successfully achieve this status at a later date,
they will undertake to pass 100% of the net benefit to the Trust.
4. Market Testing- as only hard FM Services are to be provided by
Project Co, it is agreed that these shall not be market tested and all the
provisions on market testing have been deleted.
The following project specific matters have been addressed:-
1. Equipment - Project Co will supply an agreed list of Groups 2 and 3
Equipment at the Payment Commencement Date. Thereafter Project
Co will have no further responsibility for repair, maintenance or
renewal of Groups 2 and 3 Equipment.
2. Demolition of Existing Hospital – The actual completion date shall
occur on completion of the new Facility but prior to demolition of the
existing Mid-Argyll Hospital which demolition works form part of the
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Construction Requirements. It has been agreed that demolition must
be completed by a set date, failing which liquidate and ascertained
damages will be paid by Project Co. No agreement as yet reached as to
the amount of L & A damages or the basis upon which they are to be
recovered by the Trust, ie payment by Project Co or set-off against the
Service Payments.
9 Accounting Treatment
9.1 Introduction
9.2 The purpose of this section is to demonstrate that the scheme will be off
balance sheet. The principle guidance upon which this assessment will be
based is the Treasury Taskforce Technical Note No 1 (Revised) (July 1999).
This prescribes a process by which a NHS organisation should follow in order
to ascertain the accounting treatment of a scheme in relation to whether to
follow the alternative approaches set out by Accounting Standards SSAP 21
Accounting for Leases and Hire Purchase Contracts and FRS5 Reporting the
Substance of Transactions.
9.3 There must be a written indication from the Trust‟s external auditors that they
have no objection to the proposed accounting treatment of the project. (See
Note for Guidance 96/6 published by the Accounts Commission or any
subsequent Note for Guidance published by Audit Scotland.)
9.4 Status of Scheme
9.5 It is important to note that the payment mechanism outlined in the Project
Agreement forms a part of the off balance sheet assessment. Since, the
calibrated payment mechanism has only just been agreed, Secta have not had
the opportunity to complete its off balance sheet assessment and present it to
the Director of Finance. However based on Secta‟s experience of similar
schemes, Secta would anticipate that that this scheme should be off balance
sheet on the basis a robust calibrated payment mechanism as agreed.
10 Project Management Arrangements
10.1 This section provides a summary of the steps that are being taken to ensure
that the implementation of the project is managed effectively through financial
close to service commencement and through the lifetime of the partnership
agreement.
10.2 Project Management Structure
10.3 Board/Steering Group
10.4 This Group will:
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Work with the consortium to monitor and manage the risks retained
by the Trust and shared with the consortium.
Agree equipment schedules, budgets and specifications in
accordance with the consortium‟s programme.
Oversee delivery of the benefits realisation plan
Oversee the commissioning of services and equipment.
Monitor progress against the construction and equipping
programmes regularly, normally on the basis of exception
reporting.
Be satisfied that appropriate steps are being taken if problems are
identified.
Demonstrate a visible commitment to the project, ensuring that the
project is actively promoted throughout the NHS Argyll and Clyde.
Commission the post project evaluation and ensure that its
conclusions are reported to the NHS Argyll and Clyde Board.
Agree and oversee the implementation of structures and processes
for working in partnership with the consortium to ensure effective
and uninterrupted use of the facility provided.
Oversee the development and implementation of detailed
operational policies that embrace the principles set out in the ITN
and output specification.
10.5 Project Director
10.6 NHS Argyll and Clyde uses the principle of identifying an individual
Executive Director to lead projects. The Project Director for this project will
be Mr R Arbuckle – Acting Head of Service. Once the Project Steering
Group has approved the Business Case, this Executive Director will be given
full responsibility for the delivery of the project as Project Director.
10.7 The role of the Project Director is key to the successful outcome of the project.
10.8 He will:
Manage NHS Argyll and Clyde‟s interest in the project, including
the co-ordination of user‟s interest and the production and
agreement of operational policies and commissioning programmes.
Monitor the project to minimise any construction and
commissioning time overruns
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Ensure that the clinical service is delivered according to the project
commissioning programme and the clinical service costs identified
in the final business case.
Ensure that arrangements are in place for controlling and
accounting for the use of the facilities for services provided by
third parties.
Act as the point of contact in all dealings with the consultants,
contractors, and other external organisations involved in the project
and provide all decisions and directions on behalf of the NHS
Argyll and Clyde.
Be aware of the business objectives and corporate management
structure as it relates to the project.
Ensure that adequate communications channels exist between the
project and external organisations and the project and the NHS
Argyll and Clyde.
Ensure that procedures are in place to involve users at all phases of
the commissioning and mobilisation of health and social care
services to be provided from the facility.
Liaise with and formally report to the SEHD on contract progress.
Ensure that the project is completed and handed over to the NHS
Argyll and Clyde in a managed way.
Arrange the post completion evaluation of the project.
Demonstrate commitment to the project and promote the benefits
that it will bring.
10.9 Project Manager
10.10 Mr S Whiston – Head of Planning & Performance will act as Project
Manager with responsibility for carrying out the day to day management of the
project. He will report directly to the Project Director.
10.11 The Project Manager will ensure that systems are in place to control and
manage the project, in particular, time and NHS Argyll and Clyde‟s revenue
costs, to monitor the execution of the construction and equipping of the
building by the consortium, and to make regular reports to the Project
Director.
10.12 The Project Manager will be responsible for the day to day management,
including execution of the Project Director‟s responsibilities for
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commissioning and mobilisation of the operational services to be provided
from the new facility, and co-ordination of the Project Team.
10.13 Project Team
10.14 A Project Team has already been created and has provided much of the input
to the development of the outline business case and this full business case.
10.15 The Project Team includes:
Mr R Arbuckle – Acting Head of Service
Mrs J Stojak – General Manager
Dr M Simpson – Clinical Director
Mr S P Whiston – Head of Planning and Performance
Mr S Wilson – Estates Manager
Mrs S Greer – Head of Service/Community Care
Mrs J Bett – Locality Manager
Mr J Barnett – Clinical Manager, Mental Health
Mrs A McNichol – Social Services Manager
Mrs J Gill – Directorate Manager, VOLDGH
Mr A Smith – Social Services Manager Argyll and Bute Council
Mrs K Murray – Public Member
The Very Rev. R Flatt – Public Member
Ms K Grunewald – Partnership Forum Representative
Mr R Lilly – Head of NES Service South West Division
Mr R Reynolds – General Manager, South West SAS
11 Benefits Assessment and Benefits Realisation Plan
11.1 The benefits expected from the project are:
Clinical Effectiveness
Accessibility
Effective and Efficient Delivery of Services
Flexibility for change
Acceptability
Quality of Physical Environment
11.2 Achievement of these benefits requires the preferred solution to achieve the
criteria listed as follows.
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Clinical Effectiveness
Enables good clinical practice
Enables specialities to cope with increases in workload
Good relationships between services/collaborative working
Maximizes patient/staff safety
Minimises disaster risk
Maximizes patient satisfaction
Accessibility
Easy Patient Access to a Wide Range of Health & Social Services
Easy Accessible location using public private transport
Adequate Car Parking Provision
Easy Access to Buildings for Disabled Patients
Effective and Efficient Delivery of Services
Promotes Effective and Efficient Working Practices
Minimizes Travel Distances/Times for Patients/Staff
Facilitates Efficient Support Services
Optimizes Use of Site, Buildings and Land
Flexibility for change
Building that can change in the future
Minimizes Constraints on Developing existing and New Services
Acceptability
Meets patients, families expectations
Demonstrates Positive Plans to Improve Service/Facilities
Promotes Good Staff Morale
Improves Retention & Recruitment of Staff
Quality of Physical Environment
Pleasant calm Environment conducive to healthcare/patient
wellbeing
High Quality Visual, Thermal and Aural Environment
Visual and Aural Privacy for Patients
11.3 These benefits have been used to evaluate the non financial benefits of options
at each stage of the project and this enables comparisons to be made between
the level of benefits delivered under the PSC and the proposal developed by
the PPP/PFI consortium. The formal of comparison of the PSC and the
PPP/PFI proposals were undertaken in a workshop with the project steering
group. The results of this workshop showed a difference of barely 5 per cent
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in the scores and support a conclusion that at that stage the two proposals were
equally capable of achieving an acceptable level of benefits. The decision in
favour of the PPP/PFI procurement route was mainly influenced at that stage
by its advantages in terms of value for money and affordability.
11.4 In this context the principle strengths (PPP/PFI as good or better than the PSC)
and weaknesses (PPP/PFI not as good as the PSC) of the PPP/PFI proposal as
compared with the PSC were:
Strengths
Good Relationships Between Services/Collaborative Working
Maximizes Patient/Staff Safety
Minimises Disaster Risk
Maximizes patient satisfaction
Easy Patient Access to a Wide Range of Health & Social Services
Easy Accessible location using public private transport
Minimizes Travel Distances/Times for Patients/Staff
Promotes Good Staff Morale
Improves Retention & Recruitment of Staff
Pleasant calm Environment conducive to healthcare/patient
wellbeing
High Quality Visual, Thermal and Aural Environment
Weaknesses
Enables Good Clinical Practice
Enables Specialities to cope with Increases in Workload
Adequate Car Parking Provision
Easy Access to Buildings for Disabled Patients
Promotes Effective and Efficient Working Practices
Facilitates Efficient Support Services
Optimizes Use of Site, Buildings and Land
Building that can change in the future
Minimizes Constraints on Developing existing and New Services
Meets patients, families expectations
Demonstrates Positive Plans to Improve Service/Facilities
Visual and Aural Privacy for Patients
11.5 In essence this suggested that at the ITN response evaluation stage the
PPP/PFI proposal met the criteria associated with the provision of a good
quality facility with the potential for design development to meet the criteria
associated with service modernisation. The consortium has since worked
closely with the managers from NHS Argyll and Clyde and local professional
staff to develop a design that is capable of matching or bettering the PSC
against all benefit criteria.
11.6 These benefits will be realised through the actions set out in the following
plan:
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Expected Benefit Action Required to Achieve the
Benefit
Performance
Measure
Lead
Responsibility
Clinical
Effectiveness
Develop and implement plans for
managed clinical networks
Waiting times for
first appointments/
inter service
referrals.
LHCC Clinical
Director
Develop and implement
integrated care pathways
Waiting times for
first appointments/
inter service
referrals.
LHCC Clinical
Director
Develop and implement policies
and systems for allocation of
shared clinical rooms
Utilisation rates. LHCC Clinical
Director
Develop and implement plans for
commissioning clinical services
Compliance with
commissioning plan
dates.
LHCC Clinical
Director
Accessibility Continue to develop and
implement plans for improved
public transport in collaboration
with service operators.
Complaints.
Results of periodic
patient satisfaction
surveys
Project Manager
Develop and implement policies
for the allocation of car parking
spaces
Complaints.
Results of periodic
patient satisfaction
surveys
LHCC Estate
Manager
Develop and implement patient
centred booking systems.
Waiting times for
admission/ first
appointments.
LHCC Locality
Manager
Develop and implement plans for
providing care closer to home and
using technology to improve
service access.
Telemedicine
activity.
In patient/ out
patient turnover.
New services
activity.
LHCC Clinical
Director
Effective and
Efficient
Delivery of
Services
Develop and implement detailed
operational policies that reflect
the general principles set out in
the output specification.
Complaints.
Unit costs of service
provision.
LHCC Locality
Manager
Flexibility for
change
Develop detailed operational
policies for clinical and support
services. (As above)
Ease of expanding
service/ absorbing
increases in
workload.
LHCC Clinical
Director/ LHCC
Locality Manager
Acceptability Maintain process for public
information and engagement
Uptake of services
provided.
Results of periodic
patient satisfaction
surveys
Project Manager
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Quality of
Physical
Environment
Work with the consortium to
develop strategies for creating an
attractive and welcoming
environment.
Results of periodic
patient satisfaction
surveys
Estates Manager
Work with the consortium to
develop standards of design and
workmanship through the detailed
design and construction stages
Availability of
accommodation.
Results of periodic
satisfaction surveys
Estates Manager Work with the consortium to
develop details of frequency of
servicing and testing of services
Work with the consortium to
develop detailed grounds
maintenance schedules
12 Risk Management Strategy
12.1 Details of plans for managing risks retained by NHS Argyll and Clyde which
might arise during the implementation of the project. This will cover all
potential risks retained by the public sector.
12.2 A review of potential risks to the project was undertaken through a series of
workshops with the Trust Steering Group. This review identified risks in the
following categories:
Design risks.
Construction and development risks.
Performance risks.
Operating cost risks.
Variability of revenue risks.
Termination risks.
Technology and obsolescence risks.
Control risks.
Residual value risks.
Other project risks.
12.3 The risks in each category were allocated to identify those that would be
managed by the public sector, managed by the private sector or shared. The
tables that follow identify the risks in each category that will be managed by
the public sector and the proposed risk management strategy.
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Design Risks
Risk
Heading
Definition Management Strategy Lead
Responsibility
Change in
requirements
of the NHS
Trust
The NHS Trust may require
changes to the design, leading
to additional design and
construction costs.
The design develop process has
been careful to consider the
need for flexibility in the
design. A number of
transferable and shared work
areas have been identified that
create significant flexibility in
the use of accommodation to
meet changes in service
requirements. NHS Argyll and
Clyde will use these features of
the broad design to ensure that
any changes do not disrupt the
detailed design process.
Locality
Manager
Change in
design
required due
to external
influences
specific to
the
NHS
There is a risk that the designs
will need to change due to
legislative or regulatory
changes specific to the NHS.
The design development process
has kept abreast of current
legislation and regulations and
anticipated changes (e.g.
decontamination of surgical
instruments). The design is
therefore an advanced one in
this respect. It also includes
construction and building
services design features that will
make changes easier and less
costly than other solutions.
NHS Argyll and Clyde will
work with the consortium to
ensure this where the need
arises in the detailed design
process. Any change involving
cost will be financed through
the NHS Argyll and Clyde
budget development process.
Estates
Manager
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Construction and development risks
Risk
Heading
Definition Management Strategy Lead
Responsibility
Unforeseen
ground/site
conditions
under the
footprint of
existing
facilities
Additional costs resulting
from where the private sector
is unable to carry
out necessary surveys prior to
commencing work because
facilities
are currently occupied.
Develop plans to vacate existing
accommodation on the site at
the earliest possible date.
Estate
Manager
“Compensati
on
Events”
An event of this kind may
delay or impede the
performance of the
contract and cause additional
expense.
Legislative/
regulatory
change:
NHS specific
A change in NHS specific
legislation/regulations,
leading to a change in the
requirements and variations in
costs.
The design development process
has kept abreast of current
legislation and regulations and
anticipated changes (e.g.
decontamination of surgical
instruments). The design is
therefore an advanced one in
this respect. It also includes
construction and building
services design features that will
make changes easier and less
costly than other solutions.
NHS Argyll and Clyde will
work with the consortium to
ensure this where the need
arises in the detailed design
process. Any change involving
cost will be financed through
the NHS Argyll and Clyde
budget development process.
Estates
Manager
Changes in
the rate of
VAT
Changes in the rate of VAT
may increase the costs of the
project. VAT
should generally be
refundable to the NHS Trust.
Maximise the opportunity for
claiming refunds and deal with
unavoidable increases through
normal budget development
processes.
Assistant
Finance
Director Other
changes
in VAT
Changes in VAT legislation
other than
changes in the rate of VAT
payable.
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Construction and development risks – continued
Risk
Heading
Definition Management Strategy Lead
Responsibility
Incorrect
time
and cost
estimates for
decanting
from existing
buildings
The estimated cost of
decanting from existing
buildings may be incorrect,
there may also be delays
leading to
further costs. Public sector
risk unless delays and cost
attributable to the private
sector operator.
Avoid risk by completing works
as early as possible. Provide
contingent funding for cost
variations through normal
budget management procedures.
Estate
Manager
Performance Risks
Risk
Heading
Definition Management Strategy Lead
Responsibility
Change in
specification
initiated by
procuring
entity
There is a chance that, during
the operating phase of the
project, the
procuring entity of the
services will require changes
to the specification.
A robust output specification
has been prepared. Mid Argyll
and the consortium will work
together to neutralise the cost of
any change. Unavoidable
increases in cost will be dealt
with through normal budget
development processes.
Estate
Manager
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Operating Cost Risks
Risk
Heading
Definition Management Strategy Lead
Responsibility
Incorrect
estimated
cost
of providing
specific
services
under
the contract:
at point of
market
testing
The cost of providing these
services may be different to
the expected
because of unexpected
changes in the cost of
equipment, labour, utilities,
and other supplies. This risk
would
be shared if the PFI contract
envisages that changes in cost
at the point of market testing
are shared between the
NHS Trust and the operator.
Mid Argyll and the consortium
will work together to neutralise
the cost of any change.
Unavoidable increases in cost
will be dealt with through
normal budget development
processes.
Estate
Manager
Legislative/
regulatory
change
having
capital cost
consequences
:
NHS
specific.
NHS specific changes to
legislation /regulations may
lead to additional
construction costs, and higher
building, maintenance,
equipment,
or labour costs.
The design development process
has kept abreast of current
legislation and regulations and
anticipated changes (e.g.
decontamination of surgical
instruments). The design is
therefore an advanced one in
this respect. It also includes
construction and building
services design features that will
make changes easier and less
costly than other solutions.
NHS Argyll and Clyde will
work with the consortium to
ensure this where the need
arises in the detailed design
process. Any change involving
cost will be financed through
the NHS Argyll and Clyde
budget development process.
Estate
Manager
Changes in
VAT
This may increase the cost of
the provision of services to
the NHS Trust. However
changes in VAT
are generally refundable to the
NHS Trust.
Maximise the opportunity for
claiming refunds and deal with
unavoidable increases through
normal budget development
processes.
Assistant
Finance
Director
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Operating Cost Risks - continued
Risk
Heading
Definition Management Strategy Lead
Responsibility
Incorrect
estimated
cost
of providing
clinical
services
The cost of providing clinical
services may be different to
the expected. These costs
include: staff, recruitment,
training, equipment, and
supplies.
Continue service redesign and
development of new ways of
working to increase service cost
effectiveness and absorb
inflationary pressures that are
not matched by increased
income streams. Deal with any
unavoidable overall cost
increases through normal
budgeting processes.
Clinical
Director
Patient
infection –
other
Patient infection caused by
staff employed by and
controlled by the
procuring body. This risk may
lead to increased treatment
costs, and, possibly, legal
costs.
Deal with through normal
clinical risk management
processes.
Clinical
Director
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Variability of Revenue Risk
Risk
Heading
Definition Management Strategy Lead
Responsibility
Changes in
the
size of the
allocation of
resources for
the provision
of health care
There is a risk that the
resources allocated to the area
are reduced or
increased. If such changes do
occur, there may be a need to
re-scale the provision of
services.
Seek additional income streams
or alternative uses of
accommodation.
Head of
Planning &
Performance
Changes in
the volume
of
demand for
patient
services
There is a risk that the volume
of demand for health care will
change,
because of changes in the size
of the catchment area. This
may occur
because there is, for example:
an unexpected increase in the
size of the
population, leading to an
increase in demand; or the
provision of a new
alternative provider health
care, leading to a reduction in
demand.
The flexibility built into the
operational policies and the
design will allow significant
increases in activity and in the
range of services to be made
available. Further expansion
capacity is also available. Any
costs associated with this would
be prioritised and funded
through the normal service
development process.
In the event of reductions NHS
Argyll and Clyde will seek
additional income streams or
alternative uses of
accommodation.
Head of
Planning &
Performance
Unexpected
changes in
medical
technology
Unexpected changes in
medical technology may lead
to a need to re-scale or
reconfigure the
provision of services. For
example, if the increase in day
surgery is greater than
expected, the total number of
required beds may fall.
The flexibility built into the
operational policies and the
design will allow significant
variations in activity and in the
range of services to be made
available. . Further expansion
capacity is also available. Any
costs associated with this would
be prioritised and funded
through the normal service
development process.
Head of
Planning &
Performance Unexpected
changes in
the
epidemiology
of the people
in the
catchment
area
Unexpected changes to the
epidemiology of the people in
the catchment area may lead
to a
reconfiguration or rescaling of
the provision of services.
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Termination Risks
Risk
Heading
Definition Management Strategy Lead
Responsibility
Termination
due to default
by the
procuring
entity
The risk that the procuring
entity defaults leading to
contract termination and
compensation for the
private sector.
In the event of default due to
loss of service need NHS Argyll
and Clyde would work with the
consortium to identify
alternative uses for the facility.
In the event of continuing
service need alternative revenue
streams would be sought.
Head of
Planning &
Performance
Technology and Obsolescence Risks
Risk
Heading
Definition Management Strategy Lead
Responsibility Technological
change Technical changes may cause
the NHS Trust to revise its
output specifications.
A robust output specification
has been prepared. Mid Argyll
and the consortium will work
together to neutralise the cost of
any change. Unavoidable
increases in cost will be dealt
with through normal budget
development processes.
Estate
Manager
Control Risks
Risk
Heading
Definition Management Strategy Lead
Responsibility
Control of
clinical
services
The NHS Trust retains control
of clinical services which
means that it retains
significant control of the
nature of the services
provided by the operator
Develop policies that ensure
that the consortium‟s
obligations are not diluted by
the clinical needs of services
provided.
Locality
Manager
Residual Value Risks
None of the risks in this category is retained by the public sector.
Other Project Risks
None of the risks in this category is retained by the public sector.
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13 Post Project Evaluation Plan
13.1 The consortium will agree with NHS Argyll and Clyde detailed programmes
for developing the detailed design of the new facility, for building and
equipping it and for its technical and operational commissioning. During the
detailed design and construction period NHS Argyll and Clyde will receive
regular reports from the consortium on progress against the agreed
programme.
After service commencement NHS Argyll and Clyde will undertake
evaluations of the project, the facility and resultant changes in service delivery.
The evaluation of the project will be carried out within 6 months of the
completion of the building. This evaluation will focus on the processes of
project management to test the extent to which that they have secured value for
money, an appropriate balance of risk between the Trust and the Consortium
and project decisions that are consistent with the interests of the Trust and the
public sector overall. The ongoing monitoring of the project throughout the
design, construction and initial service operation periods will inform this
evaluation.
Eighteen to twenty four months after service commencement NHS Argyll and
Clyde will carry out an evaluation of the facility and the services that it is
delivering. The conclusions of this evaluation will be considered in public by
the NHS Board and reported to SEHD. The purpose of the evaluation will be
to complement both the project evaluation and the routine periodic monitoring
of the performance of services in Lochgilphead and will focus on:
An objective assessment of the achievement of the benefits
expected from the project.
A review of new services provided from the facility and their
impact on accessibility for patients.
Public opinion about the success of the project.
Staff satisfaction.
Financial performance.
An assessment of the impact of the new facility on referrals to
DGH services in Oban, Alexandria and Glasgow.
The occurrence of risk and the performance of the consortium and
NHS Argyll and Clyde in the management of risk.
The performance of the consortium as a provider of serviced
accommodation.
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Over the longer term NHS Argyll and Clyde will review the impact that the
project has had on improving the health of the population.
14 Information Management and Technology Strategy
14.1 Lomond and Argyll Primary Care NHS Trust Strategy is being developed to
reflect the National Strategy for IM&T. As such it is aimed at the need for
NHS Scotland information systems to reflect the patients need for co-
ordination and excellence in the service they receive.
14.2 Trusts have therefore been directed to produce Local IM&T plans whose aim
is to raise the level of information and communications technology support
available to clinical teams and patients to a level that provides real support for
the care process. Further NHS IT systems should look to extend the reach of
such systems to other caring agencies such as social work under agreed
clinical and professional protocols and with informed patient consent.
14.3 National and Local work programs are to be established under three headings
to make progress on these aims. These are:
Support for Direct Patient Care
Establish the Community Health Index (CHI number) as the unique tag for
NHS Scotland communication by march 2003 This will ensure that for patients
there is an assured and rapid means of transmitting and assembling
information at the point of care.
Clinical Information systems are provided supporting the broad range of
clinical specialists which support national care priorities within primary
care/community/mental health and acute secondary care, for integrated NHS
care and for interagency care. The interface for these systems will be the
continuation of the Scottish Care Information (SCI) program as an integrated
program of IM&T developments aimed at delivering products and standards
across Scotland. These products will support clinical communication between
primary, community and secondary care and will therefore serve as a basis for
the Electronic Patient Record (EPR) and Electronic Health Record (EHR). For
the patient this means that their health care worker has access to legible and
structured information about their needs and treatment advice on their
condition.
Providing Information
This requires information to be delivered in new ways and through modern
systems. This is focused on providing access to information on the desk top, in
the surgery, in the outpatient clinic, at the bedside and on the move.
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Patients, their carers and the public will have access to accredited information
and guidance to help to stay healthy, avoid illness and cope with their
conditions. Access to reliable information will help to enable greater
involvement of patients in their care.
Clinical staff will have electronic access to the latest knowledge, evidence
base and clinical guidelines for improved decision making and professional
development
Underpinning this access to information will be maintenance of Patient
confidentiality and patient rights to be assured of the security of their
information and systems and processes must be in place to ensure this.
Developing the necessary Infrastructure
Ensuring that the underpinning IM&T infrastructure is in place, e.g.
Workstations with telecommunications in appropriate locations for all
appropriate staff.
Equally as important is ensuring that the underpinning people issues including
appropriate IM&T support and training for NHS staff and HR policies that
address recruitment and retention of specialist IM&T staff.
13.4 New Mid Argyll Hospital
This project to achieve the Modernisation and Redesign of Primary and
Community Health and Social Care services in Mid Argyll has from its outset
focused on service redesign integration and whole system service provision
and this has led the building design and development process.
The New Mid Argyll Hospital project in Lochgilphead is undoubtedly the
model for future Health and Social care provision in not only remote rural
communities but also potentially fragile urban acute and primary health care
services.
It is focused on true integration and partnership bringing together Primary
Care, Community, Mental Health, Acute, Ambulance Services and Social
Service. This bringing together is not simply under one roof, but as an
integrated health and social care system providing fast and effective access for
patients and clients to health maintenance and ill health treatment services with
a focus on rapid intervention, treatment and rehabilitation.
The project embraces all National, Health Board and local policies and
objectives, significantly supports the future sustainability of clinical services
and by default rural communities.
The project meets the strategic agenda for Health Care as identified in “Our
National Health - A Plan for Action, A Plan for Change” and is also consistent
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with the publication from the Primary Care Modernisation Group “Making the
Connections - Developing Best Practice into common Practice, RARARI
report “ Solutions for the provision of Health Care in the remote and Rural
areas of Scotland in the 21st Century” and the Temple Report “Future Practice
– A Review of the Scottish Medical Work Force”.
13.5 New Service Models
The new service model developed as part of the FBC process focuses very
much on true integration between Primary & Community Care and Hospital
services.
There is a shared central reception housing medical records for Dental, GP,
Community hospital and AHP‟s. Clinical consulting accommodation will be
available for multiuse by different professions to maximise asset utilisation.
Clinical administration work will be housed within a number of open plan
rooms occupied by different professionals as and when the need arises
Practice Nurses and hospital nurses will be working side by side providing
triage and A&E and Nurse practitioner services.
There will be one-stop shops for patients for chronic disease management
seeing a multidisciplinary team for assessment, treatment, and ongoing review
in multi use/functional consulting rooms
Access to appropriate patient information, co-ordination of appointments
between services and agencies for transport provision and secondary care
services will require to be streamlined and available at one point to support
effective working to ensure seamless service provision to the patient.
The co-location of Social services into the same building offers significant
opportunities for closer and effective working re patient and clients whole care
needs. Therefore the opportunity to address not only the joint future agenda
but also future shared services re children, learning disability etc will also be
maximised. However, it is expected that over the next 3-5 years this service
will operate as a discreet and separate entity.
13.6 IM&T Implications
To truly support this way of working will require a review and streamlining of
paper based and IM&T systems for health service provision in the new facility.
Work has already commenced in bring the reception and admin staff from all
areas together to work through what the new model of care and service will
mean in practice to service operation and patient need.
Clinicians in all professions are very keen to utilise new Technology to
enhance the service they offer to patients and assist in measuring clinical
service performance and effectiveness. In addition the opportunity to conduct
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needs analysis by having access to local epidemilogical information e.g.
morbidity will support service refinement and development.
Underpinning this must be a practical and effective IM&T network/system to
allow the professionals and support staff to concentrate on patient care
providing a first class service re patient/clients needs e.g. when they wish to
find information, access services and require health care.
13.7 Next Steps
A number of meetings have been held with service users and IM&T
professional including representatives from the SEHD over the last 6 months
to assess the service operation needs.
It is recognised by all users that an operational solution to support this
model/vision of integrated health service provision is not derived from IM&T
systems. It is developed from operational service need .
The Trust and locality will therefore complete a formal mapping exercise of
the existing service and overlay the requirements for the future service. To this
end the Trust will be commissioning a 6-month systems mapping project to
develop the operating systems for the new service by utilising consultant
expertise with extensive patient, user, IM&T and SEHD input.
The results of this exercise will be used to identify the operational system
requirement including IM&T solutions to implement the new service in April
2005. The Trust will be including within its development planning process the
identification of resources to implement the service systems/processes/staff
training/change management process required.
15 Equipment
15.1 The service to be provided by the consortium will cover:
The purchase, installation and commissioning, where appropriate,
of all NHS standard Group 1, 2, and 3 furniture and equipment for
all hospital specific needs, all hospital support needs and all
administrative and management purposes.
The delivery of the „Required Outcomes‟ relating to the initial
procurement of equipment detailed in the Output Specification and
consolidated into the contract.
Training for the use of certain categories of equipment provided at
service commencement.
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Liaison with Trust staff to ensure appropriate choice of furniture
and equipment is available to them.
Procurement of whole hospital type equipment which is not
normally associated with specific departments or rooms i.e.
wheelchairs, trolleys etc.
15.2 The Consortium will not be responsible for providing:
Group 4 equipment except window blinds, curtain tracks, curtains
etc.
Group 3 computers.
15.3 None of the Trust‟s existing equipment can be transferred into the new
hospital except the following items, which will be replaced by the Trust once
they have reached the end of their useful life:
A general purpose radiographic system.
The Trust‟s telemedicine equipment.
Medical records storage / racking system
15.4 The Consortium will be responsible for ensuring that the new facility is
capable of accommodating this existing equipment once it is ready to be
moved. To ensure that this is achieved the Consortium has given careful
consideration to the method to be used for transporting the equipment into the
new development, its sensitivity to excessive movement, its size and bulk and
its requirements for specialist technical commissioning procedures to be
carried out much earlier than normal equipment. Care has been taken in the
development of the design over the width and height of doors, loading
specifications for floors, the turning circles of the equipment and location of
engineering services. The responsibility for arranging and effecting its
removal will generally remain with the Trust.
15.5 At Service Commencement, i.e. following technical commissioning of the new
hospital, the Consortium will have provided a fully furnished and equipped
hospital with everything in place, tested and commissioned, and ready for use.
The specification of equipment to be provided at service commencement is
being developed between the Trust and the Consortium through joint
agreement of:
Room data sheets for each functional area to be provided in the
new building.
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Room layout drawings at 1:50 scale of jointly agreed exemplar
functional areas.
The specification and general suitability criteria of items costing
more than £1000.
The final schedule of equipment.
The overall operational commissioning strategy for all the
furniture and equipment and the technical commissioning details
for specialist equipment.
15.6 Throughout this process the Consortium has retained the risk and
responsibility for providing a fully furnished and equipped hospital to meet the
needs and demands of the Trust that is suitable for providing a modern and
efficient healthcare service to its patients at service commencement.
15.7 The replacement of Group 1 equipment will be the Consortium‟s
responsibility. The Consortium will not be responsible for the maintenance or
replacement of group 2, 3 or 4 equipment. By retaining responsibility for this
the Trust will retain flexibility to respond to technological and service
developments and to continuously improve ways of working.
15.8 Furniture or equipment that is identified as being damaged by the Consortium
will be repaired and / or replaced by the Consortium and will not be included
within the Trust‟s annual equipment budget expenditure.
15.9 The PPP/PFI Contract imposes an obligation on the Consortium for providing
all necessary information to enable the Trust to monitor the extent to which it
is fulfilling its responsibility for the furniture and equipment procurement
service. The payment mechanism within the contract exposes the Consortium
to payment deductions and Trust “step in” rights in the event of failure to meet
the defined performance standards relating to equipment for the practical
completion of the facility.
16 Personnel Issues
16.1 The numbers and mix of staff employed in the services provided from the new
facility will change radically. In all cases these changes involve increased
staffing to provide the extended range of services enabled by the new facility.
The main human resource challenges for NHS Argyll and Clyde are therefore:
Recruitment and retention of a skilled and motivated workforce to deliver
the high quality services that it will be able to offer from the new facility.
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Seeing through the change management process that has so far driven the
concept, high level operational policies and design of the new facility.
Alignment of terms and conditions for support staff.
Adoption of common working practices.
16.2 To achieve successful change management outcomes key staff will continue to
be involved in a process of developing detailed operational policies and
service commissioning plans that will be incorporated into the benefits
realisation plan described in section 11 of this FBC.
16.3 In line with the service commissioning plan NHS Argyll and Clyde will
actively promote the modernised service in order to attract the best staff.
Features of the service that it will particularly highlight are:
The broadening of the skill base of staff working in the service.
The focus on health maintenance, prevention of illness and the promotion
of independence.
A culture of continuous improvement seeking the provision of evidence
based services, delivering better outcomes for people using them through
quality assured processes.
The opportunity that staff will be given to continuously review and
develop their skills. The Human Resource Plan backs this up by making
provision for periodic formal skills assessment to identify priority
training needs and to inform the development of training plans. The first
of these is being carried out now in preparation for the commissioning of
new services.
The opportunity to pursue modern ways of working, with modern
equipment, using modern technology including telemedicine and tele-
radiology, in modern surroundings.
The encouragement of integrated multidisciplinary working between all
services and agencies using the facility.
The encouragement of flexible working practices and the provision of
high quality staff facilities.
16.4 The recruitment and retention plan will involve working together with other
agencies to identify partner skills and joint recruitment opportunities. It will
also incorporate back to work initiatives.
16.5 A process has been put in place to examine the differences between staff terms
and conditions and propose ways of aligning them.
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16.6 To prepare staff for the adoption of common working practices, NHS Argyll
and Clyde are launching a programme of organisation development events
including informal meetings, away days, job swaps, role assessment and job
redesign forums. This will followed through for all staff with an extensive
induction and training programme.
16.7 The Human Resource Plan is supported by the NHS Argyll and Clyde policy
on openness and communications. This policy has been demonstrated in
practice in the participative planning and formal consultation processes that
have been a feature of the management of the project to date. It will continue
to drive the way in which NHS Argyll and Clyde will work with its staff as
key stakeholders over the detailed planning and operation of the new facility.
16.8 None of the existing staff is transferring to the consortium and there are no
issues under TUPE for NHS Argyll and Clyde to resolve.
17 Conclusion
17.1 This FBC is based on a rigorous appraisal of the options available to the Trust
for delivering the required changes in service provision. A preferred option
has emerged from this process which will fully meet the Project Brief. This
option can be delivered through the PPP/PFI procurement route using the
private sector partner selected by the Trust following the European
Procurement Regulations Negotiated Procedure. This option provides best
value for money, is broadly affordable and enables the private sector partner to
bear significant risks associated with the project. The Trust is seeking
approval from the NHS Argyll & Clyde Board and the SEHD to the Business
Case and to authorise the Trust‟s partnership with Canmore Consortium to
progress to commercial and financial close.
18 Specific Statements to confirm:
18.1 Statements required from NHS Argyll & Clyde that the development fits with
the Local Health Plan, the Financial Plan, the Property Strategy and the
objectives of the NHS Board will be provided following the Board meeting on
12 May 2003.
Financial Appendices
Financial Appendices
