NHS GRAMPIAN

6 November 2012

Forres, Woodside, Tain (FWT) Project

Outline Business Case and Outline Business Case Addendum

  1. Aim

The aim of this paper is to present to Grampian NHS Board the Outline Business Case for the Woodside Fountain Health Centre (Woodside Project) and the Outline Business Case Addendum for the Forres Community Health and Care Centre Project (Forres Project). The Outline Business Case Addendum for the Tain Health Centre Project (Tain Project) is being presented to the NHS Highland Board simultaneously on 6 November 2012.

  1. Strategic Context

The Woodside Fountain Health Centre and Forres Community Health and Care Centre Projects have been developed in the context of:

  • NHSScotland Quality Strategy – Delivering Quality in Primary Care Action Plan
  • Reshaping Care for Older People
  • NHS Grampian ‘HealthFit’ and the Health and Care Framework
  • AberdeenCity Primary Care Development Programme
  • Proposals for Integration of Adult Health and Social Care (Consultation)
  1. Discussion

3.1Background

3.1.1The Woodside Initial Agreement (IA) was presented to the NHS Grampian Board and approved in February 2011, with a recommendation to submit it to the Scottish Government Health Directorates (SGHD) Capital Investment Group (CIG).

3.1.2The CIG considered and approved the Woodside IA in October 2011. NHSGrampian was invited to submit an Outline Business Case (OBC).

3.1.3The Forres OBC was presented to the Board and approved in March 2011, with a recommendation to submit the OBC to CIG.

3.1.4The CIG considered and approved the Forres OBC in April 2011. NHSGrampian was invited to submit a Full Business Case (FBC).

3.1.5A key objective of NHS Grampian (NHSG) is to “ensure the provision of reasonable access to high quality, affordable premises to support the delivery of modern health and social care” (NHSG Healthfit 2010 -2013). Continuing investment in appropriate infrastructure, such as premises for General Practice, will make a significant contribution towards achieving this aim by facilitating the delivery of a comprehensive range of general medical services as well as the wider array of services under the primary care umbrella. Delivering services that support people to remain healthy, well and in their own communities will bring about better outcomes for people, providing services which reduce inequality, promote independence and are quicker, more personal and closer to home.

3.1.6Both the Forres and Woodside Projects were identified as NHS Grampian priorities for replacement premises in the 2002 review of General Medical Premises in Grampian.

3.1.7In 2010 NHS Grampian undertook a reprioritisation of the Capital Programme, in light of constraints on capital funding. This exercise confirmed that the Woodside Project was still a high priority for NHS Grampian. The Forres Project was excluded from this exercise as it was already confirmed and acknowledged as a key priority for NHS Grampian.

3.1.8The Forres, Woodside and Tain Projects are being progressed as part of a hubCo bundle of three projects. This is the first hubCo Bundle Project in Scotland using the hubCo Design, Build, Finance and Maintain (DBFM) Service Concession Contract involving three projects over two health board areas.

3.1.9Although there are three separate Outline Business Cases, there will be a single Full Business Case and a single Scottish Futures Trust (SFT) Contract (Project Agreement).

3.1.10The SFT Standard Form Contract is currently being amended by SFT and their legal advisors to ensure that, from a governance and commercial perspective, both Boards and hubCo are protected when they enter into a single Project Agreement covering two organisations (Health Boards).

3.1.11The three projects have been bundled as a single hubCo project to help ensure value for money by sharing the overhead costs between the three relatively small projects. The total capital value of the three projects is approximately £13.5million, making it more attractive to the market.

3.2Progress

3.2.1Both the Woodside and Forres Projects have full planning consent.

3.2.2An additional biomass planning application has to be made, specifically in relation to Woodside, as a change in regulations has required the method of heating to be changed from mains gas to biomass. The revised design is now agreed but, before the formal planning application can be submitted, Aberdeen City Council has asked for an air quality assessment to be made. This has been commissioned recently and, once complete, will allow the application to be made.

3.2.3The Forres site is in the ownership of NHS Grampian on behalf of the Scottish Ministers. It was purchased from Moray Council in May 2008.

3.2.4The Woodside site is owned by Aberdeen City Council (ACC) and plans are in place to acquire the site on 30 November 2012.

3.3Value for Money (VfM) Analysis (Option Appraisal)

3.3.1The OBC for Forres was approved by the Board and CIG in March 2011 and April 2011 respectively and the preferred option has already been selected. The OBC Addendum for the project explores the latest costs for the preferred option.

3.3.2The Woodside OBC explores various options before arriving at a short list by testing a long list of options against the Investment Objectives and the Benefits Criteria for the project. A short list of three options was created and considered

  • Do Minimum (baseline comparison)
  • New Build on Existing Site
  • New Build, Marquis Road Site

3.3.3Section 3 of the OBC provides details of the costs and financial analysis of the Short Listed Options. Capital procurementhas beenassumed for option appraisal purposes.An economic analysis of each option was prepared considering both the Net Present Costs (NPC) and the Equivalent Annual Costs (EAC) using discounted cash flow techniques. Details of how both have been calculated are included in Section 3.9.8 of the OBC. This was followed by a Value for Money Analysis which compares the qualitative benefits to be realised to the costs of each option. Detail of how this has been undertaken is given in Section 3.9.9 of the OBC. The results are outlined in Table 1:

Table 1

Option / Qualitative Benefits Score / Equivalent Annual Cost (£m) / Cost per Benefit point (£) / VFM Economic Ranking
2. Do Minimum / 250 / 0.011 / 44 / 1
3. New Build on Exiting Site / 455 / 0.508 / 1,116 / 3
4 (a) New Build, Marquis Road Site / 685 / 0.336 / 491 / 2

3.3.4.The option that scores best using this technique is option 2 “Do Minimum”. The “Do Minimum” option could not meet nor address the significant issues that represent the gap between current service need and provision and what the community requires into the future. The current Woodside Health Centre is unsuitable for modern healthcare, is not Disability Discrimination Act (DDA) compliant and the minimum investment proposed will not ultimately resolve the current unacceptable physical condition and functional unsuitability. The inability of the service to expand in the current building and to provide the enhanced services the team wish to provide would mean that the current Woodside Health Centre would continue to be unfit for modern clinical service delivery.

3.3.5.In discounting the “Do Minimum” option as realistically unviable the preferred option that delivers best value for money based on EAC and Cost per Benefit Point is option 4(a) “New Build, Marquis Road” with £0.336 million and £491 respectively.

3.3.6Sensitivity analysis was undertaken to check for the impact of a revenue swing of +10% and a capital swing of +20% on the preferred option. In addition, a switching value test was also done to check how far the costs of the other options would have to move to match the cost per benefit point for the preferred option.

3.3.7The findings, summarised in section 3.10.3 of the OBC, demonstrate option 3 is a significant way from matching the VfM for the preferred option.

3.3.8This re-affirms Option 4(a), New Build, Marquis Road Site as the option that delivers best value for money based on EAC and Cost per Benefit Point.

3.4Cost of Preferred Options

3.4.1The capital costs associated with the Forres and Woodside Projects relate to the purchase of the land for the two sites and the purchase of the items of equipment that will be procured by the Board outwith the DBFM contract.

3.4.2In addition to this, the Scottish Government has stipulated that NHS Boards must provide for the full Territory share of the required sub debt investment in hub projects from their capital allocation, should some/all of the other partners within the Territory opt not to invest. It is currently anticipated that none of the partners will opt to invest and, therefore, the financial model at OBC stage shows that the cost to NHS Grampian of the sub debt investment will be £484k for the Forres and Woodside Projects.

3.4.3Table 2 highlights the capital funding required:

Table 2

Forres / Woodside / Total
Capital Costs / £K / £K / £K
Land and Fees / 280 / 340 / 620
Equipment / 298 / 175 / 473
Sub-debt / 282 / 202 / 484
Totals / 860 / 717 / 1,577

3.4.4The land for the Forres Project has already been purchased and the Woodside land is scheduled for purchase this financial year. The equipment will be required in 2013/14 and the Sub Debt payments will fall due on the date of Financial Close.

3.4.5All of the above capital costs(still to be incurred,with the exception of the Forres land already purchased)have beenprovisionally factored into the capital plans for 2012/13 and 2013/14.

3.4.6The annual revenue costs for Forres and Woodsideassume 2014/15 will be the first full year of operations and are split into two elements in Tables 3 and 4. Table 3 shows the annual Unitary Charge and its associated funding:

Table 3

Forres / Woodside / Total
£K / £K / £K
Annual Unitary Charge
Capital Expenditure / 588 / 423 / 1,011
Special Purpose Vehicle/Insurance / 74 / 48 / 122
Life Cycle Costs / 47 / 31 / 78
Facilities Management Costs / 56 / 37 / 93
Total Annual Unitary Charge Cost / 765 / 539 / 1,304
Scottish Govt. Unitary Charge Funding
Capital Expenditure / 100% / (588) / (423) / (1,011)
Special Purpose Vehicle/Insurance / 100% / (74) / (48) / (122)
Life Cycle Costs / 50% / (23) / (16) / (39)
Facilities Management Costs / 0% / 0 / 0 / 0
Total Scottish Govt. Funding for Unitary Charge / (685) / (487) / (1,172)
Board Funded Unitary Charge / 80 / 52 / 132

3.4.7At OBC stage, the Board’s additional annual costs, projected to 2014/15,in relation to the Unitary Charge,is £132k for the two projects, which will be indexed year on year for inflation.

3.4.8Table 4shows the other additional revenue costs, which comprise of the running costs of the buildings and depreciation of the equipment.

Table 4

Other Additional Running Costs / Forres / Woodside / Total
£K / £K / £K
Various Property Costs / 58 / 127 / 185
Total Other Additional Running Costs / 58 / 127 / 185
Existing & Anticipated Funding
Third Party Contributions (General Practices, Social Work) / (52) / (84) / (136)
Total Existing & Anticipated Funding / (52) / (84) / (136)
Board Funded Other Running Costs / 6 / 43 / 49

3.4.9At OBC stage, the total additional annual revenue funding required from the Board is therefore £86k for Forres and £95k for Woodside, a total of £181k.

3.4.10In addition to the funding for the recurring revenue costs explained above, there are also non-recurring revenue costs relating to the project in Table 5.

Table 5

Forres / Woodside / Total
Non Recurring Revenue Costs / £K / £K / £K
Advisor Fees / 83 / 83 / 166
Commissioning/Post Project Evaluation / 10 / 7 / 17
Totals / 93 / 90 / 183

3.4.11.The advisor fees reflect the complexity of the contract being entered into and relate to technical, financial and legal advice. These costs are expected to be less than the HealthVillage project due to the experience gained by NHS Grampian officers.

3.5Key Financial Assumptions and Risks

3.5.1The above figures are arrived at after assuming the other users of the building will pick up their share of costs associated with the project.

  • Both developments will incorporate General Practices, two in Forres and one at Woodside. The Practices will occupy a significant amount of space in the proposed buildings. In both cases the planned space is greater than at present and their costs will increase as a consequence. It is essential that the Practices are committed to the projects. There will be continuing dialogue with the Practice regarding the development and its implications as the project progresses to mitigate any issues they may have. There will be continued engagement with the Practices and their legal representatives in relation to the emerging Occupancy Agreement(OA) with the intention of obtaining agreement in principle to the OA in advance of formal agreement prior to Financial Close.
  • There will be an NHS Public Dental Practice in the Woodside development, occupying circa 20% of the building. It has been assumed their costs (additional staffing £60k, cost of equipment £19k, building running costs £37k) will be financed from Dental Non Cash Limited resources. However it is likely that Dental Non Cash Limited funding will convert to a Cash Limited basis from 2013/14. To mitigate against this risk the Aberdeen City Community HealthPartnership (CHP) CHP is preparing a workforce plan and financial plan for the Public Dental Services to justify the future service configuration including the impact of this development. While there is no guarantee of additional funding it is hoped the provision of such plan will secure the necessary resource. If this is unsuccessful, and assuming the plans proceed as presented in the OBC, the additional cost of circa £116k will fall to be funded by NHS Grampian.

3.6Affordability / Value for Money

3.6.1In summary, the cost of the two projects to NHS Grampian is provided in table 6 below.

Table 6

Forres / Woodside / Total
£K / £K / £K
Capital / 860 / 717 / 1577
Unitary Charge / 80 / 52 / 132
Other Additional Running Costs / 6 / 43 / 49
Total Recurring Revenue / 86 / 95 / 181
Nonrecurring Costs / 93 / 90 / 183

3.6.2NHS Grampian is committed to the project and has incorporated the necessary funding increases for capital and revenue consequences in its financial plans and LDP for the coming years.

3.6.3The hubCo Stage 1 submission has been scrutinised by externaladvisors as part of their due diligence towards their validation of the cost representing value for money at Stage 1.The view of the Technical Advisor is that hubCo have provided sufficient evidence for the purpose of a Stage 1 submission. The view of the Financial Advisor is that the quoted Unitary Charge is reflective of a value for money position at Stage 1.

3.7Programme

3.7.1Table 5 outlines the key approval dates to financial close and start on site for all three projects in the FWT Bundle Project.

Table 7

Grampian NHS Board meeting to consider OBC / 6 November 2012
Capital Investment Group Meeting to consider OBC / 20 November 2012
Grampian NHS Board meeting to consider FBC / 7 May 2013
Capital Investment Groupmeeting to consider FBC / 21 May 2013
Financial Close / June 2013
Start on Site / June 2013
FBC Addendum to Grampian NHS Board and Capital Investment Group for information / June 2013

3.7.2The above programme is currently subject to discussion with Scottish Government Health Directorates, SFT and hubCo to confirm if the programme can be revisedso that financial close can be achieved in March 2013. A proposal is currently being considered and will be confirmed by 9 November 2012. The proposal requires the NHS governance approval process being progressed in parallel to the latter stages ofStage 2 and the Key Stage Review (KSR) work.

3.8Stakeholder Involvement

3.8.1The stakeholder involvement for the Forres Project was rehearsed when the OBC was presented and approved.

3.8.2The stakeholder involvement for the Woodside Project is summarised in appendix 2d of the OBC.

3.8.3The local communities, public and patient representatives have been involved in shaping both projects at a number of key stages over recent years including site selection, concept design and most recently selection of the new Woodside facility’s name – Woodside Fountain Health Centre.

3.9Key Risks

3.9.1Table 8 outlines how theForres and Woodside Projects will help to mitigate a number of NHSG Organisational risks, including:

Table 8

Risk Number / NHSG Organisational Risks
586 / Deliver effective, efficient, and fit for purpose health and care in partnership with e.g. social care.
610 / There is good community involvement and support for both projects.
752 / Both projects will create a good working environment for staff.
851 / Both projects are consistent with the strategic aims of Healthfit and the Health and Care Framework.
853 / The new facilities will provide facilities that are safe, e.g. DDA and HAI compliant.
855 / Both projects will address backlog and functional suitability issues locally and also the overall Grampian position.

3.9.2Table 9 outlines two ‘high risks’ associated with the FWT Bundle project, they both relate to the Woodside project. The project team and hubCo are actively seeking to mitigate these risks and confirm a solution that materially reduces the risk level. Additionally two key financial risks are outlined in section 3.5.

3.9.3The Risk Registersfor both projects are included as Appendix 2c of the Woodside OBC and Appendix 1 of the Forres OBC Addendum. The registers outline a number of FWT Bundle risks and also project specific risks which other than those in table 9, have medium and low risk scores. All risks have a mitigation strategy and are regularly reviewed by the joint project team. Table 9

Risk / Probability / Impact / Mitigation
The biomass planning application is not approved. / 3 / 5 / Early submission of planning application including a completed air quality assessment report to allow time for discussion on refinement of solution in discussion with planners.
The biomass planning approval is not in place to ensure judicial review period complete prior to Financial Close. / 3 / 5 / Early submission to ACC Planning Department with the aim of achieving approval by December 2012.
  1. Conclusions

4.1The three general practice developments (including the Forresand Woodside projects) in the FWT Bundle Project continue to be strategic priorities for NHSGrampian and NHS Highland, with strong stakeholder support.

4.2The Woodside OBC and Forres OBC Addendum have been developed with full consideration of deliverability, strategic fit, economic appraisal, financial appraisal and risk analysis. A strong project management structure is in place to enable the project to be taken forward to Full Business Case, financial close and onwards to a successful conclusion and to realise the benefits for the people of Forres and Woodside and Tillydrone.