analysis of the strategic outline case (soc) for west ......analysis of whh strategic outline case...

Analysis of the Strategic Outline Case (SOC)

for

West Hertfordshire Hospitals NHS Trust

Hospital Sites Redevelopment

on behalf of

20 March 2020

Analysis of WHH Strategic Outline Case (SOC) NHS Improvement P&C - Restricted

SM/15718/13/March 2020

CONTENTS 1.0 Introduction .................................................................................................................................. 1

2.0 Background ................................................................................................................................... 1

3.0 Scope of Services / Methodology ................................................................................................. 2

4.0 Assessment ................................................................................................................................... 3

Health Planning ........................................................................................................................... 3

Costing ......................................................................................................................................... 5

Business Case Approach ............................................................................................................ 13

5.0 Summary of Findings ..................................................................................................................15

6.0 Conclusions .................................................................................................................................22

VERSION CONTROL

Date and Initial

Document Title Rev Nr File Ref Prepared By: Checked By: Verified By:

Analysis of the Strategic Outline Case (SOC) for West Hertfordshire Hospitals NHS Trust Hospital Sites Redevelopment

0.1 SM/15718/13/ January 2020

Suzie Forde Oliver Shemwell Sarah Butler

Sarah Butler Mark Simpson

0.2 SM/15718/13/ January 2020

Oliver Shemwell Sarah Butler Mark Simpson

0.3 SM/15718/13

Oliver Shemwell Sarah Butler


0.4 (Final) SM/15718/13

Oliver Shemwell Sarah Butler



SM/15718/13/March 2020 Page 1

1.0 Introduction

NHS Improvement (NHSI) issued an Invitation to Tender (ITT) on 15 November 2019 (ITQ-OPPRO-1119-384) for an independent analysis of West Hertfordshire Hospitals NHS Trust’s Strategic Outline Case (SOC) for the redevelopment of its three hospital sites. AA Projects Ltd (AAP) were identified as the preferred bidder and were awarded the contract on 9 December 2019.

2.0 Background

In 2017, West Hertfordshire Hospitals NHS Trust (WHHT) submitted a Strategic Outline Case (SOC) to NHS Improvement (NHSI) for the redevelopment and refurbishment of the existing acute hospital sites in West Hertfordshire. This proposed significant redevelopment of Watford General Hospital as the main A&E hospital providing emergency, critical and planned care and redevelopment of St Albans City Hospital for planned care. This followed a review of various options, including public and stakeholder engagement during 2016. During 2017 and 2018 the Herts Valleys Clinical Commissioning Group (CCG) worked with local clinicians, patients, councils and the community to develop complementary plans for new hospital facilities within Hemel Hempstead that could provide urgent, diagnostic and outpatient care. Further detail on the timeline of events is provided below.

2015 to 2016 Your Care, Your Future

Widespread public engagement on the future of healthcare provision in West Hertfordshire, led by Herts Valleys CCG, leading to the development of a Your Care, Your Future vision. The vision is for more preventative, proactive and integrated care provided as close to home as possible with more options for patients to be seen by specialists in the community rather than needing to go to hospital. This identified that a further piece of work was required to review options for developing future hospital provision and develop a SOC on a way forward

2016 to 2017 Development of SOC

During 2016 WHHT and the CCG carried out a wide-ranging review of various options for future hospital redevelopment. Options ranged from building a new hospital on a new site to varying degrees of redevelopment or refurbishment on existing sites. The process included financial and technical analysis and also public and stakeholder engagement. This concluded that redeveloping existing sites would be quicker, more affordable and more deliverable than a new hospital on a greenfield site. In 2017 a SOC that proposed significant redevelopment of Watford General Hospital as the main A&E hospital providing emergency, critical and planned care and redevelopment of St Albans City Hospital for planned care was approved separately by the WHHT and CCG boards. WHHT submitted the SOC to regulators in autumn 2017.

2018 to 2019 Refresh of SOC

Autumn 2018: NHSI fed back on the SOC. They agreed that investment was needed because of the condition of the buildings. However, they said that the amount of capital investment requested by the Trust was too high and asked for the SOC to be 'refreshed'. In response to this feedback from regulators WHHT and the CCG led a process to refresh the strategic outline case which also incorporated consideration of Hemel Hempstead. This was launched with a series of public meetings January 2019: NHSI wrote to the WHHT and the CCG clarifying that the hospital plans should be drawn up using WHHT’s annual turnover as a maximum threshold for any future investment. This figure is in the region of £350million. Following local approvals, at the end of July 2019 the SOC was submitted to NHSI for consideration.


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3.0 Scope of Services / Methodology

This assessment consists of a desk-top review of:

• The 2019 SOC and supporting appendices

• Updates to the 2017 SOC relevant to the development of the 2019 SOC

• The Report and Analysis of the West Hertfordshire Hospitals NHS Trust ‘The Future of Services in West Hertfordshire’ Draft Strategic Outline Case, prepared on behalf The New Hospital Campaign (NHC) Group

Additionally, the following supporting documentation has been reviewed:

• Six Facet Survey (2018) - executive summary and supporting redacted data

• Cost Estimate ‘OB forms’ for all options The aim of the assessment is to review the cost modelling approach and assumptions of the preferred way forward in the 2019 SOC, the Trust’s capital estimates for a new build / new site hospital and the NHC analysis of the Trust’s estimates for both. The analysis also considers the health planning approach used to inform the sizing, which in turn informed the costing. In addition, consideration has been made towards the adherence to HM Treasury’s Green Book, any other requirements of the NHS in developing business cases and robustness of assumptions and evidence for them. The options in scope of the assessment are:

• Preferred way forward - Option 1 (Investment at WGH, and investment in planned care across all sites)

• Two site configuration - Option 6 / IDM6 (Emergency care at a greenfield site and planned care at WGH)

• One site configuration - Option 8 / IDM8 (Greenfield site all new build)

Following production of an early draft of this assessment, a site visit was undertaken at the request of NHSI. As a result, some additional information was provided by the Trust and NHC and this has been dealt with at Appendix 1.


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4.0 Assessment

The outputs of the assessment are summarised in the following section. This should be read in conjunction with the tracker available at Appendix 1 which provides supplementary information.

Health Planning

4.1.1 Alignment with national, regional and local guidance

Analysis and commentary

2019 SOC The report appears to evidence reference made to strategic, national, regional and local guidance, to support the ‘Case for Change’, (pages 35 – 38). The clinical model aligns with the Trust’s Clinical Strategy.

NHC Report No reference appears to be made within the report to underpin the assumption that healthcare maybe be compromised if provided across three sites as planned and unplanned care.

Assessment The SOC appears to be comprehensive which highlights succinctly the ‘Case for Change’ and proposed service delivery model in line with national, regional and local guidance. This is illustrated at section 2.4.3, page 38.

4.1.2 Activity assumptions to inform capacity and sizing


2019 SOC The report highlights current activity figures by department and projected future figures inform future demand and capacity requirements (page 94).

NHC Report There does not appear to be reference made to the activity assumptions that have informed the capacity requirements.

Assessment The activity assumptions log within the SOC (Appendix A, page 82) highlights clear and succinct growth assumptions, demographic and non-demographic growth. Overall growth assumptions (page 88) appear reasonable.

4.1.3 Population projections and catchment area


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2019 SOC Data from the Office of National Statistics (ONS) has been used to inform population projections (page 32)

NHC Report The report does not appear to comment on the population projections and implications apart from a reference to an aging population.

Assessment The SOC makes reference to population projections up to 2038 and a growing population of over 65’s. To alleviate pressure on the ED at Watford, the retaining of the Walk-in Centres at Hemel and SACH should help to reduce footfall at Watford ED, along with the proposals to provide more care closer to home.

4.1.4 Accommodation schedules aligned with national guidance


2019 SOC Reference has been made to national guidance when compiling the schedules of accommodation, culminating in the functional content as referenced on page 29 and 30. Reference is also made to all services provided per site and functional suitability.

NHC Report The report does not appear to comment on the schedules of accommodation or functional content

Assessment The 2019 SOC proposes a functional content for a one and two site option. The number of beds, theatres and outpatient rooms are clearly illustrated. An assumption has been made that the Gross Department Areas allow for Planning Allowance, Engineering and Circulation and the Gross Total Area allows for Plant and Communication per department @ 30%. More detail is provided than expected at SOC stage. The schedules of accommodation (SoA) were not available to review however, it is evident that reference has been made to Health Building Notes (HBN) guidance regarding the sizing of departments. Page 29 of the SOC refers to the neonatal unit being 30% of the required size against the HBN and page 30 refers to the delivery suite room sizes being undersized against the HBN. The Trust has advised that no derogations were included in the final SOC costings following advice from NHSE. Any derogations made to the SoA would need to be detailed at the OBC stage.


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Costing

4.2.1 Split of new build versus heavy / medium / light refurbishment and costs per metre squared applied (departmental and on costs)


2019 SOC Departmental costs for all options have been priced based on the identified departmental space requirements and categorised into either N (new build), A (adaptations for alternative use) or C (upgrading existing building retaining current use). Previously the 2017 SOC utilised rates for new build and three categories of refurbishment – light, medium and heavy. Site specific on-costs have been included within Cost Form SOC3 for each option, however these are lump sum and it is assumed that there is a separate breakdown to the individual costs included within this. Although classifications N, C and A do feature these do not drive the 2019 SOC costings. The same cost classification is used in the 2019 SOC as the 2017 SOC: new build and three categories of refurbishment – light, medium and heavy. Table 66 in the 2019 SOC document shows how each department refurb has been costed.

NHC Report The NHC report highlights the difference in approach to pricing the departmental costs between the 2017 and 2019 versions and states that the Trust’s and CCG’s claims that the cost estimates in the new SOC are based on those contained in the original SOC is misleading. The NHC report also states that the same new build and refurbishment rates have been used irrespective of the site that they apply to and that the SOC3 costs do not provide for all the different factors that apply.

Assessment The departmental costs within the 2019 SOC have been compiled based on the most detailed information available at that stage. Departmental areas have been split between category N, A and C and costed utilising HPCG rates adjusted by inflation to current day which is common practice. This is the correct approach to pricing the Departmental Costs at SOC stage. This should be tested against benchmark data where possible. With regards to the NHC statement on the same rates being used irrespective of the sites, we do not agree with this. The refurbishment rates for Option 1 vary to those included in Option IDM6, therefore consideration must have been given to the works required for the different options. The new build rates are the same within Option 1, IDM6 and IDM8, however we agree with this approach to pricing the departmental costs at SOC stage. Site specific on-costs have been included within Cost Form SOC3 for each option. These vary between the options; however, we do not have the full substantiation to review these costs in more detail. We have undertaken a review of the rates against the HPCG and re-based these to May 2019 (date of the Cost Forms) using the PUBSEC indices. Following this review this indicates that the majority of the rates for Option 1 and IDM8 are in line with our assessment of the re-based HPCG rates. There are however a few anomalies as follows:

• Opt1 – New Build WACS block categorised as A

• Opt1 – New Build HD unit categorised as A

• Opt1 – Replace Theatre 5 categorised as A The Trust has advised that the labelling of N, A, C for Option 1 is incorrect. However, the classification of works elements has no bearing on the costing calculations i.e.


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• The WACS block is costed using a new build rate, blending HPCG rates for the various elements of the block

• The HD unit is costed using a new build rate

• Theatre 6 is costed using a new build rate

The rates for Option IDM6 refurbishment work appear to be low across all clinical departments. The Trust has advised that Heavy Refurbishment was costed at 70% of New Build rate throughout all options. Site specific on-costs have been included within Cost Form SOC3 for each option. These vary between the options; however, we do not have the full substantiation to review these costs in more detail.

4.2.2 Adherence to the Department of Health and Social Care costing and adherence to the HM Treasury guidance1


2019 SOC The 2019 SOC has been split between the relevant SOC forms to include departmental costs, site specific on-costs, fees and non-works costs with allowances then included within the Cost Summary for equipment, planning contingency and optimism bias. This is the case across all options with the costs varying between each option dependent upon the scope. Percentage allowances for both fees and equipment are fairly consistent across the options. Planning contingency has been included at 6% on Option 1 and 8% on Options IDM6 and IDM8. Optimism bias varies between all three options. It appears that an inflation adjustment has been included within Option 1 but excluded for Options IDM6 and IDM8. The Trust has advised that the SOC estimates are already based on inflation to the mid-point; not to ‘projected tender dates’, as stated on the cost schedules. This has been incorrectly labelled on the OB forms.

NHC Report The NHC Report has re-calculated the Option 1 costings (Table 1 within their report) with the following main adjustments: 1. Additional area included under the departmental costs following the NHC review of the 2019 SOC 2. VAT adjusted on the above 3. Additional on-costs have been included over and above the Cost Forms 4. Fees increased by 1% 5. Risk increased significantly to include the following:

• 6% planning contingency

• 12% risk allowance added which is applied to the works cost plus fees

• Optimism Bias retained at 24.5% 6. Inflation adjusted to mid-point of programme based on 3.5% per annum and a 6 year build duration 7. Inclusion of land sales revenue

The NHC Report has re-calculated the Option IDM8 costings (Table 2 within their report) with the following main adjustments:

1 Additional adjustments have been included in Section 5 so that the overall costs can be re-calculated


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1. Reduced on-costs have been included as follows:

• Omission of site specific abnormals

• Omission of demolition costs

• Omission of diversion/reinforcement costs 2. Inflation adjusted to mid-point of programme based on 3.5% per annum and a 3 year build duration 3. Inclusion of land sales revenue

The NHC Report has re-calculated the Option IDM6 costings (Table 3 within their report) with the following main adjustments: 1. Reduced on-costs have been included as follows:

• Omission of greenfield site-specific costs

• Omission of WACS costs

• Omission of additional prelims for temporary works and phasing

• Addition of site prep works at Watford 2. Fees increased by 1% 3. Inflation adjusted to mid-point of programme based on 3.5% per annum and a 5 year build duration. 4. Inclusion of land sales revenue

Assessment Option 1 We have reviewed the NHC adjusted costs for Option 1 and there are a number of adjustments that we disagree with as follows:

1. The inclusion of additional area under the departmental costs does not reconcile. A total of 11,198m2 has been included. We calculate this to be 5,321m2 . However, the Trust has advised that this difference in area is due the interim works funded by trust internally generated capital not being included in the OB form for costing (as agreed with NHSI).

2. The VAT calculation on the above appears to be incorrect 3. Additional On Costs have been included over and above the Cost Forms with little to no substantiation as follows:

• Increase to drainage provision – cost doubled

• Increase to CHP, heating, hot water and gas – cost doubled

• Increase to electrical mains – cost doubled

• Backlog maintenance allowance included – uncertain of where this cost has been ascertained

• Increase to demolition – no substantiation to costs

• Allowance for Watford site constraints – no substantiation to costs

• Increase to prelims – cost doubled 4. Risk increased significantly to include the following:

• 6% planning contingency included to all costs whereas the Cost Forms have this applied this to the Works Cost only which is correct

• 12% risk allowance added which is applied to the works cost plus fees


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• Optimism Bias retained at 24.5%

• The above total risk is significant at over 40% 5. Inflation adjusted to mid-point of programme based on 3.5% per annum and a 6-year build duration. Whilst the adjustment

to the mid-point is correct, a review of the indices has been undertaken separately which identifies a different percentage. Based on 3.5% we calculate the inflation as £115.46m not £124.9m on the basis of the NHC adjustments.

Option IDM8 We have reviewed the NHC adjusted costs for Option IDM8 and there are a number of adjustments that we disagree with as follows:

1. Reduced On Costs have been included as follows:

• Omission of site specific abnormals – It would be prudent to include allowances for site clearance, contamination removal, piled foundations etc as a final site location is still TBC. The assumption of land being secured with full infrastructure and other benefits is a risk and we would recommend that allowances should be retained specifically with the risk allowances being reduced on this option

• Omission of demolition costs – It would be prudent to retain this allowance as the assumption that this will be dealt with via land disposal is a risk and could affect the land sales revenue

• Omission of diversion/reinforcement costs – It would be prudent to include allowances for new services infrastructure as this will still be required regardless of site location. The assumption of land being secured with full infrastructure and other benefits is a risk and we would recommend that allowances should be retained specifically with the risk allowances being reduced on this option

2. The works costs total includes an arithmetical error, this should total £409.30m rather than £399.30m. 3. Equipment costs have been ringfenced on this option as per the Cost Forms yet they have been increased in Option 1 above

on a percentage basis. This is not consistent across the options 4. Inflation adjusted to mid-point of programme based on 3.5% per annum and a 3-year build duration. Whilst the adjustment

to the mid-point is correct, a review of the indices has been undertaken separately which identifies a different percentage. Based on 3.5% we calculate the inflation as £94.74m not £105.05m on the basis of the NHC adjustments

Option IDM6 We have reviewed the NHC adjusted costs for Option IDM6 and there are a number of adjustments that we disagree with as follows:

1. Departmental costs do not align with Cost Forms 2. Reduced on-costs have been included as follows:

• Omission of greenfield site-specific costs – It would be prudent to include allowances for abnormal foundations and highways improvements etc as a final site location is still TBC. The assumption of land being secured with full infrastructure and other benefits is a risk and we would recommend that allowances should be retained specifically with the risk allowances being reduced on this option

• Omission of WACS costs – uncertain of where this cost has been ascertained


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• Omission of additional prelims for temporary works and phasing – this should be retained specifically with the risk allowances being reduced on this option

• Addition of site prep works at Watford – uncertain of where this cost has been ascertained

• VAT calculation on the above appears to be incorrect 3. Equipment costs have been ringfenced on this Option as per the Cost Forms yet they have been increased in Option 1 above

on a percentage basis. This is not consistent across the options 4. Inflation adjusted to mid-point of programme based on 3.5% per annum and a 5-year build duration. Whilst the adjustment

to the mid-point is correct, a review of the indices has been undertaken separately which identifies a different percentage.

NHC have advised that the additional costs have been added to reasonably provide for various site-specific issues, but we would advise that further design information would be required to substantiate this.

4.2.3 Phasing of the options and how this impacts inflation assumptions


2019 SOC

The 2019 SOC includes an inflationary adjustment to Option 1, however no inflation appears to have been included within Options IDM6 and IDM8. Inflation within Option 1 is stated as being ‘adjusted to projected tender dates’. The Trust has advised that the SOC estimates are already based on inflation to the mid-point; not to ‘projected tender dates’, as stated on the cost schedules. This has been incorrectly labelled on the OB forms. The proposed build programme for Option 1 is circa 3 years. The completion date for both Options IDM6 and IDM8 are stated as TBC. All three options have a proposed start date of April 2022.

NHC Report

The NHC Report raises a number of concerns with regards to the programme duration included within Option 1 and states that this should be between 5 to 6 years. Within the adjusted costs, the NHC have recalculated the inflation allowances based on an increased programme duration for Option 1 of 6 years and Option IDM6 of 5 years with inflation included to the mid-point of construction at a rate of 3.5% per year. The programme duration for Option IDM8 has been included at 3 years with inflation included to the mid-point of construction at a rate of 3.5% per year.

Assessment The NHC Report assumes that inflation within Option 1 of the 2019 SOC has been included to the start of the construction period. This is difficult to verify as the Cost Forms are not clear on this and no index dates have been stated. The NHC statement that inflation needs to be included to the construction period is correct. The Trust has advised that this is the case.

For Option 1, based on the NHC inflation allowance of 3.5% per annum and a 6 year build duration, we calculate the inflation as £115.46m not £124.9m on the basis of the NHC adjustments. The programme duration would require further review and no further


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details have been provided within either the 2019 SOC or NHC Report, however we would agree that a 3 year build duration for Option 1 appears optimistic.

For Option IDM8, based on the NHC inflation allowance of 3.5% per annum and a 3 year build duration, we calculate the inflation as £94.74m not £105.05m on the basis of the NHC adjustments. The programme duration would require further review and no further details have been provided within either the 2019 SOC or NHC Report.

For Option IDM6, based on the NHC inflation allowance of 3.5% per annum and a 5 year build duration, the inflation adjustment appears correct on the basis of the NHC adjustments. The programme duration would require further review and no further details have been provided within either the 2019 SOC or NHC Report.

We have undertaken our own review of the inflation for all options and based on utilising the PUBSEC Indices and BCIS All-in TPI we calculate the inflation percentage as follows:

• 3 year build programme 23.5%

• 4 year build programme 27.5%

• 5 year build programme 28%

• 6 year build programme 31%

The above are based on a construction start date of April 2022 as stated in the 2019 SOC and are based from May 2019 as the date of the Cost Forms. The All-in TPI only extends to 2Q24, therefore we have taken the average of the preceding three years which equates to 3.54% per annum and applied this to 1Q24 onwards. Phasing and logistics should be reviewed and clarified to allow this analysis to be concluded.

4.2.4 Assumptions around efficiency gains, revenue and capital including FM and lifecycle


2019 SOC The 2019 SOC costings do not include any allowances for revenue, FM or lifecycle.

NHC Report

The NHC Report highlights that the 2019 SOC costings do not include any allowances for revenue, FM or lifecycle. Within the NHC adjusted costs, allowances for land sales revenue have been included for all three options and an allowance for land purchase within Option IDM6 and IDM8.

The NHC Report raises the point that FM and lifecycle costings have not been considered within the options appraisal and that Option IDM8 would clearly have significant FM and lifecycle benefits being a completely new facility.


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Assessment The land sales revenues and costs haven’t been checked, but assuming that these are accurate this demonstrates that Options IDM6 and IDM8 generate a reduction to the overall cost of the project of £72m and £80m respectively compared with £25m for Option 1. However, the NHC Report omits the demolition costs within Options IDM6 and IDM8 adjusted costs on the basis that the land could be secured with benefits without charge. Omission of the demolition costs is a significant risk and could affect the land sales revenue given the significant amount of existing assets that would require disposal.

With regards to FM and lifecycle, the Trust has advised that these costs where included in the short list options as an ongoing revenue impact or an annual impact on available capital, as opposed to a one-off capital cost. In addition, the inclusion of optimistic net land receipts does not reduce the net project costs to below the affordability threshold for IDM6 or IDM8. In any case, these costs need validating at the next stage.

4.2.5 Use of national benchmarks and the costs of similar recent schemes


2019 SOC The 2019 SOC does not benchmark against other similar schemes.

NHC Report Within the NHC Report there has been a benchmarking exercise undertaken which compares the cost per m2 for Option IDM8 within the 2019 SOC and the recalculated Option IDM8 by the NHC to four other NHS Hospital projects. The other projects have been re-based using RPI to present day.

Assessment It is difficult to assess the suitability of the benchmark projects selected as very little detail has been provided for each. In addition, no detailed cost breakdowns have been provided so it is impossible to determine what elements of the project have been included within the costs including the level of project specific abnormals. Adjustments have been made to the base costs utilising RPI inflation. This is incorrect and any adjustments made should be via the BCIS PUBSEC and All-in TPI indices. The comparison of the two new build options for WHHT are not comparable as there are a number of differences between the two as follows:

• NHC costs exclude site abnormals, demolition at the existing sites and diversion costs

• NHC report includes an arithmetical error within the On Costs

• NHC report includes land sales revenues whereas the 2019 SOC costs do not include this

• NHC costs do not align with Table 5 included within the NHC Report

Also, the benchmark schemes reflect a range of procurement routes and are not reflective of a SOC position (i.e. most appear to be at FBC stage). A BCIS elemental breakdown aligned to HPCG would be the best method for review.

4.2.6 Condition of current estates


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2019 SOC

The 2019 SOC includes:

• a total of 46,122m2 within Option 1

• a total of 91,289m2 within Option IDM8

• a total of 95,894m2 within Option IDM6

NHC Report

The NHC Report adjusts the area for Option 1 included within the 2019 SOC to 51,978m2 to align with the total area included within Table 66 of the 2019 SOC and the area for the admin, hot lab and mortuary.

The NHC Report adjusts the area for Option IDM6 included within the 2019 SOC to 96,000m2.

The NHC Report makes no adjustment to the area for Option IDM8 included within the 2019 SOC.

The NHC Report claims that no backlog maintenance has been included within the costings and by including this within Option 1 this would result in the most expensive option by some margin.

Assessment The NHC Report states that Six Facet Surveys are carried out assuming that the buildings and infrastructures covered are to be retained in normal conditions, but we disagree with this statement. Ratings of CX and DX have been allocated which indicates cognisance was taken that nothing short of re-provision would suffice i.e. supplementary rating added to C or D to indicate that it is impossible to improve without full replacements.

It appears that there are discrepancies between the total area inclusion within the Cost Forms for Option 1 and IDM6. The Trust has advised that with regards to Option 1, this difference in area is due the interim works funded by trust internally generated capital not being included in the OB form for costing (as agreed with NHSI). With regards to Option IDM6, it is already costed at 95,894m2 as per the OB Cost Form.

Without having the full detailed breakdown of the costs included within the Cost Forms, it is difficult to ascertain what if any of the backlog maintenance has been included for and the rationale behind this. The project team should clearly identify what has been included for backlog maintenance within each option and the potential risks associated with this.


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Business Case Approach

4.3.1 Alignment with HMT Greenbook Guidance -adherence to NHSI SOC checklist


2019 SOC In line with the HMT Green Book, the options framework was used to develop a long list of options. The long list was reduced to the short list by applying an agreed evaluation criteria and options were ruled out based on perceived (lack of) affordability and deliverability. Four options plus ‘do minimum’ were short listed for further appraisal. A benchmark option (business as usual) was included as a baseline comparator. A combination of quantitative (economic analysis) and qualitative appraisal (stakeholder scoring) was undertaken. The outputs of the appraisal were not conclusive as the economic analysis shows that Option 4 is the preferred way forward whereas the qualitative analysis shows that Option 1 is the preferred way forward.

NHC Report The report proposes that the new build options should have been appraised alongside the other shortlisted options rather than being discounted from the outset. The report states that proposals for Option 1 fail to define the scope of the proposed works and highlights that there are no layouts, phasing, transition plans or reliable programme.

Assessment It is evident that the SOC has generally followed Green Book guidance and the options appraisal appears to be more in line with what is expected at OBC stage. However, there are some areas where the SOC doesn’t adhere to the latest guidance. For instance, the SOC is scoping phase for the project. The purpose of this stage is to affirm the strategic context for the project, to make the case for change and to determine ‘the preferred way forward’. Identifying the preferred way forward is achieved in two stages: first, by appraising a wide range of possible options (‘the long-list’) against the spending objectives and critical success factors for the project; and second, by calculating the indicative net present social values of a reduced number of possible options (‘the short-list’) on the basis of a preliminary analysis of their costs and benefits, including optimism bias for uncertainty. These short list options should include:

• Business As Usual (BAU) – the benchmark for Value for Money (not included in shortlist)

• ‘do minimum’ – a realistic way forward that also acts as a further benchmark for Value for Money, in terms of cost justifying further intervention (included in shortlist)

• ‘recommended’ - the preferred way forward at this stage (included in shortlist)

• one or more other possible options based on realistic ‘more ambitious’ and ‘less ambitious’ choices that were not discounted at the long-list stage (included in shortlist)

In terms of the inconclusive options appraisal, it may be prudent to refer to the Capital Investment Appraisal Model (CIAM). CIAM was introduced in April 2019 for use by the NHS to support economic appraisals and benefits analysis in business cases. It replaces the Generic Economic Model (GEM). The model was introduced to remove subjectivity in the option appraisal process. The principle sitting behind CIAM is the monetisation of benefits, whereby each benefit can be quantified where possible. The purpose of valuing


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benefits is to ascertain whether an option’s benefits are worth its costs, and to allow alternative options to be compared systematically in terms of their net benefits or costs. The Trust has advised that the CIAM guidance was only issued as the Trust were already a significant way through the SOC option appraisal process. NHSI advised to continue with the GEM with an understanding that the CIAM would be used at OBC stage. With regards to the level of design detail provided for each of the options, as per NHSI and Greenbrook guidance, the SOC aligns with what is required at this stage i.e. RIBA Stage 1 ‘preparation and brief’. Concept designs are only required at OBC stage (RIBA Stages 2 and 3).


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5.0 Summary of Findings

The table below summarises the net effects of any adjustments made as part of this assessment along with the estimated difference in cost shown in both monetary terms and as a percentage of the current costs. For example, this shows the Trust costs for Option 1 are 0% under/over costed compared to the NHC costs for Option 1 which are 35.8% over costed. A more detailed breakdown is provided from page 16 onwards.

Trust SOC NHC Report

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Current Sub-total (Excl Inflation)

£349.8m £740.53m £732.86m £544.8m £685.84m £626.77m

Our Revised Sub-total (Excl Inflation)

£349.8m £743.59m £732.86m £349.8m £743.59m £732.86m

£ Difference 0 +£3.06m 0 -£195m +£57.75m +£106.09m

% Difference 0.0% +0.4% 0.0% -35.8% +8.4% +16.9%


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Sub-total (Excl Inflation)

£349.80m

£740.53m

£732.86m

£544.80m

£685.84m

£626.77m

We have undertaken a review of the rates against the HPCG and re-based these to May 2019 (date of the Cost Forms) using the PUBSEC indices. There are a few anomalies as follows: • Opt1 – New Build WACS block categorised as A • Opt1 – New Build HD unit categorised as A • Opt1 – Replace Theatre 5 categorised as A The rates for Option IDM6 refurbishment work appear to be low across all clinical departments

N/A N/A N/A

£3.06m

N/A N/A N/A

£3.06m

4.2.1

We have reviewed the NHC adjusted costs for Option 1 and there are also a number of adjustments that we disagree with as follows: 1. The inclusion of additional area under the departmental costs is incorrect as the Trust have confirmed that they have funded these works outside of the SOC 2. The VAT calculation on the above appears to be incorrect

N/A

N/A

-£27.97m

Incl above

4.2.2


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3. Additional On Costs have been included over and above the Cost Forms with little to no substantiation 4. Adjustment required to fees to reflect the above revisions 5. Equipment costs assumed ringfenced 6. Risk increased significantly to include the following: • 6% planning contingency included to all costs whereas the Cost Forms have this applied this to the Works Cost only which is correct • 12% risk allowance added which is applied to the works cost plus fees • Optimism Bias retained at 24.5% 7. Inflation adjusted to mid-point of programme based on 3.5% per annum and a 6-year build duration. Whilst the adjustment to the mid-point is correct, a review of the indices has been undertaken separately which identifies a different percentage. Based on 3.5% we calculate the inflation as £115.46m not £124.9m on the basis of the NHC adjustments

N/A

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N/A

N/A

N/A

N/A

See 4.2.3

-£61.39m

-£11.57m

-£5.59m

-£9.95m

-£40.15m

-£38.38m

See 4.2.3


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We have reviewed the NHC adjusted costs for Option IDM8 and there are a number of adjustments that we disagree with as follows: 1. Reduced On Costs have been included 2. The Works Costs total includes an arithmetical error, this should total £409.30m rather than £399.30m. 3. Adjustment required to fees to reflect the above revisions 4. Equipment costs have been ringfenced on this Option as per the Cost Forms yet they have been increased in Option 1 above on a percentage basis. This is not consistent across the options 5. Adjustment to planning contingency at SOC rate of 8% 6. Adjustment to Optimism bias at SOC rate of 21.75% 7. Inflation adjusted to mid-point of programme based on 3.5% per annum and a 3 year build

N/A

N/A

N/A

N/A

N/A

N/A

See below

£26.99m

£10.00m

£3.16m

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£14.94m

£51.00m

See below

4.2.2


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duration. Whilst the adjustment to the mid-point is correct, a review of the indices has been undertaken separately which identifies a different percentage. Based on 3.5% we calculate the inflation as £94.74m not £105.05m on the basis of the NHC adjustments

We have reviewed the NHC adjusted costs for Option IDM6 and whilst there a number of adjustments that we disagree with as follows: 1. Departmental costs do not align with Cost Forms 2. Reduced on-costs have been included 3. Adjustment required to fees to reflect the above revisions 4. Equipment costs have been ringfenced on this Option as per the Cost Forms yet they have been increased in Option 1 above on a percentage basis. This is not consistent across the options 5. Adjustment to planning contingency at SOC rate of 8%

N/A

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-£21.63m

£13.38m

-£4.33m

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4.2.2


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6. Adjustment to Optimism bias at SOC rate of 21.75% 7. Inflation adjusted to mid-point of programme based on 3.5% per annum and a 5-year build duration. Whilst the adjustment to the mid-point is correct, a review of the indices has been undertaken separately which identifies a different percentage

N/A

See below

£54.67m

See below

Revised Sub-total (Excl Inflation)

£349.80m

£743.59m

£732.86m

£349.80m

£743.59m

£732.86m

We have undertaken our own review of the inflation for all options and based on utilising the PUBSEC Indices and BCIS All-in TPI we calculate the inflation percentage as follows: • 3 year build programme 23.5% • 4 year build programme 27.5% • 5 year build programme 28% • 6 year build programme 31%

£82.20m £96.20m £97.94m

£108.44m

£174.74m £204.49m £208.21m £230.51m

£172.22m £201.54m £205.20m £227.19m

£82.20m £96.20m £97.94m

£108.44m

£174.74m £204.49m £208.21m £230.51m

£172.22m £201.54m £205.20m £227.19m

4.2.3

The land sales revenues and costs haven’t been checked, but assuming that these are accurate this demonstrates that Options IDM6 and IDM8 generate a reduction to the overall cost of the

-£25m

-£72m

-£80m

N/A

N/A

N/A

4.2.4


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project of £72m and £80m respectively compared with £25m for Option 1 The Trust has advised that FM etc was included in the options analysis as an ongoing revenue impact. Option IDM8 would have the greatest savings in terms of FM and lifecycle, however, without a full appraisal being undertaken this cannot be assessed at present

TBC

TBC

TBC

TBC

TBC

TBC

Without having the full detailed breakdown of the costs included within the Cost Forms, it is difficult to ascertain what if any of the backlog maintenance has been included for and the rationale behind this. The project team should clearly identify what has been included for backlog maintenance within each option and the potential risks associated with this

TBC TBC N/A TBC TBC N/A 4.2.6


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6.0 Conclusions

The key points to note are described as follows. This desktop assessment has been ringfenced to the documents provided as detailed in Section 3. Some additional information was provided by the Trust and NHC and this has been dealt with at Appendix 1.

1) The health planning approach used to inform the sizing of the options detailed within the SOC,

appears to be comprehensive. The NHC does not appear to comment on this 2) It is evident that the SOC has generally followed Green Book guidance, and the options appraisal

appears to be more in line with what is expected at OBC stage 3) With regards to the approach to costing, the departmental costs and departmental areas within

the SOC have been compiled based on the most detailed information available at that stage (SOC/RIBA Stage 1). As expected, refurbishment rates for options vary across options, as required.

4) The majority of the rates included in the SOC for Option 1 and IDM8 are in line with our assessment of the re-based HPCG rates, however there are some minor anomalies

5) There are some anomalies in the inflation calculations both within the SOC and NHC report 6) In terms of adherence to the Department of Health and Social Care costing and adherence to the

HM Treasury guidance, there are adjustments made within the NHC report that we disagree with (as detailed in the main body of the report)

7) There are some issues relating to the validity of the benchmark projects included in NHC report 8) As part of an Outline Business Case (OBC) the short-listed options will be subject to a more robust

options appraisal as further detailed design is developed. 9) The SOC is concerned with the works that will be undertaken utilising Public Dividend Capital

(PDC) which is what the business case is seeking to secure. Other funding sources are also being considered to supplement this e.g. income from land sale receipts, Energy Efficiency Financing to fund an energy centre, Section 106 funding from local authorities and a Managed Equipment Service (MES). PDC should not be used solely to address backlog issues, each Trust should have a backlog miniatous programme and wherever possible utilise the Trust's own capital funding and/or their maintenance budget to assist in this. This is applicable to WHHT and the Trust has plans in place that go beyond 2026 in order to address backlog issues on a rolling basis.

10) The Trust has identified accommodation that has some under-utilisation and as such will be looking to use the existing estate more efficiently. Therefore, there is not the requirement to build new accommodation to the same scale/size as the areas being demolished.

11) Allowances have been made within the capital on- costs for abnormal substructure and engineering solutions over and above the allowances within HPCG. At this stage, there isn’t an engineered solution that has been designed that would allow for more robust measurement and quantification. This would take place at OBC stage, when a design solution is put forward.

12) In respect of the incoming supplies and critical infrastructure works, again an allowance has been included in the capital on-costs for abnormals and challenges. It is understood that the new build elements will be fed from the new mixed-use development at the bottom of the site, which will negate the requirement to bolster existing site infrastructure and convoluted access points across the site. Allowances have been made for service diversions. At this stage, there isn’t an engineered solution that has been designed that would allow for more robust measurement and quantification. This would take place at OBC stage, when a design solution is put forward.

13) Some aspects of risk have been included within the capital on-costs that are associated with the refurbishment and new build elements, together with site wide infrastructure. A further blanket 6% has been allocated to the Departmental and On-Costs at this stage. The detail of this would be developed out at OBC Stage.

14) At the moment, there is an extra unquantifiable risk allowance within the Optimism Bias, over and above the HPCG and the abnormal on-costs that would deal with the commercial requirements of the solution. It is considered that proportional mitigation allowances have been accounted for in this regard.


SM/15718/13/March 2020 Page 23

Appendix 1 - Feedback Tracker

Feedback Tracker v5

200320.xlsx

analysis of the strategic outline case (soc) for west ......analysis of whh strategic outline case...

Documents