Project Report: Achieving Value for Money Surrey Outpatient

June 2009

Project Report:Achieving Value for Money

Surrey Outpatient Hospital

i Project Report: Achieving Value for Money – Surrey Outpatient Hospital Project

Purpose of this Document

In all of its procurement processes, including publicprivate partnership agreements, the Province iscommitted to a high standard of public disclosure toensure accountability. This report describes therationale, objectives and processes that led to theuse of a public private partnership, and the need forthe Surrey Outpatient Hospital project, giving thepublic a clear sense of how and why the decisionwas reached to proceed with that option. It explainshow value for money was measured and how it isexpected to be achieved in the context of currentmarket conditions. It compares key aspects of thefinal agreement to other options considered for theproject. It also describes the benefits of the projectas a whole.

For more on the Capital Asset ManagementFramework, go to www.fin.gov.bc.ca/tbs/camf.htm

For more on public private partnerships in B.C.,go to www.partnershipsbc.ca

This report was developed jointly by Fraser Healthand Partnerships BC and is based on PartnershipsBC methodology (for the calculation of value formoney). Partnerships BC in conjunction with FraserHealth, is responsible for the contents of this report,including the reasonableness of facts, assumptionsand professional opinions that have been presented.

Before entering into a public private partnership,Partnerships BC works with its clients to undertakean analysis of the value for money expected overthe life of the partnership. Value for money is abroad term that captures both quantitative factors,such as costs, and qualitative factors, such asservice quality and protection of public interests.

Value for money is one of six key principles guidingpublic sector capital asset management in BritishColumbia. The others are:

1. Sound fiscal and risk management;2. Strong accountability in a flexible and

streamlined process;3. Emphasis on service delivery;4. Serving the public interest; and5. Competition and transparency.

Since 2002, these principles have guided the BritishColumbia (B.C.) public sector’s approach toacquiring and managing assets such as bridges,roads and health care facilities. Ministries and otherpublic bodies, such as health authorities, areencouraged to consider all available options formeeting their service objectives. Under theProvince’s Capital Asset Management Framework,options are analyzed and, after considering thequalitative and quantitative advantages anddisadvantages of each, the one that overall bestmeets service delivery needs and makes the bestuse of taxpayers’ dollars is chosen.

In some cases, the best option may be traditionalprocurement – where assets are purchased entirelywith taxpayer supported finance and operatedexclusively by the public sector. In other cases,agencies may find innovative ways to meet theirservice needs without acquiring capital assets. Inall cases, agencies are publicly accountablethrough regular budgeting, auditing and reportingprocesses.

ii

Table of Contents

Purpose of this Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i

1. Executive Summary and Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

2. Project Background, Rationale and Objectives . . . . . . . . . . . . . . . . . . . . . . . . . .4

3. Competitive Selection Process and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

4. The Final Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

5. Ongoing Project Agreement Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

6. Project Benefits and Innovations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

7. Achieving Value for Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Appendix – Changes in the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

1 Project Report: Achieving Value for Money – Surrey Outpatient Hospital Project

1. Executive Summary and Highlights

In October 2005, Fraser Health developed a wide-ranging plan intended to meet the health care needsof Surrey and the surrounding communities – thefastest growing population in British Columbia (B.C.).The creation of a new outpatient hospital was a keyelement of the strategic plan, helping to relieve someof the congestion currently experienced at SurreyMemorial Hospital (SMH). The new Surrey OutpatientHospital (SOH) will be located in Green TimbersUrban Forest1, less than one kilometre from SMH,and will provide a range of outpatient servicesincluding day surgery, diagnostics and imaging(including MRI, CT, ultrasound and mammography),chronic disease, surgical and peri-natal outpatientclinics and other Fraser Health Regional Programs.

In developing plans for the SOH, Fraser Healthundertook extensive research to ensure that the newfacility will improve the way outpatient services aredelivered, with a focus on patient-centred care thatembraces the latest care delivery and technologytrends and is flexible enough to allow for change inthe future. Guiding principles include the efficientuse of resources, integrated care delivery andknowledge transfer and high environmentalstandards in the design and operation of the facility.Construction of the SOH is expected to becompleted by April 2011.

The SOH project will be delivered using the publicprivate partnership (PPP) delivery model. There areadditional project elements required to support theSOH that will be managed outside of the partnershipdelivery model. For example, the private partner willbe responsible for procuring medical equipment,based on the recommendation of Fraser Health, butmedical equipment will be financed outside of thepartnership agreement.

The total project cost is $239.1 million2, the capitalcost components being delivered through the PPP isfixed at $172.4 million, and the amount beingfinanced outside of the PPP (notably medicalequipment and IT equipment) is $66.7 million.

Procurement Decision

A thorough analysis of a variety of procurementoptions, including both traditional and partnershipdelivery models, showed project objectives andpatient needs can best be met by procuring theproject using a Design Build Finance Maintain(DBFM) approach. Under this procurement model,the successful proponent designs, builds, financesand maintains the facility.

Rigorous and FairSelection Process

A two-stage procurement process was employed toselect the winning proponent for this project. Thisincluded a request for qualifications (RFQ) and arequest for proposals (RFP) stage. Five teamsresponded to the RFQ and a short-list of threeteams, representing a range of B.C., Canadian andinternational experience in design, construction,facilities management services and financing, wereselected to participate in the RFP stage of thecompetition.

Following a rigorous assessment process, BCHealthcare Solutions, a consortium with anestablished record in delivering projects of thisnature, was selected as the preferred proponent.

A Fairness Advisor was engaged to monitor thecompetitive selection process and concluded thatthe process was fair, open and transparent. Reportsof the Fairness Advisor are available at:http://www.partnershipsbc.ca/files/project-fha.html

Partnership Agreement Highlights

Under the PPP agreement, BC Healthcare Solutionswill build a four-storey, 17,500 square-metreoutpatient hospital that includes retail space (forfood services and a commercial pharmacy) andparking. BC Healthcare Solutions will beresponsible for completing and commissioning thenew SOH by April 2011.

1 Located in Surrey at 140th and Fraser Hwy.2 The total project capital cost increased from when the project was first announced in 2007. The factors that led to this increase are described in Appendix 1.

2

The capital cost for the SOH elements beingdelivered under the PPP agreement is $172.4 million,with financing being arranged by BC HealthcareSolutions. Once construction of the outpatienthospital is complete, BC Healthcare Solutions willreceive an annual service payment (ASP) andpayments will continue for 30 years. The ASP iscomprised of three components:

• Repayment to BC Healthcare Solutions for thedesign, construction and financing of the SurreyOutpatient Hospital (facility capital);

• Funding for replacement and refurbishment ofbuilding elements (facility lifecycle); and

• Payment for facilities management services suchas physical plant maintenance and groundsmaintenance (facility management services).

Actual payments will be made monthly and will becontingent upon service performance, facilityavailability and service quality. Deductions will bemade for non-availability of the facility or failure toachieve defined service quality levels. For the firstyear of operations, the ASP payment is $17 million(Fiscal Year 2011/2012) assuming no deductions.

BC Healthcare Solutions will provide a range of non-clinical facilities management services (e.g. plantmaintenance). Fraser Health will continue to beresponsible for providing all clinical services, foodservices, portering, security and other miscellaneousservices.

Fraser Health will own the site and the facility.

Project Benefits and Innovations

The SOH will provide residents of Surrey andsurrounding communities with improved access tooutpatient services in a state-of-the-art health carefacility. The new outpatient hospital incorporateshigh-quality, culturally-sensitive, elder-friendlydesigns and best practices in global health care.

The new patient-centred facility will relocate anumber of services from SMH and will offer new andenhanced outpatient services. Highlights of thepatient-focused SOH include:

• A new 17,500 square-metre, four-storey facilitylocated less than one kilometre away from SMH;

• Expanded day surgery and diagnostic services,including six operating rooms and ten procedurerooms;

• Extensive space for ambulatory care clinicsincluding primary care;

• State-of-the-art medical equipment; • Improved service to outpatients;• Consolidation and location of services to benefit

patients; and• Underground and surface parking spots.

Highlighted design features and innovations include:

• A non-institutional feel, moving away from thetraditional hospital to a more patient-centred,modern, express service concept;

• Efficient patient flows through the facility, withintuitive way-finding to help patients access theirhealth services;

• Patient amenities including convenient accessand parking, the opportunity for electronic patientregistration, as well as pharmacy and retail outletsand access to attractive outdoor space;

• Flexibility for the future, includingmodular/moveable walls, wireless InformationTechnology (IT) capability, and mechanicalcapacity to allow for facility expansion;

• An innovative approach to pipes and ducts(located on the exterior of the building to provideinternal space flexibility); and

• An environmentally friendly, energy efficientbuilding designed to achieve Leadership inEnergy and Environmental Design (LEED) Goldcertification.

Risk allocation

One of the key advantages of a PPP is the allocationof risk to the party best able to manage it. Forexample, the public sector is better able todetermine whether the design of a hospital meets ahealth authority’s clinical functionality needs, and soretains that risk. Similarly, the private partner isbetter able to ensure the design will be cost-effective from an operational and maintenanceperspective over the facility’s lifecycle, and soaccepts that risk.


Achieving Value for Money

Value for money is a broad term that captures bothquantitative factors, such as costs, and qualitativefactors, such as service quality. Partnerships BClooks at a broad range of factors in determiningwhether a project offers value for money totaxpayers, including comparison of the finalagreement to other benchmarks – in this case, theexpected results of a hypothetical traditionaldelivery model (public sector comparator), and theexpected results of the actual partnershipdelivery model.

Working with Fraser Health, Partnerships BCanalyzed the net present cost of the project andcompared it to the estimated net present cost of therisk-adjusted public sector comparator. PartnershipsBC determined that the hypothetical net present costof the project procured using a traditional deliverymethod is an estimated $256.7 million. The finalagreement with BC Healthcare Solutions has a netpresent cost of $234.2 million. In financial terms,the final agreement is expected to achieve valuefor taxpayers’ dollars of $22.5 million.


4

2. Project Background, Rationale and Objectives

Project Background and Rationale

Fraser Health is one of the largest health authoritiesin Canada, providing a full continuum of health careservices to nearly 1.5 million people (one third of theprovincial population) in communities within ageographic area that stretches from Burnaby in theLower Mainland, to Boston Bar in the Fraser Valley.Projections for population growth in Fraser Healthare significant. Fraser Health’s population isexpected to increase by 7 per cent3 to reach 1.89million residents by 2020, which will account for 40per cent of the total B.C. population. By 2031, thepopulation will have increased to 2.17 million people.

Within this region, Fraser South (Surrey, Delta,Langley and White Rock) is the fastest growing areaand is expected to account for approximately 45 percent of the Fraser Health population growth by2020, adding approximately 180,000 people. Inparticular, the Surrey Local Health Area (LHA) willcontribute nearly 28 per cent of the total FraserHealth growth (around 111,000 people).

In 2005, recognizing the considerable challengesfacing the Surrey LHA, Fraser Health developed aplan for relieving the increasing congestion at SMHand for effectively meeting Surrey’s health careneeds in the foreseeable future. In response, FraserHealth launched the Surrey Health ServicesCapacity Initiative. The recommendations from theinitiative were set out in the “Building for the Future”report, presented to government in October 2005.The creation of a new outpatient hospital was a keyrecommendation in the report.

The SOH will be located in Green Timbers UrbanForest, less than one kilometre away from SMH. Thefacility will provide a full range of scheduledoutpatient services, including day surgery,diagnostic imaging, medical clinics and other FraserHealth Regional Programs. Clinics for patients withchronic diseases such as congestive heart failure,asthma, diabetes and other debilitating illnesses willalso be co-located with the new outpatient hospital.

Approximately 450,000 visits to the new outpatienthospital are expected by 2011, rising to 600,000 by2020. The facility is expected to play a valuablerole in addressing congestion issues at SMH, andby providing significant new health care capacityfor the future for the residents of Surrey.

The SOH project will be delivered using the DesignBuild Finance Maintain (DBFM) partnership deliverymodel, financed through contributions from FraserHealth and the Ministry of Health Services.

Project Objectives

The SOH project provides the opportunity to builda state-of-the-art outpatient hospital that willincorporate the latest innovations in health carefacility management. Fraser Health has identifiedsix core principles that have guided planning for thefacility to-date, with a view to establishing effectivecare delivery models, clinical support and design atthe new facility. These principles will continue to beat the forefront of thinking as the facility is built, andas plans are made for Fraser Health to provideclinical services.

The core principles are:

1. Patient-Centred: The facility should facilitate thedelivery of patient-centred care that seeks tooptimize the overall experience of patients andtheir families;

2. Forward-thinking (Future-oriented): The facilityshould be designed to accommodate future caredelivery trends, technologies and service needs;

3. Efficient Use of Resources: The facility shouldbe designed to maximize the value of eachhealth care dollar spent in design andconstruction and after service commencement;

4. Integrated Care Delivery and KnowledgeTransfer: The facility should facilitate theinvolvement of all appropriate care providers inthe diagnosis and treatment of patients andfacilitate access by care providers to completeand timely health information;

3 Source PEOPLE 31, 2006.


5. Optimized Health Outcomes (Better Health):The design of the facility should promote healthlifestyles and optimize health outcomes forpatients; and

6. Strives for Excellence (Best in Health Care):The facility should facilitate excellence in clinicaland support services and a healthy workplaceenvironment.

The Project Scope

The full scope of the project includes a new 17,500square-metre outpatient hospital that will bedesigned to achieve LEED Gold certification.Facility services and amenities will include:

• Expanded day surgery and diagnostic imagingand labratory services, including six operatingrooms and ten procedure rooms;

• New state-of-the-art medical equipment thatincludes one MRI scanner, two CT scanners, ashelled-in space for a future second MRI, andother diagnostic and treatment equipmentincluding radiology, bone density, ultrasound,mammography, nuclear medicine and cardiacdiagnostics machines;

• Extensive space for clinics, including: o Chronic disease such as asthma and diabetes; o Peri-natal; o Surgical clinics;o A breast health program that will provide

significantly faster diagnosis for patients; ando A urology clinic for patients dealing with

conditions such as kidney stones and prostatehealth.

• A primary care area that will provide clinics forseniors and for people living with chronicdiseases or with HIV/AIDS;

• Improved service to outpatients throughconvenient access and faster turnaround times.Features include one-stop appointmentscheduling, a streamlined admission anddischarge process enabling informationtechnology and teams of multi-disciplinary healthprofessionals for patients with complex careneeds;

• Consolidation and location of services focusingon the patient experience to create opportunitiesfor more efficient use of resources;

• A facility atrium which includes provision for retailspace for a commercial pharmacy, food and retailservices, education and meeting space andinformation areas; and

• More than 600 parking spaces, including bothunderground and surface parking.

The total project cost is $239.1 million, the capitalcost components being delivered through the PPP isfixed at $172.4 million, and the amount beingfinanced outside of the PPP (notably medicalequipment and IT equipment) is $66.7 million.

Public Health Care Delivery

All medical and clinical services will continue to beprovided under the universal, publicly-funded healthcare system, consistent with the Canada Health Act.Patients will use their Care Card just like in everyother public health care facility, and will not pay forhealth care services that are medically necessaryand covered by the Medical Services Plan.

Procurement Options Analysis

As part of the procurement planning process, andconsistent with the Capital Asset ManagementFramework, several traditional procurement deliverymodels, as well as a range of public privatepartnership procurement delivery models, wereconsidered. These options included:

• Construction Management to a GuaranteedMaximum Price: The public sector engages anarchitect to refine a concept design. Aconstruction contractor is competitively selectedto work with the architect to develop the detaileddesign, project budget and schedule. Theconstruction contractor then conducts pricecompetitions to secure subcontractors, and toprovide the public sector with a guaranteedmaximum price;

6

• Design Build: The public sector providesperformance requirements and seeks multipledesign and build proposals. A fixed price ProjectAgreement is entered into and payments aremade over the course of construction;

• Design Build Finance with Take-Out Financing atSubstantial Completion (DBFT): The public sectorcompetitively selects a design and constructioncontractor. The contractor is responsible fordesigning and building the facility and providesthird party (non-recourse) financing duringconstruction. At substantial completion, thepublic sector pays down the financing providedby the private partner;

• Design Build Finance Maintain with Take-OutFinancing at Substantial Completion: This modelis similar to DBFT, but the partner includes amaintenance provider to address lifecycle andhard maintenance requirements associated withthe facility; and

• Design Build Finance Maintain: The public sectorowns the project but seeks multiple proposals toengage a partner to design, construct, financeand maintain the facility for a specific periodof time.

The procurement options analysis concluded thatthe Design Build and DBFM models both offeredadvantages according to a number of criteria.Taking into account all the evidence, the DBFMmodel was judged to provide the strongest overallvalue for money to the taxpayer, would best deliverthe outpatient hospital on time and on budget, andmeet Fraser Health’s procurement goals andobjectives. In March 2007, the Province approvedfunding for the project to proceed as a PPP under aDBFM model.

As part of the DBFM process, the owner providesperformance (output) specifications and invitescompetitive proposals to design, build, finance andmaintain the asset. An annual service payment ispaid on a regular basis to the private partner,subject to the availability and performance of theasset. ASPs begin only after the asset has been

constructed, meets all specifications, and isavailable for use, thus providing a strong incentivefor the private partner to finish on schedule.

Under a DBFM, the private partner isresponsible for:

• Designing, building and commissioning thefacility;

• Arranging the project financing for the partner’sportion of the capital cost;

• Providing facilities management services (e.g.housekeeping) and lifecycle maintenance; and

• Meeting defined hand-back requirements at theend of the project term.

Partnership Delivery Model

The partnership delivery model is designed tocapture the strengths of both the public and privatesectors, recognizing that private companies havealways played an integral role in delivering publicinfrastructure such as bridges, highways andhospitals. Partnership agreements build on thathistory and clearly delineate areas of responsibilityfor both sectors over the life of a long-term,performance-based agreement. The partnershipdelivery model has successfully been used todeliver health care and transportationinfrastructure projects in B.C.

A PPP can provide better value for taxpayers’dollars, transfer risk to the private sector and addvalue through design and private sector innovationfor projects with certain attributes. It ensuresgreater accountability for performance becauseongoing payments by the public sector areconditional on the private partner continuouslymeeting performance standards.


3. Competitive Selection Process and Results

Objectives

The competitive selection process had the following key objectives:

• Select a qualified, experienced partner to finance, design, build, maintain and operate facilitiesmanagement services for the SOH project;

• Implement a fair, timely and competitive procurement process; and• Achieve value for money.

A two-stage procurement process was employed to select the winning proponent for this project. Thisincluded an RFQ stage and an RFP stage.

The members of the each short-listed team invited to participate under the RFP processare listed in the table below.

The RFP invited the proponents to submit proposals to design, build, finance and maintain the SOH project.A draft Project Agreement was issued with the RFP; during bilateral/collaborative discussions proponentshad the opportunity to identify issues or provisions for amendment. These collaborative discussionscovered three broad areas: design and construction, legal/commercial and facilities management.

RESPONDENT

BC HealthcareSolutions

Infusion Health

Plenary Group

LEAD DESIGN

Kasian ArchitectureInterior Design andPlanning Ltd.

Stantec

B+H Architects/CEI Architects

CONSTRUCTION

Joint Ventureformed betweenBouygues BâtimentInternational andBIRD Construction

VanbotsConstruction Inc.

PCL ConstructorsWestcoast Inc.

FINANCING

HSBC InfrastructureFund ManagementLtd., BouyguesConstruction, DepfaBank plc. (Advisor)

• Bilfinger Berger BOT

• John LaingInfrastructure

• Plenary Group(Canada) Ltd.

• Deutsche Bank AG

FACILITIES

• Ecovert FM Ltd.

• Helios Group

Black and MacDonald

Johnson Controls LP

8

PROCUREMENT STAGE

Request forQualifications (RFQ)

Request for Proposals(RFP)

Selection of PreferredProponent

Project AgreementFinalization

Project Development toCompletion

OUTCOME

The project was marketed locally, provincially andnationally. Submissions from five respondents wereevaluated and three short-listed teams were announcedMay 9, 2007: • BC Healthcare Solutions• Infusion Health • Plenary Health

Two of the three proponents submitted proposals (InfusionHealth withdrew from the competition as one of their keyteam members was not in a position to continue and couldnot be replaced).

After evaluation of the proposals, BC Healthcare Solutions

was selected as the preferred proponent.

A Project Agreement was signed by Fraser Health and BCHealthcare Solutions.

Detailed design and construction commences on the SOHproject, with delivery expected as indicated.

TIMING

March 21, 2007 toApril 19, 2007

September 17, 2007 toMarch 10, 2008

May 23, 2008

Financial close achievedAugust 28, 2008following negotiationsbetween the project teamand BC HealthcareSolutions. A Project Agreement wassigned by Fraser Health andBC Healthcare Solutions.

August 28, 2008 toApril 2011

RFP Process and Evaluationof Proposals

Fraser Health appointed an Evaluation Committee,with the assistance of topic-specific EvaluationTeams, that evaluated proposals using theevaluation criteria and the evaluation procedure asset out in the RFP. The Evaluation Teams consistedof individuals with specific expertise who wereselected based on their ability to assist theEvaluation Committee with the evaluation.

There were four broad categories of evaluationcriteria:

• Design and Construction;• Technical;

Below is the outline of the competitive selection process and the timeline of key steps in the process.

• Commercial and Financial; and• Facilities Management.

Evaluation Teams were assisted by individualtechnical experts who were appointed by theEvaluation Committee to provide critical technicaladvice. These technical experts specialize in avariety of industry specific areas, including:architecture, structural, civil, mechanical, electricaland geotechnical.

Following a rigorous evaluation process, theEvaluation Committee issued a reportrecommending BC Healthcare Solutions as thepreferred proponent. This recommendation wasapproved by Fraser Health’s Board of Directors.


Fairness Advisor

A Fairness Advisor, John Singleton Q.C., monitoredall evaluation activities and completed a fairnessreport that was presented to Fraser Health’s Boardof Directors prior to final ratification.

In the report, the Fairness Advisor noted that, “Allthe members of the Evaluation Team were veryalert to their responsibility to make the processrobust, fair and transparent and in my view theynot only met but exceeded the obligation placedon them to achieve those ends.”

Project Agreement Finalizationand Financial Close

Among the significant accomplishments of the SOHproject is how expeditiously the Project Agreementwas completed, taking just over seventeen monthsfrom the RFQ issue date on March 21, 2007 toFinancial Close on August 28, 2008.

Competitive Selection Costs

The cost of the competitive selection process isfactored into the value for money analysis. The totalcompetitive selection cost for the SOH project fromapproval of the business case to Financial Close is

$6.8 million, including partial compensation to theunsuccessful proponent ($250,000). Othercompetitive selection expenses include the cost ofdeveloping output specifications, preparingprocurement documentation, obtaining advice fromexternal advisors and preparing a project report.

Procurement Best Practices

As a centre of PPP procurement expertise,Partnerships BC continues to develop bestpractices. Partnerships BC continually transfersknowledge and experience gained from pastprojects to others, to improve efficiency and quality,and to streamline and expedite the procurementprocess to save time and money for the publicsector. Partnerships BC is represented on thesteering committees to provide PPP expertise andapplication of PPP best practices. For example, theuse of certain procurement documents across healthcare projects, including the SOH project, hasresulted in the reduction of certain procurement-related costs. Procurement expertise is shared withongoing knowledge transfer between projects invarious sectors.

10

4. The Final Project Agreement

Final Project Agreement Cost

The project capital cost of the SOH, to be deliveredusing the partnership delivery model, is fixed at$172.4 million.

Profile of Private Sector Partner

BC Healthcare Solutions offers a blend ofinternational PPP experience and local deliverycapability. Bouygues Bâtiment International,HSBC Infrastructure Fund Management Ltd. andEcovert FM, the consortium’s sponsors, have workedclosely together in the PPP market for 10 years andhave been successful on 11 projects, the majority ofwhich are in the heath care sector. The consortiumhas completed construction of four hospitals abroad.

Bouygues Bâtiment International is a subsidiary ofBouygues Construction, one of the largestconstruction and services provider in the world.Bouygues Bâtiment International is a network of localsubsidiaries, active in 20 countries, specialized in alltypes of complex projects: private and publichousing, office developments, hotels, schools,airports, industrial plants and leisure facilitiesBouygues Bâtiment International is involved in allstages of the project from inception to operationsand its expertise in design and construction isapplied to all types of contracts, whether as generalcontractor, design and build contracts, concessionsor public private partnerships.

HSBC Infrastructure Fund Management Ltd. is along-term investor in infrastructure projects and hasmore than 10 years of investment experience in PPPprojects and the infrastructure sector globally.Through the funds that it manages, HSBC hasinvested in more than 50 projects, including 20health care facilities.

Senior debt will be provided by a lending group ofbanks – Dexia Credit Local S.A. is a European bankwith more than 36,500 employees in 39 countries,including a branch in Canada where it has ledvarious major infrastructure financings over the pastthree years. DEPFA Bank is a leading provider of

financial services to the public and infrastructuresectors and has participated in financing more than200 infrastructure projects globally; and, Bank ofIreland is a diversified financial services groupheadquartered in Dublin, established in 1783 byRoyal Charter and today has approximately 16,000employees group-wide. It is the largest Irish bank bytotal assets and a highly rated Irish listed financialinstitution.

Bird Design-Build Ltd. opened its first operation in1998 in Seattle, Washington. Today BirdConstruction is a leading general contractor in theUnited States and Canada. Services includeDesign/Build, Construction Management, Pre-Construction Services and PPPs. Bird’s Canadianhead office is located in Toronto, Ontario and thecompany has an office in Richmond, B.C.

Kasian Architects is a global architecture andinterior design firm with nearly 400 staff across eightoffices in Canada, Asia and the Middle East. Kasianprovides design solutions for education, recreational,public and health care facilities, transportationinfrastructure, corporate offices, and hospitality andretail environments. The Western Canada office islocated in Vancouver, B.C.

Ecovert FM is a subsidiary of ETDE, a member ofthe Bouygues Construction group that specializes innetworks, mechanical and electrical engineering andFM services. Ecovert FM operates within the UK andin other overseas markets, primarily in thehealthcare, education and central governmentsectors. With a team of 1,600 staff, Ecovert FMprovides total facilities management servicesthrough direct service delivery to a range of publicand private sector clients.

Helios Group has been offering managementservices for customers since 1981 in the municipal,institutional, commercial and industrial sectors. TheHelios Group and its subsidiaries activities includewater and wastewater treatment, energy productionand facilities management fields. Their headquartersare located in Montreal, Quebec.


Key Terms of the Project Agreement

Agreement StructureThe private sector partner has incorporated a single purpose entity, BC Healthcare Solutions, to enter intothe Project Agreement and undertake the project. BC Healthcare Solutions is responsible for the entire costof the design, construction, operations and lifecycle maintenance of the SOH facility as defined in theProject Agreement. BC Healthcare Solutions has been granted an exclusive license to undertake theconstruction of the project, and then a non-exclusive license to provide the services as defined in theProject Agreement.

The organization chart below depicts the relationship between the signatories to the final ProjectAgreement.

Design and Key FeaturesBC Healthcare Solutions is responsible for allaspects of the design, construction andcommissioning of the new facility. Projectdeliverables for SOH include a new four-storey,17,500 square-metre outpatient hospital withoperating rooms, procedure rooms, clinics andpublic amenities. The design ensures a clearseparation of patient, visitor and service flows whileincorporating therapy and support services,convenient access and parking arrangements andexcellent flexibility for the future.

Refinancing: In the event BC Healthcare Solutions refinances theinitial senior debt amount (except in a limitednumber of specified circumstances, the purpose ofwhich, in broad terms, is to ensure the continuanceof the project rather than to receive a financialbenefit), the resulting gain will be shared on a 50-50basis between the public and private sectors. Thisalso applies where equity is converted to senior debton more favourable terms to those in place atfinancial close.

Fraser Health

Province of B.C.Funding Partner

Bank of IrelandSenior Debt

DEPFASenior Debt

Dexia Credit Local S.A.Senior Debt

BCHS Healthcare (Surrey)Limited Partnership

Bouygues Bâtiment InternationalEquity Investor

ETDEEquity Investor

HSBC Infrastructure Mgt.Equity Investor

Bird Construction LtdDesign & Build

Bouygues Bâtiment International

Helios GroupFM Services

ETDE Facility Management Canada (Ltd)FM Services

Design & BuildJoint Venture

FM JVETDE Facility Management HSO (Ltd)

PROJECTAGREEMENT

Bouygues British Columbia

12

Construction ScheduleBC Healthcare Solutions is responsible forcompleting and commissioning the new SOH byApril 2011.

OwnershipFraser Health owns the site and the SOH.

Facilities Management Services,BC Healthcare Solutions is required to providefacilities management services for the new facilitythroughout the term of the Project Agreement.

BC Healthcare Solutions is responsible for deliveringthe following facilities management services:

• Plant services;• Housekeeping and waste management services;• Help desk services; • Utility services; • Grounds maintenance;• Parking Management Services; and• Retail Management.

EquipmentBC Healthcare Solutions will be responsible for theprocurement, installation and commissioning ofmedical equipment for the facility; Fraser Health will,however, finance the purchase of the equipment andretain responsibility for the choice of specificequipment. Fraser Health will be responsible for themaintenance and the renewal of major medicalequipment, while BC Healthcare Solutions will beresponsible for the maintenance of some fixed andmedical support equipment. Additionally, BCHealthcare Solutions is responsible for theprocurement, installation and maintenance offurniture in the facility.

Term of the ContractThe Project Agreement term is 32.5 years. Thisincludes a construction period and 30 years ofoperation from service commencement scheduled tobe April 2011. The contractual expiry date remainsfixed regardless of when service actuallycommences – that is, construction delays reducethe operating period while early delivery extends theoperating period. At the end of the term, thefacilities must be of the standards specified in theProject Agreement.

Performance-Based Payment PrinciplesOnce construction is complete and occupancypermits are in place, Fraser Health is responsible forpaying BC Healthcare Solutions ASPs for 30 years.Fraser Health is responsible for making monthlypayments to BC Healthcare Solutions based onperformance, facility availability and service quality.BC Healthcare Solutions’ performance will becontinuously monitored throughout the operatingperiod based on key performance indicators, andFraser Health may make deductions from themonthly payments if the Project Agreementstandards are not met.

Payment deductions are based on the severity ofthe failure, the importance of the areas affected andtheir degree of availability. For example, if anincident occurs that requires cleaning in a high riskfunctional area within a specified period (whichcould be 10 or 20 minutes depending on the level ofurgency), and the clean-up is not performed asrequired, a deduction of $3,000 could occur.

Adjustments to PaymentsASPs may be adjusted to reflect specificcircumstances as defined in the Project Agreement,including:

• Indexation: The capital component of the annualservice payment will not be indexed. Thefacilities management services component of theASP is indexed by Consumer Price Index (CPI)with periodic calibration to the market throughbenchmarking or market testing.



• Benchmarking and Market Testing: Every sixyears the costs of certain services will becompared against the market cost of procuringthose services. The method of this comparisonmay be a benchmarking exercise, or may involvea re-tendering of those services by BCHealthcare Solutions depending on the quality ofthe performance of those services in thepreceding six years. Changes in the cost ofthose services following this process will bereflected in an amended ASP.

• Variations: If Fraser Health requires BCHealthcare Solutions to make a physical changeor amend the services, Fraser Health can eithermake a lump sum payment, or have the cost ofthe change financed. If Fraser Health chooses tohave the change financed, the cost will bereflected in an amended ASP. The mechanismfor developing and determining the cost of avariation is set out in the Project Agreement.

• Change in Law: If there is a discriminatorychange in law, the ASP may be amended to leaveBC Healthcare Solutions in no better or worseposition than if that change in law had notoccurred.

• Compensation Events: If an event occurs thatwarrants compensation of BC HealthcareSolutions, the amount may be provided byadjustment to the ASP.

• Insurance: Insurance during the constructionand operational period will be placed with theProvince’s Health Care Protection Program.

Risk Allocation Summary

In projects that are procured using the traditionaldelivery model, the design, construction, operationsand maintenance are rarely integrated and as aresult, the public sector retains significant risk. Oneof the key advantages of the partnership deliverymodel is the sharing of the burden of risk. Forexample, the public sector is better able todetermine whether the design of the hospital willmeet the health authority’s clinical functionalityneeds, and so retains that risk. Similarly, the privatepartner will be better able to ensure the design willbe cost effective from an operational and

maintenance perspective of the facility’s lifecycle,and so accepts that risk. Some risks are shared,such as a relief event like an earthquake or flood.For every shared risk the Project Agreementstipulates how the risk will be allocated, for example,by providing thresholds for each party’sresponsibility for a certain risk. In the event of anydifference in interpretation of the risk allocation, thedispute resolution mechanism would apply.

The following table provides an overview of riskallocation for the project:

PUBLIC PRIVATERISKS RELATING TO: (FRASER (BC HEALTHCARE

HEALTH) SOLUTIONS)

Design and Construction �

Financing �

Schedule �

Maintenance �

Commissioning �

Lifecycle capital �

Geotechnical �

Systems and civil works integration �

Utility volume �

LEED Gold certification �

Ownership �

Program delivery/decision-making �

Legislative change �

Undisclosedenvironmental liability �

Demand for facility �

Clinical functionality �

Force Majeure � �

Relief event (e.g. fire) � �

Excusing event (e.g.police shut down facility) � �

14

This risk allocation is supported by the following provisions in the Project Agreement:

• Fraser Health begins making performance-based payments to BC Healthcare Solutions only when anindependent certifier confirms that the conditions for service commencement have been achieved;

• The expiry date of the Project Agreement is fixed, so any delays in completing construction will reducepayments to BC Healthcare Solutions, providing a strong incentive for timely completion; and

• Provisions are in place for payment reductions if BC Healthcare Solutions does not meet agreed uponstandards for facility operation and maintenance.

Financial Summary

The operating cost of the SOH in the firstyear is expected to be $119.4 million;approximately 84 per cent is the cost ofclinical health care and related supportservices provided by Fraser Health; theremaining 16 per cent represents the annualservice payment to BC HealthcareSolutions. This is illustrated in the chart(top right).

The graph (bottom right) demonstrates theanticipated ASP stream to BC HealthcareSolutions over the term of the ProjectAgreement. The graph is expressed innominal dollars, which assumes 2.5 percent inflation for facility managementservices. Payment projections assume nopenalties and no deductions.

Accounting Treatment

When the provincial government beganentering into PPP agreements, there waslittle in the way of guidance on appropriateCanadian accounting treatment for PPPs.The cost of the total contract was known;however, for accounting and reportingpurposes, it was unclear as to how much ofthe total project cost should be allocated tocapital cost and how much towardoperating expense.

Previously, reporting on the capital cost of PPPs focused on construction costs as the means of allocatingthe contract amount between capital costs and operating expenses. The Office of the Comptroller General,responsible for the overall quality and integrity of the government’s financial management and controlsystems, has established accounting guidelines for PPP projects which clarify that the costs allocated tocapital must also include items such as interest during construction and project management costs. Thetotal project value of $239.1 million reflects this accounting treatment.

PROJECTED COST OF FIRST FULL YEAR - $M

THOUSANDS OF DOLLARS

$25,000

$20,000

$15,000

$10,000

$5,000

02012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

COMPONENTS OF ANNUAL SERVICE PAYMENT (NOMINAL DOLLARS)

FACILITIES MAINTENANCE COMPONENT LIFECYCLE COMPONENTCAPITAL COMPONENT

Fraser Health Clinical and Support $100.44

Fraser Health Partner Facility $18.93


5. Ongoing Project Agreement Monitoring

The Project Agreement with BC Healthcare Solutionsincludes checks and public interest safeguards toensure project delivery, performance and highquality standards. Monitoring spans every phase ofthe project, from Financial Close through design andconstruction, and operations and maintenance overthe term of the agreement. There are a number ofmajor phases in the project-monitoring schedule,with roles and responsibilities assigned to projectparticipants at each stage.

Self Monitoring by the Partner

The Project Agreement is designed to motivate thepartner to ensure delivery, performance and highstandards of quality given the monetaryconsequences of not achieving these requirements.

Design and Construction Phases

The Project Agreement stipulates that Fraser Healthwill designate a design representative and aConstruction Representative. These representativeshave authority to act on behalf of Fraser Healthduring the design and construction phases of theproject, and to review, approve, accept or confirmBC Healthcare Solutions activities, in accordancewith the Project Agreement. Fraser Healthrepresentatives will have full access to theconstruction site, drawings and specifications, andreport their observations to Fraser Health. Inaddition, an Independent Certifier monitors andreports upon construction progress and will providecertification that the conditions for servicecommencement have been achieved.

Operations andMaintenance Phase

The Project Agreement stipulates that Fraser Healthmust assign a representative to serve as a memberof the Operating Period Joint Committee over the30-year term of the partnership. The committee is aformal forum where parties consult and cooperateon all matters related to the facility during theoperational term.

Long Term ProjectAgreement Review

Partnerships BC will work with Fraser Health and theMinistry of Health Services to design a process forreviewing the Project Agreement at appropriateintervals such as five, 10 and 15 years from the startof operations. The review process will enable theProvince to establish whether the Project Agreementis functioning as intended, and whether theexpected benefits have been realized.

Role of Project Team

Fraser Health has established a Project Teamresponsible for leading project oversight andmonitoring efforts. An experienced Project Officer,along with experts in design and construction,clinical services, facilities management services,and technical requirements, will work in the ProjectOffice. The Project Team is responsible for reportingto an executive steering committee on all aspects ofthe SOH project.

16

6. Project Benefits and Innovations

The design and construction specification for theSOH was informed by evidence-based literature andresearch that was undertaken as part of the SurreyHealth Services Capacity Initiative. The designprovided by BC Healthcare Solutions offers manybenefits and innovations for Fraser Health. It isexpected that the resulting facility will supportFraser Health by realising their six core principlesestablished as objectives for the facility. The coreprinciples, and corresponding benefits of BCHealthcare Solutions’ design, are outlined below.

A Patient-CentredOutpatient Hospital

Concepts for the outpatient hospital have alwaysincluded the provision of high-quality, culturally-sensitive, elder-friendly design, and decisions takenalong the way have reflected these principles.

Some of the highlighted patient-focused features ofthe SOH are:

• The facility will have a non-institutional feel,moving away from the traditional hospital feelingto a more patient-centred, modern, expressservice concept;

• The facility will support superior patient flowsthrough the facility, with logical and intuitive way-finding and shorter travel times for patients andtheir families;

• The facility will offer significant patient amenitiesincluding well thought out atrium space,pharmacy, retail food outlets and accessibleattractive outdoor space;

• The design will optimize views and natural light;• The facility will include a non-denominational quiet

space; and• The facility will support convenient access

including well designed roads and circulation,provision for public bus access, taxi spaces anddrop off bays, Fraser Health shuttle bus accessand significant parking capacity (600 spaces,including both surface and underground parking).

A Forward-thinking (Future-oriented)Outpatient Hospital

During the planning and procurement of the facility,significant emphasis was placed upon futureflexibility, realising the fast-changing nature of healthcare, as well as Surrey’s increasing population. Thedesign for the facility is very flexible in terms ofmodels of care, technology and potential for futuregrowth. Some highlighted features are:

Future Care Delivery Trends

• As well as excellent patient flows, the facilityoffers superior work flow for staff and supplies;

• Consideration for infection control issues;• Most departments exceed the size suggested in

the functional program, offering greater flexibilityfor programs for the future; and

• The design meets the key design principles setout in the design and construction specifications.

Technologies

• Modular/removable walls will allow easyreplacement of medical equipment such as MRI;

• Wireless IT capabilities will allow the facility toadopt electronic health advances as they arise;and

• Mechanical systems are designed toaccommodate future expansion.

Efficient Use of Resources

Planning for the facility recognized the need tomaximize the value of each health care dollar spent,both during the development of the facility andduring its operational use. In addition, the need forefficient use of human resources is imperative,recognizing increasing pressures on the availabilityof sufficient clinicians and allied support workers.The facilty design supports efficient staff and supplyflows and patient intake systems, and will bedesigned to achieve LEED Gold certification andmeet energy efficiency requirements. Thesefeatures all speak to the opportunity for moreefficient use of resources in this new facility.


Integrated Care Delivery andKnowledge Transfer

The facility is designed to enable the involvement ofall appropriate care providers in the diagnosis andtreatment of patients and facilitate access by careproviders to complete and timely health information.BC Healthcare Solutions carefully consideredclinical adjacencies and patient/staff workflows, aswell as the provision of information technology tofacilitate integrated care delivery. In addition, theatrium/public space includes education space.

Optimized Health Outcomes(Better Health)

The facility should facilitate excellence in clinicaland support services and a healthy workplaceenvironment. The BC Healthcare Solutions designsupports these goals.

The outpatient hospital will be built on a greenfieldsite, in an urban forest. Efforts have been made todesign the hospital in such a way that it willpreserve trees, foster views of green spaces, andprovide a welcoming environment around thehospital for patients and staff. Some of thehighlighted environmental features of the SOH are:

• The building will maximize the use of sustainablebuilding products and furnishings, and be energyefficient; and

• There will be public access to green space thatsurrounds the facility.

An Outpatient Hospital that Strivesfor Excellence(Best in Healthcare)

The facility design will allow for excellence in clinicaland support services delivery and a healthyworkplace environment. As well, the facility has aninnovative and forward-thinking design that allowsfor future expansion. The BC Healthcare Solutionsdesign supports these goals.

Facilities Management Services

Facilities management services are a further keyfeature of the SOH project, meaning the privatepartner is responsible for managing physical plantmaintenance for the whole site, includinghousekeeping, and waste management, retailmanagement services and parking services.BC Healthcare Solutions will provide a helpdesk thatwill coordinate and respond to the needs of thefacility’s users. Physical plant maintenance is acritical component of the partnership because itensures the private partner is accountable for theprovision of physical plant maintenance and relatedservices for the facility, and for constructing andmaintaining the facility in accordance with theProject Agreement.

18

7. Achieving Value for Money

Value for money is a broad term that captures bothquantitative factors such as costs, and qualitativefactors such as service quality. Partnerships BClooks at a broad range of factors in determiningwhether a project offers value for money totaxpayers, including comparison of the finalagreement to other benchmarks – for this project,the expected results of a hypothetical traditionaldelivery model, and the expected results of theactual partnership delivery model.

Financial value for money is the difference betweenthe net present cost of the ASPs that will be paid toBC Healthcare Solutions over the life of the ProjectAgreement and the expected net present cost of thecapital cost, facility management and operatingcosts, lifecycle maintenance costs and transferablerisk costs included in the reference project.

Based on the above, it was determined that the netpresent cost of the SOH project deliveredtraditionally is an estimated $256.7 million. The finalProject Agreement with the private partner, BCHealthcare Solutions, has a net present cost of$234.2 million. In financial terms, the finalagreement is expected to achieve value fortaxpayers’ dollars of $22.5 million.

The significant factors in creating this value formoney include efficiencies from competitiveconstruction pricing, integrating the design, buildand finance teams and efficient transfer of risk.

The net present cost figures above were developedusing a discount rate, which represents the costs ofcapital over time taking into account factors such asinflation and interest rates. The discount rate usedfor the calculation of value for money is 7.5 per cent.Sensitivity analysis of the discount rate showed thatthe net present cost of the Project Agreement wouldhave been approximately $16.2 million less than thatof the public sector comparator if the discount ratewas 50 basis points lower, and about $28.3 millionless if the discount rate was 50 basis points higher.

FinalAgreement PSC

Development Period Costs, IncludingRetained Risks $149.2

Operating Period Costs includingretained Risk - $52.5

Public Sector Procurement Costs $9.3 $4.7

Tax and Insurance Adjustment - $3.3

Land Acquisition and SiteDevelopment Cost $1.3 $1.3

IM and Equipment Costs $47.5 $45.7

ASP Payment to BC Healthcare Solutions $174.7

Retained Risk During Development Period $0.4

Irrecoverable GST $1.0

Total $234.2 $256.7

Cost Differential $22.5

Percentage savings from PSC 8.8 per cent

Below is a table that describes the net present costcomparison. All numbers are in millions of dollars.


Qualitative Benefits

As a result of the robust and competitive process toselect a private partner to deliver the SOH project,there are a number of additional qualitative benefitsthat contribute to achieving value for money. Theseadditional benefits are summarized below:

• The facility has an innovative forward-thinkingdesign that allows for future expansion:o Duct/pipe riser shafts are located on the

exterior of the facility providing significantgreater flexibility, adaptability and futureexpandability for the facility, a significantinnovation over traditional health facilitydesigns;

o The design includes an excellent concept forexpanding the facility across the site, in anyfuture phases, minimizing disruption to theexisting facility during expansion; and

o Mechanical systems are designed toaccommodate future expansion. Sourceequipment (heat pumps, boilers) are ready toaccommodate future addition with minimaldisruption. The penthouse mechanical roomand external shafts have been designed takinginto account a 30 per cent expansion plan.

• The outpatient hospital will be built on agreenfield site, in an urban forest. Efforts havebeen made to design the hospital in such a waythat it will preserve trees, maximize views ofgreen spaces, and provide a welcomingenvironment around the hospital for patients andstaff. Some of the highlighted environmentalfeatures of the SOH are:o The facility will maximize the use of sustainable

building products and furnishings, and beenergy efficient;

o An easy-to-navigate floor plan, providing easeof access and staff/patient movement;

o Dedicated green space, generous use ofnatural light throughout, and access to gardensand views; and

o A non-denominational quiet space.

Additional Qualitative Benefits

• Competition and innovation: the competitivenature of the bidding process encourages theprivate partner teams to develop innovativesolutions in all aspects of the project from design,construction and through to operations;

• Schedule and cost certainty: the private partner isonly paid once the facility is available for use,thereby providing a financial incentive to completethe project on time and on budget;

• Integration: because the private partner isresponsible and accountable for the design andconstruction, long-term maintenance andrehabilitation of the facility, there are opportunitiesand incentives to integrate these functions inorder to optimize performance of the facility overthe duration of the Project Agreement; and

• Lifecycle maintenance: the private partner isresponsible and accountable for ensuring thefacility is maintained and rehabilitated over theduration of the Project Agreement, with financialpenalties for non-compliance.


20

Appendix – Changes in the Project

The SOH project team was able to identify andincorporate several improvements to the projectduring the planning, design and implementationphases following approval of the original businesscase in 2007. There are a number of factors thathave resulted in additional benefits for Surreyresidents and taxpayers, while ensuring the projectremained cost-effective and represents value formoney for taxpayers. Changes include:

• Project schedule: The construction schedule forthe facility is six months longer than estimateddue to the complexity of the building;

• Procurement schedule: The release of the RFPwas delayed by approximately three monthsand the procurement period was extended bysix weeks;

• Market and project pressures resulting inincreased project cost:o Rising cost of construction materials;o Increasingly tight labour market; ando Increased size and capacity of facilitiesnecessary to accommodate growing needs.

• LEED Gold Certification: A new provincial policywas introduced in September 2007 requiring allcapital projects built to achieve LEED Goldcertification.

• Facilities changes: o Detailed planning processes recognized that

additional clinical space would be needed todeliver the services as envisaged. As a result,the facility is 30 per cent bigger than forseenin fall 2005;

o Additional parking was included in the project(including underground parking to protect theflexibility for future expansion on the site); and

o Information Management/InformationTechnology: IM/IT specifications for the facilitywere significantly expanded to keep pace withgrowing technological need and opportunity.

The project was originally announced in spring 2007with a total project cost of $151 million. As a resultof the changes described above, the final totalproject cost has increased by $88.1 million.

Documents

Project Report: Achieving Value for Money Surrey Outpatient