Fiona Stanley Hospital (FSH) is the largest hospital in WA, offering health care services to southern Perth suburbs and regional communities across the State. The hospital opened in October 2014. For the first time in WA, government decided to contract a private facilities management company to deliver all non-clinical services.

In November 2015, the Education and Health Standing Committee wrote to the Auditor General asking that he consider an audit of the company’s self-reporting of its performance against its contractual obligations and the level of scrutiny given to that reporting by WA Health.

Our audit has assessed whether delivery of the required non-clinical services was at the cost expected and if the contract is effectively monitored and enforced by the South Metropolitan Health Service (SMHS). The audit’s timing provides an early assessment of the contract and the non-clinical service provision so that lessons can be learned in what may be a 20 year, multi-billion dollar contract.

Background

FSH is a 783 bed public hospital. It includes a 140 bed State Rehabilitation Service, a 30 bed purpose built mental health unit and the State Burns Service.

The Government decided in 2009 to contract-out non-clinical services for FSH to a facilities manager (FM). While outsourcing of services occurs in other WA hospitals, the outsourcing of non-clinical services has not been done on this scale before.

The Minister for Health and Serco Australia Pty Ltd, the FM, signed the non-clinical services contract in July 2011. At approval the contract included 27 ongoing operational services, of which 2 did not proceed and were removed from the contract. A further service was taken off the FM and replaced with a support service resulting in 25 services being delivered by the FM. Elements of the 3 services that were removed from scope are now being delivered by SMHS (Figure 1). Appendix 1 describes each service.

SMHS is responsible for managing the contract, including monitoring the self-reporting by the FM against about 1,000 reporting obligations, including more than 480 key performance indicators (KPIs). If the FM does not meet required performance levels, failure points accrue. Financial deductions (in the form of payment abatements) are imposed as the number of failure points accumulate.

The initial contract term is 10 years, with two 5-year extension options. In July 2011, the approved contract had an estimated contract value of $4.3 billion over 20 years. This included:

• $3.7 billion to the FM for planning and delivering non-clinical services at FSH
• $577 million for hospital equipment provided through a finance lease arrangement.

From August 2011 to 30 June 2017, SMHS spent about $630 million on FM non-clinical services (see Appendix 2) and $212 million on finance lease payments for hospital equipment. Total payments for hospital equipment are now expected to be about $467 million.

In December 2013, the Government delayed the hospital’s opening date from April 2014 to October 2014. The contract was amended to ‘delay and phase’ the opening of the hospital – replacing a transitional period where the FM would take over the site and plan for the hospital to be ready. Delivery of key non-clinical services commenced from practical completion of FSH in December 2013 and full delivery of all non-clinical services was in place from hospital opening on 4 October 2014. SMHS paid $52 million less than the original contract forecast of $192 million, because the delay in opening the hospital reduced the period of full non-clinical services. A timeline of contract events is shown at Appendix 3.