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An Audit of Matters Relating to the Concession Awarded to Vitals Global Healthcare by Government

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An Audit of Matters Relating to the Concession Awarded to Vitals Global Healthcare by Government AN AUDIT OF MATTERS RELATING TO THE CONCESSION AWARDED TO VITALS GLOBAL HEALTHCARE BY GOVERNMENT PART 1 | A REVIEW OF THE TENDER PROCESS A REPORT BY THE AUDITOR GENERAL JULY 2020 An audit of matters relating to the concession awarded to Vitals Global Healthcare by Government Part 1 | A review of the tender process Report by the Auditor General July 2020 Table of Contents List of figures 5 List of abbreviations 7 Executive Summary 8 Chapter 1 - A contested concession 14 1.1 Requests for scrutiny 14 1.2 The setting of terms 19 1.3 Methodology 20 Chapter 2 - Deciphering Government’s decision to issue a service concession for the three hospitals 22 2.1 On electoral promises, Government policy and strategy 22 2.2 On project ownership and stakeholder involvement 26 2.3 The determination of feasibility 30 Feasibility report - Commissioning and background 31 Feasibility report - GGH 34 Feasibility report - KGRH 36 Feasibility report - SLH 37 Feasibility report - Financing options 38 Feasibility report - Health tourism 40 Feasibility report - Recommended way forward 42 2.4 Securing authorisation and determining the way forward 42 Chapter 3 - The request for proposals 43 3.1 Publication of the request for proposals 43 3.2 The Request for Proposals: Background and objectives 44 Concession scope 44 Concession objectives 45 Background information 48 General terms and conditions 48 The setting up of ConcessionCo 49 Concession requirements 50 Concession requirements - Gozo General Hospital 50 Concession requirements - Gozo medical school 52 Concession requirements - Karin Grech Rehabilitation Hospital 53 Concession requirements - St Luke’s Hospital 54 Concession requirements - General 54 The competitive award process 56 Bid-related information 58 Bid submission: General information 58 Proposal requirements 60 2 National Audit Office - Malta Consortia and multiple bids 66 Evaluation and selection process 66 Ethical considerations 69 Contractual agreements 70 Grant of real rights and pre-concession transactions 71 Concession agreement: Performance bond 72 Redevelopment, alterations and improvements 73 Maintenance, upgrade, indemnification and insurance 74 Agreement on healthcare delivery 74 Other contractual considerations 75 Licensing 75 Material items of equipment at the Sites 75 Electronic health and medical records 75 Staff 76 3.3 Site inspection visits 76 3.4 Clarifications to the Request for Proposals submitted on the initiative of Projects Malta Ltd 78 3.5 Bidders requests for documents, information or clarifications 79 Bid considerations 80 Assets, leased equipment and service level agreements 81 Current services 81 Planned services 84 Compensation 86 Educational institutions 87 Sites and development works 88 Staff 89 Permits 89 Chapter 4 - Evaluation of submissions 90 4.1 Receipt of bids 90 4.2 The bid by Vitals Global Healthcare Ltd 90 Volume A: General bidder information 91 Bidder profile 91 Bidder's professional and technical qualifications 92 Summary of VGH's key credentials for the project 93 The design and construction team 95 The equipment suppliers 95 The external advisors 96 Financial information 97 The Declaration of Honour Statement 98 Volume B: Technical and operational considerations 99 The strategic context 100 Vitals Global Healthcare’s vision for the proposed operations 100 National Audit Office - Malta 3 Envisaged facilities and service offering - Gozo General Hospital 102 Envisaged facilities and service offering - St Luke’s Hospital 110 Envisaged facilities and service offering - Karin Grech Rehabilitation Hospital 112 The total proposed investment and the broader socio-economic impacts 112 The project implementation plan 115 The human resource strategy 117 Quality assurance 120 Health and safety 120 Operational feasibility and sustainability 122 Volume C: Business plan 122 Income generation and cost strategies 123 The medical tourism strategy 124 Financial feasibility 127 Volume D - Financials 127 Basis of preparation 127 Product offering 128 Capital expenditure 129 Development programme plan 132 Operating cost assumptions 132 Projected medical staff complement 135 Revenue streams and demand assumptions 136 Taxation and other general assumptions 142 Capital requirements 143 Financial offer 146 Executive summary 149 4.3 Evaluation of submissions 151 Bids received 152 Evaluation methodology 152 The evaluation process 153 Eligibility compliance 154 Technical compliance 155 Vitals Global Healthcare 155 Image Hospitals 156 BSP Investments Limited 157 Qualitative evaluation 157 Summary of the commercial, technical and financial evaluation 157 Recommendation 164 4.4 High level project management 164 4.5 Award of concession 169 Chapter 5 - Analysis and conclusions 175 5.1 Timeline of key events 175 5.2 Analysis of salient concerns 177 4 National Audit Office - Malta On the collusion between Government and the VGH 177 On the identification of needs 180 The determination of feasibility 181 On securing authorisation and determining the way forward 183 The Request for Proposals 184 Classification of the project as a concession 188 Site inspections and clarifications 193 The bid by the VGH 194 The evaluation of submissions 198 Award of concession 202 5.3 Conclusions 202 Overall conclusion 206 Appendices 208 Appendix A - Correspondence submitted by the Union Ħaddiema Magħqudin and the Medical Association of Malta to the Public Accounts Committee 208 Appendix B - Correspondence submitted by the Government members on the Public Accounts Committee to the Chair Public Accounts Committee 216 Appendix C - Correspondence submitted by the Opposition members on the Public Accounts Committee to the Auditor General 217 List of figures Figure 1 | Excerpts from the Partit Laburista electoral manifesto for the 2013 general election 22 Figure 2 | Excerpts from the Budget Document 2014 23 Figure 3 | NHSS overall objectives and strategic directions 24 Figure 4 | NHSS accountability considerations 25 Figure 5 | Public health sector bed capacity 34 Figure 6 | Procurement options available to Government 38 Figure 7 | RfP competitive award process timetable 57 Figure 8 | RfP evaluation: Sets of criteria and weighting 68 Figure 9 | Site visits by prospective bidders 78 Figure 10 | List of requests for additional information on services provided and replies thereto 82 Figure 11 | Vitals Global Healthcare Ltd Corporate Structure 91 Figure 12 | Vitals Global Healthcare key credentials 93 Figure 13 | GGH envisaged facilities and service offering 103 Figure 14 | Current set-up and envisaged services - GGH 104 Figure 15 | Timing of capital cost outlays 114 Figure 16 | Planned milestones: Gozo General Hospital 116 Figure 17 | Planned milestones: St Luke’s Hospital and Karin Grech Rehabilitation Hospital 116 Figure 18 | Baseline position versus post project implementation 122 Figure 19 | Bed days demand, 2015-2021 125 Figure 20 | Capital expenditure analysis by Site 131 National Audit Office - Malta 5 Figure 21 | Rates of depreciation 132 Figure 22 | Annual pharmaceutical costs, 2015-2022 133 Figure 23 | Maintenance costs (including VAT), 2015-2022 133 Figure 24 | Administration costs (including VAT), 2015-2022 & 2015-2044 133 Figure 25 | Payroll costs, 2015-2020 & 2015-2044 135 Figure 26 | Revenue streams, 2015-2020 136 Figure 27 | Income from Government based on minimum charges, 2015-2020 137 Figure 28 | Other income from Government – GGH, 2015-2020 138 Figure 29 | Rental income from the medical college and capital costs outlay, 2015-2020 139 Figure 30 | Net book value of assets as at 2045 140 Figure 31 | Medical tourism revenue streams, 2015-2020 140 Figure 32 | Income from medical tourism: GGH, 2017-2021 141 Figure 33 | Income from surgical procedures, 2017-2022 141 Figure 34 | Income from medical tourism: SLH, 2015-2020 141 Figure 35 | Project cash flows, 2015-2022 143 Figure 36 | Financial sustainability: Summary of sources and application of funds, 2015-2022 145 Figure 37 | Financial sustainability: Summary of sources and application of funds, 2023-2030 145 Figure 38 | Sensitivity analysis, 2015-2022 146 Figure 39 | Projected annual payments by Government, 2015-20241 148 Figure 40 | Outcomes of meetings held by the RfP Evaluation Committee 153 Figure 41 | Vitals Global Healthcare Ltd bid: General bidder information score 158 Figure 42 | Vitals Global Healthcare Ltd bid: Technical and operational score 158 Figure 43 | Vitals Global Healthcare Ltd bid: Business plan score 159 Figure 44 | Vitals Global Healthcare Ltd bid: Financial score 161 Figure 45 | Head of terms as agreed by the Steering Committee, 10 July 2015 167 6 National Audit Office - Malta List of Abbreviations AG Auditor General BVI British Virgin Islands CCU cardiac care unit CEO Chief Executive Officer CFO Chief Financial Officer CJEU Courts of Justice of the European Union COO Chief Operations Officer DoC Department of Contracts DOI Department of Information EU European Union GDP Gross Domestic Product GGH Gozo General Hospital GWU General Workers Union IT information technology ITU intensive treatment unit KGRH Karin Grech Rehabilitation Hospital MAM Medical Association of Malta MDH Mater Dei Hospital MEPA Malta Environment and Planning Authority MFIN Ministry for Finance MOT Ministry for Tourism MoU Memorandum of Understanding MUMN Malta Union of Midwives and Nurses NAO National Audit Office NHSS National Health Systems Strategy for Malta OJEU Official Journal of the European Union PAC Public Accounts Committee PPP public-private partnership PS Permanent Secretary QMUL Queen Mary
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