APPROVED

NHS GRAMPIAN

Minute of Meeting of GRAMPIAN NHS BOARD held in Open Session

on Tuesday 6 March 2012at 10.00am

in Committee Room 5, Woodhill House, Westburn Road, Aberdeen

Present

/ Councillor Bill Howatson / Chairman
Mr David Anderson / Non-Executive Board Member
Councillor Lee Bell / Non-Executive Board Member
Mr Raymond Bisset / Non-Executive Board Member
Mr Richard Carey / Chief Executive
Dr Roelf Dijkhuizen / Medical Director
Mrs Sharon Duncan / Non-Executive Board Member
Mr Alan Gray / Director of Finance
Mrs Linda Juroszek / Non-Executive Board Member
Mrs Christine Lester / Non-Executive Board Member
Mr Terry Mackie / Non-Executive Board Member
Professor Val Maehle / Non-Executive Board Member
Mr Charles Muir / Non-Executive Board Member
Professor Sir Lewis Ritchie / Director of Public Health
Mr Mike Scott / Non-Executive Board Member
Mrs Elinor Smith / Director of Nursing and Quality
By Invitation / Mrs Jackie Bremner / Project Director
Mr Gerry Donald / Head of Physical Planning
Mrs Laura Gray / Director of Corporate Communications/Board Secretary
Dr Annie Ingram / Director of Workforce designate
Ms Heather Kelman / Project Sponsor
Mr Stan Mathieson / Physical Planning Development Manager
Dr Pauline Strachan / Chief Operating Officer
Mr Neil Whyte / Finance Manager
Attending / Miss Lesley Hall / Assistant Board Secretary
Item / Subject
1 / APOLOGIES
Apologies were received from Councillor Kate Dean, Mrs Jenny Greener, Professor Neva Haites and Mr Graeme Smith.
2 / Aberdeen Community Health and CareVillage – Full Business Case
Mrs Bremner, Project Director and Mr Whyte, Finance Manager, were welcomed to the meeting. Following a brief introduction by Mr Gray, Director of Finance, Mrs Bremner introduced the other team members present who would be available to answer any questions – Gerry Donald, Heather Kelman and Stan Mathieson.
Mrs Bremner provided a summary of the key points of the project. She explained the background to the project, advising that the Outline Business Case (OBC) had been approved by the Board in December 2010 and thereafter by the Scottish Government Health Directorates Capital Investment Group (SGHD CIG)in March 2012. She reported on the detailed planning process involving hubCo, Scottish Futures Trust (SFT) and advisors.
She advised that the Aberdeen Community Health and CareVillage would provide Diagnostic and Treatment Centre for the people of Aberdeen as an urban community hospital without beds. It would be open 8am-8pm, 5 days per week, with potential to increase to 7 days in the future. Along with GPs and ARI, the Village would support people to remain well, independent and in their own communities, supporting self-care. This would help to reduce the burden on the acute centre at ARI.
The Full Business Case (FBC) confirmed that the project was consistent with the strategic aims of NHS Grampian. The Village would be located on Frederick Street. It would occupy 3 levels, with a 39 space undercroft car park for essential staff.
Mrs Bremner reported that it had wide stakeholder support. She added that it would reduce backlog maintenance exposure for NHSG by facilitating the closure of; Denburn Health Centre, Woolmanhill, Westburn Centre and Square 13. It delivered value for money (VfM) and was affordable to NHS Grampian. The Village would be built using the Scottish Futures Trust (SFT) hubCo Design, Build, Finance and Maintain (DBFM) procurement model and was the first SFT hubCo DBFM project in Scotland.
This revenue funded project would be a 25-year service concession contract with the Sub-hubCo - Aberdeen Community Health Care Village Ltd. At the end of the contract the Village would transfer to the ownership of NHS Grampian on behalf of Scottish Ministers. During the 25 years the building will be fully maintained by the Sub-hubCo who would deliver the hard facilities management (FM) services with NHS Grampian providing the soft FM services (as per the Standard Form Contract).
The ‘annual service payment’ was to be made in monthly instalments and would be subject to performance adjustments. An external review had been undertaken by SFT Key Stage Review (KSR) – approved subject to one non-material condition.
Mrs Bremner outlined the process for Financial Close for the Health Village including: a DBFM contract to be coordinated with a design and build contract between Aberdeen City Council (ACC) and hubCo to build the adjacent 189 space multi-storey car park (MSCP) which will be built, owned and operated by ACC; purchase of the Health Village site by NHS Grampian from ACC; capital grant to ACC from NHS Grampian for MSCP.
Mr Whyte then gave an update on the financial implications of the HealthVillage project by comparing the position at OBC stage with the position contained in the FBC. He advised on: the Unitary Charge (UC) / Annual Service Payment; other revenue costs (recurring and nonrecurring); capital costs; affordability; financial modelling and outstanding matters, as follows:
Cost Movement From OBC to FBC – Unitary Charge
OBC Stage / FBC Stage / Movement
£m / £m / £m
Unitary Charge Total / 2.029 / 1.817 / -0.212
Unitary Charge NHSG (13.1% / 15%) / 0.265 / 0.273 / +0.008
Unitary Charge SGHD (86.9% / 85%) / 1.764 / 1.544 / -0.220
The total Unitary Charge (UC) had reduced by £0.212m mainly as a consequence of –value engineering of capital expenditure (CAPEX) and funding refresh.
At OBC stage the calculation of the respective contributions for SGHD and NHS Grampian were calculated using the baseline UC and applying specific percentages to the component parts of the UC, i.e. for NHS Grampian – 50% of Lifecycle costs and 100% of hard FM costs. This resulted in a share of the UC attributable to NHSGrampian of 13.1%. For the FBC further work was done to look at the costs over the life of the project. As a consequence the share attributable to NHS Grampian had increased to 15% resulting in a marginal increase in UC of £8k per annum for NHSGrampian. This percentage figure is consistent with the original assumption stated by SGHD. NHSGrampian’s contribution to the UC is in Lifecycle and hard FM where there has been little movement in cost. Most of the reduction is in components of the UC where SGHD were making a contribution.
Cost Movement From OBC to FBC – Other Revenue
OBC Stage / FBC Stage / Movement
£m / £m / £m
Net Recurring Running Costs / 0.040 / 0.046 / +0.006
Nonrecurring Advisors Fees / 0.315 / 0.360 / +0.045
Net recurring revenue costs were inclusive of depreciation on equipment. A reduction in the capital cost of the equipment had resulted in a £27k favourable movement in depreciation. There was an additional expense of £31k in respect of Operational Insurance which was not evident at OBC stage but had been highlighted at FBC stage. The net overall increase was minimal.The non-recurring revenue cost of advisors fees was estimated to have increased by £45k following discussions with NHS Grampian’s advisors (legal, technical and financial) on the projected costs associated with the project. The scale of fees was not unusual given that this was the first DBFM contract of its kind in Scotland and reflected the complexities associated with the legal, contractual and financial aspects of the process. It was anticipated that future projects would benefit from this investment as much of the work that had been done would not require to be repeated. Advisors input would still be required but on specific issues and at a reduced level.
Cost Movement From OBC to FBC – Capital
OBC Stage / FBC Stage / Movement
£m / £m / £m
Land Purchase / 3.500 / 3.615 / +0.115
Car Park Capital Grant / 2.238 / 2.301 / +0.063
Equipment (Groups 2, 3 and 4) / 1.661 / 1.393 / -0.268
The net movement on capital was £90k favourable. An allowance of £115k had been added to reflect the legal fees associated with land purchase. The car park capital grant amount has been increased by £63k. This related to two issues – ground contamination and an element of construction fees associated with the car park. A full reviewof equipment had been carried out for FBC purposes resulting in a reduction of £268k in the capital cost of equipment. This included an allowance of 5% for inflation to cover any increase between now and commissioning of the building in 2013. The reduction was mainly due to re-classification of fixed items from group 2 to group 1. The cost of the re-classified group 1 items was now included in the CAPEX and reflected in the Unitary Charge.
Affordability
Mr Whyte recapped on the key points The recurring revenue cost had increased marginally by £14k mainly as a consequence of the re-calibration of the contribution model and subsequent upwards adjustment to NHS Grampian’s share of the UC from 13.1% to 15.0%. Non-recurring cost of revenue expensed fees had increased by £45k, being a reflection of the complexity of the process required for a project of this kind. The capital cost had reduced by £90k mainly as a consequence of the reduction in equipment. These amounts were now incorporated in NGS Grampian’s revenue and capital plans reflecting the affordability of the project within NHS Grampian’s capital and revenue funding on an ongoing basis.
Financial Modelling and Outstanding Matters
An update of the hubCo financial model was received last week and is being reviewed by our Financial Advisors PwC. There were some technical aspects still to be resolved – value engineering of the CAPEX (construction cost);indexation (inflation) on the CAPEX and technical review of the lifecycle and hard facilities management (FM) requirements
Any impact on the UC was not expected to be material for NHS Grampian.
The most significant risk to the project currently was the potential movement in the financial markets. The model currently allowed for a gilt rate of 2.8%. Also incorporated in the model was a buffer of 0.6% to provide some protection against movements in the lending rates up to Financial Close. This had been agreed with NHS Grampian’s financial Advisors. If an upwards movement in the markets did not materialise, or was less than the buffer provided, the difference would be removed and the final UC would reduce accordingly. Any changes would be reflected in an FBC Addendum following Financial Close and reported to the Board.
The Board noted the timetable for approval of the FBC, financial close and proceeding with the development as follows:
  • A meeting with CIG representatives on Friday 24 February had been well received with positive responses from members in attendance. CIG will now proceed with formal review of the document and advise the Project Team of any queries and/or corrections required
  • AIG approved the FBC on 27 February 2012
  • OMT approved the FBC on 29 February 2012
  • Board approval sought at this meeting on 6 March 2012
  • The FBC to be formally considered by CIG on 13 March 2012
  • Board to consider and approve Project Agreement (DBFM Contract) on 16 March 2012
  • Financial Close on or around 20 March 2012.
  • Start on site on 27 March 2012.
  • FBC Addendum (for information) to be presented to the Board in April 2012.
  • Scheduled to open December 2013.
Answers to questions raised at a workshop the previous week were circulated to Board members and they were given the opportunity to seek further clarity. Mr Scott declared an interest as a Board member of Aberdeen Heat and Power, but was advised that this would not preclude him from participating in the discussion.
Mr Whyte advised that if legislative changes required alterations to be made to the HealthVillage buildings or facilities during the 25 years, NHS Grampian would be responsible for the costs.
In response to a query about insurances, Mr Matheson clarified that this would be split into two phases and explained hubCo and NHS Grampian’s respective responsibilities.
Mr Donald advised the Board which surplus properties had already been vacated and of plans for vacation and demolition of other properties. Mr Carey emphasised that vacating WoolmanhillHospital would lead to significant cost avoidance as well as revenue savings.
Councillor Bell stated that he was satisfied with the proposals and that the Board had been kept fully informed during the process. He congratulated the team for the hard work done. He stressed the importance of the development for everyone in Grampian as it would take pressure off Aberdeen Royal Infirmary, to allow it to become a more efficient resource for the whole region.
Mr Carey echoed the thanks to the team and acknowledged their outstanding dedication. As this was the first project of this type in Scotland, the team had acquired expertise and knowledge which would help the rest of the NHS in Scotland in the future.
He also acknowledged the generosity of the Scottish Government which had provided this fantastic opportunity at a relatively low risk to NHS Grampian.
Following consideration and discussion, the Board:
  1. Approved the Full Business Case for the Aberdeen Community Health and CareVillage, and
  2. Requested the Full Business Case be forward to the Scottish Government Health Directorates Capital Investment Group with a recommendation for approval

3 / Dates of Next Meetings:
Friday 16 March (Closed Session Meeting), 12 noon – 1pm, Conference Room, Summerfield House
Tuesday 3 April (Meeting), Committee Room 5, Woodhill House, Aberdeen
Tuesday 1 May (Seminar), Seminar Room, Curl Aberdeen, Eday Road, Aberdeen

Signed ……………………………………….Date …………………………………

Chair

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