Public-private partnership for N.S. hospital project 'appropriate,' says AG

Nova Scotia's auditor general says the government's decision to use a public-private partnership for a $2-billion hospital redevelopment was "reasonable and appropriate."

"What is critical is that good contracts get signed," Michael Pickup said in an interview, "that you will again update the value-for-money analysis that is done.

"You factor in anything that may have changed from COVID and you sign good contracts and you manage and oversee those contracts, so that in fact what you expect to happen based on the work done is actually achieved."

It is Pickup's final audit in the position before taking a job outside the province.

The audit by Pickup, released Tuesday, looked at the expansion of the Halifax Infirmary and the construction of a new outpatient clinic in Bayers Lake, which are two major components of the QEII redevelopment project.

Premier Stephen McNeil announced the decision to use a P3 model for those two components of the project in the fall of 2018. The plan would see a private company design, build and maintain the health-care facilities for 30 years before handing ownership back to the province.

The province has said the decision is justified by a study on the use of P3 that it contracted to audit firm Deloitte, although it has yet to publicly release the study's findings, citing ongoing contract negotiations with potential private partners.

Transportation and Infrastructure Renewal Minister Lloyd Hines said he is pleased with Pickup's assessment.

He thinks it is validation of the decision by the governing Liberals to go the P3 route.

"He obviously has endorsed the business case, so I think Nova Scotians should be able to take some confidence in the fact that that has occurred and the report that the auditor general has put forward," said Hines.

Strong oversight needed to mitigate potential P3 risks

Pickup noted in his report that P3 projects can allow governments to offload some of the risk of construction and long-term maintenance, but that benefit can come at a cost.

In a 2010 analysis of P3 schools that were built in Nova Scotia in the 1990s, former auditor general Jacques Lapointe reported that Nova Scotia could have saved $52 million if the schools had been built under a traditional procurement model. Those 39 schools were bought back early from the developer.

Pickup said past P3 projects, including the schools, had "significant shortcomings" in oversight. He said strong oversight will be needed to keep the hospital expansion on track, from detailed planning of the buildings to their construction.

"Beyond construction," he said, "the contract with the private sector partner to maintain the buildings will also require effective contract management to ensure the potential value of using a P3 model is realized."

Pickup's report included three recommendations, including creating a series of detailed plans to see the project through to completion.

For the most part, Pickup found that a master plan for the redevelopment takes into account the future health-care needs of the province based on projections for the next two decades.

But he also noted some discrepancies between the findings of a functionality review of hospital departments, and the master plan. For two unnamed departments, the master plan gives less square footage than the functionality review said they would need.

Pickup recommended the province take steps to ensure the master plan accurately reflects the functional needs of the hospital, and that hospital departments should be given the opportunity to review any significant changes.

Effects of COVID-19 to be determined

The COVID-19 pandemic has added new risks to the hospital project that need to be accounted for, Pickup said in his report.

He said risks like supply shortages and extended timelines would exist with a traditional procurement model, just as they do for P3, but financing costs could affect the private sector more deeply and result in higher bids for the projects.

He recommended a "thorough assessment" of COVID-19's impacts on the project, generally, and on the P3 model.

The report says the province accepted all the auditor general's recommendations, and had already started or completed some aspects of them.

Nova Scotia's NDP has been the government's most vocal opponent to the plan.

NDP MLA Susan LeBlanc, who sits on the Public Accounts Committee, said it is a shame the committee won't have the chance to question Pickup on his analysis and conclusions.

"I wish we could ask questions about the report inside the legislature," Leblanc said.

Premier Stephen McNeil has said legislature committees should not sit while the province is dealing with the COVID-19 pandemic.

He has said they will sit again in the fall, but that will be long after Pickup has become British Columbia's auditor general.

LeBlanc said the fact Pickup has said the decision was based on reasonable and appropriate grounds does not mean her party was wrong to oppose the deal.

"There's plenty of evidence from different projects throughout the province, throughout the country, even internationally that suggests that P3s are simply not a good deal for the people, for the public," she said. "So, no, I don't think we're wrong."

Private partners yet to be chosen

Last year, the province approved two companies to bid on the Halifax Infirmary expansion, EllisDon and Plenary PCL; and three companies to bid on the construction of the Bayers Lake outpatient centre — Bird Integrated Health Partners, Community Health Partners and EllisDon.

Pickup said that when bids are in, they should be used to "refresh" the analysis of P3 and ensure it's still the best approach.

According to Pickup's report, the bids for the Bayers Lake facility are already in and the province is supposed to announce the winner this August. Bids for the Halifax Infirmary expansion are due next July, with the winner set to be announced next August.

Pickup noted that until final contracts are reached, the actual cost of the whole redevelopment project, although estimated at $2 billion, remains unknown.

Work underway to assess fraud risk

Pickup's report also followed up on a set of recommendations he made in December for better governance of the hospital project. Among them was a call for better fraud protection.

Typically the auditor general waits two years before following up on reports, but Pickup said he took the unusual step of checking progress after just four months on recommendations from his December report that he said could have been addressed in that time.

Pickup said management took some steps to implement a fraud-risk management program, but more could still be done to address his concerns. He said all employees on the hospital project have now taken the province's fraud-prevention training, and the province hired a consultant to do a fraud-risk assessment.

Once the consultant's assessment is completed, Pickup said the hospital project managers should reconsider whether the general provincial fraud policy is sufficient, or if the project needs its own specific fraud policy.

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