ppp seminar : health royal liverpool hospital case …€¦ · 14 royal liverpool hospital case...
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PPP Seminar : Health Royal Liverpool Hospital Case study
Gavin Quantock
Deloitte Corporate Finance
23 July 2014
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Case study Royal Liverpool hospital
• PPP and Health
• Background
• Deloitte involvement
• Structure
• Key challenges
– Services
– Funding competition
– Communication
– Delay
• Outcomes
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PPP and Health UK Government investment programme
Overview
• Public Private Partnership (“PPP”) involves a contract between the public and private
sector whereby the private party assumes substantial financial, technical and operational
risk
• British Government PPP investment programme (the Private Finance Initiative (“PFI”)) was
designed to facilitate private sector investment in Health
• PPPs have been the main delivery mechanism by which much UK infrastructure has been
procured in the last 15 years
• UK has delivered over 600 PPP projects with a total capital value in excess of $80 billion
Health
• Over 80 new or refurbished health projects completed
• Over $17billion of capital has been spent on new hospitals in the UK
• First hospital reached financial close in 1997
• Typical operational period 22-30 years
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Source : HMT
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Background A large University Hospital that was in need of a new facility
The Hospital
• The hospital is one of the main providers of acute care in
the region and is home to a number of specialist trusts
(cancer, children's, women's)
• The hospital has historical links to the University of
Liverpool and has a dental hospital on site.
• The hospital treats 172,000 patients (inpatients/ day cases)
and 490,000 outpatients per annum
• $400m+ capital construction costs
The need for change
• Outdated electrical infrastructure
• Wall casing crumbling with elements of the building falling
to the ground
• Wards were failing to provide the privacy and dignity
expected in modern health care
• Hospital layout was inefficient and inappropriate for
effective service delivery. 4 Royal Liverpool Hospital Case Study
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Background continued
Bidders were asked :-
To provide a building that had :
• 646 Beds and 23 wards
• 18 operating theatres
• Underground car parking
And operational services :
• Hard Facilities Management (“FM”)
maintenance
• Lifecycle services
• Utilities management (risk reward on
energy cost/usage)
• Soft FM services such as window
cleaning, pest control and grounds and
gardens maintenance
5
What the hospital was looking for from the market
Design
Fund
Build Insure
Operate
Royal Liverpool Hospital Case Study
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Deloitte involvement We acted as the financial and commercial advisor to the Trust over 8 years
6
Area of work Role
Outline
business case
• Assist with economic and financial business case (of 5 case model)
• Facilitate workshops on option appraisal of development options
• Facilitate workshop on economic benefits of the investment
• Develop “shadow” financial model to estimate unitary charge
• Advise on accounting implications of the project
Documentation
• Support development of key documents:
• Pre-Qualification Questionnaire (“PQQ”) and PQQ evaluation
methodology (suggest financial tests/bidder requirements)
• Invitation To Participate in Dialogue (“ITPD”) (prepare payment
mechanism, funding competition section, deliverables and evaluation
methodology)
Pre
Qualification
Questionnaire
• Undertake PQQ evaluation of financial hurdles and ratio tests
Competitive
Dialogue
• Plan and participate in discussions to support the Trust in
negotiations with bidders – particularly on funding assumptions and
payment mechanism
Royal Liverpool Hospital Case Study
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Deloitte role Financial and commercial advisor to the Trust. Project management
involvement was significant throughout the project
7
Area of work Role
Evaluation
• Evaluate bidder submissions at bidder down-selection stages
the PQQ, ITPD and Preferred Bidder stages. Prepared reports
and presented results to the Trust’s Board
Preferred bidder
appointment (“PB”)
• Involvement in drafting and negotiating the PB letter (set the
agenda for remaining weeks)
Funding competition
• Agree roles and responsibilities and protocol in dialogue, review
Information Memorandum (“IM”) and terms issues, participate in
meetings with funders, review evaluation report from PB, and
present to the Trust on key issues
Financial close
• Agree financial close protocol, review model audit report,
financial close dry runs, agree final terms and model
optimisation, confirm figures for contract and review final
contract schedules
Royal Liverpool Hospital Case Study
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Key features of the structure
• Special Purpose Vehicle (SPV)
• SPV was created for the sole purpose of the
project and as such is reliant on cash generated
by the project to service operational costs and
debt repayments
• Project risk is flowed down to the parties best
placed to manage them via sub-contracts
• Long-term, non-recourse loans are secured on
the project assets, often including key project
contracts
• Established contractual framework used
8
SPV
Carillion
Carillion/
Uberior
EQUITY
EIB/Legal and
General
DEBT
Carillion
O&M
Contract
Equity and
sub debt
Dividends and sub
debt service
Long-term
debt
Debt coupon
and principal
Insurers
Insurance
contracts
Construction
Contract
RLBUH NHS
Trust
Unitary charge
Structure Traditional PPP structure used for the delivery of the Project
8 Royal Liverpool Hospital Case Study
Integrated offering
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Challenges faced A lengthy and complex procurement which had different challenges at
each stage
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Service issues Funding
competition
Communication Delay
Carillion
Plc
selected
as
winning
bidder
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Service issues Multiple interface issues identified throughout the project
Hard and Soft FM service
• Hard FM relates to the maintenance of the building (capital asset)
• Soft FM relates to catering, cleaning, portering etc.
• Value for money “VfM” and risk allocation needs to be understood
Demolition
• Old hospital and the transfer to the new hospital
Design
• Bidder needed to design any space required for the hard FM but the Trust dictated the soft
FM requirements e.g. the design of the kitchen area.
Energy
• Energy provision – the Trust had an on site energy provider
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Discussion topic Considerations of the facilities management provision
– How can you manage the interface issues between hard and soft FM services if soft
FM is being delivered by the public sector?
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Funding competition Closing dialogue and choosing your bidder without a funder….
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During dialogue Soft market test appetite Issues?
Once PB is chosen Stage 1 : DD advisors review
documents on behalf of funders
Stage 2 : DD review specific
elements of bidders’ submissions
as identified by the Trust;
Stage 3 : DD advisors novated to PB
and full bid reviewed
Stage 4 :DD advisors meet with
funders
Stage 4 :DD advisors assigned to
funders
Issues?
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Funding competition continued Selecting a funder once the deal has been agreed
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Shortlist prepared
Outside of
dialogue
Bank v Bond v
Private
Placement
Evaluation
Price, deliverability, Flexibility, Issues
Cap
ital co
ntr
ibu
tio
n o
f c. 40%
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Communication How the Trust interfaced with the bidders
On most PPP health projects there is a high level dialogue between the Trust’s chief
executive and the bidding organisation, and the Trust’s and bidder’s Project Directors
Key issue: Inconsistent messages relayed to bidders due to one-to-one discussions between
the bidder and Trust Project Directors
Solution: Involve another party, communicate meeting with others, record key message for
consistency
The overall project team consisted of the following:
• Design team
• Technical construction team
• Facilities management team
• Commercial team (finance and legal).
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Open communication and transparency at all levels is a fundamental to
success. Working through a third party can help this
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Delay There were several factors that were in and out of the Trusts control
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Central
Government
Dialogue
sessions Local resident
12 months 6 months Hard to
quantify
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Discussion topic Considerations of the impact of delay
– Consider the means by which you might try and mitigate potential delays to the project;
– For potential delays that are not within your control, how might you keep bidders
motivated?
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The outcome A project that will deliver one of the largest hospitals in the UK
• Hospital reached financial close in 2014
• Construction will take place next to the existing hospital with services transferred once
completed to minimise the impact on service delivery
• Landmark project and building
• One of the largest hospitals in the UK
• One of the largest emergency departments in the North West of England
• One of the most sustainable 'greenest' in the country, with renewable energy systems, low
carbon technology, water meters and leak detection systems
• The Trust’s team are now thinking about wider issues/positioning on site to allow for further
regeneration in the future
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Discussion and Questions?
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Contact details
Gavin Quantock
Deloitte LLP
Tel : +(44) 11 3292 1458
Mob : +(44) 78 2573 5188
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