BHB Announces Update on the Governance and Delivery Model for Building New Facilities at KEMH

Bermuda Hospitals Board today announces the establishment of a “Project Board” to provide governance for the project that will deliver the planned new facilities at the King Edward VII Memorial Hospital (KEMH).

The addition of two new patient wings and a new central utility plant was announced in November as part of the KEMH Redevelopment Project. The design, construction, financing and maintenance of the new facilities will be delivered by a form of public private partnership (PPP). The cost of the new PPP facilities is estimated to be about $260 million* in current dollars. It is expected that the first patients will walk through the doors of the new facilities in about five years. During this time, an additional $55 million* will be spent renovating the existing hospital building outside of the PPP project. These renovations will be funded by BHB and managed as a separate part of the overall redevelopment project. Both renovation and the addition of new facilities are vital to the complete redevelopment of KEMH to meet the Bermuda’s future acute care health needs.

The Project Board that will oversee the addition of new facilities at KEMH is chaired by BHB Chairman, Mr. Herman Tucker. Mr. Tucker’s role on both Boards establishes a clear and strong line of authority through the BHB to the Ministry of Health, underlines the importance BHB places on the governance of the building project and will instill confidence in the international PPP bidders market. Other Board Members are Mr. Warren Jones, Permanent Secretary, Ministry of Health; Mr. Anthony Manders, Assistant Financial Secretary, Ministry of Finance; Mrs. Wendy Augustus, Executive Director of the Bermuda Hospitals Charitable Trust and Mr. David Hill, CEO of Bermuda Hospitals Board (non‐voting). The Project Board met for the first time on 23 January and will meet quarterly throughout the PPP project.

KPMG continues to be engaged as the business advisor to the Project Board due to the company’s considerable knowledge and in‐house experience with international PPP projects, as well as the team’s analysis and understanding of BHB’s financial obligations arising from suggested plans for the site contained in the JHMI Phase II report, its local presence and familiarity with the project and demonstrably favourable value for money to BHB.

Mr. Tucker says:”Strong governance and transparent processes are essential to the success of building these much‐needed new facilities at KEMH. All of us on the Project Board are committed to ensuring robust oversight in all project‐related activities and making this an open process with regards to selection of advisors and our PPP partner, on‐going costs and our general progress. We are very pleased that KPMG will continue as key advisors to the Project Board as they have a local understanding and also international knowledge of this specific kind of delivery model. Mr. Malcolm Butterfield, Managing Director of Advisory Practice, and his team are working closely with us to take this project forward.”

At the first Project Board meeting, it was unanimously agreed that all contracts, commencing with advisors to the Project Board, must go through a robust and open competitive process. With highly specialised PPP hospital infrastructure projects, it is recognised best practice to seek international advisors with experience with PPP delivery models. Working in tandem, international and local advisors will create a single advisory point of contact for BHB.

CEO Mr. David Hill says,” This project is of immense importance to BHB and to all of Bermuda. We require the highest standard of advice to ensure the long term success of this ambitious and necessary project. Each of BHB’s appointed advisors will be assessed by an evaluation team and I am confident that we will have excellent candidates and ultimately choose the advisors that offer us the ideal balance of expertise and value for money. Once assembled, this team of advisors and internal staff will support the Project Board as we work towards selecting a private partner to deliver our new buildings. The rigor and quality of the project team is vital for us to attract a PPP partner and as a Board we remain acutely aware that this project must be run in line with international standards in order to be successful.”

The importance of the project team relates in part to the use of Public Private Partnership for the new facilities. The particular form of PPP that is to be used is called Design, Build, Finance and Maintain (DBFM). The DBFM delivery model was chosen for the construction project after a rigorous assessment. Some key benefits of DBFM are:
• The first payment for the new construction is in about five years, once the buildings are completed to BHB’s specifications
• Many of the risks associated with the project are largely transferred to the private partner, including potential construction delays or cost‐overruns
• The new buildings are constructed to BHB’s performance specifications which means it will meet Bermuda’s long term healthcare needs
• BHB retains ownership of the facilities and maintains direct control over all operations that touch the patient, allowing BHB to improve patient care
• Payments are spread over many years, easing the financial burden of such a large project on the island’s population.
• The quality of the buildings are maintained by the PPP partner at a mutually agreed standard over a lengthy concessionary period, giving the partner a vested interest in building quality facilities

Malcolm Butterfield, Managing Director, KPMG Advisory Ltd. says: “One of the keys to a successful DBFM project is planning BHB’s specific clinical and technical requirements prior to seeking a private partner. This is done by assembling a team of business, legal, clinical and technical advisors who work with BHB and the Project Board to determine the project requirements, set criteria and run a competitive procurement to identify the private partner that offers the best competitive proposal to design, build and raise financing for the new buildings and maintain the buildings over the concession period. This stage is critical as the criteria and selection process must be clear and transparent in order for us to have the buildings we need at the best value.”

It is expected that the project will break ground in just two years. Between now and groundbreaking, BHB will finalize clinical and technical specifications and undertake an international selection process to identify the private partner that offers the best value to Bermuda.

Mr. Butterfield adds: “While we are all aware of the current economic conditions, our research and experience indicates that there are consortia in the international market that specialise in PPP projects and investors who see this type of construction project as a solid, long term investment.”

BHB is currently in Phase 1 of the KEMH Redevelopment Project, the project initiation stage. BHB is in the process of identifying clinical advisors, with other advisors still to be sourced. Phase 2 will include further developing the output specifications, developing commercial terms for the project and planning the overall procurement strategy.

*JHMI Phase II Report, 2008

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