Item 9 for 5 Feb 13 Management of Waiting Lists Appendix 2

HEALTH CAMPUS PROGRAMME

Additional Theatres ARI

Standard Business Case

Implementing Healthfit 2020

1 SBC: CIG Submission TABLE OF CONTENTS

1. EXECUTIVE SUMMARY 7

1.1 Introduction 7

1.2 Strategic Case 8

1.3 Economic Case 11

1.4 Commercial Case 14

1.5 Financial Case 16

2.0 THE STRATEGIC CASE 19

2.1 Introduction 19

2.2 The Strategic Context 19

2.3 The Case for Change 21

2.4 Benefits Realisation 23

3.0 THE ECONOMIC CASE 25

3.1 Introduction 25

3.2 Critical Success Factors 25

3.3 Developing the Options 27

3.4 The Benefits of Appraisal 29

3.5 The Procurement Process 34

3.6 Economic Appraisal 34

3.7 Summary of Economic, Risk and Financial Appraisals 39

3.8 Sensitivity Analysis 40

4 THE COMMERCIAL CASE 42

4.1 Introduction 42

4.2 Project / Scheme Objectives 42

4.3 Required Services 43

4.4 Agreed Risk Transfer 43

4.5 Agreed Charging Mechanisms 43

2 4.6 Agreed Contract Length 43

4.7 Contractual Clauses 44

4.8 Procurement Strategy and Implementation Timescales 44

4.9 Capital Funding 45

4.10 Accountancy Treatment 45

5 THE FINANCIAL CASE 46

5.1 Introduction 46

5.2 Costing Methodology 46

5.3 Capital Costing & Risk Allowance 46

5.4 Property Revenue Costs 46

5.5 Service Revenue Costs 46

5.6 Depreciation 46

5.7 Lifecycle Costing 47

5.8 Financial Profile of Short-Listed Options 47

5.9 Preferred Option 48

5.10 Impact on the Income and Expenditure Account 49

5.11 Impact on the Balance Sheet 51

5.12 Overall Affordability 51

5.13 Sensitivity Analysis 52

6 THE MANAGEMENT CASE 53

6.1 Introduction 53

6.1 Programme and Project Management Arrangements 53

6.2 Governance and Accountability 53

6.3 Programme Organisation 55

6.4 Stakeholder Involvement 56

6.6 Project Reporting Structure 56

6.7 Principal Project Roles and Responsibilities 57

6.8 Standardised Documents and Controls 58

6.9 Arrangements for Contract Management 58

3 6.10 Project Plan 59

6.11 Arrangements for Change Management 59

6.12 Arrangements for Risk Management 59

6.13 Technical Solution 60

6.14 Consultations 61

6.15 Arrangements for Benefits Realisation 61

6.16 Performance Measurements - Key Performance Indicators 62

6.17 Arrangements for Post Project Evaluation 63

4 LIST OF TABLES

Table 1.1 Short Listed Options Table 1.2 Summary Option Appraisal Table 1.3 Key Milestones Table 1.4 Option 3 Capital Costs Table 1.5 Option 3 Revenue Costs Table 1.6 Impact on Income and Expenditure

Table 2.1 Key Project Constraints

Table 3.1 Critical Success Factors Table 3.2 Summary of Long Listed to Short Listed Results Table 3.3 Summary of Short Listed Options Table 3.4 Benefits Criteria Table 3.5 Weighting/Ranking of Benefits Criteria Table 3.6 Option Scoring Scale Table 3.7 Benefits Appraisal - Summary of Weighted Scores Table 3.8 Results of Sensitivity Analysis Table 3.9 Contingency Allowances Table 3.10 Capital Costs Table 3.11 Capital Expenditure Phasing Table 3.12 Additional Theatres Property Revenue Costs Table 3.13 Additional Theatres Service revenue Costs Table 3.14 Life Cycle Costs Table 3.15 Summary of Key GEM Elements Table 3.16 Summary Option Appraisal Table 3.17 Financial Sensitivities (respective increase by 10%) Table 3.18 Financial Sensitivities (respective increase by 10%) – Effect on NPC Table 3.19 Financial Sensitivities Analysis Table 3.20 Option 9b Capital Cost Table 3.21 Option 9b Revenue Cost

Table 5.1 Option Summaries Table 5.2 Option 3 Capital Costs Table 5.3 Lifecycle Costs of Option 3 Table 5.4 Additional Property Costs of Option 3 Table 5.5 Additional Service Costs of Option 3 Table 5.6 Additional Annual Depreciation of Option 3 Table 5.7 Summary of Financial Appraisal Table 5.8 Sensitivity Analysis

Table 6.1 NHS Grampian Advisors Table 6.2 Principal Supply Chain Members Table 6.3 Key Dates Table 6.4 Main Risks of Short Listed Options

5 APPENDIX A – COMMERCIAL VOLUME

A – 1 Capital Cost Plans & Cash Flows

A – 2 Risk Register

A – 3 Property Revenue Costs

A – 4 Life Cycle Costing

A – 5 Generic Economic Model (All Options)

A – 6 Non Financial Benefit Scores

A – 7 Clinical Risks

APPENDIX B – PROJECT TECHNICAL VOLUME

B – 1 Schedule of Accommodation

B – 2 Design Information

B – 3 Programme

6 1. EXECUTIVE SUMMARY

1.1 Introduction

Background / Context

1.1.1 This Standard Business Case (SBC) for NHS Grampian’s ‘Theatres Project’ delivers on the changing needs of patients and the continued forecast of increasing demand on emergency and elective surgery.

1.1.2 The SBC addresses the short-fall in theatre capacity at Aberdeen Royal Infirmary (ARI) and is an enabler to meet Treatment Time Guarantee (TTG) requirements for primarily, General Surgery, Gynaecology and Neurology.

Structure and content of the document

1.1.3 The Standard Business Case has been prepared using the agreed standards and format from HM Treasury for Business Cases, as set out in the Scottish Investment Manual (SCIM). The approved format is the Five Case Model adopted as part of the SCIM, which comprises the following key components:

 The strategic case - this sets out the case for change, together with the supporting investment objectives for the scheme

 The economic case - this demonstrates that the organisation has selected the most economically advantageous offer, which best meets the existing and future needs of the service and optimises value for money (VFM)

 The commercial case - this sets out the content of the proposed deal

 The financial case - confirming funding arrangements, affordability and the effect on the balance sheet of the organisation

 The management case - detailing the plans for the successful delivery of the scheme to cost, time and quality.

1.1.4 This model supports a clear, authoritative and practical approach to Standard Business Case production providing a systematic and comprehensive framework for decision making, particularly capital investment decisions, while ensuring that the preferred option satisfies the following crucial tests:

 Applicable to business needs and strategic direction  Optimum value for money  Attractiveness to the market place (suppliers and contractors)  Affordability to the organisation (The Health Board)  Achievable in terms of timescale, resources and other business parameters

1.1.5 This Standard Business Case has been developed with stakeholder involvement and is supported by the NHS Grampian Board and the Scottish Government Health Directorate.

7 1.1.6 In July 2012 NHS Grampian Board appointed Robertson Dawn Health (RDH) as their Principal Supply Chain Partner (PSCP) for ARI Reconfiguration Projects. These projects are to be taken forward under the Health Facilities Scotland Frameworks Scotland Agreement.

1.2 Strategic Case

1.2.1 This section sets out the strategic context to this Standard Business Case, which informs the project objectives and the planning assumptions. It explains the review of health provision in Grampian as set out in the three-year Health Plan (Grampian Heath Plan (2010 – 2013).

1.2.2 Underpinning this business case is the requirement for NHS Grampian to meet the “Treatment Time Guarantee Standard” as defined in the legally binding, Patients Right Bill and maintaining the 18 week Referral to Treatment Standard.

The Strategic Context

1.2.3 NHS Grampian Health Plan 2010-2013 and the subsequent 2020 Healthfit vision remain the context for safe and effective care at the point of service delivery.

1.2.4 The service change towards more preventative procedures and the increasing measures to make theatres more productive, places ever changing demands upon the staff and the estate.

National Context

1.2.5 NHS Grampian is expected to provide high quality elective and emergency surgical care and meet targets for waiting times and cancer care set out in the Treatment Time Guarantee. In addition, emergency services must be provided with a commitment to meet targets for waiting times in Accident and Emergency.

1.2.6 This Standard Business Case embraces modernisation of the delivery of surgical care within the NHS Scotland strategic agenda:

Better Health, Better Care (2007)

 Provide effective, consistent and mutuality-focused healthcare;  To be more responsive to the needs and wishes of patients and  To remove local and national variations in service availability and quality.

8 Healthcare Quality Strategy for NHS Scotland (2010)

 Putting people at the heart of our NHS (Person Centre).  Building on the values of the people working in and with NHS Scotland and their commitment to provide the best possible care and advice compassionately and reliably by making the right thing easier to do for every person, every time (Safe).  Making measurable improvements in the aspects of quality care that patients, their families and carers and those providing healthcare services see as really important (Effective).

Achieving Sustainable Quality in Scotland’s Healthcare (2011)

 By 2020 everyone is able to live longer healthier lives at home, or in a homely setting;  Hospital care will be provided to the highest standards of quality and safety, with the person at the centre of all decisions.  There will be a focus on ensuring that people get back into their home or community environment as soon as appropriate.

Patients’ Rights (Scotland) Act 2011

 Protects in law that, once a patient has been diagnosed as requiring inpatient or day case treatment, and has agreed to that treatment, that patient’s treatment must start within 12 weeks of the treatment having been agreed with the Health Board.

Treatment Time Guarantee

 To assure timely access to high quality care at each point of the patient journey.

Local Context

1.2.7 Since 2010 a number of national, regional and local strategies have been adopted by NHS Grampian that have informed the planning of additional theatre capacity across NHS Grampian and have been crucial in providing the framework in which options for this project have been developed and ultimately the key to determining the preferred solutions at Aberdeen Royal infirmary (ARI).

1.2.8 The Healthfit 2020 paper approved by NHS Grampian Board (Oct, 2012) describes the framework for delivering NHS Grampian’s 2020 vision for safe and effective Health Services in the future that are closer to patients home and where only specialist care is delivered from the three main sites: Aberdeen Royal Infirmary, Woodend Hospital or Dr Gray’s. The aim of the Property and Asset Management Plans are to ensure that the Board’s asset base is the right size, suitable for purpose, supports delivery of quality service and enhances service users’ experience.

9 The Case for Change

1.2.9 The driving force for service change, redesign and capacity planning in Grampian are outlined in the following Board approved strategy documents:

 3-year Health Plan (2010 – 2013);  Healthfit 2012 – Outlines the 2020 vision and the Action Plan (Healthcare Framework);  Property and Asset Management Plan (2012 – 2021).

1.2.10 NHS Grampian has taken a whole systems approach to the provision of patient centred, safe and effective care. The model of care developed and owned by the acute sector aims to provide high quality patient pathways from purpose built facilities supported by robust information systems for ensuring the Board complies with Treatment Time Guarantee at each point of the patient journey.

1.2.11 Following discussion with the Scottish Government Health and Social Care Directorate Access Team, NHS Grampian agreed a high level demand and capacity action plan which sets out how NHS Grampian proposes to address the current back-log of patients waiting for treatment and ensure the required level of resource is available to meet the requirements of the Treatment Time Guarantee from 1st October 2012.

Demand and Capacity across NHS Grampian

1.2.12 The demand and capacity work undertaken by Health Intelligence demonstrate that the following specialties will potentially require allocation of additional theatre sessions at ARI.

Specialties indicating capacity shortfalls at ARI are:

Breast ENT General Surgery Gynaecology Neurosurgery

Investment in Sustainable Capacity

1.2.13 The limiting factor in terms of NHS Grampians ability to meet Treatment Time Guarantee requirements has been the availability of theatre capacity. In order to address this shortfall in capacity, primarily in general surgery, orthopaedics and neurosurgery, NHS Grampian can demonstrate through their Delivery Action Plan that there is a requirement for two permanent theatres at ARI.

Key assumptions are:

 Demand / Capacity gap based on current assessment  Future increases in demand will be met through further productivity and efficiency measures, rather than further infrastructure and service investment.

Benefits Realisation

10 1.2.14 The benefits criteria were developed by members of the ARI Theatres Project Team on 25th October 2012. One patient / public representative attended this meeting. The benefit criteria are shown below:

 Capacity & Efficiency  Supports Strategy (National, Regional, & Local) and National Policy for Waiting Times  Timing  Patient Experience / Safety  Quality of Building Environment  Flexibility and Future proofing  Staff Recruitment

1.2.15 In conjunction with the above the following project risks have also been established and assessed. These are detailed within the Risk Register and will be migrated through appropriate risk management:

 Strategic Fit  Clinical Practice  Safety  Workforce  Infrastructure  Politics and Public

1.2.16 The implementation of the project is constrained by the following, for which robust management plans are in place:

 Planning acceptability  Affordability  Programme  Site Logistics and Access

1.2.17 Moreover, the project has the following interdependencies that will be carefully monitored and managed throughout the lifespan of the scheme:

 Prompt approval by the NHS Grampian Board  The approval by the Scottish Capital Investment Group  Receipt of Local Authority (Planning Department, Aberdeen City Council) Planning Approval for the preferred location taking account of the consultation process.

1.3 Economic Case

The Procurement

1.3.1 In line with guidance from Health Facilities Scotland the project has been procured via Frameworks Scotland. Each of the Principal Supply Chain Partners (PSCP), were selected by Health Facilities Scotland for the Framework and were further invited by NHS Grampian to submit Expressions of Interest and attend an open day. Following this, the PSCPs were interviewed and scored. The

11 selection process resulted in the appointment of Robertson Dawn Health (RDH) as the PSCP to work with NHS Grampian to complete Business Cases under the Health Campus programme of works under ARI Reconfiguration Projects.

1.3.2 The PSCP is responsible for developing the design solution in conjunction with NHS Grampian and this will permit the submission of a not to exceed Target Price for this Standard Business Case.

Long List and Short List

1.3.3 A key component of developing a Business Case is the option appraisal exercise with comparison of alternative courses of action at the heart of this. It is only by comparing the alternatives that the real merits of any particular course of action are exposed. In order to achieve this, a ‘long list’ of options was generated initially at an end-user work-shop (August 2010) and revisited at an Options Appraisal workshop on the 25th October 2012. This is recorded in Section 3.0 of this Business Case.

1.3.4 The next stage in the process was for the long-listed options to be reduced to a more manageable ‘short list’ of options for in-depth appraisal and evaluation and this list was derived at an Options Appraisal Workshop on the 25th October 2012. The short listed options are as recorded below in Table 1.1.

Table 1.1 Short Listed Options

Option Description Take Forward Yes / No 1 Do nothing Yes

3 Two Additional Theatres co-located within the existing Yes Main Theatre Suite (MTS) and creates new recovery facilities (17 beds) in one central location (within the Open Quadrangle). This option retains existing recovery Room 2 (7 beds), for ITU. Total number of recovery beds, 24

5A Two Additional Theatres built into the Open Quadrangle, Yes located across the corridor from theatres 1 to 8. This option retains existing recovery room 1 (11 beds) and develops a new recovery room 2 (15 beds). This option removes back-up recovery facilities for ITU patients. Total number of recovery beds, 26

5B Two Additional Theatres built into the Open Quadrangle, Yes located across the corridor from theatres 1 to 8. This option retains existing recovery rooms 1 and 2 (11 and 7 beds respectively) plus, creates a new recovery room 3 (9 beds). This option allows flexibility for ITU emergencies but creates more split site working between recovery rooms. Total number of recovery beds, 27.

12 13.5The summary of the economic, risk and benefits appraisal is shown in table 1.2 below. The cost and benefits of each option have been brought together by calculating a cost per benefit point for each option.

Table 1.2: Summary Option Appraisal

Appraisal Option 1 Option 3 Option 5a Option 5b Element Benefit 194 458 336 314 Score (a) Rank 4 1 2 3 Net Present N/A 112,964,000 110,262,000 111,344000 Cost (b) Rank N/A 3 1 2 Cost per Benefit N/A 247,000 328,161 354,599 Point (b/a) Rank N/A 1 2 3 Clinical 145 41 79 59 Risk (c) Clinical Risk % (out of 96.67% 27.33% 52.67% 39.33% 150 max) (d) Rank N/A 1 3 2 Risk Adjusted Cost per N/A 67,408 172,842 139,464 Benefit Point (b/a x d) Rank N/A 1 3 2

1.3.6 The above summary provides an overview of the impact of the process to arrive at the preferred option. This ultimately concludes with the lowest cost per benefit point, whilst arriving at the greatest mitigated clinical risk total.

1.3.7 The preferred option is Option 3 and the Financial Case (Section 5) explores the affordability of this option.

13 1.3 Commercial Case

Agreed Products and Services

1.4.1It is proposed that the facility will be built by the selected PSCP under the Frameworks Scotland Agreement, NEC 3 Option C Target Contract with Activity Schedule. An open book approach will be used with full details provided within Section 4.0 of this Standard Business Case. This methodology will provide the following benefits:

 Completion of Schemes to the standard and functionality that meets the requirements set out in the Scheme Contract;

 Value for money, not only in the initial capital cost, but also for the whole life costs through the application of the principles of value management;

 Certainty of delivery in terms of time and cost;

 Consistent delivery in terms of quality in both design and construction;

 The introduction of continuous improvement through collaborative working, the adoption of benchmarking and performance management;

 Improved management of risk; and

 Optimised delivery of sustainable development on all major NHS schemes in Scotland procured through the Frameworks Scotland Agreement.

1.4.2 The PSCP will enter into an individual project specific Scheme Contract with NHS Grampian at the beginning of each stage of the scheme, and ultimately for the Construction and Commissioning element of the project.

1.4.3 The products and services under contract are for a single point deliverer. This offers a procurement vehicle with an integrated supply chain for the delivery of design, manufacture, construction and commissioning of facilities to enable NHS Grampian to meet sustainable Treatment Time Guarantee solution for additional theatre capacities at ARI, as set-out within this SBC, at the earliest opportunity.

1.4.4 With regard to equipment and supporting infrastructure for the two additional theatres, NHS Grampian has sought the assistance of colleagues from Health Facilities Scotland for guidance on purchase through national contracts, competitive tendering and where appropriate via EU Procurement. The programme for supply and installation will be co-ordinated by Health Facilities Scotland (on behalf of NHS Grampian) and the PSCP as appropriate.

Agreed Risk Transfer

1.4.5 As the scheme has been developed the risks within the scheme have been identified, allocated to the party best placed to manage them and quantified in a number of workshops. This has resulted in the agreed Risk Register which can be found in Appendix A-2 which records the allocation and quantification of each risk.

14 Key Contractual Arrangements

1.4.6 The design and construction of the new facilities will be undertaken using the Frameworks Scotland suite of contract documents which is based on the NEC 3 Option C Target Contract with Activity Schedule. Subject to the Early Warning and Compensation Event mechanisms within NEC 3 the amount paid for the project by NHS Grampian is the Actual Cost of the Works, adjusted as follows:

In the event that the actual cost exceeds the Target Price the additional cost will be borne by the PSCP and no additional cost is borne by NHS Grampian

In the event that the Actual Cost is less than the Target Price the first five percent of the difference is equally shared between NHS Grampian and the PSCP, any remaining difference is wholly retained by NHS Grampian

Agreed Implementation Timescales

1.4.7 The timely development of the theatre facilities at ARI is critical to the Board’s ability to meet Treatment Time Guarantee requirements, in terms of providing sustainable theatre capacity. The key milestones for the completion of the facilities and bringing the services into operation are shown below in Table 1.3:

Table 1.3 Key Milestones

Milestone Target Date

NHS Grampian AMG Approval December 2012 of SBC for ARI Theatres Project

NHS Grampian Board Approval February 2012 of SBC for ARI Theatres Project

Scottish Capital Investment February 2013 Group Approval of ARI Theatres Project Start on Site - ARI Theatres April 2013 Facilities Completion of ARI Theatres January 2014 Facilities

15 1.5 Financial Case

Capital Costs

1.5.1 The preferred option, as identified in the Economic Case, is Option 3. The total capital cost of Option 3 is £4.968M. See breakdown of the capital costs in Table 1.4 below.

Table 1.4: Option 3 Capital Costs

Capital Cost Elements Cost £000s Building Works 1,060 Mechanical & Electrical 1,418 Preliminaries 297 Design Fees 135 Overhead & Profit 202 Contingency/Risk (4.5%) 140 VAT 530 Total PSCP Cost 3,782

NHS Costs 10 Group 2 & 3 Equipment 829 Contingency/Risk (5%) 155 VAT 192 Total Direct Costs 1,186

Total Capital Cost 4,968

Revenue Costs

1.5.2 The annual additional revenue costs of Option 3 are shown in Table 1.5 below:

Table 1.5: Option 3 Revenue Costs

Net Additional Annual Net Additional Net Property Service Additional Revenue Revenue Annual Lifecycle Costs Costs Depreciation Costs £000s £000s £000s £000s Option 3 60 4,870 174 41

16 1.5.3 The affordability of both the capital and revenue costs of the project is explored in sections 1.5.4 below and in Section 5 – The Financial Case.

Overall Affordability

1.5.4 The capital and revenue costs and funding streams over the intended lifespan of the project assume a build completion in January 2014.

Capital

The capital cost of the project is £4.968M, with SGHD Funding of £1.0M secured for the current year and £3.0M for the 2013/14 year. The balance of capital funding of £0.968M will be sourced from NHS Grampian’s capital formula allocation in 2013/14.

The impact on capital funding and expenditure is illustrated below in Table 1.6.

Table 1.6: Impact on Capital Income and Expenditure

£ 000 2012/13 2013/14 2014/15 Total

Expenditure: New Theatres 900 4,068 0 4,968 (Option 3) Total Capital 900 4,068 0 4,968 Cost

Funding:

SGHD Capital 1,000 3,000 0 4,000 Funding NHSG Formula 0 968 0 968 Capital

Total Funding 1,000 3,968 0 4,968

Net Capital Surplus 100 (100) 0 0 (Shortfall)

Revenue Operating Costs

The funding requirement in costs associated with Option 3 is £4.93M per annum. This is a combination of property running costs of the new build extension and, more significantly, the costs of providing the additional Theatres service for patients.

Full provision for the funding requirement of £4.93M per annum has been made within NHS Grampian’s Financial Plan from 1 April 2013 onwards. Further work is also underway to refine the plans with particular regard to facility design, staffing models and ongoing efficiency. Locally this work will be led by a Clinician supported by local management teams.

17 The impact on revenue funding and expenditure is illustrated below in Table 1.7.

Table 1.7: Impact on Revenue Funding and Expenditure

£ 000 2013/14 2014/15 2015/16 Total

Expenditure:

Property Costs 15 60 60 135

Service Costs 1,217 4,870 4,870 10,957

Depreciation 44 174 174 392

Total Expend 1,276 5,104 5,104 11,484

Funding: Existing NHSG Revenue Funding 44 174 174 392 For Capital Charges NHSG 5 year 1,232 4,930 4,930 11,092 Revenue Funding Total Funding 1,276 5,104 5,104 11,484

Net Revenue Surplus 0 0 0 0 (Shortfall)

Depreciation The estimated annual depreciation of the asset is £174k. Depreciation estimates in future years include a provision for new developments as a result of the capital programme, which forms part of the Local Delivery Plan. The additional depreciation resulting from Theatres extension is therefore already fed into the 5 year revenue plans.

Lifecycle Costs The estimated average annual lifecycle cost is £41k. The lifecycle maintenance programme will be undertaken as part of the overall maintenance prioritisation process of NHS Grampian.

Balance Sheet Treatment Upon completion of the Theatre facility, the asset will be capitalised on the Balance Sheet of NHS Grampian in accordance with the rules governing all of its assets.

1.5.5 The asset will be capitalised at depreciated replacement cost, in line with NHS in Scotland policy in the month in which the asset formally becomes the property of NHS Grampian. It will then be straight-line depreciated over the estimated useful life of the asset.

18 2.0 THE STRATEGIC CASE

2.1 Introduction

2.1.1 This section sets out the strategic context to this Standard Business Case, which informs the project objectives and the planning assumptions. It explains the review of health provision in Grampian as set out in the three-year Health Plan (Grampian Heath Plan (2010 – 2013)). Underpinning this business case is the requirement for NHS Grampian to meet the “Treatment Time Guarantee Standard” as defined in the legally binding Patients Right Bill and maintaining the 18 week Referral to Treatment Standard.

2.2 The Strategic Context

2.2.1 The driving force for service change and redesign in Grampian is the Health Plan and its delivery model, the Health Care Framework. The latter is a 2020 vision for the implementation of the Health Plan.

2.2.2 Within the Health Plan, five strategic themes underpin the main areas of work that need to be addressed to meet the challenges in the future, arising from changes in population structure, need for services, workforce and technology to improve treatment and care for patients.

These are:

1. Improving health and reducing health inequalities 2. Involving patients, carers, the public, staff and partner mutuality 3. Delivering safe, effective and timely care in the right place 4. Developing the workforce and empowering staff 5. Getting the best from available resources

2.2.3 The health campus on the Foresterhill site provides the focus for a wide range of clinical related activity and is the workplace for approximately 7,000 staff and the place where over 2,000 patients are treated and a further 1,000 people visit every day.

2.2.4 The NHS Grampian long term strategy recognises the increasing importance of the Foresterhill site and the intention is to fully utilise it as effectively as possible. The strategy anticipates changes in population structure, workforce, technology and best practice. At its core it also anticipates services being redesigned to improve treatment and care for patients, together with the projected improvement in maximising value for money and health outcomes.

The National Context

2.2.5 The Scottish Governments’ publication of Better Health, Better Care (2007), provided a blueprint for effective, consistent and mutuality-focused healthcare, which was to be more responsive to the needs and wishes of patients and removed local and national variations in service availability and quality. Subsequently, the Healthcare Quality Strategy for NHS Scotland (2010) built on the basic principles and commitments and focused on the following three things:

19  Putting people at the heart of our NHS (Person Centre).  Building on the values of the people working in and with NHS Scotland and their commitment to provide the best possible care and advice compassionately and reliably by making the right thing easier to do for every person, every time (Safe).  Making measurable improvements in the aspects of quality care that patients, their families and carers and those providing healthcare services see as really important (Effective).

2.2.6 More recently, in September 2011 the Scottish Government published their 2020 Vision – Achieving Sustainable Quality in Scotland’s Healthcare:

“Our vision is that by 2020 everyone is able to live longer healthier lives at home, or in a homely setting……”When hospital treatment is required, and cannot be provided in the community setting, care will be provided to the highest standards of quality and safety, with the person at the centre of all decisions. There will be a focus on ensuring that people get back into their home or community environment as soon as appropriate”.

2.2.7 This national vision is consistent with NHS Grampian’s own local 2020 healthfit vision and many of the key actions outlined in the published paper are being action and implemented through the Healthcare Framework developed and co- ordinated by the Modernisation Department.

2.2.8 In terms of aligning patient demand with capacity planning for treatments throughout Scotland, nationally, as a minimum 90% of patients accessing acute secondary care services can now expect to be treated within 18 weeks from the receipt of their referral to the start of their treatment. This is underpinned by standards for the maximum length of wait for a first outpatient appointment and also for an inpatient or day case admission. Crucially, for the first time, the Patients’ Rights (Scotland) Act 2011 protects in law that, once a patient has been diagnosed as requiring inpatient or day case treatment, and has agreed to that treatment, that patient’s treatment must start within 12 weeks of the treatment having been agreed with the Health Board.

2.2.9 This approach is consistent with NHS Scotland’s Quality Ambitions to deliver world-leading person-centred, safe and effective healthcare services and to do this in a timely fashion. Thus the intention of the Treatment Time Guarantee is to assure timely access to high quality care at each point of the patient journey.

Local Context

2.2.10 The driving force for service change, redesign and capacity planning in Grampian are outlined in the following Board Approved strategy documents:

 3-year Health Plan (2010 – 2013);  Healthfit 2012 – Outlines the 2020 vision and the Action Plan (Healthcare Framework);  Property and Asset Management Plan (2012 – 2021).

20 2.2.11 Within the Health Plan, five strategic themes underpin the main areas of work that need to be addressed to meet the challenges in the future arising from changes in population structure, need for services, workforce and technology to improve treatment and care for patients.

These are:

1. Improving health and reducing health inequalities 2. Involving patients, carers, the public, staff and partner mutuality 3. Delivering safe, effective and timely care in the right place 4. Developing the workforce and empowering staff 5. Getting the best from available resources

2.2.12 The Healthfit 2020 paper approved by NHS Grampian Board (Oct, 2012) describes the framework for delivering NHS Grampian’s 2020 vision for safe and effective Health Services in the future that are closer to patients home and where only specialist care is delivered from the three main sites: Aberdeen Royal Infirmary, Woodend Hospital or Dr Gray’s. The aim of the Property and Asset Management Plans are to ensure that the Board’s asset base is the right size, suitable for purpose, supports delivery of quality service and enhances service users’ experience.

2.3 The Case for Change

2.3.1 NHS Grampian has taken a whole systems approach to the provision of patient centred, safe and effective care. The model of care developed and owned by the acute sector aims to provide high quality patient pathways from purpose built facilities supported by robust information systems for ensuring the Board complies with Treatment Time Guarantee at each point of the patient journey.

2.3.2 Following discussion with the Scottish Government Health and Social Care Directorate Access Team, NHS Grampian agreed to prepare an investment and action plan (see Appendix B1) which sets out how NHS Grampian proposes to address the current back-log of patients waiting for treatment and ensure the required level of resource is available to meet the requirements of the Treatment Time Guarantee from 1st October 2012.

Demand and Capacity - Investment and Action Plan

2.3.3 The demand and capacity work undertaken by Health Intelligence (see Appendix B1); demonstrate that the following specialties will potentially require allocation of additional theatre sessions at ARI.

Specialties indicating capacity shortfalls at ARI are:

Breast ENT General Surgery Gynaecology Neurosurgery

21 Investment in Sustainable Capacity

2.3.4 The crucial limiting factor in terms of NHS Grampians ability to meet Treatment Time Guarantee requirements has been the availability of theatre capacity. In order to address the shortfall in capacity, primarily listed above, NHS Grampian can demonstrate through their Demand and Capacity Investment Action Plan (Appendix B-1) that there is a requirement for two additional permanent theatres at ARI.

Key assumptions are:

 Demand / Capacity gap based on current assessment  Future increases in demand will be met through further productivity and efficiency measures, rather than further infrastructure and service investment.

Theatre Facilities at ARI

2.3.5 Currently located at ARI are a suite of Main theatres comprising of fifteen co- located theatres. Three of the main theatres are dedicated to emergency work. Also located at ARI are a suite of three day theatres in the Day Surgery Unit and a further two day theatres on ward 38 and ward 39 respectively.

Theatre accommodation includes 18 recovery beds supporting the main theatre suite of 15 theatres.

Future Investment Objectives

2.3.6 The overarching aim of NHS Grampian is to ensure that when someone has a need for healthcare they have access to the right response and the right form of treatment and care as quickly as possible. Supporting this aim is NHS Grampian’s desire to deliver services from high quality facilities which support the most modern clinical practices, improve the experience for patients and motivate staff.

This Standard Business Case supports changes in working practices and organisation through capital investment in sustainable theatre capacity, with the specific aims of:

1) Enhanced recovery programme; 2) Reducing inpatient stay; 3) Guaranteeing admission; 4) Reducing waiting lists to support and implement treatment time and 5) To identify the workforce profile required to deliver sustainable theatre services as a whole at ARI and Woodend Hospital for the next 10 years

2.3.7 In order to achieve these goals, options were considered, analysed and a benefit analysis used to make informed investment decisions.

22 2.4 Benefits Realisation

2.4.1 This Standard Business Case for additional theatre capacity at ARI provides the necessary detail and assurances to support NHS Grampian’s Demand and Capacity Investment and Action Plan1.

2.4.2 Potential business scope and key service requirements are:

 The overall capital cost for this SBC will not exceed £4.968 million.  The additional theatre capacity will be complete within a short time frame to keep the costly interim solution of out-sourcing to a minimum.  The proposed theatre developments are supported by the three Community Health Partnerships (CHPs), Aberdeen City, Aberdeenshire and Moray.

Main Benefits Criteria

2.4.3 To satisfy the potential scope for this investment NHS Grampian will deliver the following high-level strategic and operational benefits:

 Achieve, to the maximum extent possible, the Scottish Government’s 2020 Vision for ‘Achieving Sustainable Quality in Scotland’s Healthcare’.

 Address the national strategy and priorities for Treatment Time Guarantee and Patient Rights (Scotland) Act 2011.

 Achieve the delivery of the Demand and Capacity Investment Action Plan (Acute Sector, 2012).

 Enable NHS Grampian to achieve the requirements of national initiatives outlined in the action plan, Better Health, Better Care and Better Together: Scotland’s Patient Experience Programme.

 Enable NHS Grampian to improve their Acute Sector estate so that all buildings on Foresterhill Site, Woodend and Dr Gray’s achieve at minimum, Estate Code Condition B classification.

 Provide co-located theatre premises within the main acute sites to allow maximising the sharing of resources and improving efficiencies.

 Provide theatre premises that enable the continued provision of high-quality clinical undergraduate and postgraduate education and training.

 Facilitate an improvement in the ability of the Acute Sector to recruit and retain staff, through the provision of better working conditions and premises that enable the provision of contemporary best practice within high technology theatre premises.

Main Project Risks

1 A high level demand and capacity plan has been discussed and agreed with the SGHD. The plan identifies the short-fall in theatre requirements at specialty level and supports a case for two additional theatres at ARI in order to provide a sustainable solution for compliance with Treatment Time Guarantee.

23 2.4.4 The main business and service risks (design, build and operational over the lifespan of the scheme) associated with the scope for the additional theatres project at ARI are contained within the Project Risk Register. The Project Risk Register has been developed during the production of this Standard Business Case and includes appropriate mitigation measures put in place to reduce the risk profile of the project.

2.4.5 For further details, please see the summary of main risks in table 6.6 and the full Risk Register included within Appendix A-2

Project Constraints

2.4.6 The likely constraints on achieving the project objectives are set out in table 2.1 below:

Table 2.1: Key Project Constraints

Constraints Description Planning The preferred option for the two theatres at ARI and the modular acceptability solution at Woodend Hospital will require planning approval from the local planning authority, Aberdeen City Council.

Affordability The new theatre facilities proposed at ARI will require significant of project capital investment. Section 5 (Affordability Analysis and Accounting Treatment) explains how the preferred option at ARI is affordable.

Timing Timely construction of the new theatres at ARI and the Modular of solution at Woodend Hospital is essential to avoid additional construction cost through out-sourcing to independent sector.

Site Development on any part of the Foresterhill site is challenging Logistics because of the need to create turning space through decant. For the Theatres Project at ARI short-term solutions will be found for Staff Room and Changing Facilities.

Dependencies

2.4.7 The Additional Theatre Project is subject to the following dependencies that will be carefully monitored and managed throughout the lifespan of the scheme:

 Prompt approval by the NHS Grampian Board  The approval by the Scottish Capital Investment Group  Receipt of Local Authority (Planning Department Aberdeen City Council) Planning Approval.

24 3. THE ECONOMIC CASE

3.1 Introduction

3.1.1 This section of the Standard Business Case documents the process and provides evidence to show that the selection of the preferred option at ARI is derived from the most economically advantageous option, which best meets service needs and optimises value for money.

This section sets out:

 Critical success factors;  Long listed options;  Short listed options;  Economic appraisal;  Qualitative benefits appraisal;  Risk appraisal;  Preferred option;  Sensitivity analysis;

3.2 Critical Success Factors

3.2.1 The Office of Government Commerce (OGC) places significant importance on the identification of Critical Success Factors (CSFs) or Performance Criteria for projects. CSFs define the essential areas of activity that must be performed well if the objectives of the project are to be achieved. CSFs must therefore be strictly aligned with the project objectives and must be Specific, Measurable, Achievable, Realistic and Time bound (SMART).

3.2.2 The CSFs for this project are included in table 3.1 and were identified at a workshop in August 2010, and subsequently reviewed by the Theatre Project Group in October 2012. These CSFs were then used to evaluate the various options considered in order to fulfil the Project Objectives. Table 3.1 includes the CSFs, associated SMART criteria and baseline information required to assess the CSFs.

Table 3.1 Critical Success Factors

Critical Success SMART Information Alignment with Factor (CSF) required for Benefits / SMART baseline Objectives Regional NHS Grampian Measurement NHS Scotland Supports Strategy – develops additional against national Waiting Time National / theatre capacity at ARI 18 weeks Guidance Regional / Local to deliver sustainable Referral to Flexibility and plans to fulfil the Treatment Time Future Proofing requirements for Target. Treatment Time Guarantee.

25 Critical Success SMART Information Alignment with Factor (CSF) required for Benefits / SMART baseline Objectives The preferred option Alignment with Establishment of All secures Value for benchmark value chain and Money schemes and selection of achievement of schemes to value criteria benchmark against The finished project is Marked Baseline of patient Patient Experience; designed to deliver improvements feedback and Quality of Building positive reputational against baseline Board reputation Environment advantages. position Board By 2014 targeted Measured Current Capacity and improvements in improvements achievement Efficiency clinical care and against baseline against KPIs and Flexibility and efficiency and alignment patient throughput Future Proofing with targets Patients NHS Grampian Improvement Current outcomes; Patient Experience through this against current National data; development will outcomes, international data deliver targeted aligned against national outcomes for national and patients waiting for international surgical intervention in achievements terms of improved care; The finished project is Achievement of Current Capacity and designed to deliver recommendations assessment data, Efficiency measurable for improvement reports and Patient Experience improvements in the with measured recommendations Timing provision of data capture. Quality of Building healthcare, levels of Environment cleanliness/ infections, the patient experience, reduced lengths of stay and improved communication with patients.

Staff The finished project is Measured Details of exit Staff Recruitment, designed to secure improvement in interviews. Training and increased levels of recruitment and Existing staff Development attraction and retention of staff turnover rates. retention of staff;

26 3.3 Developing the Options

3.3.1 A key component of developing a Business Case is the option appraisal exercise with comparison of alternative courses of action at the heart of this. In order to achieve this, the Scottish Capital Investment Manual (SCIM) Optional Appraisal Guide recommends beginning with identifying a ‘long list’ of options, containing all the initial ideas about possible solutions.

3.3.2 This exercise of generating the long list was undertaken at a workshop in August 2010 and revisited, for the purpose of short-listing, by the ARI Theatre Project Group on 25th October 2012.

3.3.3 To commence the exercise for generating a long list an overview was presented of the anticipated options, with the following brief:

 Deliver the additional theatre capacity in upgraded facilities  Do not develop additional theatre capacity and outsource services to the independent sector to meet any Treatment Time Guarantee  Deliver the additional theatre capacity in new facilities  Deliver the additional theatre capacity in a combination of new and upgraded facilities

3.3.4 The next stage in the process was for the long-listed options to be reduced to a more manageable ‘short list’ of options for in-depth appraisal and evaluation. Through utilising a standard table illustrated in the SCIM, advantages and disadvantages for each option were discussed and debated by the Theatre Project Group on 25th October 2012 to derive a short list of options. The short listed options are those indicated green in the ‘Take Forward’ column, those indicated red were rejected and have not been taken forward.

3.3.5 The SCIM calls for a do nothing / minimum option to be short-listed and appraised even where it is not considered to be a realistic option. Its function is to provide a benchmark so that the value of the alternative 'do something' options may be judged by reference to current service provision.

27 Table 3.2: Summary of Long-Listed to Short Listed Results

Option Description / Why Rejected Take Forward Yes / No 1 Do nothing Yes

2 Upgrade Two Existing Theatres – Main Theatre Suite No (MTS). Rejected on the grounds that additional capacity was a key factor in terms of the Board’s ability to meet TTG requirements.

4 Two Additional Theatres into the far-side of the Open Yes Quadrangle. Considered isolated from the main theatre suite and hence, need for own supporting recovery rooms. Rejected on the grounds of clinical risk and inefficiency from working slightly remote.

5B Two Additional Theatres built into the Open Quadrangle, Yes located across the corridor from theatres 1 to 8. This option retains existing recovery rooms 1 and 2 (11 and 7 beds respectively). Plus, creates a new recovery room 3 (9 beds). This option allows flexibility for ITU but creates split site working between recovery rooms. Total number of recovery beds, 27.

6 Combination: 1 New & 1 Refurbished Theatre (SSU). No Rejected on the grounds that this would not provide the Board with enough additional capacity required to deliver a sustainable action plan to meet TTG requirements.

7 Upgrade Two Existing – Short-Stay Unit (SSU). No Rejected on the grounds that additional capacity was a key factor in terms of the Board’s ability to meet TTG requirements.

8 Stand Alone Theatre Suite on ARI Site. Rejected on the No grounds of clinical risk and inefficiency from having a stand alone theatre suite.

28 3.3.6 The long list of options was measured against the achievement of the aforementioned Critical Success Factors and those options that failed (indicated in red) to deliver any of the CSFs were deemed unsuitable to put forward onto the Short list.

Table 3.3: Summary of Short Listed Options

Option Description Take Forward Yes / No 1 Do nothing Yes

5B Two Additional Theatres built into the Open Quadrangle, Yes located across the corridor from theatres 1 to 8. This option retains existing recovery rooms 1 and 2 (11 and 7 beds respectively) plus, creates a new recovery room 3 (9 beds). This option allows flexibility for ITU emergencies but creates more split site working between recovery rooms. Total number of recovery beds, 27.

3.4 The Benefits of Appraisal

Overview

3.4.1 A key component of any formal option appraisal is the assessment of the non- financial benefits that are likely to accrue from the options under consideration.

3.4.2 The benefits appraisal process had three main stages:

 Identification of the benefits criteria;  Weighting of the benefits criteria;  Scoring of the short-listed options against the benefits criteria.

3.4.3 Although comparison of the relative non-financial benefits of the options presented allows comparisons to be made in these terms, the outcome is also critical in assessing the overall value for money presented by each of the options. This is most commonly measured by the Net Present Cost (NPC) per unit of benefit delivered.

29 3.4.4 The following sections provide a detailed description of the process used to assess the potential benefits of the short-listed options, along with the outcomes of the exercise.

The Benefit Criteria

3.4.5 The role of benefit criteria in the non-financial appraisal is to provide a basis against which each of the options can be evaluated in terms of their potential for meeting the critical success factors for the proposed capital investment.

3.4.6 Individual criteria will, generally speaking, have differing degrees of importance in determining the preferred solution to emerge from the benefits appraisal. As a result it is necessary to rank the criteria in order of importance and then to allocate a weighting, which reflects the degree to which each criterion will affect the outcome of the options scoring exercise.

3.4.7 The benefits criteria were developed by members of the ARI Theatres Project Group on 25th October 2010, one patient / public representatives attended this meeting. The benefit criteria are shown below:

Table 3.4: Benefit Criteria

Reference Benefit Criteria A1 Capacity & Efficiency A2 Alignment with National Guidance A3 Supports Strategy (National, Regional & Local) and supports National Policy for Waiting Times A4 Timing A5 Patient Experience / Safety A6 Quality of Building Environment A7 Flexibility and Future Proofing A8 Staff Recruitment, Training and Development

Ranking and Weighting the Criteria

3.4.8 As some criteria have a greater bearing than others on the outcome of the benefits appraisal it is necessary to rank criteria in order of importance. This is linked with the weighting exercise undertaken. This exercise was undertaken by the ARI Theatre Group on 25th October 2012, the results of which were collated and averaged to derive an overall order. The results of this are shown below. The criterion deemed to be the most important is ranked number 1. The output of the weighting exercise is summarised in Table 3.5 below.

30 Table 3.5: Weighting/Ranking of Benefits Criteria

Criteria Heading Rank Weighting Patient Experience / Safety 1 22% Staff Recruitment, Training and Development 2 19% Quality of Building Environment 3 17% Flexibility and Future Proofing 4 14% Supports Strategy and National Policy for Waiting 5 11% Times Alignment with National Guidance 6 8% Capacity & Efficiency 7 6% Timing 8 3% Total 100%

3.4.9 In comparative terms, the top weighted criterion – Patient Experience / Safety, will have seven times the bearing on the final outcome of the scoring exercise when compared to the lowest weighted criterion, Timing.

Process for Scoring the Options

3.4.10 The scoring of the options against the benefit criteria is designed to assess the extent to which the potential solutions meet the critical success factors of the proposed investment.

3.4.11 Scoring provides a means to assess how each of the options compares, both in relation to the optimal position (i.e. meeting all of the criteria in their totality), as well as with the other options.

3.4.12 The benefit scores, when contrasted with the whole life cost (derived from the Net Present Cost within the Economic Appraisal), provide a means by which the overall value for money delivered by the short listed options can be assessed.

Option Scoring and Results

3.4.13 Delegates in attendance at the non-financial benefits workshop, on the 25th October 2012, were from the following groups:

 Public/Patient Representatives  Clinical Representatives  Management Representatives

3.4.14 The workshop was opened with an explanation of the background and context to explain how this fits into the overall option appraisal process. This was followed by an explanation of the options which consisted of architectural floor plans illustrated using an overhead projector. Questions were invited at this point before delegates were asked to score each of the options against the benefit criteria.

31 Table 3.6: Option Scoring Scale

Score O 1 2 3 4 5 Not Deliver Deliver Deliver Deliver Deliver Evaluation deliver small benefits but benefits benefits benefits on benefits no added with with and added benefits value minimum average value in added added full. value value 3.4.15 The group, with the assistance of the facilitator, debated each of the benefit criteria in the context of each option and a single consensus score was generated using the scale illustrated in Table 3.6.

3.4.16 The team’s total consensus score for each option were then collated and the options ranked according to the weighted scores. The results of the benefits scoring are summarised below while further analysis is available in Appendix A-7.

Table 3.7: Benefits Appraisal – Summary of Weighted Scores

Option Description Weighted Rank % of Score Maximum Possible Score 1 Do Nothing 194 4 39%

3 Two new theatres centrally located within 458 1 92% the Main Theatre Suite. Improves recovery room built environment. Also retains the 2nd recovery area (7 beds) for flexibility during ITU emergencies.

5a Two new theatres Built within the 336 2 67% Quadrangle Courtyard. Centralises recovery beds into one single location but in doing so, takes away the option for retaining the 2nd recovery area (7 beds) for flexibility during ITU emergencies.

5b Two new theatres Built within the 314 3 63% Quadrangle Courtyard. Introduces an additional recovery area 3 (includes retaining the 2nd recovery area for flexibility during ITU emergencies).

Sensitivity Analysis

3.4.17 In order to test the robustness of the results of the benefits appraisal it is necessary to assess the sensitivity of the ranking of the scores to changes in key variables and assumptions.

3.4.18 This exercise provides an indication as to the elements of the evaluation that are critical in influencing the outcome. As such it is often of benefit to cross reference

32 these features to the key project risks and to the development of the related management strategy. Further work has been undertaken by way of sensitivity analysis to evaluate what the ranking might be if some of the weights and / or scores were changed. A range of sensitivities were applied to the benefits scores, namely:

 Equal weighting applied to all criteria  Excluding benefit scores for top ranked criteria (Patient Experience / Safety)  Altering the scores of the criteria with the greatest scoring range of the ‘do something’ options (Quality of Built Environment) so that all options score the mid-range value i.e. 2.5.

3.4.19 The sensitivity tests detailed above have been applied to the baseline benefit scores outlined above, the results of which are shown in table 3.8 below.

Table 3.8: Results of Sensitivity Analysis

Sensitivity Test Option 1 Option 3 Option Option 5a 5b Baseline Scores 194 458 336 314 Ranking 4 1 2 3 Equal Weighting of Criteria 200 438 325 325 Ranking 4 1 2 2 Exclusion of top ranked criteria scores 128 347 247 247 Ranking 4 1 2 2 Alter scores of criterion with greatest range 208 369 319 315 Ranking 4 1 2 3

3.4.20 The analysis above indicates that none of the sensitivity tests applied altered the ranking of Option 3 as the highest rated option, demonstrating the robustness of the results.

Summary of Results

3.4.21 The results of the benefit scoring exercise indicate a clear hierarchy and consistent gap with regard to their relative overall performance in relation to the level of benefits.

Option 3: Two new theatres centrally located within the Main Theatre Suite consistently out performs the other options with 92% of the available maximum score. The gap between this option and the other options is largely consistent through the sensitivity analysis.

Option 5a: Two new theatres built within the Quadrangle Courtyard with a single centralised recovery area, scores 67% of a maximum available score.

Options 5b: Two new theatres built within the Quadrangle Courtyard with three separate recovery areas, scores 63% of the available maximum score.

Option 1: Do nothing score 39% of the available maximum score.

Unsurprisingly the do nothing option results in the lowest level of overall benefits. 3.4.22 The robustness of the results is demonstrated through sensitivity testing whereby the overall ranking of the scores is unaltered by changes in key variables.

33 3.5 The Procurement Process

3.5.1 Following guidance from Health Facilities Scotland the construction element of the project and the equipment for theatres will be procured via Frameworks Scotland and the National Contract for NHS Scotland respectively.

3.6 Economic Appraisal

Introduction

3.6.1 An economic appraisal of all the short listed options has been carried out in accordance with the 2003 edition of the HM Treasury Green Book. The economic appraisal takes account of all costs related to the project over the project lifetime. The Department of Health’s Generic Economic Model (GEM) has been used to assess the total cost of each option.

3.6.2 The following assumptions have been used in the economic appraisal:-

 A project life of 45 years plus build period has been used based on the expected lifespan of the buildings;  Discount rate of 3.5% for the first 30 years, 3% thereafter in accordance with the Treasury Green Book.  The base year for the appraisal is 2012/13 and all future costs have been discounted back to this year;  All VAT costs are excluded, with the exception of those associated with the capital costs for each option. The Net Present Costs (within the GEM) are exclusive of VAT.  All cash flows relating to the project are included (both capital and revenue).  Capital costs have been assessed by the respective Framework Cost Advisors.  Contingency levels have been quantified for each option. This is backed up by a quantified Risk Register.  The revenue costs for the short listed options have been calculated by NHS Grampian’s Finance Department, in collaboration with the services that will be responsible for them.

Capital Costs

3.6.3 The capital costs of each option are shown in table 3.10 below and the build up to these are attached in Appendix A-1.

Methodology

3.6.4 The capital costs for the Business Case have been calculated by Robertson Dawn Health Ltd, the Principal Supply Chain Partner (PSCP) appointed under the Frameworks Scotland Contract to take the project forward in partnership with NHS Grampian. The capital cost breakdown for all of the short listed options are included within Appendix A1. The breakdown for the preferred option is also provided.

3.6.5 Due to the time pressure to complete the Business Case, the capital costs for the preferred option are stated on a “not to be exceeded” basis. This is effectively a cap on the capital cost, which must not be exceeded when the target price is ultimately agreed with the PSCP. In the event that the target price does indeed exceed this cap, then a value engineering exercise will be undertaken to ensure that the project can be completed within the capital budget.

34 Contingencies and Optimism Bias

3.6.6 A quantified Risk Register was prepared and agreed by the respective Framework Cost Advisors and this is included within Appendix A-2. A summary of the percentage allocations for each option are included within table 3.9 below.

3.6.7 The majority of the Risk Register contingency value is taken up by Asbestos removal and the potential requirement for new electrical transformers. These risks are common to all options. The contingency % for Option 5b is higher, since it is a lower cost project and not because it is inherently more risky.

3.6.8 As the capital cost of the preferred option does not exceed £5M, this Business Case takes the single approval stage, “Standard” format. There is therefore no requirement to include an Optimism Bias within the cost calculations.

Table 3.9: Contingency Allowances

Option 1 Option 3 Option Option 5b 5a Contingency N/A 9.5% 9.4% 11.4%

35 Table 3.10: Capital Costs Capital Option 1 Option 3 Option 5a Option 5b Costs £000 £000 £000 £000 Building N/A 1,060 1,347 908 Works Mechanical N/A 1,418 1,160 1,160 & Electrical Pre- N/A 297 301 248 liminaries Design Fees N/A 135 136 112 Inflation N/A 0 0 0 Overhead & N/A 202 204 168 Profit VAT N/A 530 537 442 Contingency/ N/A 140 140 140 Risk Total PSCP N/A 3,782 3,825 3,178 Cost

NHS Costs N/A 10 10 10 Group 2 & 3 N/A 829 829 829 Equipment VAT N/A 192 192 192 Contingency/ N/A 155 155 155 Risk Total Direct N/A 1186 1186 1186 Costs

Total N/A 4,968 5,011 4,364 Capital Cost

Table 3.11: Capital Expenditure Phasing

Capital Costs Option 1 Option 3 Option Option 5a 5b £000 £000 £000 £000 2012/2013 N/A 900 900 760 2013/2014 N/A 4,068 4,111 3,604 2014/2015 N/A 0 0 0 Total N/A 4,968 5,011 4,364

36 Revenue Costs

3.6.9 The revenue costs in relation to the Theatres project are split into two distinct types:

 The property costs of running and maintaining the buildings housing the services.  The cost of providing the services to patients within the buildings.

3.6.10 The estimated costs of running and maintaining the buildings are derived using floor area rates for each of the cost types (Rates, Heat/Light/Power, Cleaning etc). These floor area rates are calculated using cost data from various buildings within the NHS Grampian estate. The breakdown of the property revenue costs is included within Appendix A-3.

Table 3.12: Additional Theatres Property Revenue Costs

Additional Annual Option Option Option Option Theatre Property 1 3 5 5a Revenue Costs £000 £000 £000 £000 Property Costs N/A 60 60 60

3.6.11 The costs in providing the services to patients within the buildings being provided are detailed in the tables below. As each of the options provides two new Theatres, in addition to those currently provided at Aberdeen Royal Infirmary, the additional costs are broadly similar for each option. The only difference relates to the staffing requirement for recovery beds, since these differ slightly across the options.

3.6.12 These costs have been prepared by NHS Grampian’s Finance Department, in collaboration with the services that will be responsible for them. Table 3.13 shows the additional service revenue costs for the ARI options:

Table 3.13: Additional Theatres Service Revenue Costs

ARI Additional Option Option Option Option Annual Theatre 1 3 5a 5b Service Revenue Costs £000 £000 £000 £000 Medical Staffing N/A 1,375 1,375 1,375 Nursing N/A 882 757 831 Admin N/A 103 103 103 Medical Supplies N/A 2,180 2,180 2,180 CSSD N/A 80 80 80 Other Support N/A 250 250 250 Services

Total N/A 4,870 4,745 4,819

37 Lifecycle Costs

3.6.13 Lifecycle costs have been developed by Gardiner & Theobald - Framework Cost Advisors, in relation to the ARI Theatres, using benchmark scheme information based on rates per square metre (see Appendix A-4). At this stage it has not been possible to develop a full and detailed life cycle cost model due to the status of the design information.

3.6.14 The “do something” options are similar in respect of their new build and refurbishment provision and hence have similar Lifecycle costs. The following is an extract from the Lifecycle Report:

Statement “We have provided a cost /m2 analysis and estimation of the frequency and cost of replacing building assets and elements over the agreed term. A more detailed analysis can be prepared once a decision on the layout option has been made and a detailed capital cost plan is prepared.” Approach “ Our unique approach is to take a 'real world' look at the practicalities of building operation and life cycle replacement to take account of use, maintainability, accessibility, replacement frequencies and sustainability of building components, to identify possible changes to reduce cost, or to improve sustainability or ease of operational efficiency.” Lifecycle Replacement Modelling “ Gardiner & Theobald has developed a bespoke life cycle modelling tool, refined over many years of experience, and updated to align with the requirements of ISO 15686 and BREEAM. Whilst this is a standard model incorporating all our experience and the lessons learned from previous projects, it is also flexible enough to be adapted to meet the specific needs of each client. Our modelling makes use of BCIS codes, providing our clients with an industry standard view of the life-cycle replacement cost profile, against BCIS groups in order to generate the necessary outputs for useful life cycle replacement analysis and management. The model can work at various levels and has been created to be flexible enough to carry out modelling from a high strategic level right down to a detailed elemental level.”

3.6.15 The following table summarises the average lifecycle costs per annum for each option.

Table 3.14: LifeCycle Costs

Lifecycle Costs Option Option Option Option 1 3 5a 5b £000 £000 £000 £000 Average Annual N/A 41 41 41

3.6.15 The table confirms that Lifecycle costs are expected to be virtually the same for all of the options, with the obvious exception of “Do Nothing”.

38 Net Present Cost Findings

3.6.16 The detailed economic appraisals for each option are included in this Standard Business Case (see Appendix A-5), together with detailed descriptions for costs and benefits, and their sources and assumptions.

3.6.17 In respect of the Net Present Cost, Option 1, Do Nothing is the cheapest option in respect of capital and revenue expenditure, since it has no cost. This is of course offset by being the highest clinical risk and lowest scoring in respect of benefits criteria. Option 1 is therefore excluded from the GEM modelling exercise. The lowest ranked option from an NPC perspective is Option 3. However, it is not sufficient to undertake the analysis based on cost alone; therefore, one must take into account clinical risk mitigation and alliance with benefits criteria.

Table 3.15: Summary of Key GEM Elements

Figures Exclusive of VAT Capital Capital Life Property Service Total Net Equivalent Rank Costs Costs Cycle Revenue Revenue Costs Present Annual Costs Costs Costs Cost Cost £000 £000 £000 £000 £000 £000 £000 Option N/A N/A N/A N/A N/A N/A N/A N/A 1 Option 4,246 1,849 2,700 219,150 227,945 112,964 4,733 3 3 Option 4,283 1,849 2,700 213,525 222,357 110,262 4,620 1 5a Option 3,730 1,849 2,700 216,855 225,134 111,344 4,665 2 5b

3.7 Summary of Economic, Risk and Financial Appraisals

3.7.1 The summary of the economic, risk and benefits appraisal is shown in table 3.16 below. The cost and benefits of each option have been brought together by calculating a cost per benefit point for each option.

39 Table 3.16: Summary Option Appraisal Appraisal Option 1 Option 3 Option 5a Option 5b Element Benefit 194 458 336 314 Score (a) Rank 4 1 2 3 Net Present N/A 112,964,000 110,262,000 111,344000 Cost (b) Rank N/A 3 1 2 Cost per Benefit N/A 247,000 328,161 354,599 Point (b/a) Rank N/A 1 2 3 Clinical 145 41 79 59 Risk (c) Clinical Risk % (out of 96.67% 27.33% 52.67% 39.33% 150 max) (d) Rank N/A 1 3 2 Risk Adjusted Cost per N/A 67,408 172,842 139,464 Benefit Point (b/a x d) Rank N/A 1 3 2

3.7.2 The above summary provides an overview of the impact of the process in arriving at the preferred option, ultimately concluding with the lowest cost per benefit point, whilst arriving at the greatest mitigated clinical risk total. The preferred option, therefore to be carried forward into the Financial Case for affordability assessment is Option 3.

3.8 Sensitivity Analysis

3.8.1 In order to determine the robustness of the above economic and benefits appraisals the key variables for each of the appraisals have been flexed.

3.8.2 In relation to the financial variables the following have been flexed:-  Capital Costs  Life Cycle Costs  Property Revenue Costs  Service Revenue Costs

40 Table 3.17 – Financial Sensitivities (respective increase by 10%)

Financial Option Option Option Option Sensitivities 1 3 5a 5b Costs £000 £000 £000 £000 Capital N/A 4,671 4,711 4,103 Life Cycle N/A 2,034 2,034 2,034 Property Revenue N/A 2,970 2,970 2,970 Service Revenue N/A 241,065 234,878 238,541

Table 3.18 – Financial Sensitivities (respective increase by 10%) - Effect on NPC

Financial Option 1 Option 3 Option Option Sensitivities 5a 5b NPC £000 £000 £00 £000 10% increase in capital costs N/A 113,463 110,764 111,793 (incl. Life Cycle) £m 10% increase in revenue costs N/A 123,761 120,785 122,030 (FM)

Table 3.19 – Financial Sensitivities Analysis

Sensitivity Option Option Option 5a Option 5b Analysis 1 3 Risk Adjusted Base Cost per N/A 67,408 172,842 139,464 Benefit Point (As previous) Rank N/A 1 3 2 10% increase in capital costs Risk Adjusted N/A 67,706 173,629 140,026 cost per benefit point (include Life Cycle) £m Rank N/A 1 3 2 10% increase in revenue costs (FM) Risk Adjusted 73,851 189,338 152,848 Cost per benefit N/A point £m Rank N/A 1 3 2

3.83 Even after flexing the revenue and capital costs, the ranking remains the same thus; overall, the preferred option is Option 3.

41 4 THE COMMERCIAL CASE

4.1 Introduction

4.1.1 This section of the Standard Business Case describes the agreement between the Board and the Principal Supply Chain Partner (PSCP), who as the solution provider has committed to undertake and provide the necessary services and duties to assist and support NHS Grampian through the development of this Business Case and will ultimately lead onto the construction and commissioning of the new facility.

4.1.2 This agreement shall reflect the guiding principles of the Frameworks Scotland Agreement which has been entered into between The PSCP and the NHS National Services Scotland and the project will be developed under this national framework. The Framework Agreement is managed by Health Facilities Scotland (a division of NHS National Services Scotland) on behalf of the Scottish Government Health Directorate.

4.1.3 The Framework embraces the principles of collaborative working, public and private sectors working together effectively, and it is designed to deliver on-going tangible performance improvements due to repeat work being undertaken by the supply chains.

4.1.4 ‘The Guide’ developed by Health Facilities Scotland for use on all the Frameworks Scotland initiatives highlights that the Framework has been established to achieve the following key benefits:

 Earlier and faster delivery of projects.  Certainty of time, cost and quality.  Value for money  Well-designed buildings procured within a positive collaborative working environment.

4.2 Project / Scheme Objectives

4.2.1 The benefits to be derived from the Framework are married with the objectives of the individual projects / schemes, which are defined within the Framework Agreement as:

 Completion of schemes to the standard and functionality that meets the requirements set out in the Scheme Contract;  Value for money, not only in the initial capital cost, but also for the whole asset life cycle through the application of the principles of value engineering;  Certainty of delivery in terms of time and cost;  Consistent delivery in terms of quality in both design and construction;  The introduction of continuous improvement through collaborative working, the adoption of benchmarking and performance management;  Improved management of risk; and  Optimised delivery of sustainable development on all major NHS schemes in Scotland procured through the Frameworks Scotland initiative.

4.2.2 The PSCP will enter into an individual project specific Scheme Contract with NHS Grampian at the beginning of each Stage of the project, and ultimately for the construction and commissioning element of the project.

42 4.3 Required Services

4.3.1 The products and services under contract are for a single point deliverer. This offers a procurement vehicle with an integrated supply chain for the delivery of design, manufacture, construction and commissioning of facilities to enable NHS Grampian to meet a sustainable Treatment Time Guarantee solution for additional theatre capacities at ARI, as set-out within this SBC, at the earliest opportunity.

4.3.2 With regards to equipment and supporting infrastructure for the two additional theatres, NHS Grampian has sought the assistance of colleagues from Health Facilities Scotland for guidance on purchase through national contracts, competitive tendering and where appropriate via EU Procurement. The programme for supply and installation will be co-ordinated by Health Facilities Scotland (on behalf of NHS Grampian) and the PSCP as appropriate. Under a Service Level Agreement, Health Facilities Scotland, in collaboration with NHS Grampian, will undertake equipment scheduling and specification, tendering and procurement in accordance with NHS Grampian’s Standing Financial Instructions and EU regulations, and will manage receipt of goods, commissioning and equipment distribution on-site.

4.4 Agreed Risk Transfer

4.4.1 The general principle is that risks are passed to ‘the party best able to manage them’, subject to value for money. This is reflected in the Risk Register within Appendix A- 2.

4.5 Agreed Charging Mechanisms

4.5.1 The payment mechanism under the National Framework NEC3 Engineering and Construction Contract, Option C Target Contract with Activity Schedule involves an open book auditable approach. At the preconstruction stages payment is based on a fee forecast schedule, (which is intrinsically linked to an agreed programme and set of deliverables) based on hours expended, multiplied by the Framework agreed rates supported by timesheets, along with ancillary cost payments such as surveys.

4.5.2 The PSCP and its supply chain members commercial rates and profit levels for duties undertaken during each of the pre-construction Business Case development stages have been tendered competitively as part of the Framework selection process.

4.5.3 At the construction stage the payment is based on accounting ledger cost from the PSCP under the NEC3 Engineering and Construction Contract Option C Target Contract with Activity Schedule. Payments are checked and verified through the independent Board Cost Advisor, Gardiner & Theobald.

4.6 Agreed Contract Length

4.6.1 The PSCP enters into a Scheme Contract at each of the Business Case stages following agreement of the deliverables to be produced, the programme and price. The contract length is therefore set out in the Scheme Contract and for this submission covers the pre-construction period during Stage 3 Full Business Case (for this project, Standard Business Case) and Stage 4 Construction and Commissioning.

43 4.7 Contractual Clauses

4.7.1 The form of contract is the Engineering and Construction Contract NEC 3, Option C Target Contract with Activity Schedule and supports the principles, culture and ethos of Frameworks Scotland. The key principle of this option is that the PSCP agrees a target price with the NHS Board, working to agreed margins and organising open book accounting. For this ARI Theatres Project, the due diligence necessary for reaching a target price for the project is still in progress and therefore this SBC includes an assurance of a not to be exceeded capital cost of £4.94 M. The intention is to have a target price finalised following due process for NHS Grampian Board’s consideration (February 2013).

4.7.2 The combination of NEC3 Main Options, Core and Secondary Clauses means it is flexible, focuses on collaborative procedures and good practice, and acts as a stimulus to good management. The Core Clauses provide a backbone covering items such as responsibilities (Works Information), Early Warnings (Clause 16), Time (Clause 3), Payments (Clause 5) and Risk (Clause 8). The Early Warning system typifies the proactive nature of the NEC bringing the parties together to minimise risk. The Secondary Option Clauses provide a further list of components for items such as retention and inflation.

4.7.3 A number of alterations have been made to the standard contract in order to tailor it to the requirements of the Frameworks Scotland Agreement. Key alterations include:

 Cash flow forecasts regularly updated by the PSCP and related to the programme  Payment of accrued costs to the supply chain  Gain share potential for Client and the PSCP (but overspend of the final target price is funded by the PSCP)  An firmer definition of Defined Cost

4.7.4 The Scheme Contract is structured to enable it to be reviewed and updated as works proceed for each stage up to agreement of the Target Price during Stage 3, this includes:

 Form of Agreement and Appendices  PSCPs Stage Form of Proposal (for each subsequent Stage of the contract)  Contract Data Part 1 (Client Information)  Contract Data Part 2 (PSCP Information)  Attendant Appendices or Attachments

4.8 Procurement Strategy and Implementation Timescales

4.8.1 It is anticipated that the procurement strategy will continue to follow the national framework as set out in the Frameworks Scotland Agreement between National Services Scotland and the PSCP.

4.8.2 It is thus intended that NHS Grampian and the PSCP will enter into Scheme Contracts for services and work to maintain the development of the Theatre Facilities at ARI from this Business Case (i.e. Stage 3) development through to construction and commissioning activities (i.e. Stage 4).

44 4.9 Capital Funding

4.9.1 In order to secure dedicated budget from the SGHD, this Standard Business case demonstrates how the development of the ARI Theatre Facilities will provide sustainable theatre capacity to deliver Treatment Time Guarantee requirements.

4.10Accountancy Treatment

4.10.1 The project is publicly funded and thus the values on completion will be debited to the balance sheet of the NHS Grampian Board. The asset will then depreciate over its useful life and will be accounted for in accordance with the rules governing all assets.

45 5 THE FINANCIAL CASE

5.1 Introduction

5.1.1 The purpose of this section is to set out firm financial implications of the preferred solution and an examination of the affordability of that solution to NHS Grampian.

5.2 Costing Methodology

5.2.1 A detailed financial analysis was carried out for the short-listed options considered for the proposed additional Theatres, based on estimates of; capital, lifecycle, property revenue and service revenue costs. A bespoke financial model was developed and implemented to consider the likely financial impact for NHS Grampian. The costs were also subjected to a sensitivity analysis and a risk contingency was applied to the capital cost.

5.3 Capital Costing & Risk Allowance

5.3.1 The capital cost estimated for each option has been developed in partnership with NHS Grampian’s Principal Supply Chain Partner (PSCP), Robertson Dawn Health, as part of Health Frameworks Scotland.

5.3.2 These costs include elements for a Risk Register, in accordance with the SCIM guidelines.

5.3.3 Due to the time pressure to complete the Business Case, the capital costs for the preferred option are stated on a “not to be exceeded” basis. This is effectively a cap on the capital cost, which must not be exceeded when the target price is ultimately agreed with the PSCP. In the event that the target price does indeed exceed this cap, then a value engineering exercise will be undertaken to ensure that the project can be completed within the capital budget.

5.4 Property Revenue Costs

5.4.1 Property costs for each of the options have been calculated by NHS Grampian using their standard floor area rates. No savings offsets will be achieved, since the options are all an extension to current facilities.

5.5 Service Revenue Costs

5.5.1 The short listed options for constructing two new Theatres all require significant investment in new staffing and non-pay revenue costs. These costs have been calculated by NHS Grampian’s Finance Dept in collaboration with the services that will be responsible for them.

5.6 Depreciation

5.6.1 Depreciation of the funding has been included in the calculation on a straight-line basis over the useful life of the asset.

5.6.2 Depreciation will be incurred on the whole of the capital cost of the scheme and this has been allowed for in the financial model.

46 5.7 Lifecycle Costing

5.7.1 The lifecycle costs of the building have been calculated by Gardiner & Theobald (cost advisors to NHS Grampian on the project), over the estimated 45 year life of the building.

5.8 Financial Profile of Short-Listed Options

5.8.1 The following table 5.1 summarises the profile of each of the options in terms of the various cost headings above.

Table 5.1: Option Summaries

Net Additional Annual Net Additional Net Property ServiceRevenue Additional Capital Revenue Costs Annual Lifecycle Cost Costs £000s Depreciation Costs Option £000’s £000s £000s £000s 3 4,968 60 4,870 174 41 5a 5,011 60 4,745 175 41 5b 4,364 60 4,819 162 41

47 5.9 Preferred Option

5.9.1 The preferred option, as indicated by both the Qualitative Benefits exercise and Economic Appraisal, is Option 3.

5.9.2 The estimated capital cost for the construction of Option 3 is £4.968M. This is broken down as follows:

Capital Cost

Table 5.2: Option 3 Capital Costs

Capital Cost Elements Cost £000s Building Works 1,060 Mechanical & Electrical 1,418 Pre-liminaries 297 Design Fees 135 Overhead & Profit 202 Contingency/Risk (4.5%) 140 VAT 530 Total PSCP Cost 3,782

NHS Costs 10 Group 2 & 3 Equipment 829 Contingency/Risk (5%) 155 VAT 192 Total Direct Costs 1,186

Total Capital Cost 4,968

5.9.3 The inclusion of Contingency/Risk Allowance totalling 9.5% reflects the early stage of the design and specific risks for Asbestos and the potential requirement for new electrical transformers.

Lifecycle Cost

5.9.4 The estimated lifecycle cost for Option 3 is £41k on average per annum.

Table 5.3: Lifecycle Costs of Option 3

Lifecycle Cost Net Additional Avg Annual Cost £000s Building Works 41 Total 41

48 Property Revenue Costs

5.9.5 The net additional annual estimated property revenue costs of Option 3 are:

Table 5.4: Additional Property Costs of Option 3

Property Cost Net Additional Annual Cost £000s Rates & Water 15 Heat, Light and 12 Power Maintenance 7 Cleaning 26 Total 60

Theatre Service Revenue Costs

5.9.6 The net additional annual estimated service revenue costs of Option 3 are:

Table 5.5: Additional Service Costs of Option 3

Service Cost Net Additional Annual Cost £000s Medical Staffing 1,375 Nursing 882 Admin 103 Medical Supplies 2,180 CSSD 80 Other Support 250 Services

Total 4,870

Depreciation

5.9.7 The net additional maximum annual depreciation associated with Option 3 is:

Table 5.6: Additional Annual Depreciation of Option 3

Depreciation Net Additional Depreciation £000s Building Works 74 Theatre 100 Equipment Total 174

5.10 Impact on the Income and Expenditure Account 5.10.1 The Capital and Revenue costs and funding streams over the intended lifespan of the project assume a build completion in January 2014.

49 5.10.2 The following tables detail the estimated impact on Income and Expenditure.

Table 5.7: Summary of Financial Appraisal Capital £ 000 2012/13 2013/14 2014/15 Total

Expenditure: New Theatres 900 4,068 0 4,968 (Option 3) Total Capital 900 4,068 0 4,968 Cost

Funding:

SGHD Capital 1,000 3,000 0 4,000 Funding NHSG Formula 0 968 0 968 Capital

Total Funding 1,000 3,968 0 4,968

Net Capital Surplus 100 (100) 0 0 (Shortfall)

Revenue £ 000 2013/14 2014/15 2015/16 Total

Expenditure:

Property Costs 15 60 60 135

Service Costs 1,217 4,870 4,870 10,957

Depreciation 44 174 174 392

Total Expend 1,276 5,104 5,104 11,484

Funding: Existing NHSG Revenue Funding 44 174 174 392 For Capital Charges NHSG 5 year 1,232 4,930 4,930 11,092 Revenue Funding Total Funding 1,276 5,104 5,104 11,484 Net Revenue Surplus 0 0 0 0 (Shortfall)

50 5.11 Impact on the Balance Sheet

5.11.1 Upon completion of the new Theatres extension and associated support accommodation, the asset will be capitalised on the Balance Sheet of NHS Grampian in accordance with the rules governing all of its assets.

5.11.2 The asset will be capitalised at depreciated replacement cost, in line with NHS in Scotland policy in the month in which the asset formally becomes the property of NHS Grampian. It will then be straight-line depreciated over the estimated useful life of the asset.

5.12 Overall Affordability

Capital

5.12.1 The capital cost of the project is £4.968M, with SGHD Funding of £1.0M secured for the current year and £3.0M for the 2013/14 year. The balance of capital funding of £0.968M will be sourced from NHS Grampian’s capital formula allocation in 2013/14.

Recurring Revenue – Property and Service Costs

5.12.2 The additional funding requirement in costs associated with Option 3 is £4.93M per annum. This is a combination of property running costs of the new build extension and, more significantly, the costs of providing the additional Theatres service for patients.

5.12.3 Full provision for the funding requirement of £4.93M per annum has been made within NHS Grampian’s Financial Plan from 1 April 2013 onwards. Further work is also underway to refine the plans with particular regard to facility design, staffing models and ongoing efficiency. Locally this work will be led by a Clinician supported by local management teams.

Lifecycle Costs

5.12.4 The lifecycle maintenance programme will be undertaken as part of the overall maintenance prioritisation process of NHS Grampian.

Depreciation

5.12.5 Depreciation estimates in future years include a provision for new developments as a result of the capital programme, which forms part of the Local Delivery Plan. The additional depreciation resulting from Theatres extension is therefore already fed into the 5 year revenue plans.

51 5.13 Sensitivity Analysis

5.13.1 The Table below shows a number of permutations of cost fluctuation in both capital and revenue costs.

Table 5.8: Sensitivity Analysis

Average Change in Change in Change in Depreciation Annual Capital Cost Property Cost Service Cost Change Life-cycle % Change in £000s £000s £000s £000s Costs Cost £000s + 5% 248 3 244 9 2 + 10% 497 6 487 17 4 +15% 745 9 731 26 6 - 5% (248) (3) (244) (9) (2) - 10% (497) (6) (487) (17) (4) - 15% (745) (9) (731) (26) (6)

52 6 THE MANAGEMENT CASE

6.1 Introduction

6.1.1 This section of the Standard Business Case addresses the “achievability” of the Scheme and sets out the actions that will be required to ensure the successful delivery of the new Theatres Facilities at ARI (i.e. Option 3) in accordance with best practice.

6.1 Programme and Project Management Arrangements

6.2.1 The ARI Theatre replacement scheme forms an important part of the infrastructure programme to re-develop the Foresterhill Health Campus and is therefore linked to other elements of the overall campus, both in terms of programme and management / governance structure. Responsibility for the overall co-ordination of development activities on the Foresterhill Health Campus will be retained by NHS Grampian, while the delivery of the new ARI theatres replacement project primarily rests with the PSCP.

6.2 Governance and Accountability

6.3.1 It is essential that before any project is initiated, it has to be established where the decision-making authority will rest and what management structure will be put in place.

6.3.2 The governance arrangements are covered by the Health Campus Programme. The Health Campus programme structure has been organised to ensure that the high priority approved projects and those currently under consideration can be taken forward efficiently in support of the Health Plan implementation.

6.3.3 The main aims of the Health Campus Programme are to a) ensure that decision making can be integrated with NHS Grampian’s normal management processes as much as possible b), clinical leadership and project management support can be targeted effectively and efficiently and c), Best Practice is applied in terms of project management and governance.

53 6.3.4 The following structure provides clarity in terms of governance and accountability consistent with best practice in programme management.

Table 6.1: NHS Grampian Project Governance

OMT: The Sponsoring Group and leadership of the Operational Management Team Group by the Chief Operating Officer ensure a Chair: Pauline Strachan, Chief strong link to the aims and priorities of NHS Operating Officer Grampian.

Asset Management Group AMG: The Steering Group and leadership of the Chair: Alan Gray, Director of Finance group by the Director of finance ensure investment / disinvestment decisions link into the aims and priorities of NHS Grampian.

HCPB: Corporate governance of the programme, Health Campus Programme high level stakeholder involvement and sets overall Board strategic direction. Strategic agreement and control of the use of the main healthcare sites in Aberdeen. Chair: Roelf Dijkhuizen High level co-ordination and standard setting for Medical Director individual projects.

Project Boards: Strategic management of projects and implementation of plans consistent with NHS Project Boards Grampian strategy and the detailed commission agreed by the Programme Board.

Project Teams: Preparation of Business Cases and Project Teams design briefs, together with management & control of projects through to completion & bringing into service.

54 6.3 Programme Organisation

6.4.1 The Health Campus Programme Board leads and co-ordinates a range of projects set out in the structure below, ensuring a high level of co-ordination with service change and redesign:

Table 6.2: Health Campus Programme Structure

Emergency Care Centre Project

Inpatient Project Operational Management Group/Asset Management Group Ambulatory Care Project

Health Campus Programme Cancer Centre Project Board

Health Village Project Health Campus (City CHP) Programme Team

Woodend Blueprint

Finance Projects Subgroup Programme Cornhill Blueprint Support Design Team Liaison Subgroup Maternity Hospital Project

Communication Subgroup Aberdeen Dental School

ARI Reconfiguration Projects

Facilities Infrastructure

Clinical Infrastructure

55 6.4 Stakeholder Involvement

6.5.1 The production of the Standard Business Case is led by Manju Patel, NHS Grampian Project Manager. The project structure supporting the scheme is outlined below.

6.5.2 The Project Board operates as the overarching steering group for the project. The primary project ‘delivery unit’ is the Project Team and, together with the Principals Group (provides project guidance from HCPB); it sits at the heart of the scheme. The Project Team is supported by other end-user work-streams, and through workshops has been the prime mover in establishing the long list, short list, benefit criteria and project risks and driving the design solution through the Standard Business Case process.

6.6 Project Reporting Structure

INTEGRATED PROJECT MANAGEMENT STRUCTURE

ARI Reconfiguration: Theatres Project

Graeme Smith Senior Responsible Owner Gary Mortimer Project Director Andy McPherson Keith Taylor Services Support Manju Patel Project Manager & PSCP Contact Project Director Martin Buildabilty/innovation/ Alison Forest Access Manager MacLennan programme/logistics Ross Davidson Project Financial Manager Paul Aulton Services Preconstruction Manager Derek Morgan Technical Supervisor Martin MacLennan Mark Blyth Cost formatting/TP Diane Donald Commissioning Manager Project Manager Compilation/contract Neil Cowan Cost Advisor (G&T) Tom Shearer Design Review

Vince Shields General Manager Colin Barclay Local Services Support Amanda Croft Divisional Manager

COST DESIGN PLANNING OPERATIONAL

Stephen Lambie Tony O’Connell Bruce Balance Mark Alberts Martin MacLennan Jim McCallum Design Manager MRT Architects Duncan Smith Mark Bowden Paul Kaczmarek

Bruce Ballance Craig Slessor M&E Steve Selbie Structural Tony McMahon Commissioning

Supply Chain

56 Project Team / Working Group:

Manju Patel – Project Manager Alison Forest – Access Manager / Acute (Acute Service Planning Lead) Operational Lead

Justine Royle – Consultant Urologist Bruce Balance – Architect

Eleanor Binnie-Mcleod – Nurse Manager Elizabeth Irvine – Charge Nurse (Theatres)

Alastair McDiarmid – Consultant Gordon Malcolm – PSCP Project Manager Anaesthetist

Derek Walker – Finance Manager Christine Leith – Unit Manager

Dr Brian Stickle – Unit Clinical Director Gary Watts – Estates Manager (Theatres)

6.7 Principal Project Roles and Responsibilities

6.7.1 In order to achieve the full potential of the Framework it is vital that all members of the team (which are wide and varied) play an active part, the principal project roles as defined below:

Programme Director

6.7.2 The Project Director of NHS Grampian leads the whole process from the outset of the project and is accountable directly to the Health Campus Programme Board. The Project Director provides strategic direction, leadership, and ensures that the Business Case reflects the views of all stakeholders. The Project Director is supported by a Project Manager who undertakes the delivery function.

Project Manager

6.7.3 The Project Manager employed by NHS Grampian takes over the delivery function for a scheme from the Project Director and will perform the functions required by the Frameworks Scotland NEC 3 Scheme Contract. In addition the Project Manager will be the primary point of contact between the project team, NHS Grampian and the PSCP Project Leader.

PSCP Project Leader

6.7.4 The Project Leader employed by the PSCP will lead the PSCP team members and be the primary contact between the PSCP and NHS Grampian

6.7.5 NHS Grampian has made internal appointments to the key positions of Project Director and Project Manager and has appointed Robertson Dawn Health Limited as its Principal Supply Chain Partner for Stage 3, Standard Business Case. In addition to this they have made the following other appointments:

57 Table 6.4: NHS Grampian Advisors

Specialist Area Adviser Cost Advisor Gardiner & Theobald CDM Co-ordinator NHS Grampian Supervisor NHS Grampian Equipment Health Facilities Scotland

6.7.6 Robertson Health Dawn Limited is supported in its role as Principal Supply Chain Partner in key disciplines by the following members:

Table 6.5: Principal Supply Chain Members

Principal Supply Chain RD Health Partner

Architecture Mackie Ramsay Taylor

Civil & Structural Eng Ramsay & Chalmers

Mechanical & Electrical Eng Wallace Whittle

6.8 Standardised Documents and Controls

6.8.1 This Standard Business Case has been developed in accordance with the mandatory suite of guidance documents that make up the Scottish Capital Investment Manual (SCIM) and the other guidance documents identified therein. The project management arrangements indicated in this document will remain in place during this next stage.

6.9 Arrangements for Contract Management

6.9.1 The strategy, framework and plan for contract management have been agreed between NHS Grampian and the PSCP. These are reflected in the project cost plan which forms part of the Stage 3, Standard Business Case Scheme Contract.

6.9.2 The Contract (NEC3, Engineering and Construction Contract Option C Target Contract with Activity Schedule) will continue to be used through each stage of the Business Case process to ensure a systematic and robust approach is adopted in defining project parameters. This will ultimately culminate in the formulation of the Target Price which is based on the information contained within this Standard Business Case and a confirmed set of deliverables (Works Information). These project parameters form the cornerstone of the project management on the project.

6.9.3 Programme, risk management and change management procedures will ensure that issues are dealt with in a timely and equitable manner. Effective use of communication, instruction, and submission and acceptance pro-forma will also ensure that an audit trail is maintained.

58 6.10 Project Plan

6.10.1 The development of the ARI Theatres Facilities is essential for delivering sustainable theatre capacity to meet Treatment Time Guarantee requirements. The key milestones for the completion of the facilities and bringing them into service are shown below in Table 6.6:

Table 6.6: Key Dates

Milestone Target Date

NHS Grampian AMG Approval of SBC December 2012 for ARI Theatres Project

NHS Grampian Board Approval of SBC February 2012 for ARI Theatres Project

Scottish Capital Investment Group February 2013 Approval of ARI Theatres Project

Start on Site - ARI Theatres Facilities April 2013

Completion of ARI Theatres Facilities December 2014

6.11 Arrangements for Change Management

6.11.1 For change management the project will utilise the processes from the Frameworks Scotland procurement route which uses the NEC3 Engineering and Construction Contract Option C Target Contract with Activity Schedule and creates a structure and discipline to manage change via the use of Early Warning Notices and Compensation Events. This ensures change is identified early and is proactively managed by the project team.

6.12 Arrangements for Risk Management

6.12.1 The strategy, framework and plan for dealing with the management of risk are as required by the Frameworks Scotland Agreement and a copy of the full project Risk Register is attached at Appendix A-2. This sets out who is responsible for the management of risks and the required counter measures. A summary of the main risks is set out in the following table.

59 Overview

6.12.2 Risk analysis has three main uses:

 To deliver a robust financial and contractual structure for the project;  To create a risk management process during procurement and execution of the contract; and  To demonstrate value for money for the Board's financial commitments and estimate the project out-turn cost.

6.12.3 The Project Team in conjunction with the PSCP team have carried out a qualitative risk assessment, the results of which have been used to develop the risk management strategy.

Methodology

6.12.4 The methodology used to analyse the risks for the project are as follows:

 Define as project has developed;  Record on Project Risk Register; and  Control through defined mitigation strategies.

6.12.5 The main risks associated with the preferred option are described in the following table 6.7:

Table 6.7: Main Risks of Short Listed Options

Probability Impact Risk (1-5) (1-5) Rating (1-25) Asbestos Identification and Removal 5 4 20 Existing Service Capacity (Transformer) 5 5 25 Unknown services (voids, risers etc…) 4 3 12

Risk Management

6.12.6 As the project develops, each identified risk will be assigned to a responsible manager to manage, mitigate where possible and to provide pre- and post-mitigation rankings. The risk profile for the project will be kept under regular review and the Risk Register will be maintained and updated to reflect the changing risk profiles throughout the development and construction of the scheme.

6.12.7 Throughout the project a triangulation exercise will be carried out to ensure correlation between the contingency allowances included and the detailed Risk Register.

6.13 Technical Solution

6.13.1 The technical solution for the scheme is set throughout Appendix B-2 to B-3, which illustrates and describes the preferred option.

60 6.14 Consultations

6.14.1 This section details both consultations that have taken place and those that are ongoing.

Consultation with NHS Grampian Stakeholders

6.14.2 Consultation has taken place with NHS Grampian Stakeholders, with Health Facilities Scotland and with the ARI Reconfiguration Group and Acute Senior Management Team (ASMT) for cascading to front line staff.

Consultation with the Public & Patients

6.14.3 Consultation has been undertaken with the public. This has been done in the context of the Health Campus as a whole. There has also been formal consultation with the University of Aberdeen, Aberdeen City Council and Aberdeenshire Council at Board Level.

Aberdeen City Council Planning and Infrastructure

6.14.4 Consultation with Aberdeen City Council Planning Department is taking place. It was established that no pre-consultation period was required for structures less than 5,000m2, or where the site is less than 2 hectares. All build options fall within these criteria and no pre-consultation is therefore required.

6.15 Arrangements for Benefits Realisation

6.15.1 The benefits identified within this Standard Business Case and set out below will be monitored during the development of the scheme through to completion of the Post Project Evaluation to maximise the opportunities for them to be realised.

 Supports Strategy – National / Regional / Local, including flexibility and future proofing.  Secures value for money.  The scheme is designed to have sufficient flexibility and future proofing to meet capacity and efficient targets.  Improves patient public experience through the quality of the built environment.  Patient experience is enhanced through improvement against current outcomes and performance and aligned against national and international achievements.  Measured improvement in recruitment and retention of staff.  The development encourages improvements in staff overall performance, morale and job satisfaction.

6.15.2 The benefits identified are specific, measurable, achievable, realistic and time bound (SMART) and the arrangements criteria for monitoring the achievement of these through the development of the scheme are set out in section 3.2 of this Standard Business Case.

61 6.15.3 It is proposed that the benefits realisation plan in respect of the project be reviewed and developed in stages and consideration be given to the following aspects during the next phase of the project:

 Review and agree the specific aforementioned measures to be assessed  Identify the current baseline position (as applicable) to become the benchmark against which any improvements can be measured  Agree a target and rationale for delivery of any benefits falling short of initial objectives which can be implemented / realised during subsequent phases of the master plan development.

6.16 Performance Measurements - Key Performance Indicators

6.16.1 In order to improve the quality of service delivery and to drive continuous improvement within Frameworks Scotland there is a series of KPIs against which the performance of the Principal Supply Chain Partner and Members (PSCP and PSCM) will be measured.

6.16.2 It is ultimately anticipated that the PSCPs will be required to complete relevant KPIs at key milestone dates throughout the project and a toolkit will be used as a means of assessing and scoring the performance measurement criteria. It is understood that the KPIs will be formally reviewed at an interval no greater than on an annual basis at a performance review meeting and that the KPIs that will be used to benchmark performance will be as listed below:

Quality of Design: Assessing and evaluating the quality of design

Sustainability: To measure the sustainability rating of the construction scheme, including Waste Resource Action Plan (WRAP) guidance.

Client Satisfaction: How satisfied is the client with the PSCP

Cost Predictability: To measure the accuracy of forecasting. Programme used to measure against.

Time Predictability: To measure the accuracy of forecasting. Programme use to measure against

Quality of Life cycle costs, to measure the performance of the life cycle costs Construction: against a model to be agreed between the Framework Manager and the PSCP’s

Safety: To measure the number of reportable (RIDDOR) accidents in a given period

Defects: To assess the impact on the client of any defects at the point of handover and the number of defects

Collaboration: Questionnaire to be completed by all parties involved in the scheme

62 6.17 Arrangements for Post Project Evaluation

6.17.1 The ethos of continuous review and the search for improvements in construction should be present throughout the entire process. The arrangements for project evaluation review (PER) and post implementation review (PIR) for the ARI Theatres Project will be undertaken by the integrated project team to ensure all lessons learnt are put in place.

Aim and Scope of Evaluation

6.17.2 Project completion: a process will be put in place to appraise/assess the outcome of a range of areas relating to the project as a whole. The key work streams that will be undertaken will consist of:

 A review of the strategic case made for the project to confirm that it is still relevant;  A review of the business case capital and revenue costs;  A review of the project timetable and adherence to it throughout the life of the project;  A review of the benefits detailed on the Benefits Realisation Plan and confirmation that the key performance indicators and core project objectives have in fact been met;  Confirmation that the Project Management and Implementation plan were realistic and ultimately adhered to.

Stage 1 – Development of an Evaluation Plan

6.17.3 An Evaluation Plan will be developed in close conjunction with the Benefits Realisation Plan and Risk Management Strategy. It will act as a live working document, which will be constantly reviewed throughout the life of the project.

The Plan will outline:

 The objectives of the evaluation;  The scope of the evaluation;  The outputs to be evaluated and the success criteria against which they will be measured;  The performance indicators and measures for these criteria;  More detailed information about the Evaluation Group;  Identification of the budget and resources for this work;  A dissemination plan for ensuring the evaluation results are distributed and used to re-appraise the project; and  Clarification on the timings for evaluation.

Stage 2 – Evaluation Requirements for Construction Phase

6.17.4 Progress will be monitored during the construction phase, with outputs evaluated upon completion of this stage of works. Aspects to be evaluated will cover time, cost, service performance as well as management procedures, the design solution and contractor’s performance etc.

63 Stage 3 - Evaluation Requirement during Operational Stage

6.17.5 An evaluation covering a wider range of project evaluation criteria and benefits will be undertaken after a suitable bedding-in period after the construction phase has been completed. It is anticipated that this will take place circa 6 to 12 months following completion of construction works.

Stage 4 – Evaluating Longer Term Consequences

6.17.6 Further post-project evaluations will take place at a later stage, to assess the longer-term outcomes of the project, when the full effects have arisen. This will also need to align with the subsequent phasing of the overall master plan of the development.

Signed: Date:

Senior Responsible Owner Director of Modernisation – Graeme Smith