Case Study

The New Itaparana Hospital

 The New “Itaparana Hospital”

Case Study..................................................................................................................1
The New Itaparana Hospital.......................................................................................1
1
The New “Itaparana Hospital”...................................................................................2
Background................................................................................................................3
The Republic of Rolanda............................................................................................3
The Municipality of Itaparana....................................................................................3
Itaparana Hospital......................................................................................................3
Meeting the National “Investing for Health Strategy” objective...............................4
Proposed Services......................................................................................................5
Project objectives, scope and requirements ...............................................................5
Objectives:..................................................................................................................5
Scope..........................................................................................................................6
Requirements..............................................................................................................6
Options appraisal and selection.................................................................................7
Options ......................................................................................................................7
Qualitative options appraisal......................................................................................8
Quantitative options appraisal....................................................................................9
Preferred Option.........................................................................................................9
Recommendation......................................................................................................10
Affordability.............................................................................................................10
Risk Identification and Allocation...........................................................................10
Risk Mitigation.........................................................................................................12
Exploration of PPP...................................................................................................12
Commercial Interest.................................................................................................12
Contract Terms ........................................................................................................13
Project Management and delivery............................................................................13
Project Management Structure.................................................................................14
Executive Project Board...........................................................................................14
Project Owner...........................................................................................................14
Project Director........................................................................................................14
Project Team............................................................................................................15
External Advisers.....................................................................................................15
Costs and Budget......................................................................................................15
Timetable..................................................................................................................15
Commitment of Sponsors and users.........................................................................16
Project Sponsor........................................................................................................16
Informing, Engaging and Involving Group .............................................................16
Next Steps ...............................................................................................................17
Statutory Process and Approvals..............................................................................17
Tender Process.........................................................................................................17
Conclusion................................................................................................................18
Annex A: Factors in Assessing PPP Potential.........................................................19

The New “Itaparana Hospital”

This is a case study of a hypothetical project. In the interests of brevity, much of the
detailed justification that would be expected of a real-life submission has been
omitted. Please note that this case study contains a number of deliberate errors.

Background

The Republic of Rolanda

The Republic of Rolanda is considered as a stable and prosperous country. However,

Rolanda presents enormous disparities between a wealthy and industrialized north and
a poor south dependent on mining and agriculture.

In order to improve the health standards in Rolanda, the Federal Government issued in
March 2008 the national “Investing for Health Strategy”, whose main objective is
“to improve the health and social well-being of people by addressing the wider social,
cultural, economic and environmental determinants of health and well-being and by
providing modern facilities which are convenient, clean, comfortable and accessible.”

The Municipality of Itaparana

The Municipality of Itaparana owes its existence to coal mining, the area's primary
industry since the first mine opened in 1900. Through the years, mining in the area
has suffered from fluctuating coal prices, bitter strikes, and underground accidents.
Most of the mines closed throughout the 20th century as cheaper, safer, open-pit
mines opened on other parts of the country.

Itaparana and the surrounding 12 smaller municipalities have a resident population of

about 750,000. Immigrant worker groups, linked to the mining activities in the
region, constitute some 35% of the population. Recent projections show that the
population is set to grow by 5% over the next 15 years, with the highest rise expected
in the over 55 age band which is anticipated to grow by more than 50% by 2020.

Analysis demonstrates that Itaparana is one of the worst ranking regions in the
country for income and employment deprivation, and can be shown to be within the
worst 10% for levels of teenage pregnancy and percentage of people with a long-term
limiting illness.

Additionally, the district has high rates of traffic accidents and death from mining-
related respiratory diseases, coronary heart disease and stroke (the major causes of
death overall) compared to the country as a whole.

Owing to the major transport infrastructure projects which are being implemented to
link the mining region more efficiently to the export centres and ports, the region of
Itaparana is undergoing significant urban regeneration.

Itaparana Hospital
The original Itaparana hospital, built in 1970 on two separate sites, has a capacity of
200 beds. It was conceived and designed at a time of scarce financial resources,
limited access to modern technology and simpler standards and expectations of health
and primary care services. The hospital was certainly not designed to enable the
delivery of modern health services nor does it provide an appropriate physical
environment for the care of a growing population, nor for the higher standards of care
associated with the more complex types of injury stemming from the mining industry.

The hospital’s main 10,000 m2 building (known by the locals as Hospital Grande) is
located in the city centre of Itaparana Municipality. The 150 bed main building is
badly configured, makes inefficient use of the space, has limited disabled access and
no capacity of expansion given the building restrictions on all city centre buildings.
Furthermore, this building is rapidly reaching the end of its useful life and is
becoming increasingly expensive to maintain.

The smaller 3,000 m2 site (known as Hospital Micro) has 50 beds and is located on
the southern outskirts of the Municipality, 5 kilometers distant from the main site.
This part of the city is expanding very quickly as a residential area, which is putting a
lot of pressure on the price of the land. This site hosts all the emergency services.
However, the physical separation of both buildings (Grande and Micro) poses a lot of
problems of communication and integration of the services provided by the hospital.
For instance, clinical staff and patients need to be transported between both hospital
buildings in providing and receiving treatment respectively.

Itaparana hospital’s (both sites) latest condition survey highlights that only 30% of the
current infrastructure has appropriate functional suitability and almost 50% is either
grossly overcrowded or underused. Only 35% of the current infrastructure has
adequate physical condition and is at risk of imminent breakdown. It is thus evident
that Itaparana needs to improve and integrate its facilities.

Meeting the National “Investing for Health Strategy” objective

Itaparana’s Local Health Authority is committed to implementing in the region the

“Investing for Health Strategy”, issued by the Rolanda Government in March 2008.

In order to achieve “Investing for Health Strategy” objectives, consideration has been
given to the design, construction, financing and operation of a 350 bed single-site
hospital on a PPP basis.

Key features of the proposed PPP project solution are as follows:

 Capital € 300 million
 Annual unitary payment € 35 million
 Contract term 25 years plus 21 months construction
period
 Expected contract commencement September 2011
 Construction Starts October 2011
 Availability of New facilities July 2013

The integrated community hospital will provide the following medical services:
Proposed Services

On the basis of health needs assessment and capacity modeling carried out by
Itaparana’s Local Health Authority, it was concluded that the projected number of
beds required for the proposed integrated purpose-built hospital for Itaparana Region
was 350 beds to provide the following services:

 General acute in-patient services.

 Other in-patient services in the following categories:

 Short Stay / Observation

 Intermediate Care / Rehabilitation
 Contingency (Major Emergency – mining accident) Planning
 Palliative Care
 General practice, hospital consultant, nurse and allied health professional led
outpatient consulting and treatment services
 Rehabilitation and self care support and advisory services.
 Integrated community outreach team health and social care services, including
specialist teams for older people and people with mental health problems and
learning difficulties.
 Maternity and child medicinal services
 Social Services, including social advisory and information services.
 General dental, optometry and pharmacy services.
 Minor Injury Treatment Services.
 X Ray Services.
 Emergency and non-emergency patient transport services.
 Residential accommodation services for clinical staff
 Car parking and retail services

Project objectives, scope and requirements

Objectives:

The objective of Itaparana’s Local Health Authority is to provide up-to-date services

within a high quality environment for patients, staff and visitors, which make the best
use of its physical assets.

The Local Health Authority investment objectives for this outline business case are to:

o create a safe, healthy and pleasant environment for staff, patients and visitors;
o provide services that meet National Standards,
o integrate all medical and non-medical services into a multi-professional unit;
o improve access to local health services,
o provide flexibility around future use of the facilities
o avoid disruption of service development;
o vacate outdated and obsolete buildings which are not fit for purpose, do not
comply with guidance and have high levels of backlog maintenance;

Scope

The scope of this OBC includes the design, construction and financing of a 350 bed
single-site hospital and the provision of all the reference services. The reference
services are broken down into property, logistics and operational services. The
property services include estate management, security and car parking. The logistics
services consists of non-emergency patient transport, management of supplies, waste
management and laundry and linen services. The operational services include
catering, sterile services and flexible support services consisting of cleaning portering,
and non-clinical nursing such as patient washing. This proposal assumes that the cost
of purchasing energy, sterile equipment and other medical supplies (non-pharmacy
items) would be passed through to the Local Health Authority.

The OBC includes a considerable non-clinical staff transfer from Itaparana’s Local
Health Authority to the private sector. In is anticipated that the non-clinical staff
would be willing to accept the transfer and adopt flexible working practices.

In addition, this OBC proposes variant services to be included in the project. These
include residential accommodation services for clinical staff (doctors, nurses, etc),
medical equipment, training and development of staff, creditor payments, payroll and
patient services (i.e. reception and patient records).

This OBC anticipates that the project would yield third party revenues from car
parking and retail activities. The retail outlets proposed consist of a coffee shop,
newsagent, florist, gift shop and nursing agency. It is proposed to direct 50% of third
party rent income to the new Itaparana hospital.

Requirements

Based on the above Objectives and Scope, the requirements for this investment are:

Criteria Requirements

Quality of A physical solution which is well designed, of

Physical good quality, and meets national “Decent Hospital”
Solution guidelines

Quality An environment that enables the provision of services that

Services meet the Government’s “Investing for Health Strategy”
standards.

Integration An environment that enables the co-location of primary,

intermediate and secondary care services and services
provided by diverse agencies to facilitate integrated care
pathways and clinical professional development

Geographical An accessible location from the perspective of patients, carers,

Access relatives and staff who will use the service, taking account of
public and private transport options.

Flexibility A flexible physical solution that provides capacity and

opportunity to deal with population changes

Continuity A scheme that is achieved with minimal disruption to services,

Cost reduction A cost effective solution that allows reduction in maintenance

and running costs.

Options appraisal and selection

Options

To meet the requirements of the Local Authority for this project, a number of options
were identified:

1. Option 1: Status quo – carry out essential maintenance and repair works only.
This is not seen as an acceptable option due to the extent of work required and the
increasingly unsatisfactory nature of both buildings. However, this option has
been included to provide a base case against which to assess other alternatives.

2. Option 2: Major refurbishment of Hospital Grande. Stripping the main

building back to its shell and carrying out substantial reconfiguration and
refurbishment could deliver the level of quality sought, but would not overcome
all the restrictions of the building nor address the integration and flexibility for
expansion issue. This option has thus been discarded.

3. Option 3: Demolish Hospital Grande and rebuild on same site. Demolishing

the main site and constructing new purpose-built hospital would deliver
improvements in quality and flexibility. However, integration of services would
still be an issue, and planning restrictions on all city centre buildings would mean
that no extra floor area could be provided. This option has thus been discarded.
 4. Option 4: Dispose of Hospital Grande and build new hospital on the southern
outskirts of the city, next to Hospital Micro. Disposing the main site and
constructing new purpose-built hospital next to the other site could deliver
improvements in quality and flexibility; however there may be some problems to
integrate the new and the old building.

5. Option 5: Dispose of Hospital Grande and Hospital Micro and build a new
building on the southern outskirts of the city. Disposing both sites and
constructing new purpose-built hospital on the southern outskirts of the city can
definitely provide the levels of quality, flexibility and integration sought.
However, this solution may be too expensive given the rapidly increasing price of
land in the area.

6. Option 6: Dispose of Hospital Grande and Hospital Micro and build a new
building on the northern outskirts of the city. Disposing both sites and
constructing new purpose-built hospital on the northern outskirts, 10 kilometres
outside the city, can definitely provide the levels of quality, flexibility and
integration sought. However, this region is underdeveloped (it was previously an
old mining area) and not well connected, which may pose a problem of
accessibility and proximity to the population.

Qualitative options appraisal

Having discarded options 2 and 3, option 1 was kept as a “do nothing” base case and
options 4, 5 and 6 were subject to further evaluation using qualitative criteria.

Each criterion was given a weighting, to reflect its perceived relative importance.
Then each option was marked on a scale of 3 (3=good, 2=acceptable, 1=bad) for each
of the criteria. Finally, the raw score (R) was multiplied by the weight of the criteria
to obtain the weighted score (W). The results of this exercise are shown in Table I,
showing the raw (R) and weighted (W) scores.

Table I. Appraisal of non-financial benefits

Criteria Weight Options

1 4 5 6
R W R W R W R W

Quality of physical 30 1 30 2 60 3 90 3 90
solution
Integration 20 1 20 2 40 3 60 3 60

Geographical Access 15 3 45 3 45 3 45 2 30

Flexibility 15 1 15 3 45 3 45 3 45

Continuity 10 1 10 2 20 3 30 3 30
 Timescale 10 3 30 1 30 2 20 2 20

Weighted total 100 10 150 13 240 17 290 16 275

R = raw score
W = weighted score (ie R x Weight)

The results of this appraisal are summarised in Table II.

Table II. Results of qualitative options appraisal

Option Weighted Ranking

score
1: Status quo 150 4

4: New Medium-size 240 3

building next to Micro
5: Big New building on 290 1
the Southern outskirts
6: Big New building on 245 2
the Northern outskirts

This non-financial evaluation shows option number 5 as the preferred option.

Quantitative options appraisal

After the qualitative evaluation, the Itaparana Health Authority carried out an initial
economic and financial assessment based on the latest and more detailed costs (from
year 2009). These costs are based on the hospital being fully operational. The table
below summarises the rankings resulting from this information:

Option Qualitative Quantitative

Ranking Ranking
1: Status quo 4 4

4: New Medium-size building next 3 3

to Micro
5: Big New building on the 1 1
Southern outskirts
6: Big New building on the 2 2
Northern outskirts

Preferred Option

On the basis of the qualitative criteria, the preferred option was option number 5:
Dispose of Hospital Grande and Hospital Micro and build a new building on the
Southern outskirts of the city. However, further financial appraisals discounting the
costs and benefits and various different discount rates to a present value showed that
option number 6: Dispose of Hospital Grande and Hospital Micro and build a new
building on the Northern outskirts of the city covers all the requirements and is likely
to be a cheaper option. Option number 6 is thus the preferred option.

Recommendation

It is recommended that the proposal to create a purpose-built single-site 350 beds

hospital on the northern outskirts of Itaparana Municipality (option 6) be approved.
The recommended option includes the disposal of the Existing Itaparana Hospital
buildings (Hospital Grande and Micro). This option meets the Local Health authority
criteria of Quality of physical solution, Integration of services, Geographical access,
Flexibility, Continuity and Timetable.

Affordability

The Local Health Authority and technical analysts looked in more detail option 6.
They created a financial model using their best estimate of expected capital, operating
and maintenance costs, inflation and their financing structure. On this basis they have
calculated that the monthly unitary charge payable by the authority of € 35 Million
per annum escalating at 3.5 % p.a. for inflation from the date of availability over the
25 year contract period.

The authority have assumed:

 Sale of authority land that will provide € 50 million, which will be contributed
as an upfront capital sum for the project
 Debt/Equity ratio of 90/10 (based on international examples in other PPP
markets) and
 Annual Debt service cover ratio of 1.2 per annum.
 Fixed rate of interest for the period of the concession incorporating a margin
of 1% per annum for the debt
 Return on equity of 16% per annum.

The Federal Ministry of Health will meet 75% of the unitary charge and has informed
the Itaparana Health Authority that they will need to meet the remaining 25% out of
local budgets. The Ministry of Finance is in the process of preparing a law to enable
multi-budget commitments (which will need parliamentary approval).

In order to assist with the affordability, the Itaparana Health Authority is proposing to
share 50% of the revenue with the private partner for car parking and retail, which
will generate estimated revenue of € 3 million per annum to part fund part of their
contribution towards the unitary charge.

Risk Identification and Allocation

In developing this detailed appraisal, the Itaparana Health Authority recognised that it
needed to develop a more sophisticated approach to risk. The first step was to compile
a risk register showing the key risks associated with the project. The list is shown in
the table below.
The Authority then ascribed a probability of occurrence to each of the risk factors,
using 4 categories: high (75 %), medium (45 %), low (25 %), or negligible (0 %).
For each risk factor, the impact was estimated using three categories: high (10),
medium (5), low (2.5). Combining the impact and the probability gives the risk value.
Finally, the risk was allocated to the party that was considered best able to manage it
(public, private or shared).
 Risk Proba- Prob. in Risk Allo-
factors Risk category bility % Impact value cation
Design aspects
Cost overrun caused by design Low 25 5 125 Private
Construction delay caused by design Low 25 5 125 Private
Operating inefficiencies caused by
design Med 45 5 225 Private

Construction
Construction problems cause time
overrun Med 45 5 225 Private
Construction problems cause cost
overrun Med 45 5 225 Private
Contractor becomes insolvent Negl 75 10 750 Private
Operations
Facilities unavailable Med 45 5 225 Private
Loss of contract income Med 45 5 225 Private
Operational problems cause cost
overrun Low 25 5 125 Private
Changes to specifications High 75 5 375 Shared
Failure to meet standards Low 25 5 125 Private

Financial
Inflation rate changes Private
Reduced residual value of site and
building High 75 2.5 187.5 Private
Reduced disposal value of site and
building Med 45 2.5 112.5 Private
Demand
Low patients numbers Med 45 10 450 Private
Low third-party income Med 45 10 450 Shared

Risk Mitigation
No risk mitigation strategy is required as all the important risks are to be transferred to
the private sector.

Exploration of PPP

The results of the completed “Factors in Assessing PPP Potential” checklist (see
Annex A) confirm that the “New Itaparana Hospital” project may be suitable for the
PPP model.

Commercial Interest

The proposed scheme is envisaged as all new build and with a capital cost of around €
300 million might be attractive to the PPP market. A similar €100 million scheme in
the capital “Rolanda City” recently achieved financial close as a PPP scheme.
Furthermore, the authority and technical advisers had a number of informal
discussions with local as well as international contractors all of whom have expressed
strong interest in the project. There is a reasonably large market for contractors;
however the annual turnover of the largest local company last year was € 200 million.

The technical advisers have based their cost assumptions on a similar size of a
conventionally procured project that was completed 2 years ago in the capital
“Rolanda City”, together with in-house technical assumptions. The financial advisers
have not had yet any detailed discussions with the banks, but based on the recent
financial close of the € 400 million northern motorway project, are confident that they
will express an interest.

The local representative of the regional development bank has indicated that they are
not in a position to support any one bidder but that the project is likely to fall within
their general lending criteria. Once identified they will look at the project.

Contract Terms

Detailed contract terms will be developed during tender process.

Project Management and delivery

This section describes how Itaparana Local Health Authority intends to manage the
various phases of the project. The section will cover how decisions will be made, the
management structure, stakeholder involvement, the role of external advisers and the
costs of the management of the project.
Project Management Structure

The Project Management Structure is shown below.

“Itaparana Hospital” Project Management Structure

The roles of the components of the project management structure are as follows:

Executive Project Board

The Project Director will seek guidance and support from an Executive Project Board
consisting of senior representatives of Itaparana Local Health Authority Board. The
Project Board will meet on a regular basis to review progress reports from the Project
Director, ensure the agreed project plan is followed and that risks, issues and changes
are being identified and managed effectively. The Board comprises 25 people
including all major stakeholders so a good level of support will be maintained
throughout the project.

Project Owner
The Project Owner defines the project objectives and brief and ensures that they are
met on time and within budget. The Chief Executive of Itaparana Local Health
Authority acts as Project Owner.

Project Director
The Project Director (PD) constitutes a single point of responsibility for day-to-day
oversight of the process and progress. The PD is ultimately responsible for delivering
the project successfully in line with Itaparana’s Local Authority’s Objectives. The PD
manages on a day-to-day basis, all aspects of the project including human resources,
tasks, plans, budgets, risks, issues and change. The Chief Executive of Itaparana Local
Health Authority will act as well as Project Director.
 Project Team
The Project Team members are responsible for carrying out the planned project
activities in their area of expertise. They are also responsible for identifying,
developing and conducting training in their area as required. Project Team members
will ensure that progress on activities carried out in their area is documented. The
majority of project team members have been specifically appointed or seconded for
the life of the project.

External Advisers
Technical and financial advisers (a local auditing firm who are also auditors to the
Itaparana Local Authority) were appointed to advise on technical issues for the
preparation of this OBC. A range of appropriately qualified and experienced external
advisers including legal, technical and accounting will be appointed as and when the
project processes require them.

Costs and Budget

In setting up the project the Itaparana Local Health Authority was cognisant of the
fact that in addition to external advisers, there was a need to budget for a suitably
staffed project team capable of supporting the project across its whole life. It was also
recognised that the size and composition of the team might require to be varied over
time. The team currently consists of a Project Director, Service Development
Manager and Project Support Officer. Part-time members of the team include clinical
representatives, a Client Adviser and a Finance Manager. It is recognised that moving
forward, project staffing may require to be reviewed to ensure appropriate skills are
available.

The forecast Project Team budget in € across the period 2009 – 2013 is as shown
below.

2009-10 2010-11 2011-12 2012-13

Staff 360,000 420,000 460,000 440,000
External 50,000 20,000 30,000 30,000
Total 410,000 440,000 490,000 470,000

The above figures include the costs of external professional advisers.

Timetable

Key milestones for the development of the New Itaparana Hospital are as follows:

• Submission of Project Initiation Document to February 2009

Rolanda National Ministry of Health
• Submission of Outline Business Case to Rolanda November 2010
National Ministry of Health

• Procurement Process Starts January 2011

• Identification of Preferred Bidder July 2011

• Signature of contract August 2011

• Financial Close September 2011

• Construction Starts October 2011

• Availability of New facilities July 2013

Commitment of Sponsors and users

Project Sponsor

The National Ministry of Health has formally agreed to support the New Itaparana
Project as set out in this Outline Business Case.

Informing, Engaging and Involving Group

In October 2007, the Informing, Engaging and Involving Group (IEIG) was
established to develop a process that would involve the public, staff and stakeholders
in the Itaparana region. The Group includes representatives from Rolanda National
Health Ministry, Itaparana region Local Authorities, user and carer groups and the
voluntary sector to offer personal knowledge and experience to the project
implementation.

The principles under which the Group work are as follows:

• The communication process must be two-way and effectively inform and engage the
public, staff and stakeholders;
• The messages to be communicated should be consistent across the region with
agreed lead clinicians as spokespeople in their local areas;
• The process of project site selection must be open to scrutiny and managed in a way
that is appropriate for Itaparana region.

Group’s communication plan includes:.

• The production of information briefing bulletins in a style to be used throughout the
project;
• The setting up of a Freephone number;
• The development of presentation material to be delivered by one of the lead
clinicians on request
 Next Steps

The IEIG will continue to meet for the duration of the project and continue to
coordinate the ongoing involvement and engagement around the development of the
agreed proposal for the Itaparana region.

Statutory Process and Approvals

As part of the land reform programme undertaken in the 1970s, the State distributed
land and property to farmers and miners in the Itaparana region. However, due to the
lack of accurate registry records, land ownership is still an unresolved problem in the
region, and one of the main causes of lack of development of the northern part of
Itaparana Municipality. Although this situation may be regarded as a potential
problem for the development of the New Hospital, we expect that this problem will be
resolved before the project reaches financial close.

Tender Process

Outline Critical Path for the Prequalification and Tender / Contract Award Process
2011
2009 Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Publication of PQQ
PQQ Responses Received
Evaluation of PQQ
PQQ List Finalized

Issue Tender Documents

Receive Bid Responses
Evaluation & Clarification
Preferred Bidder
Final Negotiation
Contract Signature

Financial Close

Construction Starts

The Pre-qualification document / PQQ and tender processes have been designed to
maximize interest, both national and international. At the PQQ stage, the criteria /
requirements which will be sought have been summarized in the following Chart :-

AREAS FOR PQQ ANALYSIS AND PROVISION OF SUPPLEMENTARY INFORMATION YES /NO
REGARDING
TENDER PROCESS
Demonstrate relevant experience in the following areas :
• Hospital Design Yes
• Construction and Project Management (PM) Yes
• Operation Yes
 • Maintenance Yes
• Provide references Yes
• Provide indicative budget for Investment No
• Provide outline of Project Design Approach No
Provide details of legal and contractual context No
Bid Costs to be borne by Bidders Yes
Contribution to or partial reimbursement of Bid Costs No
Economic and Financial Information
• Audited Annual Financials (last 3 years) Yes
• Shareholding No
• Profitability No
• Credit Rating if available No
• Minimum Sales (last 3 years) Yes
• Bid Bond Yes
Evidence of relevant experience in Hospital Sector
Minimum área constructed (50,000 m2) Yes
Minimum investment value undertaken Yes
Required Experience of Project Team
5.4 Experience in hospital operation Yes
5.5. Experience in hospital equipment management and maintenance Yes
5.6. Architectural and design experience Yes
Consortia & Project Management
Prior Consortia experience Yes
Possibility of modifying the bidding Group post-PQQ Yes
Workplan Yes
Outline investment schedule Yes
Organigram of Consortium Yes
Services
Medical Equipment Supply and Maintenance Yes
IT Yes
Evaluation Criteria / Methodology
Tick the Box (Pass / No Pass)
ADDITIONAL INFORMATION
Draft Contract N.A.
“Preferred Bidder” / Reserve Bidder Formula Yes
Payment Mechanism
Unitary Charge Yes
Sanctions in form of fines Yes
Indicative Length of Contract / Concession 25 years
PQQ to lead to short list No

Conclusion

The design, construction, financing and operation of a 350 bed single-site hospital in
the Northern outskirts of Itaparana Municipality will be a major step towards the
implementation in the region of the “Investing for Health Strategy” issued by the
Rolanda Government in March 2006. This OBC demonstrates that the New Itaparana
Hospital is viable, bankable, affordable and deliverable on a PPP basis. We are
convinced that the New Hospital will achieve significant clinical and service benefits
for the population of Itaparana.

Annex A: Factors in Assessing PPP Potential

The “Factors in Assessing PPP Potential” table forms a basic checklist of factors
likely to show a scheme’s suitability for the PPP and its relative attractiveness to the
PPP market. The results of the completed checklist (see Table below) confirm that the
“New Itaparana Hospital” project may be suitable for the PPP model.
Table: Factors in Assessing PPP Potential
Factor Yes No Unknown
Strategy
The service strategy underpinning the project is clear and has been agreed
with “internal” stakeholders x
The service strategy and any associated change programme is acceptable
to the local community x
The service is required now x
There will be a continuing need for the service x
The service could be provided by a private sector partner without
detriment to the future operation of the organisation x
The health body can clearly see benefits in partnership working x
Content
The service required is clear and can be defined in specific terms It can
be described and measured in an output specification x
The health body seeks a service and not simply an asset x
The project is of a kind that has previously proved suitable for PPP x
The project is of a frequently offered or repetitive nature x
There is scope for a private sector innovation and cost saving x
Risk
There is a realistic opportunity to transfer public sector risk x
The risks to be transferred are of a kind that a private sector partner can
accept and manage x
There is scope to find alternative uses for any assets remaining at the end
of the proposed period of contract x
The nature of the opportunity will offer an incentive to the private sector
to perform effectively x
Financial Factors
The project is affordable against revenue projections x
Any estimated unitary charge is also affordable x

Timescales and Term

The contract proposed has a forecast term suited to the service and to
whole life costing x
The target date for service start can be met by PPP procurement timetable x
Marketability
Projects like the one proposed have already attracted PPP market interest x
The project is likely to offer a commercial return to the private sector x
The income stream supporting the project is well covenanted x
The market is likely to be receptive to the opportunity x
There are sufficient players in the market to offer effective competition x
The project could be linked with another opportunity to enhance
marketability x
Project Management Arrangements
The health body has defined its project management team x
The health body has identified sufficient financial resources to support
the project x
The health body has agreed arrangements for involving all appropriate
stakeholders during the procurement process x
Table: Checklist questions

Clarity of requirements
• Are the scope, requirement and term of the project clear and stable? Have
they been approved?
Risk allocation
• Have the project risks been fully identified and their potential allocation
assessed?
Key terms and conditions
• Has the draft PPP contract been prepared reflecting the project requirements,
proposed risk allocation and payment mechanism?
• Have external project interface issues, agreements, terms and conditions been
identified and assessed?
Indication of commercial interest
• Is there evidence of contractor, lender and investor market interest to justify
launching the project on the proposed terms?
• Has a project marketing strategy and prospective bidders list been drawn up?
• What are the expected availability and terms of equity and debt finance?
• Have the DFIs been approached?
Project information
• What plans exist to publicise the launch of the project to potential bidders?
• Has a project information memorandum been prepared by the project team?
• Have the bidder qualification and bid evaluation criteria been developed?
Affordability
• Is the project scope fully affordable?
• Are the user tariffs realistic/are budgets and approvals in place for any public-
sector payment (or asset provision) obligations?
• Is the expected accounting treatment clear?
Indicative timetable
• Is a realistic procurement timetable in place for the procurement phase?
Project team/processes
• Is a credible and well resourced team in place to manage the procurement
phase and an effective bid evaluation strategy agreed?
• Are project governance structures and processes in place to ensure timely and
effective decision-making?
• Are credible and experienced advisers appointed?
• Has the appropriate assessment be carried out to demonstrate that the proposed
approach is expected to meet any value for money criteria (to the extent
required by policy)?
Commitment of stakeholders/users
• Have all relevant stakeholders been identified, are they committed to the
project, and are arrangements in place for continued communication and
consultation?
Legal processes
• Have required approvals been identified / obtained (e.g. environment,
planning)?
• Is there clarity about site and land issues?
• Are all relevant project approvals in place?
• Are appropriate powers confirmed for the public authority to award and enter
into the long-term contracts?