DEED OF VARIATION
between
COMMONWEALTH OF AUSTRALIA acting through and represented by the National
Blood Authority, a Commonwealth agency established under the National Blood Authority
Act 2003 (NBA)
and
AUSTRALIAN RED CROSS SOCIETY (ARCS) a body corporate established by Royal
Charter dated 28 June 1941, acting through that part of its operations known as the
Australian Red Cross Blood Service (Blood Service)
Recitals
A.
The Parties entered into a Deed of Agreement (Principal Deed) dated
21 August 2006.
B.
Clause 17.1 provides that no variation to the Principal Deed will be binding unless
agreed in writing between the Parties.
C.
The Parties varied the Principal Deed on 30 June 2009 and 30 June 2010.
D.
The Parties now wish to vary the Principal Deed (as varied to date) in accordance
with this Deed of Variation.
Operative Provisions
Part A:
Interpretation and operation of this Deed of Variation
1.
This Deed of Variation operates from the date it is executed by the Parties, and
operates in respect of the 2011-2012 financial year until 15 December 2011.
2.
The parties may further extend this Deed of Variation from 15 December 2011 until
30 June 2012, operating in respect of the 2011-2012 financial year by agreement in
writing by way of an exchange of letters signed by both parties before 15 December
2011.
3.
Unless the contrary intention appears, in and for the purposes of this Deed of
Variation:
3.1
words or phrases in the Principal Deed have the same defined meaning,
except that the term ‘the Blood Service’ rather than the term ‘ARCBS’ is
used to refer to the Australian Red Cross Blood Service;
3.2
the rules of interpretation set out in Schedule 2 of the Principal Deed apply;
3.3
‘Output Based Funding Model’ means the document at Annex 1 to this
Deed of Variation;
Blood Service – NBA Deed of Variation
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3.4
the phrase ‘Product Price’ or ‘PP’ in the Output Based Funding Model or
Part C of this Deed of Variation will be taken to be within the meaning of the
phrase ‘Product Unit Payment’ or ‘PUP’ in the Principal Deed; and
3.5
the phrase ‘Capital Funding Payment’ in the Output Based Funding Model
or Part C of this Deed of Variation will be taken to be within the meaning of
the phrase ‘Capital Payment’ in the Principal Deed.
4.
A reference in the Principal Deed to Schedule 6 of the Principal Deed will be taken to
include a reference to Part C of this Deed of Variation and to the Output Based
Funding Model.
5.
The laws of the Australian Capital Territory apply to this Deed of Variation.
Part B
Extension and amendment of the Principal Deed
6.
In clause S1-2.1 of the Principal Deed, replace ‘30 June 2011’ with ’15 December
2011’, and in the event that the parties extend this Deed of Variation in accordance
with clause 2, with ’30 June 2012’.
7.
In relation to the operation of clauses 29.10 to 29.12 and Schedule 6 Items 7.1 to 7.5
of the Principal Deed dealing with Change Program Funding Pool Payments:
7.1
the Blood Service may continue to invoice, hold and use; and
7.2
NBA may continue to pay in response to a correctly rendered invoice,
Change Program Funding Pool Payments after 30 June 2010, in accordance with the
Principal Deed, to the extent that such Payments are in respect of a specific initiative
agreed by the Parties under Schedule 6 Items 7.2 and 7.3 on or before 30 June
2010.
Part C
Determination of Payments for 2011-12 financial year until 15 December 2011
8.
The following provisions in the Principal Deed do not operate in respect of the 20112012 financial year up to 15 December 2011:
8.1
Schedule 6 Part A (Basis for Payments) Items 2, 3, 4, 5 and 6; and
8.2
Schedule 6 Part B (Invoicing and Payment) Items 11.1, 11.2, 11.4 and 11.6.
9.
Subject to this Deed of Variation, the Parties agree to apply the principles set out in
the Output Based Funding Model in respect of Payments for the 2011-2012 financial
year, except that the parties agree, consistent with previously agreed arrangements
for the purposes of item 6.4 of the Output Based Funding Model, that $4.75 million
will be returned to the jurisdictions in 2011-12 by way of lower product prices, which is
reflected in the agreed Product Price for each Product for 2011-12 as specified in
Annex 2.
10.
In giving effect to clause 8 of this Deed of Variation, the Parties have:
Blood Service – NBA Deed of Variation
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11.
10.1
agreed the Product Price for each Product (including the Tier 1, Tier 2 and
Non Tier Product Prices) to be applied for 2011-12 as specified in Annex 2
(GST exclusive) ;
10.2
agreed the following amounts to be applied from 1 July 2011:
10.2.1
the amount of the Capital Funding Payments for 2011-12 is
$45,692,940 (GST exclusive) and has been included in the
Product Prices specified in Annex 2;
10.2.2
the amount of the Research and Development Payments for 201112 including capital is $7,773,447 (GST exclusive) to be paid as
an Other Payment under the Principal Deed;
10.2.3
the amount of, and conditions applying to, Payments in respect of
the Blood Service NSW and ACT Principal Site for 2011-12 is
$9,023,924(GST exclusive) to be paid as an Other Payment
under the Principal Deed;
10.2.4
the amount of, and conditions applying to, Payments in respect of
the Blood Service VIC and TAS Principal Site for 2011-12 is
$3,892,378 (GST exclusive) to be paid as an Other Payment
under the Principal Deed;
10.3
negotiate the principles relating to Product substitution under Item 4.1 of the
Output Based Funding Model with a view to agreeing those principles by 15
December 2011, or the event that the parties extend this Deed of Variation
in accordance with clause 2, by 30 June 2012; and
10.4
comply with obligations under the Principal Deed in relation to Payments in
accordance with:
10.4.1
the elements agreed under clauses 10.1, 10.2 and 10.3 of this
Deed of Variation;
10.4.2
the Output Based Funding Model; and
10.4.3
this Deed of Variation.
In giving effect to clause 9 of this Deed of Variation, the Parties acknowledge and
agree that:
11.1
notwithstanding that this Deed of Variation extends the Principal Deed until
at least 15 December 2011, the 2011-2012 financial year is intended to
operate as part of a three year planning and funding cycle as contemplated
in the Output Based Funding Model, with the part of the second and all of
the third financial year of the cycle to be implemented through further
agreement of the Parties;
11.2
despite Items 3.1 and 3.2 of the Output Based Funding Model, for the 20112012 financial year the basis for planning of Product volumes between the
Parties must be Annual Supply Estimates in accordance with Schedule 3
Part L of the Principal Deed;
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11.3
despite Item 4.1 of the Output Based Funding Model, for the 2011-2012
financial year, requirements in relation to the list of Products, frequency of
deliveries and inventory levels must be determined in accordance with
Schedule 3 of the Principal Deed;
11.4
clause 25 of the Principal Deed will apply to any activities of the Blood
Service referred to in Item 4.2 of the Output Based Funding Model;
11.5
Items 168 and 174 to 178 of Schedule 4 Table B of the Principal Deed are
deleted;
11.6
Items 160 to 163, 165, 167, 182, 184 and 192 of Schedule 4 Table B of the
Principal Deed are amended as set out in Annex 3 to this Deed of Variation;
and
11.7
other than the cash advances provided for in Item 6.1 of the Output Based
Funding Model, invoicing and payment must be in arrears in accordance
with Item 5.2 of the Output Based Funding Model and, except to the extent
of any inconsistency with Items 5.2 and 6.1 of the Output Based Funding
Model, in accordance with clauses 16.8 to 16.12 of Schedule 11 of the
Principal Deed.
Part D
Treatment of financial outcome of 2010-2011 financial year
12.
Items 16.4.1 to 16.4.3 of Schedule 11 of the Principal Deed do not operate in respect
of the 2010-2011 financial year.
13.
Within 40 Business Days after the end of the 2010-11 financial year, the Parties must
undertake and agree a reconciliation of total actual costs incurred by the Blood
Service for the financial year (‘total actual costs’) against the total amount of
Payments made in respect of that financial year (‘total Payments’).
14.
If the reconciliation referred to in clause 13 of this Deed of Variation identifies a deficit
of total Payments against total actual costs, the Parties must agree any appropriate
treatment of the deficit in accordance with Item 6.2 of the Output Based Funding
Model.
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Executed as a Deed
SIGNED SEALED AND DELIVERED
for and on behalf of the
COMMONWEALTH OF AUSTRALIA
acting through the
NATIONAL BLOOD AUTHORITY
on:
______________________________
Date
by:
____________________________
Name of signatory
_____________________________
Position of signatory
in the presence of:
____________________________
Name of witness
)
)
)
)
)
)
)
)
)
)
)
) _______________________________
)
Signature
)
)
)
)
)
) _______________________________
)
Signature of witness
Signed on behalf of the Australian Red Cross Society in accordance with its Rules:
____________________________
Full Name of ARC Board Member or other
Authorised Representative
____________________________
___________________________
Signature
___________________________
Position
Full Name of ARC Board Member or other
Authorised Representative
____________________________
Signature
___________________________
Position
Dated this ___________________________ day of __________________________ 2011
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Annex 1 – OBFM Principles
OUTPUT BASED FUNDING MODEL for 2010-11 to 2012-13
Key Principles
All Australian Governments have agreed to continue to meet the fair and reasonable costs of the management and operation of the Australian Red Cross Blood
Service (Blood Service), including necessary investments in capital infrastructure. This commitment is limited to the cost of products and services provided in
accordance with arrangements established under the National Blood Agreement and consistent with policy determined by governments.
Australian Governments also require adequate accountability and transparency in the application of funding provided to the Blood Service and that the Blood
Service appropriately manage its affairs and associated financial risks within the resources provided by governments.
This funding model is to be read in conjunction with the Deed of Agreement dated 21 August 2006 which takes precedence over this agreement if in conflict. The
existing indemnities provided to the Blood Service by the NBA continue to apply (Clause 57).
Component
Item
OBFM Principles
1. Product
Costing
1.1
Costs for products reflect the actual cost of production
o
o
Corporate overheads and indirect costs will be attributed to products and services as outlined in 2 below.
Costs may not necessarily reflect the scarcity and difficulty of obtaining particular products.
1.2
Payment for services reflects the actual cost of providing that service.
1.3
Non-Deed services will not be cross subsidised by Deed funds.
1.4
Transfusion Medicine Services (TMS) will be funded under the existing process for 2010-11. Funding for 2011-12 onwards will be on the
basis of a new 3 tiered funding model which may include; grant, fee for service and a Product Price (PP) component and will be adjusted
annually by indexation (net of efficiency dividend) and 10% Capital. The PP component will grow in line with activity. The grant and the
fee for service component will be adjusted for activity growth where justified and agreed by JBC.
Research and Development will be grant funded based on the 2009-10 budget and will be adjusted annually by indexation (net of
Blood Service – NBA Deed of Variation
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Component
Item
OBFM Principles
efficiency dividend) and 10% Capital. The grant will be indexed by the activity growth where justified and agreed by JBC.
1.5
Product costs will be fixed in each financial year of the cycle and not changed, other than in response to a major change in government
policy, a regulatory change, or other extraordinary reason which has been agreed by governments. Any JBC approved extraordinary
items will be grant funded for at least the term of the funding cycle at which time the interim grant funding where appropriate will be
incorporated into the PP.
1.6
Product costs will be indexed annually at 4.1% which is net of a 1% efficiency dividend. All other grants and payments will also be
indexed at 4.1% annually. This net indexation factor is in accordance with advice from the Commonwealth Department of Finance and
Deregulation as stated in the Forward Estimates.
A higher indexation rate may be approved by governments on presentation of evidence that business critical costs have risen well in
excess of 4.1% and the additional costs could not be recovered by other savings.
1.7
Product costs will facilitate international comparison and benchmarking where relevant and practical.
1.8
For items not funded through grant payments, an annual Capital Funding Payment will be made based on 10% of total annual estimated
revenue. Grant items mentioned in 1.4 and 1.13 are excluded from this capital payment as capital payments for these items are
separately defined and provided for.
While this funding will be incorporated in the PP it may be cash flowed within the year in advance of the PP payments subject to cash
being available with the NBA.
At the beginning of the year the monthly cash flow is provided by the Blood service as part of the Annual Capital Plan. Capital advances
will be made quarterly in advance and reconciled/acquitted quarterly with the monthly PP invoices, contingent on cash being available. If
cash is not available then a monthly advance will be provided and reconciled/acquitted quarterly with the monthly PP invoices.
1.9
At the cost agreement stage, the overall cost to governments of the products and services in 2010-11 cannot increase on the funding that
would have been provided based on 2009-10 costs (other than Indexation net of efficiency dividend), activity increases based on the
Blood Service – NBA Deed of Variation
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Component
Item
OBFM Principles
agreed supply plan, other extraordinary items and changes in government/regulatory policy.
1.10
The costs of the following products will be constructed to reflect a two tiered costing structure to ensure recovery of 100% of fixed costs
when 90% of supply has been delivered. They are
-
2b Whole blood red cells – leucodepleted
4b Clinical fresh frozen plasma
4d Apheresis Clinical FFP
3b Whole blood platelets – leucodepleted
3d Apheresis platelets – leucodepleted
The tier one base cost will be fully costed to reflect recovery of 100% of fixed costs at 90% of delivered supply. Deliveries after 90% of the
supply plan are costed at variable cost.
100% of the Annual Capital Funding Payment as defined in 1.8 will be added to tier one product costs and plasma for fractionation.
Variable Costs are:
All consumables;
5% of operating unit overhead less rent and rates; and
3% of collection centres salary and statutory on costs.
All other costs are Fixed costs.
1.11
The Blood Service will be a participant in the policy development of prices paid by jurisdictions.
1.12
Governments will provide reasonable notice to the Blood Service of their intention to increase or reduce services that are funded on a
fixed grant basis. Governments may be required to fund reasonable increased or exit costs.
1.13
Victoria/Tasmania Principal Site (VTPS) and New South Wales/Act Principal Site (NAPS) net additional expenses (fit out, rent, outgoings
etc) are to be separately funded on a grant basis and not included in the PP.
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Component
Item
OBFM Principles
2. Attribution
Rules
2.1
For costing attribution the principal purpose of the Blood Service is to provide a fresh blood service. The collection of plasma for
fractionation for costing purposes, is a non principal activity, and so only bears direct operating unit costs and excludes corporate and
operating unit management overhead.
This approach will assist in:



2.2
providing internationally comparable fresh blood costs; and
keeping plasma costs lower to support domestic collection and governments policy to promote national self sufficiency.
Product costing outcomes are aimed at minimising risk to Blood Service from changes in volume and product mix (i.e. minimise
cross subsidisation and use of subjective drivers) by using supportable cost allocation methodologies and tier pricing that means
fixed costs and capital payments are not put at risk.
Costs which cannot be directly associated with an individual product eg donor services, donor recruitment, collection and testing, are
allocated on a collection based driver.
Direct Operating Costs that are absorbed by all products are all direct operating unit costs of Production, Distribution, product
specific Testing, or Product Enhancements involved in the production and processing of the separate product.
Separate product costs will not be established for value added activities such as irradiated red blood cells unless the cost of the value
added activity is material for the Blood Service.
Direct Operating costs
Includes:
o
o
o
o
o
o
o
Donor Centre Costs
- Labour
- Consumables
- Donor Centre Overheads
Testing (including those provided by the NTS within the Deed)
Production
Marketing & related activities (Operating Units only)
Principal Site Overheads (where not separately funded)
Medical Services Direct Product and Collection Support
Distribution of fresh blood products and plasma for fractionation
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Component
Item
OBFM Principles
But excludes:
o
2.3
2.4
2.5
Corporate Overheads ie
- Finance
- Human Resources
- Information Systems
- Quality
- Corporate
- Corporate Strategy and Performance
o Medical Services Management and Support
o National Operations Management
o National Transplantation Service (Excluding Testing done for the blood supply)
o Research and Development
o Operations unit management overheads
o Distribution costs of non fresh products
Distribution costs will be allocated to products on the basis of units issued.
Distribution costs include
o Labour, Consumables and Overheads (other than Transport),
o Fresh, fractionated and recombinant product transport,
o Plasma to CSL (Transport)
Corporate and Operating Unit Management Overhead will be allocated to fresh products excluding plasma for fractionation. These
overheads will be a standard charge for every adult equivalent product unit issued to eliminate the financial risks to the Blood Service of
product substitution.
Fresh Product and Clinical Focus:
Plateletpheresis direct operating unit costs should be allocated to the platelets only, not to the plasma for fractionation derived through
this collection (100% primary product).
3. Volumes
3.1
Rolling three year supply forecasts will be provided by the NBA and jointly reviewed on an annual basis
3.2
The three year supply estimates prior to the commencement of the three year funding cycle are used to set the fixed cost recovery levels
for those products that have tiered costing structure.
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Component
4. Products
and Services
5. Payment
Process
Item
OBFM Principles
3.3
During the year both NBA and the Blood Service will work together to best inform up to date trends on supply and demand.
4.1
There will be an agreed National Service Standards. Refer to this document for issues relating to Product List, frequency of deliveries,
inventory levels and principles relating to product substitution.
4.2
The Blood Service may provide services outside the deed to jurisdictions or other organisations at a Fee for Service. These services must
be fully cost recovered and do not impact on the Blood Service ability to meet deed obligations.
5.1
Payment is made for those products that are ordered and issued, and within defined and agreed substitution rules.
Payment on products received is the optimum goal (which ensures formal receipt verification), with payment on product issued
acceptable until a system allows (ie an inventory and receipting system implemented).
6. Risk Treatment of
Cash
Advance,
Surplus or
Loss
5.2
Invoicing occurs at the end of the month and payment is on agreed terms of 10 business days from receipt of a correctly rendered invoice
based on issues to Approved Health Providers.
5.3
After the first year of the model, NBA and the Blood Service will review the model and the Blood Service financial performance to ensure
appropriateness and to inform the costs/model for the remainder of the funding cycle.
6.1
The NBA will provide a cash advance to cover the initial 55 days operation, excluding capital, to be reconciled at the end of each year.
o
6.2
The advance will be split into two advances made at the beginning of July (30 days) and August (25 Days) and reconciled/acquitted
annually with the monthly PP invoice.
The Blood Service can approach the NBA within each year should there be events that require additional funding such as extraordinary
circumstances and government regulatory or policy changes.
The Blood Service can also approach the NBA in the event of a material change (as defined below) from forecast to actual supply to
meet demand (and/or year on year forecast) if the Blood Service needs to recoup costs associated with responding to those changes and
the overall costing structure does not accommodate it. This Includes changes in product mix that cause changes in cost structure or
changes in product cost or value added costs.
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Component
Item
OBFM Principles
Materiality for one year result where a loss incurred is equivalent to $1.5M
The triggering of this clause will be at the discretion of the Blood Service, and the funds available and the level of financial risk that they
are prepared to manage before they seek reimbursement.
6.3
The Blood Service will be expected to manage losses annually (subject to 6.2) and within the 3 year funding cycle subject to materiality.
The Blood Service can approach the NBA at the conclusion of the 3 year funding cycle should a material loss (as defined below) be
evident and seek to be reimbursed for the deficit.
Note: In the event of a claim for loss at the end of the funding cycle, the Blood Service will be subject to a full disclosure audit. In this
event, and subject to no impropriety, governments agree to maintain their existing commitment to meet the fair and reasonable costs of
the Blood Service. As agreed by AHMC in July 2008 (refer to the introduction statement above).
Materiality for three year result where losses incurred is equivalent to, $4.5M.
The triggering of this clause will be at the discretion of the Blood Service, and the funds available; and the level of financial risk that they
are prepared to manage before they seek reimbursement.
6.4
-
The Blood Service will be allowed to retain the 2009-10 operational efficiencies (surplus) to allow one off reinvestment in line with
government policy including;
o to comply with regulatory changes
o to improve the safety and security of the blood supply
o for strategies to achieve efficiencies in the blood service
o to further achieve national consistencies
o to reduce the product cost
o to provide for a management reserve (risk pool)
Subject to any resultant ongoing costs being absorbed within the agreed 2010-11 product prices.
6.5
-
Future Surplus - The Blood Service will be able to reinvest operational efficiencies (surplus) up to $5 million in any year to allow
reinvestment in line with government policy including;
o to comply with regulatory changes
o to improve the safety and security of the blood supply
Blood Service – NBA Deed of Variation
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Component
Item
OBFM Principles
o
o
o
o
for strategies to achieve efficiencies in the blood service
to further achieve national consistencies
to reduce the product cost
to provide for a management reserve (risk pool)
Subject to any resultant ongoing costs being absorbed.
It is intended that the first call on surplus funds will be any regulatory or government policy changes and new Business Cases approved
by JBC provided any on-going costs can be absorbed in existing funding.
If the annual surplus is more than $5 million in any year then the use of the surplus over the $5 million will need to be agreed between the
Blood Service and the NBA.
7. Business
Cases
7.1
The Blood Service will have the opportunity to present business cases for projects/initiatives greater than $2m that cannot be funded
within price and services funding or surplus reinvestment, noting that this needs to align with government timeframes for new funding, i.e.
2 years out.
Acronyms:
NBA
National Blood Authority
Blood Service
Australian Red Cross Blood Service
JBC
Jurisdictional Blood Committee
TMS
Transfusion Medicine Services
PP
Product Price
FFP
Fresh Frozen Plasma
VTPS
Victoria/Tasmania Principal Site
NAPS
New South Wales/Act Principal Site
NTS
National Transplantation Service
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Blood Service – NBA Deed of Variation
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Annex 3 – Amendments to Schedule 4 Table B of the Principal Deed
Process key:
A – Blood Service Strategic Planning
B – Blood Service Annual Business Planning
Research & Development
C
Supply Plan Review for 2010-11
By 31 Aug 11
161
C
Supply Trend Analysis for 2010-11
By 31 Aug 11
C
Consultation on ASEs for 2012-13 (All Product
Groups) and consultation with NBA on Supply
Plan scenarios taking into account proposed PP
and business case proposals, if any
1 Jul 11
to 31 Oct 11

D
Consultation with NBA on proposed PP
scenarios for 2012-13 taking into account Blood
Service business case proposals, if any
1 July 11
to 31Oct 11

C
End of year reconciliation of planned v. actual
supply for the purposes of clause 13 of the Deed
of Variation
1 Aug 11
to 30 Sept 11
163
165



Quarterly CEO Meeting
167
182
184
D
-
-
Year in Review 2010-11
-
Review Qtr 4 (April-June 2011)
Agree final PPs for 2012-13
Quarterly CEO Meeting
--
Review Qtr 1 (July-September 2011)
Blood Service – NBA Deed of Variation
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2015-16
2014-15
D – Blood Service Financial Planning & Review
E – Blood Service SCIP and Annual Capital Plan Development
F Blood Service Performance C – Supply Planning
G–
160
162
2013-14
2012-13
2011-12
2010-11
Activity Date
2008-09
Activity
2009-10
Process
Financial Year that Activity Relates to
By 31 Aug 11

By 31 Dec 11
By 7 Dec 11


15