Audit of procurement and financing for Brampton civic hospital project ( A PPP Project) About this Project-- (i) In late 1990s,HRSC(Health Services Restructuring Commission),independent body under Government of Ontarion,decides to go for development of new hospital through WOHC(William Osler Health Centre),one of Ontario’s Largest hospital corporation, serving Etiobicoke, Brampton and surrounding areas. In 2000,an external consulting firm provided a capital cost estimate to WOHC for 716 bed hospital at approx $ 357 million( excluding cost of equipment, considering WOHC would be responsible for the hospital’s design and construction. (ii) In 2001,Minister of Finance ( Later on in 2002, Ministry of Health and Long term care)decides to opt for PPP mode for above project with aim to provide an opportunity to transfer risks to private sector, allow both sectors to focus on what they do best and accelerate investment to help bridge the gap between the need for public infrastructure and government’s financial capacity. (iii) In 2003,WOHC enters into agreement with THICC***( the Healthcare Infrastructure Company of Canada Inc.) with following conditions- (a)THICC would design,build and finance 680 bed Brampton hospital as well as provide non-clinical services for over 25 yrs period. (b) WOHC would pay the consortium a monthly payment over 25 yrs beginning from completion of hospital and would also redevelop an existing hospital ( peel memorial hospital) to provide additional 112 bed capacity. *** THICC-Is a consortium of three private –sector companies Ellis Don( construction contractor),Carillion Canada Inc. and Ontario Municipal Employees Retirement System(OMERS)

Audit objectives- Audit was to assess whether adequate systems and processes were in place to ensure that— the decision to use PPP model was suitably supported by a competent analysis of alternatives All significant risks and issues were considered and addressed appropriately in the final agreement Public expenditures were incurred with due regard for economy.

Audit findings Audit findings can be grouped into- Decision to adopt PPP Value for money assessment Engagement of advisers Non-clinical services contract management Local share of the capital cost Transparency and Accountability

Decision to adopt PPP process There was no formal assessment of the costs and benefits of all available procurement alternatives. No formal analysis of market capacity and competitiveness to support ppp arrangement. Only limited number of contractors had capacity to undertake such a large institutional projects. Bundling of capital and operational support services might have further limited competition and reduced value for money.

Value for money assessment It was not based on full analysis of all relevant factors and criteria. Also it was done too late after the critical stage of ppp procurement process had passed and which were not very useful in suggesting possible improvements to the process. Value for money assessment could be biased because WOHC was not left with any option but to follow ppp approach to get government funding.

Value for money assessment Ministry didn’t follow up and act on finding of reviewers of WOHC work. While comparing, design and construction cost of traditional and ppp procurement approach, hospital assumed that only under ppp mode,these costs would be financed. No careful consideration about extent to which cost overruns could be mitigated through structured traditional procurement contract as same contractors were to be involved regardless of procurement models. Non-inclusion of additional cost of following ppp in decision making.( additional costs-like interest differential rates between private sector and government borrowing,other transaction cost etc) Cost increases post selection of preferred bidders—due to delays in finalizing financial arrangements, consortium claimed additionally to WOHC for construction cost escalation. Also there was non-integration of planning for installation of medical and IT equipment with construction process, which led to additional payment of $65 million over and above the cost for design and construction by WOHC.

engagement of advisers Advisers were engaged by WOHC without following competitive procurement process which as per its procurement policy had to be followed when anticipated annual value of service exceeds $ % Advisers were single sourced. Also many were without pre-established budgets or a ceiling price.

Non-clinical services contract management No procedure to monitor performance of its private sector partner

Local share of the capital cost WOHC had significant shortfall for its share of cost of hospital’s design and construction and equipment.

Transparency and accountability No standard policy for disclosure of practices specific to ppp arrangements.