PPP Contracting Dominic Montagu
Presentation Outline • PPP Models – Review • Critical PPP Activities • Performance Indicators • Examples • Alzira, Spain • Lesotho National Referral Hospital • Lesotho Contracting Experience • PPP Timeline • PPP Participants
Rationale for PPPs D-B PPP PPP PPP Tradit. PPP design of infrastructure core construction of infrastructure maintenance of infrastructure provision of equipment maintenance of equipment provision intermediate services provision services to end-users In each case, services provided according to public sector rules
Aligning profit and public interest • Defining contractual incentives • Performance indicators • Benchmarks • Mitigating perverse incentives • Fostering innovation and cost-efficiency • Managing change • Stability of performance indicators • Facing change: technological, commercial, demographic • Managing legal and political change • Preventing strategic moves by stakeholders
Selectingperformance indicators PERFORMANCE INDICATORS contractible performance indicators efficient performance indicators
Designing the PPP contract efficient KPIs ? measurable ? contractible ? stable over time ? PPP contractwith no servicetoend-users focusoninfrastructure performance Infrastructure performance criteria Basic infrastructurerequirements PPP contractwithservicetoend-users focuson service performance Final service performance criteria
Sample Key Performance Indicators? What KPI are critical in your experience?
Examples Alzira, Valencia, Spain Nat. referral Hospital, Lesotho
Alzira, Valencia • National Health System • free universal healthcare coverage for 44 million citizens • Valencia - autonomous region • 5 million citizens • 23 health departments • At least 1 referral hospital in each department Source: Spanish Alzira Model: NHS contracting out a geographical area
Alzira, Valencia The way it was… • 250,000 inhabitants in Ribera • Cycle of budget deficits • No hospital in Ribera • Political promise to build new hospital • 40 kms to get to nearest hospital • Budget constraints prohibit ‘tradition’ PFI • 1997: bid for PPP with integrated delivery (“PPIP”) Source: La Ribera, Departmento 11 de Salud
Alzira– PPP Model • Design, Build, Operate, Deliver • 15 year contract (2003-2018), extendable to 20 years • Contract with Temporary Union of Business (UTE) Ribera • Capitation fee • + % yearly increase in health budget • Catchment area - 250,000 inhabitants • Private management • Hospital de La Ribera and primary care in Department 11 • Equity of access • For all patients
Alzira - Hospital de la Ribera Source: Spanish Alzira Model: NHS contracting out a geographical area
Alzira– Payment Structure
Alzira- Management Property returned to Government after concession period Capitative Rate is adjusted based on increases in annual health budget • Government and external • Auditors audit the hospital • Govt. Commissioner’s Role: • Control • Inspect • Regulate • Invoke punitive powers • UTE Ribera responsible for: • Clinical Services • Non-clinical Services • Facilities Management • Staff
Alzira – Money follows the patient Adapted from: HEALTHY PARTNERSHIPS? When & How to make public-private collaborations in Health systems Management work, AgenciaValenciana De Salut
Critical Success Factors • Long-Established Gvt. Contractor • Money follows the Patient • Effective Control and Management • Government and external auditors • On-site Govt. Commissioner • Incentive System • Job security – 85% of staff have fixed contract • Higher compensation • Compensation based on productivity and performance
Critical Success Factors • Integrating Customer Opinions • Govt. Commissioner • Conducts patient surveys • Determines problem areas • Monitors patient transfers • Effective Mgmt Information System • Computerized Medical History • Medical history can be accessed from anywhere in the hospital • Integrated with Primary Care Centers
Valencia Government Per Capita Payment Facility Ownership Direct Agreement Construction Dragados , Lubasa (Construction Contractor) Payment UTE (Adelas, Bancaja, CAM, Dragados, Lubasa) (Investor / Holding Company) Debt Mgmt Services UTE (Facility Manager) 1 University Hospital Payment Equity 4 Integrated Health Centers Clinical Services UTE (Clinical Service Provider) Payment 46 Primary Health Centers Clinical Services Patients (Service Recipients)
Lesotho National Referral Hospital • Kingdom of Lesotho: • 10 district hospitals • 3 referral hospitals • 1 military hospital The way it was… • Queen Elizabeth II hospital in Maseru over 100 years old • Dilapidated health structure • Poor quality, poor access • Difficult attracting and retaining good medical staff
Lesotho – PPP Model • Design, Build, Operate, Deliver • 18 year contract • Tsepong Pty Limited - Netcare led consortium • Capital investment - 34% government finance, 66% private finance • Private Management • Hospital, Gateway Clinic, 3 Filter Clinics (Matobe, Qoaling, Likotsi) • Cost neutrality to patient • Equity of access
Lesotho – National Referral Hospital Source: Private Healthcare in Developing Countries, The Queen II Elizabeth hospital in Maseru, Lesotho
Lesotho – Payment Structure
Lesotho - Management • Unitary payment: • Clinical Services • Non-Clinical Services • Facility Management Property returned to Government after contract period • Tsepong responsible for: • Clinical Services • Non-clinical Services • Facilities Management • Staff • Performance Monitoring System • Government and Independent Monitoring • Independent Certifier • Joint Services Committee • Accreditation Monitoring
Lesotho – Local Economic Empowerment • Capital Expenditure to Local enterprise: 35% • Operating Expenditure to Local Enterprise • Year 1-5: 50% • Year 6-10: 70% • Year 11-18: 100% • Tsepong will contribute to community (for decided value) • Train medical students • Free cleft palate and lip treatment • Ophthalmology services as a part of “Sight for you” program • Treat patients with congenital heart disease / conditions • Set up, manage, and operate a Women and Rape Crisis Management center Local Community Development Local Subcontracting • Local Management Control • Year 2: 50% Local staff • Year 5: 80% Local staff • Local Women Management Control • Year 2: 25% of Management • Year 5: 40% • Local Staff employment • 80% of all staff local • Skills Development • 1% minimum of payroll on training Local Staff Mgmt. And Development • Local Equity • Year 1: 40% • Year 8: 48% • Year 13: 55% Local Equity
Lesotho – Critical Factors to Contract • Government leadership • Transparent tender process • Diversified funding sources • from Govt., GPOBA, IFC • Intensive and sustained project management • Feasibility studies, baseline reviews • Expert transaction advisors • Local capacity building by IFC and other external partners • Local economic empowerment
Lesotho Government (Public Entity) Per Capita Payment Facility Ownership Direct Agreement IFC, DBA (Lenders / Bank) RPP Lesotho (Construction Contractor) Loan Construction Payment Capital / Interest Tsepong (Pty) Ltd. (Facility Manager) 1 National Hospital Mgmt Services Payment Tsepong (Pty) Ltd. (Netcare, Excel Health, Afri’nnai, D10, Lesotho Chamber of Commerce, WIC) (Investor / Holding Company) 1 Gateway Clinic Netcare, Excel Health, Afri’nnai Health (Clinical Service Provider) Debt Clinical Services Equity Payment 3 Filter Clinics Clinical Services Patients (Service Recipients)
Lesotho – the contract experience • The Procurement Process • Strategic Options • Transaction Implementation • Post Transaction Support • Lessons learned
Procurement Process Overview
Strategic Options Phase • Strategic fit within the health sector and budget. • Technical due diligence: • Facilities: design, construction, equipment, commissioning options • Clinical services: patient volumes and profiles, systems • Legal due diligence • Procurement legislation, health functions, project site, regulatory due diligence. • Financial due diligence • Budget analysis, current spend, referral spend • Financial model • Feasibility Study developed for the project based on thorough due diligence. • Recommendations presented to MoHSW, MoFDP and Cabinet included a market testing process due to innovative nature of project. Source: Catherine O’Farrell, IFC
Procurement • Expressions of Interest – October 2006 • Registration of bidders and flow of information. • Pre-bid and SME Matching Conference in Maseru – November 2006 • Draft RFP issued - December 2006 • Bidders encouraged to comment on structure and financing of PPP. • Final RFP approved by Cabinet in May 2007 and issued to bidders in June 2007, followed by bidders’ conference in July. • Closing date for bids 8 October 2008. Source: Catherine O’Farrell, IFC
Final RFP Bid Structure Source: Catherine O’Farrell, IFC
RFP Approach • Output specifications • Service standards • Global budget • Bidders to develop and present plans which demonstrate their ability to deliver required outputs at required service standards. Source: Catherine O’Farrell, IFC
Bidder Qualifications Source: Catherine O’Farrell, IFC
Core Technical Proposal Criteria Source: Catherine O’Farrell, IFC
Core Technical Proposal Criteria Service Delivery Plan • Project Management Approach • Design & Construction Plan • Filter Clinics Plan • Clinical Service Delivery Proposal • Performance Management Plan • Operations & Maintenance Plan • Equipment Plan • Human Resources Transfer & Training Plan • Legal • Financial Solution • Local Economic Empowerment Source: Catherine O’Farrell, IFC
Technical Extras Proposal Criteria Source: Catherine O’Farrell, IFC
Financial Proposal Source: Catherine O’Farrell, IFC
Evaluation Committees • The evaluation of Bids conducted by Project Evaluation Committee, supported and assisted by the Technical Evaluation Committee. • PEC: • Co-chairs: PS for MoHSW and MoFDP CEO for Private Sector Development. • Members: DG of MoHSW, MoFDP Director Civil Litigation and MoFDP Budget Controller. • TEC: • Key Government stakeholders represented. • 20 team members. Source: Catherine O’Farrell, IFC
Evaluation Process • Two Envelope System – Technical and Financial. Bids received 8 October 2007. • Technical Proposal: • Bidders Qualifications – if passed, Technical Proposal (Core Technical Proposal and Technical Extras Proposal) evaluated by TEC and PEC. • TEC reviewed and evaluated all technical proposals 15-19 October 2007 at Mohale. • Financial Proposal – unopened and locked away by MoFDP. • TEC recommends BAFO process • BAFO process launched 30 October 2007, original Financial Proposals returned to Bidders. • BAFO Bids received 26 November 2007. Two envelope system. • Evaluated by TEC 3-5 December 2007 at Mohale. • Financial Proposals opened publically 10 December 2007. Financial model validation. • Appointment of Preferred and Reserve Bidders – 14 December 2007. Source: Catherine O’Farrell, IFC
Negotiation Process • February to October 2008. • PPP Agreement signed by Government and Private Operator on 27 October 2008. • Negotiation Teams mirrored Bid Evaluation Teams: • Design & Construction: MoHSW, Queen II Clinician; IFC Technical Specialist. • Clinical Services – MoHSW, Queen II Clinician; IFC Technical Specialists. • Operations & Maintenance: Queen II Nursing Staff; MoHSW, IFC Technical Specialist. • Equipment: Queen II Nursing Staff; MoHSW, IFC Technical Specialist. • Integrated Hospital Commissioning: MoHSW, Queen II Clinician and Nursing Staff; IFC Technical Specialists. • Legal – MoFDP; IFC Technical Specialist. • Financial – MoFDP, IFC Technical Specialist. • Local Economic Empowerment – MoHSW; MoFDP; IFC Technical Specialist. • Human Resources: MoHSW, MoFDP, IFC Technical Specialist. • Financial Close 20 March 2009. Source: Catherine O’Farrell, IFC
Lesson Learned • It is not essential to have PPP specific legislation. Public Procurement Regulations used for Lesotho PPP. • Committed Government is essential for success. • Committed Private Operators are essential for success. • Confidence in transaction advisors essential to success. • Relevant Government stakeholders well represented during Bid Evaluation and Negotiation process. Essential to ensure broad institutional memory for the Project. • MoHSW and MoFDP staff involved in Bid Evaluation and Negotiation, now also responsible for contract management. • Government was willing to listen to needs of Private Operators and Lenders in order to maximise success of Project.
Lesson Learned • It is never too early to start the environmental due diligence on a greenfield project. • Value added elements such as GPOBA and SME Linkages add much needed supplementary funding and support for key economic goals. • Baseline Study conducted for the project provided a snapshot of the current infrastructure & services (a contrast for the new hospital) as well as valuable information for setting the performance indicators to help MoHSW to address important sector goals (MDGs)
Conclusion
Lessons from contract management • Need for a clear strategy regarding hiring, training, motivating and retaining contract managers and their staff • high turnover • low capacity • conflicts of interest • Need for contract managers’ networks, in order to foster prevention activities and game-theoretical reasoning • Important role of external auditing • The national health system must be effectively managed as a system
Effectiveness & efficiency • PPP services may (and should) be used as benchmarks • PPP procurement requires shifting public administration resources from input and process definition to output prescription and outcome measurement • The focus will be quality and effectiveness • The end-user benefits • The taxpayer should also benefit
