Public Private Partnerships

Last updated: 25 March 2009

The Royal North Shore Hospital (the new main hospital building) and the Community Health Building will be constructed as a PPP - a Public Private Partnership between Government and the private sector project company InfraShore.

Here are the answers to some frequently asked questions about the RNS Redevelopment Project PPP.

This information will be updated as the project progresses.

WHAT IS A PPP?

A PPP is a Public Private Partnership.

Under a PPP arrangement, private companies, which usually include a major construction company and a financial institution, form a consortium to design, build, maintain and provide support services to the new facilities for the Government.

PPPs are increasingly being used to construct schools, health care facilities, prisons and infrastructure because they reduce the risk to Government and provide economic opportunities to the private sector.

PPPs are generally favoured for large scale, complex projects with scope for innovation in design. They must represent good value for money, be an attractive proposition for the market and be in the public interest. In the case of the RNS project, the PPP was rigorously examined by the Budget Committee of Cabinet before being approved.

WHO IS INFRASHORE?

InfraShore is made up of ABN AMRO (Sponsor and Financier), Thiess (Sponsor and Design & Construction Contractor), Thiess Services (Facilities Management) and ISS Facilities Management (Facilities Management).

InfraShore will deliver the new Main Hospital Building, the new Community Health Building, a new multistorey car park and other works associated with the project including landscaping and road works.

InfraShore will also provide non-clinical support services including maintenance, parking management, laundry services, food services and security, and the provision of retail and other commercial opportunities for 28 years.

The NSW Government is contracting out "back of house" support services so it can concentrate on delivering and managing clinical services at RNSH - that is, acute hospital and community health services.

DOES THIS MEAN THE HOSPITAL IS BEING SOLD TO A PRIVATE COMPANY?

No. The Royal North Shore Hospital buildings remain under the ownership and control of NSW Health. All staff, clinical and non-clinical, remain employees of NSW Health.

DOES THE PPP BRING EXTRA MONEY INTO THE PROJECT?

No, the PPP does not bring new funds into the health capital program. Rather, it converts money which would have been spent on capital works into an annual "facility & service" fee over the life of the PPP contract.

The "fee" is agreed at the contract stage.

This means that rather than spending millions of dollars on construction in the short term (and taking on the resulting construction and financial risks), Government can spread the cost over the length of the contract.

WHAT ARE THE BENEFITS TO GOVERNMENT AND THE COMMUNITY?

A PPP can deliver important benefits to the State and the community.

There will be some cost savings but in addition to the estimated savings, there are many other benefits to Government including certainty of price and delivery times, an earlier delivery than what might have occurred under traditional government funding, access to international expertise in design and construction, and the creation of employment.

Patients and visitors will benefit from a better designed and better maintained hospital facilities, better work environments for staff and an opportunity for retail services to be co-located on the site.

The project is more likely to be completed on time and on budget, because the private company is taking the financial risk. Once the facility is completed, the project company has a strong incentive to perform because they risk payment deductions if the facility is not maintained to the required performance standard.

A PPP more accurately reflects the `whole of life' cost of a building. Because the private company needs to maintain the building once it's constructed, they will usually invest more time, money and effort in designing and building a facility which is more robust and easier to maintain. This usually results in a better quality building, rather than a facility which is cheap to build but expensive to maintain.

No payment is made to the project company until the facilities are commissioned and free of defects. If something does go wrong in the new facility, there are strict conditions and timeframes under which defects must be corrected, improving response times for maintenance requests.

A PPP delivers well- maintained facilities at a relatively certain cost with less likelihood of assets becoming run down.

A PPP also provides greater transparency because it requires public disclosure of a contract summary. This disclosure regime provides more accountability.

WHAT ARE THE BENEFITS TO THE PRIVATE SECTOR?

Generally, PPPs are popular with the private sector because they offer longer-term economic opportunities and Governments are reliable "customers" when it comes to meeting the agreed fee payments. Because PPP projects are generally large scale, complex projects, they also provide the private sector with opportunities to build capacity and "intellectual capital" in the Australian design, construction and finance industries.

IS THIS THE FIRST TIME A HOSPITAL HAS BEEN CONSTRUCTED UNDER A PPP?

No. PPPs, including new labour service agreements, are currently progressing at the Newcastle Mater Hospital and the Long Bay Prison and Forensic Hospital. These hospitals are now under construction. PPPs are currently underway for the Bathurst and Orange Hospitals Redevelopment.

WILL THIS BE ANOTHER CROSS CITY TUNNEL?

No. The Cross-City Tunnel and Lane Cove Tunnel projects are examples of an "economic" PPP. In this case, the public has a direct relationship with the private company e.g. you pay your toll to the company as you go through the toll gates.

In the case of the hospital, or any "social" PPP like a school or health facility, the public has no relationship with the private company. The relationship is between the NSW Health and the private company.

Patients, carers, visitors and most staff will not notice any difference between a hospital constructed as a PPP and one constructed under another arrangement. If anything, they may notice that the PPP-constructed facility is of a high quality in terms of design and building materials, and is better maintained (particularly in the longer term) than other heath facilities.

WHAT IS THE LABOUR SERVICE AGREEMENT COMPONENT OF THE PPP?

As part of the PPP, the successful consortium will construct the new facility, maintain it and provide some "back of house" non-clinical support services on behalf of the Area Health Service.

Staff involved in non-clinical support services, such as catering, maintenance, security, portering, linen services and cleaning, will work under the supervision and management of the new consortium.

They will be managed by the new company, but they will remain employees of NSW Health and will retain all their entitlements.

There will be no change to the employment of doctors, nurses, allied health professionals and other clinical staff.

Area Health Service representatives will consult with affected staff and their representatives closer to the time to ensure a smooth transition of services.

The Area Health Service and department managers will provide more information as it becomes available.

WHY IS SOME HOSPITAL LAND BEING DISPOSED OF?

The concept plan for the RNS Redevelopment Project has identified the areas required for the new hospital and community health facilities. As part of this plan, surplus land was identified.

This land is no longer required for health care purposes and will be divested. This will not affect future expansion of the hospital because this has already been accommodated in the existing footprint.

Some of this surplus land is to be divested for the development of affordable accommodation for staff, students and carers, mixed-use residential and commercial development, and potentially more space for medically-related activities that would enhance the services and facilities available on the campus.

The future use of this land will be consistent with the Government's widely promoted strategy for St Leonards. More information is available by visiting www.nsw.gov.au.

WILL THE MONEY FROM THE DEVELOPMENT OF THIS SURPLUS LAND BE USED TO BUILD THE NEW HOSPITAL?

The redevelopment budget has always identified that part of the funding was to be from the sale or lease of land no longer required for health purposes. The process will seek to maximise the benefits of this land to the community and for complementary purposes to the hospital and community health services.

WILL LOCAL RESIDENTS BE AFFECTED BY NEW DEVELOPMENT AROUND THE HOSPITAL?

Any new development around the hospital will be subject to strict planning guidelines and the appropriate State and local Government approvals. Early planning studies indicate that medium density development around the hospital is consistent with local and State planning guidelines and will not affect local amenity. In fact, the St Leonards Strategy, which has been the subject of a significant amount of community consultation, supports "new and diverse housing opportunities" in the area.