Some new light was shed today on the province’s controversial decision to choose a public-private-partnership (P3) model to build new healthcare facilities to replace the crumbling Victoria and Centennial buildings at the VG site of the QE2 Health Care Centre.
Last July, the former auditor general reported the secret process used to determine if P3 was the best option was “reasonable and appropriate.” Today, with construction set to begin later this month on the Bayers Lake Community Outpatient Centre, senior civil servants in charge of the QE2 Redevelopment Project provided an update to the Legislature’s Public Accounts Committee.
“This isn’t just a construction project,” said John O’Connor, the lead for the QE2 Redevelopment and vice-president of healthcare infrastructure at NS Lands. “It’s the foundation for the next 50 years of health care. As the largest infrastructure project ever undertaken in Nova Scotia, the QE2 Redevelopment is complex and ambitious.”
The update included a 40-page report on the Outpatient Centre which for the first time makes public the business case or “value for money” analysis on which the McNeil government based its decision to proceed with a P3 contractor who will design, finance, build and maintain the Outpatient facility for 30 years.
“Well what do you know?” quipped NDP Dartmouth North MLA Susan Leblanc. The NDP and PC parties have both been critical of the McNeil government for refusing to release the business case on which the government says it based its decision to contract out the building and maintenance of the Outpatient Centre as well as the Cancer Care Centre, Research building, and expanded Inpatient Centre at the Halifax Infirmary. The total procurement involving the two sites is estimated at more than $2 billion.
The business case revealed
Deloitte’s original analysis of the business case was re-run after plugging in the actual numbers from the contract award to EllisDon. The big reveal or conclusion is that building and maintaining the Outpatient Centre under a P3 model is estimated to save taxpayers $35 million and cost 14.7% less than if the province hired and managed different contractors to do the work.
“The final Value For Money analysis is based on the final project structure and actual contracted costs with EllisDon,” states the report. “The results confirm that the Province should expect overall lifetime risk adjusted costs of Bayers Lake Community Outpatient Centre to be $35.4 million (14.7%) less through the Design-Build-Finance-maintain arrangement reflected in the Project Agreement than if Bayers Lake was built, financed and operated using the traditional model (the Public Sector Comparator (“PSC”), Construction Management as Agent).”
In making the comparison, Deloitte collected historical data on infrastructure projects led by the province over the last 20 years. From a total of 80 identified construction projects, data was collected for 32 projects. (It’s unclear if the data included the Colchester Hospital, which was built the traditional way and ended up significantly over budget). The combined construction value (in 2018 dollars) for the 32 projects was similar to the total estimated construction value for the Bayers Lake Centre and the Halifax Infirmary Expansion megaproject.
Meanwhile, the business case or value for money analysis Deloitte carried out for the Infirmary portion of the QE2 Redevelopment remains top secret.
“We do believe in transparency,” said Paul LaFleche, the deputy minister for the Department of Transportation, and Infrastructure Renewal in response to a request for that information from MLA Susan Leblanc. “We will be putting out a value for money report on the Infirmary expansion once the contract has been awarded. That doesn’t satisfy everyone but you can console yourself we have the best interests of Nova Scotians at heart.”
“The auditor general’s report last July looked at that issue and concluded they support our decision not to release the business case data because it would have a negative impact on the procurement process,” said Gary Porter, the executive director of Corporate Initiatives with Transportation and Infrastructure Renewal. In other words, the bidders might be tempted to raise their prices. Under the P3 model chosen by the McNeil government, the province retains the ownership of the new health care facilities and will also operate them. That means at the Cancer Centre and expanded Halifax Infirmary portering, food services, and laundry will continue to be the responsibility of the Health Authority — not EllisDon, the P3 partner.
The government says a Request For Proposals (RFP) to design-build-finance-maintain the Infirmary expansion will go out within months. The competition is down to two pre-qualified bidders: EllisDon Infrastructure Healthcare and Plenary PCL Health. It will be another year before construction starts. An additional 38 patient rooms will be added beyond the number which will eventually be decommissioned at the Victoria General site where more than a dozen floods have occurred in the past 10 years.
The emergence of COVID-19 has disrupted supply chains around the world. In its Project Agreement with EllisDon, the province has set aside $5 million as a “COVID-19 Cash Allowance” and established a negotiating process EllisDon can use to apply for some or all of that money to cover unforeseen costs tied to the pandemic. TIR’s Gary Porter said by choosing a P3 model, the province will save money on the Outpatient Centre by transferring two key risks from the public (taxpayers) to the private sector (companies).
“Namely, the risk that construction is not completed on-budget, and, the risk that in the long-term, due to insufficient maintenance and money spent on renewal or lifecycle work, the value of the assets (the hospital and Outpatient Centre) is less than it would be if the assets had been well maintained/ life-cycled,” states the value for money analysis. Porter believes hiring EllisDon to maintain the Outpatient Center for 30 years will “incentivize” the company to ensure the construction is of high quality.
The Bayers Lake Outpatient Centre is expected to be completed by the summer of 2023. Consultations with specialists, diagnostic tests, and kidney dialysis units will be some of the services provided. Staff will have access to nature and bike trials.
The NDP’s Lisa Roberts, the MLA for Halifax Needham, noted the auditor general’s report on the QE2 Redevelopment says the public will see the financial savings promised from a P3 model only if (italics added for emphasis) the province improves how it monitors contracts during and after construction. Roberts asked how the province intends to improve that monitoring.
“In the past, that’s been maybe a spotty record for various governments around Canada and North America,” admitted Paul LaFleche, deputy minister of TIR. “We have to do a very good job of that. So the job doesn’t end with the build; it goes on for 35 years. And as we have seen with the schools where maybe things over 25 years might have been a bit lax in the monitoring area, monitoring delivers a great result in the end if you do it properly. We will endeavour to have a group that works specifically on monitoring these contracts. We are public servants who want to do the best job we can to deliver good buildings and good healthcare.”
Update, Nov. 5 — To explain the rationale the government says it used in picking the site, Jennifer Henderson adds:
Senior civil servants told the Public Accounts Committee the Bayers Lake Outpatient Centre is expected to receive 207,000 visits a year when it opens 3 yrs from now. The government consciously chose the Bayers Lake location to serve residents from outside HRM who need to consult specialists before and after surgery, obtain diagnostic tests, bloodwork, see a physiotherapist, or undergo renal dialysis. The idea was to enable people driving to HRM from the southern and northern parts of the Province to avoid the stress associated with finding a parking place and navigating narrow streets and construction projects in the City Centre. For non-HRM residents, Bayers Lake should be an easier place to park and receive services. HRM residents will continue to be served by Cobequid in Sackville, Dartmouth General, and an expanded Halifax Infirmary site.