Appendix 2
Initial Agreement
for
Carbon and Energy Fund Project across three NHS Grampian sites
Initial Agreement for CEFS Project
Contents
Executive Summary ................................................................................................. 3
1. Introduction ........................................................................................................ 6
2. The Strategic Case ............................................................................................ 7
2.1.
Strategic Context .................................................................................................. 7
2.2.
Organisational Overview and Business Strategy ............................................... 9
2.3.
Investment Objectives ........................................................................................ 10
2.4.
Existing Arrangements ....................................................................................... 11
2.5.
Potential Scope and Service Requirements...................................................... 12
2.6.
Benefits Criteria .................................................................................................. 13
2.7.
Strategic Risks .................................................................................................... 13
2.8.
Constraints and Dependencies.......................................................................... 16
3. The Economic, Commercial, Financial and Management Case................... 16
3.1.
Critical Success Factors .................................................................................... 16
3.2.
Main Business Options ...................................................................................... 17
3.3.
Preferred Way Forward....................................................................................... 19
3.4.
Short-listed Options ........................................................................................... 19
3.5.
Indicative project timescales ............................................................................. 20
3.6.
Outline Commercial Case................................................................................... 20
3.7.
Outline Financial Case........................................................................................ 21
3.8.
Outline Project Management Arrangements ..................................................... 23
3.9.
Recommended Way Forward ............................................................................. 23
Contents Page
Initial Agreement for CEFS Project
Executive Summary
Introduction
The purpose of this Initial Agreement is to establish the case for change and the
need for investment in energy efficient infrastructure at three large, strategically
important sites within the NHS Grampian estate: Royal Cornhill Hospital, Dr Gray’s
Hospital and the Foresterhill Campus (which includes Aberdeen Royal infirmary,
Royal Aberdeen Childrens Hospital, Aberdeen Maternity Hospital and Aberdeen
Dental School).
Case For Change
The Scottish Government’s commitments under the Climate Change Act 2009 and
associated HEAT performance targets require all NHS Boards to reduce energy
consumption and associated greenhouse gas (GHG) emissions across their estates
The 2011/12 HEAT Target report showed that NHS Grampian’s energy consumption
had increased by 5.8% from the baseline year, and that GHG emissions had
increased by almost 11% over the same period. NHS Grampian has the third highest
energy-consuming hospital in Scotland (Aberdeen Royal Infirmary) and has a
number of hospitals with energy consumption well in excess of the Scottish national
average (including Aberdeen Maternity Hospital and Dr Gray’s Hospital).
To comply with these targets therefore NHS Grampian must significantly improve its
performance in terms of energy consumption and GHG emissions.
Project Objectives
The objective of the project is to deliver a substantial reduction in energy
consumption and greenhouse gas emissions (GHG) and a corresponding reduction
in operating costs through the replacement of existing plant and infrastructure with
more energy efficient arrangements at each of the three sites. The investment will
also address related backlog maintenance issues.
The key investment objectives are:

To reduce energy consumption and costs in real (evidenced) terms against an
agreed baseline for each site. Such reductions to be ambitious and to (as a
minimum) meet current Scottish Government national and Scottish
Government Health and Social Care Directorate (SGHSCD) targets of a 1%
per annum reduction in energy consumption.

To reduce carbon emissions in real (evidenced) terms against an agreed
baseline for each site. Such reductions to be ambitious and to (as a minimum)
meet current Scottish Government national and SGHSCD targets of a 3% per
annum reduction in CO2 emissions in relation to fossil fuel heating.
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Initial Agreement for CEFS Project

To minimise or eliminate future backlog maintenance spend in relation to
some of the energy infrastructure at the sites, by investing in low energy/ low
carbon technologies.
Financial Case
An independent feasibility study by the Carbon Trust indicated that an overall
investment of c £8million could enable a scope of works across the three sites that
will deliver a guaranteed reduction in carbon emissions and energy consumption at a
level that will meet the objectives of the project and ensure a payback of the initial
investment within a 15 year timescale.
Recognising the results of this study the following options have been identified for
further consideration:

Option 1: ‘Do Nothing’

Option 2: ‘Do minimum’ (address backlog maintenance issues only)

Option 3: Carry out a limited scope of works

Option 4: Carry out full scope of works
The procurement process is designed to encourage innovation on the part of
potential bidders and the final tendered solution is likely to include different
technologies and funding options than those identified in the feasibility study. The
final cost of the investment may therefore vary to the cost identified in the initial
feasibility study.
Commercial Case
Potential funding options include either traditional NHS capital funding or the Carbon
and Energy Fund Scotland (CEFS) or potentially a mixture of both.
The CEFS has been established as a joint venture partnership between the Carbon
and Energy Fund and NHS National Services Scotland (National Procurement and
Health Facilities Scotland) to allow health boards in Scotland to progress large-scale
energy investment opportunities using external finance raised either by the CEFS
itself or by the successful contractor.
The CEFS offers a competitive procurement route that will encourage innovation and
result in the best solution – both economically and technically – for NHS Grampian.
The CEFS provides the option of a third party service financing and owning any
installed equipment. Ongoing operation can be carried out by the third party, or by
NHS Grampian staff. The third party service provider will supply, and possibly
maintain, the plant under a service contract with NHS Grampian, the costs of which
will be covered by guaranteed savings from reduced energy consumption and GHG
emissions.
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Initial Agreement for CEFS Project
Recommendation
The Scottish Government Health and Social Care Directorates Capital Investment
Group is asked to approve the following recommendation :NHS Grampian proceed to develop an Outline Business Case to further consider
and refine the above options, including the options for financing and procurement via
the CEFS, in line with the Scottish Capital Investment Manual guidelines.
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Initial Agreement for CEFS Project
1. Introduction
NHSScotland Boards have an obligation to reduce energy consumption and
associated greenhouse gas (GHG) emissions across their estates. This is to fulfil the
requirements of both the Scottish Government’s commitments under the Climate
Change Act 2009 and NHSScotland’s HEAT targets.
To date, many of the ‘quick wins’ have been realised and since 1990, energy
consumption has reduced by c 42% across NHSScotland sites. However, significant
investment is now required to realise more long-term savings and to ensure that
2020 and 2050 energy and climate change targets are met.
NHS Grampian is one of the poorer performing NHS Boards in terms of energy
consumption and GHG emissions. The 2011/12 HEAT Target report showed that
NHS Grampian’s energy consumption had increased by 5.8% from the baseline
year, and that GHG emissions had increased by almost 11% over the same period.
Further, NHS Grampian has the third highest energy-consuming hospital in Scotland
(Aberdeen Royal Infirmary) and has a number of hospitals sites with energy
consumption well in excess of the Scottish national average (including Aberdeen
Maternity Hospital and Dr Gray’s Hospital). This relates primarily to the age profile
and development across multiple NHS Grampian sites, coupled to a general lack of
investment in low energy technologies and opportunities.
To address some of these issues, NHS Grampian commissioned a new energy
centre for the Foresterhill Campus. The new centre started operation in 2012 and
comprises a gas turbine combined heat and power (CHP) plant, a biomass boiler
and three high-efficiency dual-fuel boilers. It was designed to provide all the heat
demand and c 90% of the peak electricity demand of the Foresterhill Campus.
However, at time of writing, the Energy Centre is not working to full capacity, due to
slower progress with planned site developments, and therefore is currently operating
less optimally than will be achieved when site development plans are realised.
Energy appraisals conducted by the Carbon Trust in 2012 identified significant
energy saving opportunities at three sites: Foresterhill Campus, Royal Cornhill
Hospital and Dr Gray’s Hospital. However, these measures require a capital
investment of c £8million.
In January 2013, the Scottish Government published “Low Carbon Scotland: Meeting
our Emissions Reduction Targets 2013-2027: The Draft Second Report on Proposals
and Policies”. This outlined the Scottish Government’s approach to meeting its
Climate Change Act duties, including the level of central funding it would be
allocating to this. This is decreasing over time, with more emphasis being placed on
private sector investment.
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Initial Agreement for CEFS Project
In 2012, Health Facilities Scotland (HFS) was tasked by Scottish Government and
NHSScotland’s Strategic Facilities Group to investigate the potential for private
sector investment in energy efficiency projects across the NHSScotland estate. After
exploring a number of schemes, HFS and National Procurement are now working in
partnership with the Carbon and Energy Fund and have established Carbon and
Energy Fund Scotland (CEFS) to support NHS Boards in large-scale energy
investment opportunities.
The purpose of this Initial Agreement is to establish the case for change and
the need to deliver a substantial reduction in energy consumption and GHG
emissions and a corresponding reduction in operating costs through
replacement of existing plant and infrastructure with more energy efficient
arrangements at each of three strategic sites in NHS Grampian. The
investment will also address related backlog maintenance.
2. The Strategic Case
2.1. Strategic Context
The planned project fits clearly with NHS Grampians strategic theme of delivering
high quality care in the right place through providing safer, effective and sustainable
services and is also in line with national strategy as follows :
Climate Change (Scotland) Act 2009 (CCSA): This sets legally-binding
targets for greenhouse gas reduction within Scotland; specifically, a 42%
reduction in carbon dioxide (CO2) by 2020 (based on 1990 levels) and an
80% reduction by 2050. The CCSA also includes requirements around
renewable energy generation, climate change adaptation and energy/
sustainability monitoring and reporting. As a public sector body, NHS
Grampian has both explicit and implicit duties to reduce greenhouse gas
emissions to meet CCSA requirements.

NHSScotland HEAT Target E8: The NHSScotland HEAT (Health, Efficiency,
Access, Treatment) target E8 covers energy consumption and greenhouse
gas emissions. The present target requires NHS Boards to achieve a 3% per
annum reduction in CO2 emissions in relation to fossil fuel heating and a 1%
per annum reduction in energy consumption (against a baseline financial year
of 2009/10). HEAT target updates are provided to Scottish Government on a
quarterly basis, with a full report provided annually following financial year
end. The 2011/12 HEAT target report showed that NHS Grampian’s energy
consumption had increased by 5.8% since the baseline year, and that carbon
dioxide (CO2) emission has increased by almost 11% in the same period. This
relates primarily to the age profile and development across multiple NHS
Grampian sites, coupled to a general lack of investment in low energy
technologies and opportunities
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Initial Agreement for CEFS Project
More generally this Initial Agreement is integral to a number of existing business
strategies and work programmes :
Local

Grampian Health Plan: The Plan sets out the overall strategy and guidance
for the development of the health system in Grampian.

NHS Grampian Healthfit 2020: This is the practical vision for the health
system in Grampian taking account of the direction set out in the Health Plan.
It sets out specifically how many elements of the health system could and
should be organised up to 2020 if current good practice was to be applied
consistently and comprehensively. The 2020 vision will not remain static but
will continue to be developed to aid understanding on what is possible in
Grampian as a whole and within individual communities. A key feature of the
vision is its consistency with the original Healthfit vision for Grampian
developed in 2002 but recently updated and endorsed by the Board for health
priorities in the Grampian area until 2020. It demonstrates that Healthfit has
provided the firm foundation for continuous change to improve and modernise
the health system in Grampian.

The NHS Grampian Health and Care Framework which is a set of
strategies, guidance and tools that supports the Healthfit approach to health
and healthcare. It also supports the detailed implementation of the Grampian
Health Plan approved by the Board.

NHS Grampian Property and Asset Management Plan (PAMPS) which
aims to ensure that assets are used efficiently, coherently and strategically to
support the future clinical and corporate needs of the Board consistent with
our forecast for service need. In relation to this, NHS Grampian also
undertakes a regular review of its ‘Backlog maintenance’. This stand at circa
£157 million (before uplifts for fees, VAT etc).

NHS Grampian Service Plans which set clear quality requirements for
services and care and are based on the best available evidence of what
treatments and services work most effectively for patients.

Supporting programmes of change which are needed to support the
implementation of the Board’s plans and services strategies and which have a
significant influence in the pace and extent to which plans can be
implemented. These programmes are planned care, unscheduled care,
integration and improving health.
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Initial Agreement for CEFS Project
National

The Healthcare Quality Strategy for NHSScotland: This sets out
NHSScotland’s three quality ambitions for the service: person centred, safe,
effective. In the context of property, this translates as improvements in patient
experience and environment (person centre), minimisation of backlog risks
(safe), and reductions in cost, energy consumption and greenhouse gas
emissions (effective).

NHSScotland Sustainable Development Strategy: A Sustainable
Development Strategy for NHSScotland was announced in February 2012.
The Strategy contains 14 mandatory requirements for NHS Boards, including
the establishment of a Sustainable Development champion and the
development of a Sustainable Development Action Plan (incorporating climate
change mitigation and adaptation).
2.2. Organisational Overview and Business Strategy
NHS Grampian is the second largest NHS Board geographically in Scotland with the
third highest energy consumption. The property portfolio consists of 99
properties/sites with a building floor area of approximately 385,000 m2 and a net
book value of circa £428 million (at 31st March 2013). Energy consumption amounts
to over 166 gigawatt-hours (GWh) of energy consumed per annum, equating to over
47,000 tonnes of CO2 emissions and over £8.6million in energy costs.
The recent State of Assets and Facilities report highlighted, nationally, many of the
issues that are the focus of our local Property and Asset Management Plan. The
report places particular emphasis on the extent of backlog maintenance that our
remaining estate requires in order to bring the accommodation up to the relevant
physical and statutory standards. A significant challenge for NHS Grampian in
managing this property portfolio is the current financial burden relating to backlog
maintenance (including energy efficiency and carbon reduction). The current
estimate of need amounts to circa £157 million (excluding any uplift allowances for
fees, VAT, contingency, inflation etc.). £41m (26%) of this cost is significant risk
items and a further £12.5m (8%) is high risk items.
The Board are committed to reduce the level of carbon emissions across our
property base and all new developments are now delivered, where possible, with
integral technology designed to reduce energy use and consequently carbon
emission levels. Specific recent developments include the new combined heat and
power plant at Foresterhill which was brought in to operation during 2012. In addition
funding has been approved through the national Carbon Reduction Programme to
develop a biomass boiler at Royal Cornhill Hospital in 2014.
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Initial Agreement for CEFS Project
The extent of backlog maintenance outstanding across our asset base however
requires that our future financial plans prioritise a demonstrable reduction in high and
significant risk backlog maintenance in clinical areas, whilst maintaining a balanced
essential equipment replacement programme. All available capital and revenue
funding together with asset disposal proceeds are applied to target an 88% reduction
in high and significant risk backlog maintenance in clinical areas over the next five
years. As such, additional investment in low energy / carbon technologies which
cannot be linked directly to high and/or significant risk backlog programmes are
unlikely to be progressed within the Boards formula capital allocation within the five
year period of our local delivery plan.
2.3. Investment Objectives
The objective of the project is to deliver a substantial reduction in energy
consumption and greenhouse gas emissions (GHG) and a corresponding reduction
in operating costs through the replacement of existing plant and infrastructure with
more energy efficient arrangements at each of three strategically important sites
within the NHS Grampian estate. The investment will also address related backlog
maintenance issues.

Two sites in Aberdeen
o Foresterhill Campus (which includes Aberdeen Royal infirmary, Royal
Aberdeen Childrens Hospital, Aberdeen Maternity Hospital and
Aberdeen Dental School).
o Royal Cornhill Hospital

One site in Elgin
o Dr Grays Hospital
The key investment objectives are:

To reduce energy consumption and costs in real (evidenced) terms against an
agreed baseline for each site. Such reductions to be ambitious and to (as a
minimum) meet current Scottish Government national and Scottish
Government Health and Social Care Directorate (SGHSCD) targets of a 1%
per annum reduction in energy consumption.

To reduce carbon emissions in real (evidenced) terms against an agreed
baseline for each site. Such reductions to be ambitious and to (as a minimum)
meet current Scottish Government national and SGHSCD targets of a 3% per
annum reduction in CO2 emissions in relation to fossil fuel heating.

To minimise or eliminate future backlog maintenance spend in relation to
some of the energy infrastructure at the sites, by investing in low energy/ low
carbon technologies.
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Initial Agreement for CEFS Project
2.4. Existing Arrangements
Foresterhill Campus
The site hosts three main hospitals (Aberdeen Royal Infirmary, Royal Aberdeen
Children’s Hospital, Aberdeen Maternity Hospital), as well as the Aberdeen Dental
School and a number of clinics, health centres and administrative blocks. Current
total bed capacity is c 1,020. There are 20 operating theatres on the site, as well as
extensive imaging facilities, Intensive Therapy Units (ITU)/ High Dependency Units
(HDU) and numerous support service departments.
Electrical load on the site is provided by two feeds from the national grid and by self
generation from the Foresterhill Energy Centre (via a CHP plant). There are three
separate high-voltage rings on the site.
Heating on site is provided by the Foresterhill Energy Centre (a combination of CHP,
biomass and high-efficiency dual-fuel boilers) supplying steam to a piped ring main
distribution system. The old East Boilerhouse (which is at the end of its economic
life) provides process steam to the Laundry/Central Decontamination facility.
Royal Cornhill Hospital
The site provides the NHS Grampian centre for mental health care. Currently bed
capacity is c 290 in-patient psychiatric beds. In addition there is a production kitchen
and support service departments.
Electrical supplies on site are provided from the national grid to a local high-voltage
network.
Heating is provided from a central medium pressure hot water (MPHW) boilerhouse
comprising dual-fuel boilers.
Dr Gray’s Hospital
The site is a mixed hospital campus handling a variety of clinical and administrative
services. Currently bed capacity is c 160 acute, maternity, paediatric and psychiatric
beds. In addition there are four operating theatres, imaging facilities, ITU/HDU and
numerous support service departments. There is also a production kitchen on site.
Electrical supplies on site are provided from the national grid.
Heating is provided from a central MPHW boilerhouse comprising dual-fuel boilers.
These boilers are now deemed to be at the end of their economic life.
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Initial Agreement for CEFS Project
2.5. Potential Scope and Service Requirements
Following a series of energy appraisals funded by the Carbon Trust, provisional
scopes of works have been identified for the three sites.
Foresterhill Campus

Optimisation of the Foresterhill Energy Centre by connecting further heat and
electrical loads;

Extension of the existing steam main to supply the Laundry/Decontamination
facility, allowing closure of the East Boilerhouse;

Review and (if necessary) replace the condensate return systems;

Revision of the electrical base load and replacement of older oil filled
transformers, and the rationalisation of old sub stations;

Replacement of older calorifiers with non storage plate heat exchangers;

Replacement of stand alone split-system cooling units;

Replacement of old inefficient lighting;

Improvement in the quality of pipework insulation across the site;

Associated upgrades to the existing building management system and
heating/ electrical controls.
Royal Cornhill Hospital

Refurbishment of the existing boilerhouse, to include one or more of the
following options;
o Containerised biomass boiler
o Gas-fired or biomass CHP plant
o Upgrading of existing burners

Associated upgrades of heating controls and pipework insulation;

Replacement of older calorifiers with non storage plate heat exchangers;

Replacement of stand alone split -system cooling units;

Replacement of old inefficient lighting.
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Initial Agreement for CEFS Project
Dr Gray’s Hospital

Replacement of existing boilers with new higher efficiency boilers and
associated controls/ pipework insulation. The new boiler plant could include a
biomass or CHP option if appropriate;

Replacement of older calorifiers with non storage plate heat exchangers;

Replacement of stand alone split-system cooling units;

Replacement of old inefficient lighting.
2.6. Benefits Criteria
The benefits associated with this project will be assessed against the following
criteria:

Alignment with NHS Grampian’s strategic objectives and business plans

Amount of energy consumption and GHG emissions avoided, measured in
terms of metric values (kilowatt-hours, tonnes of CO2) and related cost
reductions

Reduction in value of backlog maintenance

Reduction in maintenance costs

Qualitative improvement to patient and staff environments
These criteria will be kept under review as the project develops.
2.7. Strategic Risks
The main strategic risk associated with this project is to do nothing. This will result in
existing infrastructure being no longer able to support our objectives for future patient
care (NHS Grampian Strategic Risk number 855) with the following implications :

The purchase of allowances from central Government to cover GHG
emissions (via the Carbon Reduction Commitment Energy Efficiency Scheme)
currently costs NHS Grampian circa £0.5m per annum. Carbon emission
targets and therefore the cost of allowances will increase incrementally in
future years in order to encourage active reduction in GHG levels. Failure to
significantly reduce emissions on our major sites, will not only mean that we
do not comply with national targets, but will also result in increased costs
associated with the purchase of carbon allowances, diverting resource from
direct patient care.
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Initial Agreement for CEFS Project

No reduction in backlog maintenance requirements.

Some of the boilerhouses included within the scope of works have reached
the end of their economic life, so replacement has become a critical issue.
The worst-case scenario would be for an existing boilerhouse to fail, leading
to immediate impact on clinical services.
The following specific project risks have been identified at this stage. These will be
reviewed and revised as the project develops. All risks are being managed by the
Project Team:
Risk Identified
Mitigation Measures
Insufficient thermal and/or
electrical loads identified to
improve Foresterhill Energy
Centre efficiency
Accurate energy data for the site is being collated,
together with design information for new buildings
(where available).
Contractors place reliance on
NHS Grampian owned data
which subsequently proves to
be inaccurate e.g. asbestos
register, current energy bills
Extent of reliance on NHS Grampian provided
information is clearly identified in the contract.
Internal review and risk assessment regarding
accuracy of information to ensure an informed
decision on any contingency necessary.
Contractors withdraw from
project during procurement
phase
If using a traditional procurement route, mitigation
actions would depend on the number of contractors
being considered. If the eventual number was
deemed to be non-competitive, the project would be
suspended and re-tendered at a later date.
Longer term development plans will in due course
secure the planned load for the Energy Centre.
The CEFS framework of contractors is being reprocured and an extended list of contractors would
be available at a later date. The project could be reprocured at that stage, taking into account reasons
for previous contractor withdrawal.
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Initial Agreement for CEFS Project
Carbon and Energy Fund
Scotland ceases to trade
If this happens during the procurement phase, the
project would be re-procured at a later date using
an alternative route.
If this were to happen after the preferred bidder had
been chosen, NHS Grampian would continue with
contractual negotiations with that contractor.
Health Facilities Scotland would provide contract
oversight. NHS Grampian would no longer pay the
CEFS management fee and could reinvest in
another independent assessor if this was deemed
necessary.
Chosen contractor ceases to
trade
If a traditional procurement route has been used,
NHS Grampian would re-tender for another
contractor to complete the works and/or take over
operation of the installed plant (depending on the
stage of the project). If the contractor ceases to
trade following installation of the plant, operation
and maintenance could revert to NHS Grampian.
If using the CEFS route, CEFS have a contractual
responsibility to find an alternative contractor.
Project does not deliver
planned energy consumption
reductions
If a traditional procurement route has been used,
NHS Grampian (in conjunction with Health Facilities
Scotland) would review the installation and
ascertain whether operation can be improved
through simple remedial actions.
If using the CEFS route, the CEFS is a guaranteed
savings scheme, so in this scenario, NHS
Grampian would receive financial compensation for
the shortfall in savings.
Planning permission refused
for new biomass schemes
Initial preparatory work has been undertaken to
ascertain local authority views on similar schemes.
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Initial Agreement for CEFS Project
2.8. Constraints and Dependencies
Constraints
The project must be delivered with minimal disruption to ongoing hospital functions.
It is NHS Grampian’s intention to retain maintenance of the three sites in-house, and
as such, third-party managed maintenance contracts are unlikely to be considered.
For the Foresterhill Campus, new heating and electrical loads should be sourced
from NHS Grampian (or neighbouring university) properties.
The project should not be dependent on outsourcing heat or electrical load to third
party organisations.
The Project must be affordable within existing hospital budgets. This means that the
costs of the project needs to be offset by guaranteed reductions in the cost the NHS
Board would otherwise incur or guaranteed increases in revenue that the NHS Board
would earn as a result of implementing the project.
The project must comply fully with all relevant legislation (e.g. local planning
guidance, environmental legislation) and Scottish Health Technical Memoranda.
Dependencies
The preferred option is dependent on the availability of financing either as a
traditional NHS capital funded project or using external finance through the Carbon
and Energy Fund Scotland or a mixture of both.
Proposals which introduce new/upgraded equipment and/or infrastructure onto NHS
Grampian sites will require to be assessed by the Board in order to establish their
accounting treatment prior to approval. Proposals which are not compatible with the
required accounting treatment will not be approved.
3. The Economic, Commercial, Financial and Management Case
3.1. Critical Success Factors
A set of Critical Success Factors (CSFs) have been identified that will determine the
success of the project. These are outlined in the table below, in order of importance.
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Initial Agreement for CEFS Project
Critical Success Factor
Description
Strategic Fit
Meets agreed investment objectives and related
business needs and service requirements
Value for Money
Maximises the Net Present Value of the initial capital
investment
Affordability
Delivers a net annual cash releasing saving (minimum
breakeven)
Achievability
Can be delivered without adversely compromising NHS
Grampian’s core activities
Supply Side Capacity and Matches the contractor’s ability to deliver the required
Capability
level of service and functionality
3.2. Main Business Options
A SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis has been carried
out on a list of four options to address the main investment objectives listed earlier.
Option
Strengths
Weaknesses
Opportunities
Threats
Option 1: ‘Do
Nothing’
No resource
requirements
Major strategic
and site issues
are not
addressed
None
Some boilerhouses are at
the end of
their
economic life,
so may fail
NHS
Grampian’s
energy
consumption
and associated
GHG
emissions do
not decrease
Backlog
maintenance
issues not
addressed
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Initial Agreement for CEFS Project
Option
Strengths
Weaknesses
Opportunities
Threats
Option 2: ‘Do
minimum’
(address
backlog
maintenance
issues only)
Minimum
resource
requirements
NHS
Grampian’s
energy
consumption
and associated
GHG
emissions do
not decrease
Minimal impact
on staff
resources
Energy
targets will not
be met
Option 3: Carry
out scope of
works on single
site only
Reduced
capital
investment
required.
Does not
address wider
issues
Logistics of
project delivery
can be
simplified
Major backlog
maintenance
issues at all
sites, so some
would be
missed.
Simpler to
procure
NHS
Grampian
funding
unlikely to be
available
Simpler
procurement
exercise.
Less
complicated
logistics
Option 4 (a):
Carry out full
scope of works
using NHS
Grampian
funding and
using traditional
OJEU
procurement
route
NHS
Grampian
retain full
control of
funding and
procurement
process
NHS
Grampian
realise 100%
of project
savings on
delivery
Minimises
energy
consumption /
GHG
emissions and
backlog
maintenance
reductions
Does not
encourage
‘innovative’
solutions.
Procurement
will be
extended.
OJEU process
restrictive
Requires
significant
upfront capital
investment
from NHS
Grampian
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Initial Agreement for CEFS Project
Option
Strengths
Weaknesses
Opportunities
Threats
Option 4(b):
Carry out full
scope of works
using Carbon
and Energy
Fund Scotland
funding and
procurement
route
Existing
OJEUprocured
contractor list
with specific
expertise in
NHS estates
NHS Grampian
must follow
CEFS process,
so lose some
control
Encourages
innovative
solutions
IFRS
accounting
rules may
hinder the
process
Options for
added value
add-ons
NHS
Grampian do
not need to
fund initial
capital
investment
Guaranteed
savings and
service
availability
3.3. Preferred Way Forward
The preferred way forward is to go with the option that represents the best fit for the
specified investment objectives and Critical Success Factors. The table below shows
how the above five options compare against the CSFs identified earlier.
Option
CSF1:
Strategic
Fit
CSF2:
Value
for
Money
CSF3:
CSF4:
Affordability Achievability
CSF5: Supply
Side Capacity
and Capability
1
×

×

N/A
2
×

×


3
×
×
×


4





3.4. Short-listed Options
The above options will be assessed in the Outline Business Case (OBC) which will
be submitted to the NHS Grampian Board for approval in August 2013.
19
Initial Agreement for CEFS Project
3.5. Indicative project timescales
The project plan, deliverables and associated timelines for approval will be
detailed in the OBC. Current indicative timescales are as follows

Initial agreement – Board approval June 2013, CIG approval July 2013

OBC – Board and CIG approval August 2013

FBC – Board and CIG approval December 2013
3.6. Outline Commercial Case
The procurement process is designed to encourage innovation on the part of
potential bidders and the final tendered solution is likely to include different
technologies and funding options. Potential funding options include either traditional
NHS capital funding or the Carbon and Energy Fund Scotland (CEFS) or potentially
a mixture of both.
CEFS Procurement Process
The CEFS provides a robust procurement process for selecting a preferred
contractor, and financial model, for the proposed scope of works.
The CEFS has a framework of contractors that was procured via an OJEU tender in
early 2011. At present, there are ten companies/ consortia on the framework. The
particulars of this tender have been reviewed by NHSScotland’s National
Procurement and deemed suitable for use by NHS Boards.
An Invitation to Mini Competition (ITMC) is prepared and issued to the CEFS
framework contractors. Interested parties are invited to an Open Day at NHS
Grampian during which they are given presentations on the proposed scope of
works, NHS Grampian’s strategic requirements, and other pertinent issues. The
contractors also have a site tour to view the facilities. Using information gathered at
the Open Day, combined with data collated during earlier phases and the completed
feasibility study, they develop potential solutions.
Up to four bidders are short listed from these discussions and issued with a full
Invitation to Tender (ITT). Tender returns are then evaluated by the NHS Grampian
project team (assisted by CEFS staff) and a preferred bidder selected. At this stage,
the business case is presented to NHS Grampian’s Board for formal approval.
20
Initial Agreement for CEFS Project
At this stage, should the Board not approve the project, the process will stop and
there will be no cost incurred to the Board. Should the Board approve the business
case, then that bidder will be given three months to complete its design and the
contract technical schedules, ready for the NHS Grampian Board to approve and
sign. Should the contract be for the same (or better) price and guaranteed savings,
then the Board is expected to sign the contract. If it does not, then NHS Grampian
will be expected to cover the bidder and CEFS costs associated with those three
months.
Once the contract is signed, the successful contractor commences with installation
works at the sites. When the sites are operational, NHS Grampian pays an agreed
monthly fee, set out in the original contract. Energy savings are monitored
throughout operation by the CEFS. Should the guaranteed savings not be achieved,
the contractor must provide remedial costs to NHS Grampian to account for the
shortfall. Any savings achieved in excess of the guarantee are retained by NHS
Grampian.
Standard OJEU Procurement Process
The alternative procurement route open to NHS Grampian is via a standard OJEU
procurement. In this scenario, NHS Grampian would specify a proposed programme
of works at designated sites and invite proposals via an open procurement process.
Bidders have a designated time period to respond to the call for proposals.
Whilst this approach opens the field to (potentially) more bidders, it does not allow
for innovative solutions (other than via variant bids) and does not allow for any
dialogue between bidders and NHS Grampian (other than clarification questions). It
also does not offer the opportunity to consider alternative finance models (unless this
is specified in the original notice).
3.7. Outline Financial Case
An independent feasibility study indicated that an overall investment of c £8million
could enable a scope of works across the three sites that will deliver a guaranteed
reduction in carbon emissions and energy consumption at a level that will meet the
objectives of the project and ensure a payback of the initial investment within a 15
year timescale.
The procurement process is designed to encourage innovation on the part of
potential bidders and the final tendered solution is likely to include different
technologies and funding options than those identified in the feasibility study. The
final cost of the investment may therefore vary to the cost identified in the initial
feasibility study.
21
Initial Agreement for CEFS Project
NHS Grampian has c £1.5million allocated via the Scottish Government’s Carbon
Reduction Programme for a biomass plant at the Royal Cornhill Hospital. This
funding was intended for spend in the financial years 2013/14 and 2014/15 (a 50:50
split across both years) and is conditional on a 1.5MW biomass boiler being installed
on the site. Early indications show that a biomass plant of this size would not be the
optimum solution for the site and alternative solutions are under consideration. Once
the optimum approach for Royal Cornhill Hospital has been agreed, NHS Grampian
(supported by Health Facilities Scotland) will approach Scottish Government Health
& Social Care Directorate to request that the funding is targeted at the alternative
solution and the timing of the funding realigned to meet the project. It should be
noted that permission to apply the funding to an alternative project, or to an
alternative financial year, may not be granted
Regardless, of whether Carbon Reduction Programme funding is available or not
there will be a significant shortfall in availability of funding for the whole scheme.
Therefore alternative routes to funding must be considered.
The CEFS offers two potential funding routes: funding via the CEFS itself or funding
via the successful contractor. Both routes can incorporate a contribution from the
Carbon Reduction Programme (or other Board funding) if available. In adopting
either funding route, NHS Grampian would pay a monthly service charge on
completion of the works to cover the cost of capital and ongoing operational costs.
This would be funded by guaranteed savings on energy costs, i.e. if the installed
project does not achieve the levels of savings guaranteed, the contractor must
reimburse NHS Grampian for the shortfall. Conversely, any additional savings
achieved will go straight to NHS Grampian.
Once the technical options from the prospective contractors have been received,
there will be more clarity on the amount of funding available and the financial savings
that can be realised.
22
Initial Agreement for CEFS Project
3.8. Outline Project Management Arrangements
A project management team has been established including members from NHS
Grampian’s Estates and Finance Department, as well as a Partnership
representative and technical support from Health Facilities Scotland. Membership is
detailed in the table below:
Project Sponsor
Project Director
Finance representative
Estates Project Manager
Procurement Manager
Energy Manager
Partnership Representative
HFS Technical Support
Administrator
Alan Gray, Director of Finance
Gary Mortimer, General Manager Facilities and
Estates
Garry Kidd, Assistant Director of Finance
Graham Mutch, Head of Maintenance
Steve Glass, Head of Procurement
Alan Lamont, Energy Manager
Mike Adams, NHS Grampian
Kathryn Dapré, HFS Energy & Climate Change
Manager
Suzanne Rogerson, PA to General Manager
Facilities and Estates
3.9. Recommended Way Forward
The Scottish Government Health Directorates Capital Investment Group is asked to
approve the following recommendation :NHS Grampian proceed to develop an Outline Business Case to further consider
and refine the above options, including the options for financing and procurement via
the CEFS, in line with the Scottish Capital Investment Manual guidelines.
23