Grampian NHS Board

Aberdeen Community Health and CareVillage

Full Business Case Approval

Aim

The aim of the paper is to present to NHS Grampian Board the Full Business Case (FBC) for consideration and approval.

Strategic Context

The Aberdeen Community Health and CareVillage (HealthVillage) Full Business Case has been developed in the context of:

  • NHS Grampian Health Strategy ‘Healthfit’
  • Scottish Government policy ‘Better Health Better Care’ 2007
  • ‘Reshaping Care for Older People’ A Programme for Change
  • The Christie Commission on the Future Delivery of Public Services
  • NHS Grampian Corporate Risk Register

Discussion

Background

1.In March 1999 the Scottish Ministers decided to plan for the closure ofWoolmanhillHospital. The decision to replace Denburn Health Centre due to structural difficulties followed later.

2.The project is one of several projects included within the Health Campus Programme Initial Agreement approved by the Scottish Government Health Directorate (SGHD) in January 2008. The initial appraisal of options, and the Outline Business Case (OBC) identified the creation of The Aberdeen Community Health and CareVillage (HealthVillage) on a city centre site as the preferred option.

3.The project will significantly reduce NHSGrampian(NHSG) physical estate risk and reduce the backlog in maintenance by facilitating the closure of health buildings not suitable for future health service use including; Woolmanhill Hospital, Denburn Health Centre, and Square 13.(Square 13 decommissioned in 2011, currently subject to disposal)

4.The OBC was presented to NHSGrampian Board and approved in December 2010. In March2011 an up-date paper was presented to the Board with additional financial information. The Board approved a revision to the OBC to be submitted to the Capital Investment Group at SGHD on 15 March 2011 with a recommendation for approval. The NHS Scotland Capital Investment Group (CIG) considered and approved the OBC in March 2011. A letter of confirmation was received dated 5 April 2011. The approval was given on the basis that the project is revenue funded via the hub initiative. The letter confirmed Scottish Government support to the unitary charge payment consistent with the letter issued to Boards on 23 March 2011.

5. In December 2011 the Board was updated on plans for submitting the FBC early in

2012.

Progress

6.Since OBC approval the Project Team with our hubCo partners, Scottish Futures Trust (SFT), Aberdeen City Council (ACC) and our legal, technical and financial advisors, have concluded (subject to final value engineering work) the detailed design of the building and obtained full planning consent.

7.Authority’s Requirements have been issued to hubCo and form the basis of the design and specification.

8. The unitary charge presented in the FBC reflects the detailed negotiation regarding

construction, lifecycle and hard facilities management (FM) costs.

9.Joint working with ACC has progressed all issues relating to the provision of the car park, and ACC are now leading on this directly with hubCo. One key issue regarding specification requires further clarification to allow final agreement on cost and confirmation of the capital grant value.

10. All necessary contract documentation and legal agreements are being progressed and will be ready for signature at Financial Close.

11.Due to unavoidable delays in concluding the FBC, the financing arrangements have been refreshed. The funders that originally submitted terms as part of a funding competition were requested to refresh their terms. Following scrutiny new financial terms were agreed with new funders AVIVA.

12. This work has enabled calculation of a modelled Unitary Charge (subject to variation in the lending rate and conclusion of the value engineering work).

13.The Health Village will be developed by a non recourse vehicle (Sub-hubCo) funded from senior and sub-debt underpinned by a 25 year service concession contract. The operating name of the non recourse vehicle is - Aberdeen Community Health Care Village Limited.

14.The Key Stage 2 Review has not yet concluded (as at 21st February). The project team continue to work with SFT to bring this to closure. As a consequence the Stage 2 submission from hubCo has not been formally accepted by NHS Grampian.

Economic and Financial Appraisal

15. The financial case forms Section 5 of the FBC.

16. The economic analysis (Section 3) continues to demonstrate that a revenue funded delivery solution will deliver value for money (VfM). At Stage 1 SFT devised a Design, Build Finance and Maintain (DBFM) hurdle expressed as the ratio of Unitary Charge (UC) to the capital expenditure (CAPEX). The project continues to meet this measure.

17.NHSG’s Technical Advisors (Mott McDonald) have provided statements confirming VfM in relation to CAPEX, lifecycle and hard FM. NHSG’s Financial Advisors (PricewaterhouseCoopers) have reviewed the Financial Model submitted by hubCo and noted that funding terms offered by the lenders (AVIVA) are currently well below those offered for long term finance by banks.

Revenue Costs

18.The recurring revenue costs at FBC are £1.888 million, the NHSG share is £0.318million.

19.The Unitary Charge has reduced from £2.029 million at OBC stage to £1.817 million at FBC. This is due to several factors but most significantly value engineering and the funding refresh.

20.There will be nonrecurring costs of £0.360 million in the form of professional fees associated with the project. The extent of advisor involvement is a reflection of both complexity and that this is the first DBFM contract in Scotland.

21.Further refinements to the Financial Model are expected which could impact on the UC value before Financial Close. These are:

  1. The lending rate may change (a buffer has been included in the FBC to mitigate against upward movement)
  2. Value engineering (possible further reduction in CAPEX)
  3. Further technical review (leading to possible reduction in the Lifecycle costs)

The impact of these amendments will be reflected, for information, in an FBC Addendum post Financial Close.

Capital Cost

22. The total Capital Cost is £7.309 million. Enabling capital funding (£6.493 million) has

been made available by SGHD along with £0.816 million of NHSG Formula Capital

and allocated to support the project over 2011/12 – 2013/14.

23. An ‘Equipment Responsibility Matrix’ has been prepared and specifies responsibility

between Sub-hubCo and NHSG in terms of supply, installation, maintenance and replacement over the course of the operational period of the agreement. A total of £1.393 million has been included in the Capital Cost for equipment in addition some equipment will transfer from existing departments.

Programme

24. The table below outlines the key approval dates and start on site.

Grampian NHS Board meeting to consider FBC / 6 March 2012
Capital Investment Group, SGHD meeting to consider FBC / 13 March 2012
Financial Close / Circa 20 March 2012
Start on Site / 27 March 2012
FBC Addendum to NHSG Board for information / 3 April 2012
FBC Addendum to CIG for information / 24 April 2012

25. Assuming approval, a new Programme Management Structure (as described in

Section6 in the FBC) will be implemented to guide the project through build and

commissioning to full operations. Mr Alan Gray, Director of Finance will assume the

Senior Responsible Officer role in recognition of the significance of this project.

26. A Project Manager shall be appointed to support Jackie Bremner in her role as Project

Director, and a Contract Manager shall be identified. These roles are described in

detail within Section 6 of the FBC.

Stakeholder Involvement

27. The Communication and Involvement sub-group of the Project Board with public and

staff representatives has continued to guide the involvement process throughout. A

report on the work of this group and the current action plan to meet the need for

communication and involvement during the coming months has been developed and

attached in appendices 2b and 2c of the FBC.

Key Risks

The risk register for the project is included as appendix 6b of the FBC. There are no high risks associated with delivery of the project.

Conclusion

The provision of the HealthVillage in AberdeenCity continues to be in line with NHSG and SGHD policy and strategic direction and has strong support from stakeholders. The FBC has been developed with full consideration of deliverability, strategic fit, economic appraisal, financial appraisal, benefit realisation and risk analysis. A strong project management structure has been designed and a change plan developed to enable this project to be taken to successful conclusion and to realise the benefits identified for the people of Aberdeen and Grampian.

Recommendation(s)

Grampian NHS Board is asked to:

  1. Consider and approve the attached Full Business Case.
  2. Request the Full Business Case be forwarded to the Scottish Government Health Directorate Capital Investment Group with a recommendation for approval

Background Papers

Scottish Capital Investment Manual (SCIM)28

Scottish Government Briefing Note 2 ‘Managing PPP/NPD Projects – From Financial Close to Operation.’

The Scottish Government: ‘Managing Benefits Activities in Your Programme or Project – Guidance for NHSS Health Boards in using Benefits Realisation Management’ Version 1.0

Executive Lead

Mr Alan Gray, Director of Finance

Heather KelmanJackie Bremner

Project SponsorProject Director

21st February 2012

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