Report of the Auditor-General Supplementary

Report
of the
Auditor-General
Supplementary Report
for the
year ended 30 June 2015
_______________________________________________________
Tabled in the House of Assembly and ordered to be published, 19 November 2015
__________________________________________________________________
Second Session, Fifty-Third Parliament
New Royal Adelaide Hospital report:
November 2015
By authority: P. McMahon, Government Printer, South Australia
____________________________________________________
2015
[P.P.4K
General enquiries regarding this report should
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Auditor-General
Auditor-General’s Department
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State Administration Centre
200 Victoria Square
Adelaide SA 5000
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Adelaide SA 5000
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audgensa@audit.sa.gov.au
www.audit.sa.gov.au
18 November 2015

The Hon R P Wortley MLC The Hon M J Atkinson MP
President Speaker
Legislative Council House of Assembly
Parliament House
ADELAIDE SA 5000
Parliament House
ADELAIDE SA 5000

Dear President and Speaker
Report of the Auditor-General: Supplementary Report
for the year ended 30 June 2015: New Royal Adelaide
Hospital report: November 2015
Pursuant to the provisions of the Public Finance and Audit Act 1987, I present to each of you
a copy of my Supplementary Report for the year ended 30 June 2015 ‘New Royal Adelaide
Hospital report: November 2015’.
Content of the Report
Part A of the Auditor-General’s Annual Report for the year ended 30 June 2015 referred to audit
work on the new Royal Adelaide Hospital that would be subject to Supplementary reporting
to Parliament. This report provides detailed commentary and audit observations on aspects of
the review of the new Royal Adelaide Hospital project.
Acknowledgements
The audit team for this report was Andrew Corrigan and Philip Rossi.
I also express my appreciation for the cooperation and assistance provided by the staff
of the Department for Health and Ageing and the Department of Planning, Transport and
Infrastructure during the course of the audit.
Yours sincerely
Andrew Richardson
Auditor-General

Table of contents
New Royal Adelaide Hospital report
1. Executive summary …………………………………………………………………………………………………………… 1
1.1 Introduction …………………………………………………………………………………………………………… 1
1.2 Audit approach and scope ………………………………………………………………………………………… 1
1.3 Project delivery status ……………………………………………………………………………………………… 2
1.4 Project budget and cost status …………………………………………………………………………………… 3
1.5 Summary of key audit findings and observations ……………………………………………………….. 3
1.5.1 Project governance, assurance and reporting arrangements ……………………………… 4
1.5.2 Budgetary and financial management …………………………………………………………… 4
1.5.3 Risk management ………………………………………………………………………………………. 5
1.5.4 Contract administration and management ……………………………………………………… 5
1.5.5 Procurement ……………………………………………………………………………………………….5
1.5.6 ICT functional, procurement and contractual dependencies …………………………….. 6
1.5.7 Other key observations ……………………………………………………………………………….. 6
1.6 Key challenges ……………………………………………………………………………………………………….. 8
1.7 Concluding comments …………………………………………………………………………………………….. 8
2 New Royal Adelaide Hospital Program background ……………………………………………………………. 10
2.1 Background ………………………………………………………………………………………………………….. 10
2.2 Drivers and expected benefits of the new Royal Adelaide Hospital …………………………….. 11
2.2.1 Reforms to the State public health system …………………………………………………… 11
2.2.2 Project objectives …………………………………………………………………………………….. 11
2.2.3 Strategic drivers for the project ………………………………………………………………….. 12
2.2.4 Project risks ……………………………………………………………………………………………..13
2.2.5 Contamination remediation contractual risk ………………………………………………… 14
2.3 Implementation approach for the new Royal Adelaide Hospital …………………………………. 15
2.3.1 Overview of the project delivery arrangements ……………………………………………. 15
2.3.2 Responsibilities and services provided by Project Co ……………………………………. 16
2.3.3 Project Co subcontractors ………………………………………………………………………….. 17
2.3.4 Responsibilities and services provided by the State ………………………………………. 17
2.3.5 Key contractual terms, conditions and dates ………………………………………………… 18
2.3.6 Role of the Independent Certifier ……………………………………………………………….. 19
2.3.7 Overview of obligations and financial implications relating to project
delays ……………………………………………………………………………………………………… 19
2.3.8 Recent developments affecting the contractual arrangements ………………………… 20
2.3.9 Implications of the revised contractual arrangements ……………………………………. 23
2.4 Project governance and organisational structure ……………………………………………………….. 24
2.4.1 Overview of governance arrangements ……………………………………………………….. 24
2.4.2 Program organisational structure ………………………………………………………………… 25
2.4.3 Roles, responsibilities and reporting arrangements ……………………………………….. 26
2.4.4 Overview of Program work streams ……………………………………………………………. 27
Table of contents
3 Project delivery status ……………………………………………………………………………………………………… 29
3.1 Description of project facilities ………………………………………………………………………………. 29
3.2 Status of works …………………………………………………………………………………………………….. 30
4 Project budget and expenditure to date ………………………………………………………………………………. 30
4.1 Total project budget for the new Royal Adelaide Hospital …………………………………………. 30
4.1.1 Total construction and State funded works budget ……………………………………….. 30
4.1.2 Net present value of construction and operating services costs provided
by Project Co …………………………………………………………………………………………… 30
4.1.3 Summary of project budget approvals to 30 June 2015 …………………………………. 31
4.1.4 Budget for PPP construction costs ……………………………………………………………… 32
4.1.5 Budget for State funded works to 30 June 2015 …………………………………………… 32
4.1.6 Costs relating to the project not included in the project budget ………………………. 35
4.2 State funded project expenditure …………………………………………………………………………….. 35
4.2.1 Summary of project expenditure incurred from inception to 30 June 2015 ………. 35
4.2.2 Project cost pressures ……………………………………………………………………………….. 36
5 External reviews of the new Royal Adelaide Hospital …………………………………………………………. 36
5.1 Assurance reviews by independent consultants ………………………………………………………… 36
5.1.1 Governance review – June 2013 ………………………………………………………………… 36
5.1.2 Governance implementation review – May 2014 …………………………………………. 37
5.1.3 Functional review – January 2015 ……………………………………………………………… 37
5.1.4 Governance implementation review – April 2015 ………………………………………… 38
6 Detailed audit findings …………………………………………………………………………………………………….. 40
6.1 Program governance, assurance and reporting arrangements ……………………………………… 40
6.1.1 Assurance framework ……………………………………………………………………………….. 40
6.1.2 Role of the Integrated Program Management Office …………………………………….. 41
6.1.3 Reliability of reporting ……………………………………………………………………………… 42
6.1.4 Review of the new Royal Adelaide Hospital Operations Board ……………………… 42
6.1.5 Reporting by the Project Director ………………………………………………………………. 43
6.2 Project business case …………………………………………………………………………………………….. 44
6.2.1 Completing and monitoring the new Royal Adelaide Hospital business
case ………………………………………………………………………………………………………… 44
6.2.2 Monitoring of whole-of-life costs ………………………………………………………………. 46
6.3 Risk management …………………………………………………………………………………………………. 47
6.3.1 Reporting of risks and mitigation strategies …………………………………………………. 47
6.3.2 Other areas of risk management practices requiring improvement ………………….. 48
6.4 Budgetary and financial management ……………………………………………………………………… 49
6.4.1 Reporting to the new Royal Adelaide Hospital Steering Committee ……………….. 49
6.4.2 Reporting of project forecasts ……………………………………………………………………. 51
6.4.3 Management and reporting on the project contingency …………………………………. 52
6.4.4 Funding new Royal Adelaide Hospital ICT Program cost pressures ……………….. 53
6.4.5 Information to support funding requests to Cabinet ………………………………………. 55
Table of contents
6.5 Contract administration and management ………………………………………………………………… 56
6.5.1 State funded clinical equipment – contract management framework and
plans ……………………………………………………………………………………………………….. 56
6.5.2 Professional service and ICT contracts – contract management processes ……….. 57
6.5.3 PPP Contract Administration – contract management framework ………………….. 58
6.5.4 PPP Contract Administration – reporting arrangements ………………………………… 59
6.6 ICT functional and contractual dependencies …………………………………………………………… 60
6.6.1 Planning for enterprise systems and coordination of works with the
Master Works Program …………………………………………………………………………….. 60
6.7 Procurement …………………………………………………………………………………………………………. 61
6.7.1 State Procurement Board governance and reporting arrangements –
clinical equipment ……………………………………………………………………………………. 61
6.7.2 Probity assurance arrangements …………………………………………………………………. 62
6.7.3 Reporting on the status of procurements – clinical equipment ……………………….. 64
6.7.4 Reporting on installation dates – clinical equipment …………………………………….. 64
6.7.5 Renegotiation of installation dates – clinical equipment ………………………………… 66
6.7.6 Strategic acquisition planning – new Royal Adelaide Hospital ICT
Program ………………………………………………………………………………………………….. 67
6.7.7 Management of procurements – new Royal Adelaide Hospital ICT
Program ………………………………………………………………………………………………….. 68
7 Key challenges and recommendations ……………………………………………………………………………….. 70
7.1 Introduction …………………………………………………………………………………………………………. 70
7.2 Transitional and operational readiness planning ……………………………………………………….. 70
7.3 Business planning and Transforming Health reform initiatives …………………………………… 71
7.4 Delivery of critical enterprise ICT systems ………………………………………………………………. 71
7.5 Extension of contractual dates and delayed opening date …………………………………………… 72
7.6 Resolution of Facility Management Subcontractor claims ………………………………………….. 72
7.7 Outstanding independent consultant recommendations ……………………………………………… 73
8 Timeline of key events …………………………………………………………………………………………………….. 73
8.1 Summary of key events …………………………………………………………………………………………. 73

1
New Royal Adelaide Hospital report
1. Executive summary
1.1 Introduction
The new Royal Adelaide Hospital (new RAH) is the largest social infrastructure project ever
undertaken by the State. The new RAH is to be built, maintained, financed and provided with
non-medical services and equipment using a Public Private Partnership (PPP) arrangement. A
Project Agreement covering 35 years has been entered into between the State and the
preferred PPP proponent, SA Health Partnership Pty Ltd (Project Co).
The total value of the arrangement at contractual close in June 2011 provided for a capital
cost for design and construction by Project Co of $1.85 billion (nominal). This excluded the
Department for Health and Ageing’s (SA Health’s) State funded works budget of
$244.7 million (nominal) towards the overall hospital development and consists of those
elements to be delivered and financed by the State, including core clinical equipment and
precinct works.
The features of the new RAH include:




providing 800 beds, comprising 700 multi-day beds and 100 same-day beds
standardised single inpatient rooms with individual ensuites
40 technical suites (operating theatres, intervention suites and procedural rooms)
the use of leading technology to ensure that supplies are easily and efficiently
transported throughout the hospital using automated guided vehicles
biomedical equipment and other clinical equipment which are electronically tagged.