Future Hospital Funding Strategy - Ministerial Response - 30 August 2017

Findings

Comments

1

The  Panel's  advisers,  Concerto,  have analysed the various components of the budget  and  have  rated  it  as  Amber- Green  under  the  UK  Government Gateway  review  process.  This  means that  "successful  delivery  appears probable.  However,  constant  attention will be needed to ensure risks do not materialise into major issues threatening delivery.".

Agreed.

2

The  hospital  cost  estimation  is approximately  £392 million  excluding the  allowance  for  "risk"  (i.e. contingency).  The  risk  allowance  is £74 million.

Agreed, as at the time of lodging P.130/2017. The cost estimate is revised at key milestones within the  project,  and  the  risk  allowance  may  change over time.

3

Out  of  the  9 projects  reviewed  by Gleeds  for  benchmarking,  Jersey's proposed  new  hospital  was  the  third most expensive.

Noted. However, as made clear during the review and in Panel hearings, the project is at an early stage of development, and no 2 hospitals are the same. Therefore, benchmarking is only one of the ways  in  which  value  for  money  should  be considered.

Findings

Comments

4

Out-patient  services  will  be permanently located at Westaway Court under the Future Hospital proposals and not on the main hospital site.

This  is  partly  correct.  Out-patient  services associated with long-term conditions are proposed to be located at Westaway Court. Other out-patient services, including women's and children's, renal and oncology services will be located in the main hospital.

5

With the permanent relocation of out- patient services to Westaway Court, this represents a 2-site solution.

Noted. However, the close location of Westaway Court  to  the  main  hospital  means  that  close co-ordination  of  services with  the  main  hospital was accepted as achievable by CSSP advisers.

6

There are a number of important items excluded  from  the  hospital  cost estimation which are directly relevant to the project, and the costs for which have not  been  quantified  publicly.  These include the extension to Patriotic Street Car Park, the demolition of the 1960s and 1980s blocks, and the ongoing costs for the new off-site catering facility and the relocated staff accommodation.

This is partly correct. The Transport Assessment undertaken by the project has recently confirmed the need for extra parking at Patriotic Street for hospital  use,  and  therefore  this  will  now  be considered within the overall project cost.

The lease costs for relocation of catering services off-site are included within the whole life costs of the project, as shared with CSSP advisers. As this relocation was planned irrespective of the solution for the Future Hospital, as it is not good value for money  to  re-provide  such  services  within  an expensive hospital building, this ongoing cost is not  appropriate  to  be  met  within  the  capital allocation.

It  has  recently  been  confirmed  that  key  worker accommodation  will  be  provided  partly  in temporary accommodation at  the  The Limes site, while  a  permanent  base  near  the  hospital  is confirmed. Capital costs associated with the refit of The Limes will be met within the capital allocation. P.130/2016 confirms that the lease costs associated with  the  remaining  temporary  key  worker accommodation will be met within the project costs during the current MTFP period, but will then be met through a revenue service charge to the Health and  Social  Services  Department  ("HSSD")  from Andium. This provision will offset the cost of a declining capital asset with a modern and attractive key worker service.

The costs of demolition of the residual hospital are not  currently  included  within  the  project  capital costs. The HSSD and Infrastructure Department are working  together  to  develop  a  Health  Estate Strategy, which will set out the proposed uses for the  site  in  due  course.  The  merits  of  a  health campus and the scale of the health transformation mean it is likely that the site will need to remain zoned for health for the foreseeable future.

Findings

Comments

7

In choosing the existing site, one of the advantages put forward by the Minister for Health and Social Services was the option to develop a health campus. No plans  have  been  produced  to  support this proposal and the costings have not been provisioned for within the budget.

The Health and Social Services and Infrastructure Departments  are  working  together  to  develop  a Health  Estate  Strategy,  which  will  set  out  the proposed uses for the site in due course. The merits of  a  health  campus  and  the  scale  of  the  health transformation mean it is likely that the site will need to remain zoned for health for the foreseeable future. In this context, it would not be possible or appropriate to include costs for the health campus within the capital proposals for the Future Hospital.

8

At this early stage of the project, there is scope for savings to be made within the current cost estimation; for example, tenders  coming  in  cheaper  than originally  budgeted  for,  efficiencies being found, or certain elements of the project  not  being  required.  If  these savings are banked, the project can be delivered  below  the  current  cost estimation.

Agreed. However, there remain a large number of risks  and  issues  that  still  need  to  be  worked through,  which  means  it  would  be  unwise  to unduly shackle the project at such an early stage; as this  may  mean  that  a  reduced  capital  provision proves inadequate, and the project would need to return to the States for additional funding to ensure a  safe,  sustainable  and  affordable  hospital  is provided. All projects require some flexibility to ensure that they can take advantage of potential opportunities and add the most value, provided this is done in a controlled and accountable way. It is critical  on  such  a  major  project,  where  rapid changes  in  health  best  practice  and  complex co-ordination  is  inevitable,  that  the  project  is permitted to propose opportunities for enhancing benefits  and  value  for  money,  not  just  driving down cost, as this would not be in the long-term interest  of  Islanders  or  the  sustainable  and affordable operation of the Future Hospital.

9

P.130/2016  states  that  the  Treasury Department is responsible for control of contingency;  however,  the  exact governance  structure  around contingency  control  is  still  under discussion.

Noted. The CSSP's adviser acknowledged that the existing  governance  structure  provides  for extensive controls of all aspects of the project and is  in  accordance  with  Financial  Directions. However, as the project is of such significance, it was already recognised within the project that the control of contingency needs additional safeguards, as was put in place on previous significant capital projects.  The  best  approach  to  managing  such contingency requires careful consideration of the finalised procurement approach, contractual form, risk  allocation  and  financial  management,  in addition to governance and approval. These matters will be resolved and clarification provided on the proposed  approach  within  the  forthcoming investment decision proposition and report.

Findings

Comments

10

A  recent  change  in  inflation assumptions  was  reallocated  to  fund additions to the Hospital Project.

This is partly correct. It is important to note that, as explained to the CSSP in a public hearing, during the development of the formal Project Brief certain adjustments and clarifications to the Health Brief have been required to ensure a safe, sustainable and affordable hospital. This would be the case on any construction project. Further, as conveyed to the CSSP's adviser, both additions and reductions to the project scope have been proposed through the value  management  framework.  Finally,  as  these matters remain proposals, they are all subject to the States' consideration of the proposals for designs for  hospital  services  in  the  investment  decision proposition and report.

11

The  Panel's  adviser,  Opus,  has examined the options considered by the Treasury Department and has assessed that borrowing "would appear to be a pragmatic way forward".

Agreed.

12

Third-party involvement in the Hospital Project  would  provide  oversight  of decision-making structures and provide an element of risk reduction.

The report seeks to compare the proposed funding option with a PFI structure, in which a third party funder has a role that is absent in the proposed arrangements. This role is redundant for a funding route  secured  through  bond  (or  other)  direct borrowing  or  the  use  of  reserves  (or  any combination thereof).

The Project Team recognised at an early stage that independent'  financial  advice  was  required  to provide  an  appropriate  level  of  assurance. Following  a  competitive  procurement  process, Ernst and Young were appointed. The procurement sought:

"to  appoint  a  suitably  competent  and appropriately  resourced  supplier  to  oversee the co-ordinated development and delivery of financial  and  economic  (and  support  the delivery  of  the  commercial)  elements  of  the Feasibility Study and the Business Cases, and to  subsequently  assist  and  advise  the Contracting Authority on issues arising from these  elements  of  the  Business  Cases throughout  subsequent  delivery  of  the Project"1.

The  Invitation  to  Tender  set  out  the  level  of independence'  required  from  the  successful Financial Adviser in the following terms –

Findings

Comments

"Maintaining Independence

For  the  purposes  of  the  delivery  of  the Services,  the  term  independent'  is  to  be considered by the Consultant in the context of them:

• providing  an  objective  evaluation  of  the evidence and information provided; and

• using their own professional judgement in the  interpretation  of  evidence  and information provided; and

• having  a  willingness  to  stake  the Consultant's  professional  reputation  on the quality of deliverables; and

• maintaining  a  willingness  to  challenge stakeholder opinions;

• being free from the influence of the Project Team,  the  Project  Board,  LOD,  HSSD, TRD,  or  any  representative  of  the Contracting Authority in providing advice, counsel, guidance or recommendations.

In addition to the above, the Consultant will be required to ensure and maintain independence (as described  above),  during  sustained  engagement with  stakeholders  during  the  delivery  of  the Services."

Further,  in  addition  to  independent  financial advice, a separate and entirely independent team within  EY  plc.  provide  "third  party"  project assurance  for  the  development  of  the  project's business case.

The project is being managed in accordance with the  UK  Office  of  Government  Commerce "Gateway" process; and key third party gateway reviews, such as that undertaken by the  CSSP's adviser,  are  planned  throughout  the  project  as evidenced  through  all  the  appointment documentation  provided  to  the  CSSP.  It  has previously  been  recommended  that  this  process continues to be undertaken in partnership with the relevant  Scrutiny  Panel  for  ongoing  public reassurance.

In  addition  to  the  independent  advisers  and assurance  process,  the  project  has  appointed  an experienced  architect  with  extensive  hospital experience as design champion' for the project, who provides the Project Board with independent advice and challenge.

Findings

Comments

As the project moves into construction phases, the Project Board will look to appoint a construction champion' with a high level of experience of acting as  adviser  to  client  teams  in  delivery  of  major hospital projects.

13

The  option  of  funding  the  Future Hospital Project solely from the returns on the Strategic Reserve was considered viable  in  2014  for  a  project  cost  of £297 million, but has been ruled out as an option for funding the higher cost of £466 million.

For a budget of £297 million, at the time this was believed to be the correct approach, before it was known  the  extent  that  it  would  be  necessary  to draw from the Strategic Reserve and support the economy whilst we delivered balanced budgets. A budget of £297 million, funded from the Strategic Reserve,  would  very  likely  result in the  Capital Value, agreed by the States, being breached. In any event,  the  £297 million  solution  is  no  longer advisable.

This was the right solution in 2013. It is no longer viable and is not the right solution today, and that approach may have needed to be modified through proposals brought back to the Assembly.

14

If it is considered that borrowing is the best  way  to  fund  the  Future  Hospital Project,  then  the  proposals  lodged  by Treasury  are  reasonable.  However,  an alternative option proposed by the Panel is to use the Strategic Reserve initially and recapitalise it from internal sources.

The Minister has presented his comments to the States (P.130/2016 Amd.(3)Com.) on the CSSP's proposal made in their amendment to the Projet, P.130/2016 Amd.(3), and its addenda,

i.e. P.130/2016 Amd.(3)Add.

and P.130/2016 Amd.(3)Add.(2).

The internal resources' referred to by the CSSP are  in  reality  funds  provided  out  of  taxpayers' pockets, totalling an estimated £388 million.

15

Recent  modelling  by  the  Treasury shows that if an amount of £4.2 million (increased  annually  by  inflation)  was paid  into  the  Strategic  Reserve  each year  until  2060,  it  would  bring  the Strategic Reserve back to the same level of £4.2 billion in 2060 as if the bond option  had  been  followed,  without taking on any debt.

At  current  prices  on  a  comparable  basis,  this amount  is  £5.2 million,  rising  to  £16.2 million annually.  This  would  require  taxpayers  to contribute in the region of £377 million by 2060 that they would otherwise not have had to pay.

16

The  Panel  considers  that  finding  an amount  of  £4.2 million  annually  from internal  sources  to  recapitalise  the Strategic Reserve should be achievable. On this basis, the Panel has lodged an amendment to P.130/2016 in order to give States Members a choice between funding  the  hospital  from  internal measures or through the proposed Bond issue.

This requires taxpayers to contribute £377 million over 40 years that otherwise would not be required by the proposal of the Minister.

Findings

Comments

17

The  Investment  Strategy  for  the Strategic Reserve will be important in ensuring  that  the  interest  on  the proposed Bond can be serviced.

Noted. The Investment Strategy for the borrowed funds will be published in accordance with legal requirements and normal arrangements.

18

In order to ensure the Bond interest can be  serviced,  the  Strategic  Reserve cannot be used for other purposes for at least 10 years (at the Panel's suggestion, this has been increased to 15 years in the recent amendment to the proposition lodged by the Minister for Treasury and Resources).

Noted and agreed, except for the Fund's primary purposes  by  the  Minister.  However,  the  States Assembly can, at any time, change its approach if a proposition  were  to  be  brought  by  a  future Minister.  This  could  arise,  for  example,  from unforeseen resources available to the Fund.

19

A  permanent  reduction  in  annual income  of  the  States  of  £42 million (approximately  5%)  over  a  long-term period  would  lead  to  the  Strategic Reserve being overdrawn without other measures being taken.

This conclusion is one drawn from stress-testing by the Treasury, testing a scenario of a £42 million deficit for each year of 40 years.

As CSSP suggests, this would never be allowed to occur by any reasonable Jersey Government. The Panel  confirms  that  impacts  on  a  more  realistic short-term basis can be absorbed.

The risks identified by the Panel in relation to the States' and Strategic Reserve income apply equally to the CSSP's own alternative proposal, but would result in deeper and earlier adverse effects if they were adopted.

20

The  stress-testing  undertaken  by Treasury shows that one-off shocks can be coped with in the proposed funding strategy. However, permanent structural changes would require changes to the strategy.

Permanent structural changes would only require amendments to the strategy if they involved very significant  sums  from  the  Strategic  Reserve because of natural disaster or loss of the finance industry. Deficits would be addressed by the States.

21

The Panel's adviser has commented that the  uncertainty  presented  by  Brexit presents  a  choice  to  either  take advantage of today's low interest rates or to be more cautious and allow time to see  how  and  when  the  costs  of  the project  pan  out  and  to  tailor  the borrowing accordingly.

The adviser's comments are noted. However, the Minister believes that the States Assembly, and the Island as a whole, prefer a position of certainty of costs  and  the  ability  to  meet  those  costs.  The opportunity to achieve this certainty is offered by the historically low bond rates currently available.

The adviser also acknowledges that waiting carries the  risk  of  debt  becoming  more  expensive,  and would threaten the strategy.

22

When  the  Hospital  Funding  Strategy was initially debated in January 2017, the  proposed  level  of  borrowing (£400 million)  was  marginally  below the  permitted  headroom  under  the Public Finances Law (£402 million).

This  is  coincidental.  If  the  optimum  borrowing amount  was  above  £400 million,  then  an amendment  to  the  Public  Finances  (Jersey) Law 2005  would  have  been  brought  by  the Minister. Jersey's ratio of debt to GDP following borrowing of £400 million would still be low (at around 16%).

Findings

Comments

The Minister lodged his own (fourth) amendment to P.130/2016, which set the maximum amount of borrowing at £275 million.

23

The  headroom  for  borrowing  has increased to approximately £25 million.

Treasury figures demonstrate this.

24

Issuing a bond of £400 million would severely  restrict  the  future  borrowing ability of the States without changing the current restrictions imposed by the Public Finances Law.

Agreed.

The Minister lodged his own (fourth) amendment to P.130/2016, which set the maximum amount of borrowing at £275 million.

25

Jersey's  debt  to  GDP  ratio  is  small, however comparisons of this ratio with sovereign  nations  is  of  limited  value. Jersey is not a sovereign nation and the self-imposed borrowing limit as set out in  the  Public  Finances  Law  is  more relevant.

The comments on Jersey's debt ratio are made by the  Minister's  advisers  (EY),  who  consider  the comparison  to  be  valid.  However,  the  Panel's views are noted, and there are no plans at present to increase  the  borrowing  threshold  in  the  Finance Law.

26

On a strict legal basis, the borrowing condition in the  Public  Finances Law has been met. However, it is important to be aware of all liabilities of the States when considering the further borrowing now  being  contemplated.  The  Panel estimates that total  current  and future liabilities would be just under £2 billion if the bond proposal is accepted.

The  Minister  disagrees  with  the  CSSP's calculations.  See  his  comments  on  their amendment: P.130/2016 Amd.(3)Com.

27

For  the  purposes  of  the  borrowing condition set out in Article 21(3) of the Public  Finances  Law,  the  Long-Term Care Charge is considered a tax.

For  that  purpose,  the  Long-Term  Care  Charge payments received are considered to form a part of "the estimated income of the States derived from taxation during the previous financial year".

28

It is clear from the schedule presented to States Members during the debate in January  2017  that  if  the  Long-Term Care Charge had not been considered a tax, the proposed borrowing would have exceeded the available headroom at that time.  The  option  that  had  been considered  in  this  scenario  was  to change the borrowing limit in the Public Finances Law.

Yes, the Minister could have brought forward an amendment to the Law.

The Minister lodged his own (fourth) amendment to P.130/2016, which set the maximum amount of borrowing at £275 million.

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

1

The maximum budget that the Hospital Project Team work to should exclude the "risk" elements of the budget (i.e. contingency) and should therefore be £392 million. Control of the majority of the "risk" part of the budget of

£74 million should be external to the project team so that it is only used for genuine unforeseen costs. It should be recognised that both elements of the budget envelope are estimates and could reduce as actual costs are established.

DfI/ T&R

Accept in principle

The  Treasury  supports  the  general principle  of  holding  the  contingency sum  separately  from  the  main  project sum within the Strategic Reserve, with sums  being  released  to  meet  forecast expenditure on a cash-flow basis.

The  recommendation  does,  however, require some clarification.

Risk  allocation  sums  are  held,  in  the main,  for  foreseeable  items  that  have not  yet  occurred.  The  risk  and  value management  processes  within  the project,  on  which  Concerto  comment positively  [paragraph 6,  page 15], consider  the  likely  project  risks  and allocate  risk  contingency  funding accordingly,  based  on  impact  and likelihood  of  occurrence.  Some  risks will  occur  and  some  will  not –  the impact may be at the forecast level or at a different sum. This is the nature of risk.  There  are  few  genuinely unforeseeable  items  that  are  not captured in the risk register and which are addressed on major projects through an  allocation termed  "optimism bias". They  are  either  unknowable  or unquantifiable, but materialise prior to the  project business  case being  fixed. The robust risk and value management process will ensure those foreseen risks are properly managed and mitigated.

The  recommendations  consider that  if savings'  are  realised,  they  should  be retained and not be reallocated within the  project.  The  implication  is  that where cost forecasts reduce, either as a result of the adoption of a lower cost solution  or,  possibly,  through  an exogenous change such as a reduction in forecast inflation, the overall budget should  be  reduced.  This  position removes the necessary flexibility from the  project  budget.  Savings  will  only materialise, and can only be banked'

Ongoing

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

with  certainty,  on  completion  of  the project when all costs, fees, any claims and any matters relating to defects and other post-contract performance issues, have  been  fully  resolved.  Until  that point, a favourable budget variance is not a realisable saving. Conversely, the project must manage within the budget constraints the challenges placed upon it by  an  ever-evolving  health  service, where  opportunities  and  risks  will continue  to  arise  until  and  after  the project  construction  commences.  To unduly restrain the ability of the project to propose opportunities that invest to save and offer revenue savings, or add value  by  promoting  the  sustainable delivery  of  hospital  services  or improving key matters of safety, would not appear to be in the interest of the Public of Jersey or consistent with the best  practice  management  of  major capital projects.

The  overall  project  budget  of £466 million  therefore  rightly incorporates  an  appropriate  level  of contingency and optimism bias that is relevant  for  this  stage  of  the  project development.  As  the  design  develops and the procurement process progresses, an element of the contingency sum will crystallise  and  move  into  the  base budget' requirement.

Recommendation 1  recognises  that, both  elements  of  the  budget envelope  are  estimates  and  could reduce ' – the converse is also true; and the ability to utilise the contingency sums  appropriately  and  in  a  timely manner is essential to the delivery of this large and complex project. Treasury is  committed  to  working  with  the project  team  to develop  a  mechanism for releasing funds that maximises the investment potential, whilst applying a prudent  approach  to  the  use  of contingency funding.

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

Irrespective of the split between base budget' and 'risk allocation', the overall funding  allocation  will  remain  within the  Strategic  Reserve  and  will  be released through a Treasury Gateway' process.

The  Treasury  would  support  the retention of material reductions in cost forecasts  being  retained  within  the managed contingency sum and released to  the  project  budget,  only  where justification is provided and agreed.

2

Both elements of the budget envelope

(i.e. capital cost and contingency) are estimates and could reduce as actual costs are established. The principle of external control should apply to all savings (irrespective of whether they occur within contingency or within the capital cost element), and which should not be spent.

T&R

Accept in principle

See comments on Recommendation 1.

The  Minister's  fourth  amendment  to P.130/2016  made  a  minor  wording change  to  reinforce  the  position  that £466 million  is  the  maximum  budget which  will  be  available  for  the  new Jersey General Hospital.

Ongoing

3

Any savings achieved from the hospital cost estimate of £392 million should not be reallocated to be spent elsewhere. Such savings should be retained by Treasury separate from Contingency, as a saving.

T&R

Accept in principle

See comments on Recommendation 1.

Ongoing

4

The benchmarking work undertaken at the request of Concerto should be developed further to ensure the relative cost of Jersey's project is fully understood.

DfI

Accept

The  Treasury  welcomes  the benchmarking  work  that  has  been undertaken  to  date,  and  supports  the recommendation of the Panel to develop this further.

Ongoing

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

5

There needs to be a considered decision made regarding the Health Campus and Westaway Court. The long-term future usage of both sites needs clarification, justification and full costing.

DfI/ HSS/ T&R

Accept in principle

In  relation  to  Westaway  Court,  the Project  Team  shared  the  decision- making process undertaken thus far to propose  the  use  of  the  site  as  a permanent Long-term Condition Centre with the Panel's adviser, and the adviser recognised  the  robustness  of  the governance  process  involved.  This proposal  for  Westaway  Court  will therefore  be  part  of  the  considered investment decision taken by the States Assembly as explained to the Panel.

The use of the vacated current hospital site is something that requires mature and  comprehensive  consideration,  and will require a strategic decision that is fully  researched.  The  principle  of  a Health  Campus  for  this  site  is  an attractive  concept  as  it  provides  for further future-proofing during the life of the  new  hospital  and  thereafter. However, the site will not be available until  the  mid-2020s,  and  there  is adequate time to consider how it can be best  utilised.  The  development  of  a Health Estates Strategy in the context of the next Island Plan is an essential pre- requisite to look at, not only what can be delivered on the site, but also what that strategy would deliver in terms of releasing other sites for the delivery of services  or  disposal  for  alternative development,  and  this  work  has commenced.

To be deter- mined

6

Plans for developing a health campus on the existing hospital site, the estimated costs and the proposed funding sources should be clearly set out by Ministers by July 2017 when the detailed funding proposals for the hospital are brought before the States.

DfI/ HSS/ T&R

Reject  at this time

It is clearly not possible to provide the level  of  information,  given  the  time until  the  land  becomes  available,  and nor is it required at this stage. These are strategic  decisions  for  a  future  States Assembly.

N/A

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

7

The finance costs associated with the construction period should be clearly set out when the detailed funding proposals for the hospital are brought before the States.

T&R

Accept in principle

This proposition is the funding proposal to the States. The financing costs were set out in principle in P.130/2016, and will be confirmed to the Assembly once financing has been delivered.

July 2017 where available

8

The Minister for Treasury and Resources should publish by Ministerial Decision any significant changes to the composition of the cost estimate outlined in P.130/2016 where savings or changes in assumptions are proposed to be reallocated within the project. This should cover both the period up to

July 2017 when the detailed budget is brought to the States and subsequently as the project develops.

T&R

Accept

The Treasury is committed to providing the  Assembly  with  the  outcome  of decisions taken by the Minister, either personally or under an approved scheme of delegation, that relate to significant changes to the cost estimate and release of funds.

The Panel will understand that the level of detail within the decisions that can be made public will reflect the commercial confidentiality necessary to ensure the Public remains well-placed to procure services at the best price.

Ongoing

9

Contingency controls should be finalised as soon as possible and included in the detail of the final budget when it is brought back to the States in July. This should include reference to material savings arising from changes in assumptions or where costs turn out to be lower than budgeted for.

T&R

Accept

Controls will be outlined further to the Assembly.

July 2017

10

Third-party oversight of the Hospital Project should be explored in greater detail, before the project progresses further.

T&R

Accept

The  report  seeks  to  compare  the proposed  funding  option  with  a  PFI structure, in which a third party funder has a role that is absent in the proposed arrangements. This role is redundant for a funding route secured through bond (or other) direct borrowing or the use of reserves (or any combination thereof).

Ongoing

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

The Project Team recognised at an early stage  that  independent'  financial advice  was  required  to  provide  an appropriate  level  of  assurance. Following  a  competitive  procurement process,  Ernst  and  Young  were appointed. The procurement sought:

"to  appoint  a  suitably  competent and  appropriately  resourced supplier to oversee the co-ordinated development  and  delivery  of financial  and  economic  (and support  the  delivery  of  the commercial)  elements  of  the Feasibility Study and the Business Cases,  and  to  subsequently  assist and  advise  the  Contracting Authority  on  issues  arising  from these  elements  of  the  Business Cases  throughout  subsequent delivery of the Project"2.

The  Invitation  to  Tender  set  out  the level of independence' required from the successful Financial Adviser in the following terms –

"Maintaining Independence

For the purposes of the delivery of the Services, the term independent' is  to  be  considered  by  the Consultant in the context of them:

• providing  an  objective evaluation of the evidence and information provided; and

• using  their  own  professional judgement in the interpretation of  evidence  and  information provided; and

• having  a  willingness  to  stake the  Consultant's  professional reputation  on  the  quality  of deliverables; and

• maintaining  a  willingness  to challenge stakeholder opinions;

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

 being free from the influence of the  Project  Team,  the  Project Board,  LOD,  HSSD,  TRD,  or any  representative  of  the Contracting  Authority  in providing  advice,  counsel, guidance or recommendations.

In  addition  to  the  above,  the Consultant  will  be  required  to ensure and maintain independence (as  described  above),  during sustained  engagement  with stakeholders during the delivery of the Services."

Further,  in  addition  to  independent financial advice, a separate and entirely independent  team  within  EY  plc. provide "third party" project assurance for  the  development  of  the  project's business case.

The  project  is  being  managed  in accordance  with  the  UK  Office  of Government  Commerce  "Gateway" process;  and  key  third  party  gateway reviews, such as that undertaken by the CSSP's adviser, are planned throughout the project as evidenced through all the appointment documentation provided to the  CSSP.  It  has  previously  been recommended  that  this  process continues  to  be  undertaken  in partnership  with  the  relevant  Scrutiny Panel for ongoing public reassurance.

In addition to the independent advisers and the assurance process, the project has appointed an experienced architect with  extensive  hospital  experience  as design champion' for the project, who provides  the  Project  Board  with independent advice and challenge.

As the project moves into construction phases, the Project Board will look to appoint a construction champion' with a high level of experience of acting as adviser to  client  teams  in  delivery  of major hospital projects.

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

11

The Panel's advisers have made a number of recommendations in their reports about the detail of the Future Hospital Project. Ministers should ensure that these recommendations are all acted upon.

DfI/ T&R

Accept in principle

All  recommendations  of  the  advisers will be considered properly and adopted where appropriate.

Ongoing

12

Irrespective of the outcome of the debate on the Future Hospital Funding Strategy, the Minister for Treasury and Resources should bring forward proposals for an annual capitalisation of the Strategic Reserve.

T&R

Reject

If borrowing is adopted and there are no unforeseen  shocks,  the  Panel  presents no  rationale  for  taxpayers  paying  an additional burden to increase the level of  the  Strategic  Reserve  further. Proceeds  from  the  sale  of  Strategic Assets,  as  stated  in  the  Minister's proposals,  would  be  considered  as  a means  of  growing  the  Strategic Reserve. The Minister is also mindful of the  potential  to  replenish  the Stabilisation  Fund,  if  spending  and income levels permit.

N/A

13

The Articles of the Public Finances Law in relation to borrowing and lending should be reviewed to ensure clarity of definitions, particularly in relation to the definition of "borrowing".

T&R

Accept

The  beginning  of  the  debate  on P.130/2016 in January 2017 highlighted the need for greater clarity.

December 2017

14

The Public Finances Law sets the parameters around which the States considers its financing options. The self-imposed borrowing limit set out in the Public Finances Law should be considered as prudent financial management and not subject to change if additional borrowing is considered in the future.

T&R

Reject

It is not for the Minister to make such a commitment. This would be a matter for a future Minister, Council of Ministers and  States  Assembly to decide  at the time.

There are no current plans to increase the limit.

The Fiscal Policy Panel, in their Annual Report  published  in  September  2015, commented:

"However,  a  number  of  existing rules  and  legislation  such  as  that covering the Consolidated Fund and limits  on  what  the  States  can borrow and lend, still run the risk of

N/A

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

being  counterproductive  in  certain circumstances.  For  example,  the conservative  limits  on  what  the States  can  borrow  could  stop,  or delay, large capital projects.".