PPP Contracting
DOMINIC MONTAGU
Presentation Outline
 PPP Models – Review
 Critical PPP Activities

Performance Indicators
 Examples
Alzira, Spain
 Lesotho National Referral Hospital
 Lesotho Contracting Experience

 PPP Timeline
 PPP Participants
Rationale for PPPs
3
Tradit.
D-B
PPP
PPP
PPP
PPP
design of infrastructure
maintenance of infrastructure
provision of equipment
maintenance of equipment
provision intermediate services
provision services to end-users
In each case, services provided according to public sector rules
core
construction of infrastructure
Aligning profit and public interest
4
 Defining contractual incentives

Performance indicators

Benchmarks

Mitigating perverse incentives

Fostering innovation and cost-efficiency
 Managing change

Stability of performance indicators

Facing change: technological, commercial, demographic

Managing legal and political change

Preventing strategic moves by stakeholders
Selecting performance indicators
5
PERFORMANCE INDICATORS
Designing the PPP contract
6
Infrastructure performance
criteria
Basic infrastructure requirements
focus on
infrastructure
performance
PPP contract with no service to end-users
Final service performance criteria
PPP contract with service to end-users
focus on
service
performance
Sample Key Performance Indicators?
 What KPI are critical in your experience?
Examples
ALZIRA, VALENCIA, SPAIN
NAT. REFERRAL HOSPITAL, LESOTHO
Alzira, Valencia
 National Health System

free universal healthcare coverage for 44 million citizens
 Valencia - autonomous region



5 million citizens
23 health departments
At least 1 referral hospital in each department
Source: Spanish Alzira Model: NHS contracting out a geographical area
Alzira, Valencia
The way it was…
 250,000 inhabitants in Ribera
 Cycle of budget deficits
 No hospital in Ribera
 Political promise to build new hospital
 40 kms to get to nearest hospital
Source: La Ribera, Departmento 11 de Salud
 Budget constraints prohibit ‘tradition’ PFI
 1997: bid for PPP with integrated delivery (“PPIP”)
Alzira – PPP Model
 Design, Build, Operate, Deliver

15 year contract (2003-2018), extendable to 20 years

Contract with Temporary Union of Business (UTE) Ribera
 Capitation fee

+ % yearly increase in health budget

Catchment area - 250,000 inhabitants
 Private management

Hospital de La Ribera and primary care in Department 11
 Equity of access

For all patients
Alzira - Hospital de la Ribera
Facilities Provided
• Built Area – 41,000 meters2
• Number of Beds – 300
• Outpatient Facilities – 65
• Surgery Rooms – 13
• Emergency Rooms – 22
• ICU Beds – 22
• Pediatric Emergency Boxes – 7
• University Hospital - 1
• Integrated Healthcare Centers – 4
• Primary Care Health Centers – 46
Contract Details
• Capitative Rate - € 572 per inhabitant in 2008
• Concession Period – 15 years (+20)
• Project Cost - € 68 million
• Additional Primary Care Investment - € 61
million
• Employees – 1,850
• Inhabitants Served – 250,000
Source: Spanish Alzira Model: NHS contracting out a geographical area
Alzira – Payment Structure
Design, Build, Operate
• € 61 million initial investment of from UTE Ribera
• € 68 million to be invested over the concession period
• 15 year granting period
• Extendable to 20 years
Deliver (Clinical Services)
• € 572 per inhabitant capitative payment in 2008
• 250,000 inhabitants covered
• Money follows patient
•Hospital pays 100% of costs for patients seeking health care elsewhere
•Hospital paid 80% for other area patients
Design, Build, Operate, Deliver
Alzira - Management
Property returned to Government
after concession period
UTE Ribera responsible for:
•Clinical Services
•Non-clinical Services
•Facilities Management
•Staff
Capitative Rate is adjusted based on
increases in annual health budget
Government and external
Auditors audit the hospital
Govt. Commissioner’s Role:
•Control
•Inspect
•Regulate
•Invoke punitive powers
Alzira – Money follows the patient
Capitative
Rate €535
per 250,000
inhabitants =
€134 million
80% of DRG
for other
area citizens
treated = €20
million
100% of
DRG for
area citizens
treated
elsewhere =
€14 million
€140 million
paid by
Government
to UTE Ribera
in 2007
Adapted from: HEALTHY PARTNERSHIPS? When & How to make public-private collaborations in Health systems Management work, Agencia Valenciana De Salut
Critical Success Factors
 Long-Established Gvt. Contractor
 Money follows the Patient
 Effective Control and Management

Government and external auditors

On-site Govt. Commissioner
 Incentive System

Job security – 85% of staff have fixed contract

Higher compensation

Compensation based on productivity and performance
Critical Success Factors
 Integrating Customer Opinions

Govt. Commissioner

Conducts patient surveys

Determines problem areas

Monitors patient transfers
 Effective Mgmt Information System

Computerized Medical History

Medical history can be accessed from anywhere in the hospital

Integrated with Primary Care Centers
Valencia Government
Per Capita
Payment
Dragados , Lubasa
(Construction
Contractor)
Facility
Ownership
Direct
Agreement
Construction
Payment
1 University
Hospital
UTE
(Facility Manager)
UTE
(Clinical Service
Provider)
Debt
Mgmt Services
Payment
4 Integrated
Health Centers
Equity
Clinical Services
Payment
46 Primary
Health Centers
Clinical Services
Patients
(Service Recipients)
UTE
(Adelas, Bancaja, CAM,
Dragados, Lubasa)
(Investor / Holding Company)
Lesotho National Referral Hospital
 Kingdom of Lesotho:

10 district hospitals

3 referral hospitals

1 military hospital
The way it was…
 Queen Elizabeth II hospital in
Maseru over 100 years old
 Dilapidated health structure
 Poor quality, poor access
 Difficult attracting and retaining
good medical staff
Lesotho – PPP Model
 Design, Build, Operate, Deliver

18 year contract

Tsepong Pty Limited - Netcare led consortium

Capital investment - 34% government finance, 66% private finance
 Private Management

Hospital, Gateway Clinic, 3 Filter Clinics (Matobe, Qoaling, Likotsi)
 Cost neutrality to patient
 Equity of access
Lesotho – National Referral Hospital
Facilities Provided
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Built Area – 29,000 meters2
Number of Beds – 390
Private Beds – 35
Labor Ward
ICU Beds – 10
Neonatal and Pediatric ICU
Surgery Rooms
X-Ray Department
Accident & Emergency Unit
Hospital Laboratory
Dialysis Unit
National Hospital - 1
Gateway Clinic – 1
Filter Clinics – 3
Contract Details
•
•
•
•
Outpatients Guaranteed – 310,000 per annum
Inpatients Guaranteed – 20,000 per annum
Project Cost - $ 120 million
Contract Period – 18 years
Source: Private Healthcare in Developing Countries, The Queen II
Elizabeth hospital in Maseru, Lesotho
Lesotho – Payment Structure
Design, Build, Operate – Phase I
• $6.2 million World Bank GPOBA grant
• For clinical services at filter clinics before construction
• 80% capital costs covered by Government
• 20% capital costs covered by Private Sector
Deliver (Clinical Services) – Phase II
• Patient fees unchanged except for private wing
• Ongoing monthly unitary payment from Dec. 2010
• Guaranteed for 20,000 inpatients
• Guaranteed for 310,000 outpatients
Design, Build, Operate, Deliver
Lesotho - Management
Property returned to Government
after contract period
Tsepong responsible for:
•Clinical Services
•Non-clinical Services
•Facilities Management
•Staff
Unitary payment:
•Clinical Services
•Non-Clinical Services
•Facility Management
• Performance Monitoring
System
• Government and Independent
Monitoring
• Independent Certifier
• Joint Services Committee
• Accreditation Monitoring
Lesotho – Local Economic Empowerment
Capital Expenditure to Local
enterprise: 35%
Tsepong will contribute to
community (for decided value)
Operating Expenditure to Local
Enterprise
•
•
•
Year 1-5: 50%
Year 6-10: 70%
Year 11-18: 100%
Local Management Control
•
•
Year 2: 50% Local staff
Year 5: 80% Local staff
Local Women Management Control
•
•
Year 2: 25% of Management
Year 5: 40%
Local Staff employment
•
80% of all staff local
Skills Development
•
1% minimum of payroll on training
Local
Subcontracting
Local Staff
Mgmt. And
Development
Local
Community
Development
Local
Equity
•
Train medical students
•
Free cleft palate and lip treatment
•
Ophthalmology services as a part of
“Sight for you” program
•
Treat patients with congenital heart
disease / conditions
•
Set up, manage, and operate a Women
and Rape Crisis Management center
Local Equity
•
•
•
Year 1: 40%
Year 8: 48%
Year 13: 55%
Lesotho – Critical Factors to Contract
 Government leadership
 Transparent tender process
 Diversified funding sources

from Govt., GPOBA, IFC
 Intensive and sustained project management

Feasibility studies, baseline reviews
 Expert transaction advisors

Local capacity building by IFC and other external partners
 Local economic empowerment
Lesotho
Government
(Public Entity)
Per Capita
Payment
RPP Lesotho
(Construction
Contractor)
Facility
Ownership
Direct
Agreement
Loan
Construction
Payment
Capital / Interest
IFC, DBA
(Lenders / Bank)
1 National
Hospital
Tsepong (Pty) Ltd.
(Facility Manager)
Mgmt Services
Payment
Netcare, Excel Health,
Afri’nnai Health
(Clinical Service Provider)
1 Gateway
Clinic
Debt
Clinical Services
3 Filter Clinics
Equity
Payment
Clinical Services
Patients
(Service Recipients)
Tsepong (Pty) Ltd.
(Netcare, Excel Health,
Afri’nnai, D10,
Lesotho Chamber of
Commerce, WIC)
(Investor / Holding Company)
Lesotho – the contract experience
 The Procurement Process

Strategic Options

Transaction Implementation

Post Transaction Support
 Lessons learned
Procurement Process Overview
Strategic Options
Transaction
Implementation
Post Transaction
Support
Strategic Options Phase
 Strategic fit within the health sector and budget.
 Technical due diligence:

Facilities: design, construction, equipment, commissioning options

Clinical services: patient volumes and profiles, systems
 Legal due diligence

Procurement legislation, health functions, project site, regulatory due diligence.
 Financial due diligence

Budget analysis, current spend, referral spend

Financial model
 Feasibility Study developed for the project based on thorough due
diligence.
 Recommendations presented to MoHSW, MoFDP and Cabinet included a
market testing process due to innovative nature of project.
Source: Catherine O’Farrell, IFC
Procurement
 Expressions of Interest – October 2006

Registration of bidders and flow of information.
 Pre-bid and SME Matching Conference in Maseru – November
2006
 Draft RFP issued - December 2006

Bidders encouraged to comment on structure and financing of PPP.
 Final RFP approved by Cabinet in May 2007 and issued to
bidders in June 2007, followed by bidders’ conference in July.
 Closing date for bids 8 October 2008.
Source: Catherine O’Farrell, IFC
Final RFP Bid Structure
Technical
Proposal
Bidder
Qualifications
Pass/Fail
Service
Coverage
Core
Technical
Proposal
Technical
Extras
Proposal
Patient
Volumes
Service
Delivery
Plan
Financial
Proposal
Lowest
Unitary
Payment Offer
Source: Catherine O’Farrell, IFC
RFP Approach
 Output specifications
 Service standards
 Global budget
 Bidders to develop and present plans which demonstrate their
ability to deliver required outputs at required service
standards.
Source: Catherine O’Farrell, IFC
Bidder Qualifications
• Bidders demonstrate Technical
Capacity
Bidder
Qualifications
• whole hospital management
capability
• D&C expertise
• ability to finance
• legal and commercial standing
• Pass/ fail
Source: Catherine O’Farrell, IFC
Core Technical Proposal Criteria
Service
Coverage
• List of required services for hospital and
filter clinics.
• Maximum points for full service
coverage.
Patient Volumes
• Minimum of 16,500 inpatients/ 258,000
outpatients.
• Maximum points for highest offer.
Source: Catherine O’Farrell, IFC
Core Technical Proposal Criteria
Service
Delivery Plan
•Project Management Approach
•Design & Construction Plan
•Filter Clinics Plan
•Clinical Service Delivery Proposal
•Performance Management Plan
•Operations & Maintenance Plan
•Equipment Plan
•Human Resources Transfer & Training Plan
•Legal
•Financial Solution
•Local Economic Empowerment
Source: Catherine O’Farrell, IFC
Technical Extras Proposal Criteria
Technical
Extras
• Private Medical Services
• Health Care Support Services
• to other healthcare facilities in Lesotho
• Chemotherapy
• Likotsi Filter Clinic
• Discretionary Services
• coffee shop, gift, retail pharmacy, etc
Source: Catherine O’Farrell, IFC
Financial Proposal
• Bidder’s Financial Proposal
included:
Financial
Proposal
• Unitary Payment Offer
• Financial Model
• Affordability limit published in
RFP
Source: Catherine O’Farrell, IFC
Evaluation Committees
 The evaluation of Bids conducted by Project Evaluation Committee,
supported and assisted by the Technical Evaluation Committee.
 PEC:


Co-chairs: PS for MoHSW and MoFDP CEO for Private Sector Development.
Members: DG of MoHSW, MoFDP Director Civil Litigation and MoFDP Budget Controller.
 TEC:


Key Government stakeholders represented.
20 team members.
TEC Working Group
Design & Construction
Team Members
MoHSW, Queen II Clinician; World Bank Technical Specialist;
IFC Technical Specialist.
Operations & Maintenance
Financial
Clinical Services
Legal
Local Economic Empowerment
Queen II Nursing Staff; MoHSW, IFC Technical Specialists.
MoFDP, IFC Technical Specialist.
MoHSW, Queen II Clinician; IFC Technical Specialists.
MoFDP; IFC Technical Specialist.
MoHSW; MoFDP; IFC Technical Specialist.
Source: Catherine O’Farrell, IFC
Evaluation Process
 Two Envelope System – Technical and Financial. Bids received 8 October 2007.
 Technical Proposal:

Bidders Qualifications – if passed, Technical Proposal (Core Technical Proposal and Technical
Extras Proposal) evaluated by TEC and PEC.

TEC reviewed and evaluated all technical proposals 15-19 October 2007 at Mohale.
 Financial Proposal – unopened and locked away by MoFDP.
 TEC recommends BAFO process
 BAFO process launched 30 October 2007, original Financial Proposals returned to
Bidders.
 BAFO Bids received 26 November 2007. Two envelope system.
 Evaluated by TEC 3-5 December 2007 at Mohale.
 Financial Proposals opened publically 10 December 2007. Financial model
validation.
 Appointment of Preferred and Reserve Bidders – 14 December 2007.
Source: Catherine O’Farrell, IFC
Negotiation Process
 February to October 2008.
 PPP Agreement signed by Government and Private Operator on 27
October 2008.
 Negotiation Teams mirrored Bid Evaluation Teams:
 Design & Construction: MoHSW, Queen II Clinician; IFC Technical Specialist.
 Clinical Services – MoHSW, Queen II Clinician; IFC Technical Specialists.
 Operations & Maintenance: Queen II Nursing Staff; MoHSW, IFC Technical
Specialist.
 Equipment: Queen II Nursing Staff; MoHSW, IFC Technical Specialist.
 Integrated Hospital Commissioning: MoHSW, Queen II Clinician and Nursing
Staff; IFC Technical Specialists.
 Legal – MoFDP; IFC Technical Specialist.
 Financial – MoFDP, IFC Technical Specialist.
 Local Economic Empowerment – MoHSW; MoFDP; IFC Technical Specialist.
 Human Resources: MoHSW, MoFDP, IFC Technical Specialist.
 Financial Close 20 March 2009.
Source: Catherine O’Farrell, IFC
Lesson Learned
 It is not essential to have PPP specific legislation. Public Procurement
Regulations used for Lesotho PPP.
 Committed Government is essential for success.
 Committed Private Operators are essential for success.
 Confidence in transaction advisors essential to success.
 Relevant Government stakeholders well represented during Bid Evaluation
and Negotiation process. Essential to ensure broad institutional memory
for the Project.
 MoHSW and MoFDP staff involved in Bid Evaluation and Negotiation, now
also responsible for contract management.
 Government was willing to listen to needs of Private Operators and
Lenders in order to maximise success of Project.
Lesson Learned
 It is never too early to start the environmental due diligence on a
greenfield project.
 Value added elements such as GPOBA and SME Linkages add much needed
supplementary funding and support for key economic goals.
 Baseline Study conducted for the project provided a snapshot of the
current infrastructure & services (a contrast for the new hospital) as well
as valuable information for setting the performance indicators to help
MoHSW to address important sector goals (MDGs)
Conclusion
Lessons from contract management
44
 Need for a clear strategy regarding hiring, training, motivating and
retaining contract managers and their staff

high turnover

low capacity

conflicts of interest
 Need for contract managers’ networks, in order to foster prevention
activities and game-theoretical reasoning
 Important role of external auditing
 The national health system must be effectively managed as a system
Effectiveness & efficiency
45
 PPP services may (and should) be used as benchmarks
 PPP procurement requires shifting public administration resources
from input and process definition to output prescription and
outcome measurement

The focus will be quality and effectiveness

The end-user benefits

The taxpayer should also benefit