PPP Seminar : Health

Royal Liverpool Hospital

Case study

Gavin Quantock
Deloitte Corporate Finance
23 July 2014
2014 Deloitte LLP. All rights reserved.
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
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Outdated electrical infrastructure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.
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Background continued
What the hospital was looking for from the market

Bidders were asked :-

To provide a building that had :
646 Beds and 23 wards Design
18 operating theatres
Underground car parking
And operational services : Operate Fund
Hard Facilities Management (FM)
maintenance
Lifecycle services
Utilities management (risk reward on
energy cost/usage)
Insure Build
Soft FM services such as window
cleaning, pest control and grounds and
gardens maintenance

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Deloitte involvement
We acted as the financial and commercial advisor to the Trust over 8 years

Area of work Role

Assist with economic and financial business case (of 5 case model)
Facilitate workshops on option appraisal of development options
Outline
Facilitate workshop on economic benefits of the investment
business case
Develop shadow financial model to estimate unitary charge
Advise on accounting implications of the project
Support development of key documents:
Pre-Qualification Questionnaire (PQQ) and PQQ evaluation
methodology (suggest financial tests/bidder requirements)
Documentation
Invitation To Participate in Dialogue (ITPD) (prepare payment
mechanism, funding competition section, deliverables and evaluation
methodology)
Pre Undertake PQQ evaluation of financial hurdles and ratio tests
Qualification
Questionnaire
Plan and participate in discussions to support the Trust in
Competitive
negotiations with bidders particularly on funding assumptions and
Dialogue
payment mechanism

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Deloitte role
Financial and commercial advisor to the Trust. Project management
involvement was significant throughout the project

Area of work Role

Evaluate bidder submissions at bidder down-selection stages
Evaluation the PQQ, ITPD and Preferred Bidder stages. Prepared reports
and presented results to the Trusts Board
Preferred bidder Involvement in drafting and negotiating the PB letter (set the
appointment (PB) agenda for remaining weeks)
Agree roles and responsibilities and protocol in dialogue, review
Information Memorandum (IM) and terms issues, participate in
Funding competition
meetings with funders, review evaluation report from PB, and
present to the Trust on key issues
Agree financial close protocol, review model audit report,
financial close dry runs, agree final terms and model
Financial close
optimisation, confirm figures for contract and review final
contract schedules

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Structure
Traditional PPP structure used for the delivery of the Project

Key features of the structure

RLBUH NHS
Carillion/
Trust Dividends and sub
debt service Uberior Special Purpose Vehicle (SPV)
Unitary charge EQUITY

SPV was created for the sole purpose of the

project and as such is reliant on cash generated
Equity and
sub debt
by the project to service operational costs and
Insurers debt repayments
Insurance
contracts Project risk is flowed down to the parties best
SPV
placed to manage them via sub-contracts
Long-term
debt Long-term, non-recourse loans are secured on
EIB/Legal and
General the project assets, often including key project
Debt coupon
and principal DEBT contracts

Construction O&M
Contract Contract Established contractual framework used

Carillion Carillion

Integrated offering
8
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Challenges faced
A lengthy and complex procurement which had different challenges at
each stage

Funding
Service issues
competition

Carillion
Plc
selected
as
winning
bidder

Communication Delay

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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.

During dialogue Soft market test appetite Issues?

Stage 1 : DD advisors review

Once PB is chosen
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 Issues?

and full bid reviewed

Stage 4 :DD advisors meet with

funders

Stage 4 :DD advisors assigned to

funders

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Funding competition continued
Selecting a funder once the deal has been agreed

Bank v Bond v
Capital contribution of c. 40%

Outside of
Private
dialogue
Placement

Shortlist prepared

Evaluation
Price, deliverability, Flexibility, Issues

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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 Trusts chief
executive and the bidding organisation, and the Trusts and bidders 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).

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

Central Dialogue
Local resident
Government sessions

Hard to
12 months 6 months
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 Trusts 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?

2014 Deloitte LLP. All rights reserved.

Contact details

Gavin Quantock
Deloitte LLP

Tel : +(44) 11 3292 1458

Mob : +(44) 78 2573 5188
gquantock@deloitte.co.uk

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