Primary Care Centres in Ireland

Analysis of Emerging Business Opportunities

Mateusz Mrowka

BSc. Construction Economics and Management

Dublin Institute of Technology

2014

I

ABSTRACT

Introduction of a new strategy to health care in 2001 has been followed by the

announcement of plans for development of modern, sustainable, dedicated, medical

infrastructure which would accommodate reformed health care teams and allow for

transfer services from centralised hospitals into locally developed Primary Care Centres.

The then estimated value of construction works on circa 600 facilities was equal to one

billion euro and the whole project has been announced as a new business model

opportunity for private investment.

Thirteen years since an initial announcement, development of PCC is being reported as

unsatisfactory. Development aims havent been achieved and whole business model is

being criticised as flawed.

The author undertakes the research of the subject, collecting data on underlying policy

and legislature, researches technical output specifications and public-private business

arrangements concerned with development and operation of PCCs. The author believes

that the subject hasnt been comprehensively researched to date and none of the theories

has been formulated and published. The author of these dissertation chose an

explanatory approach to the subject and employs qualitative methods of research. The

compilation of results from literature review, case study and interviews allow the

forming of a personal view and introducing a theory which supports the opinion that

investment in Primary Care Facilities has a potential of profitable business but

unfortunately has been prevented from fulfilment, by flaws in the current

implementation model.

II

DECLARATION

This dissertation is submitted in part fulfilment of the BSc. Construction Economics and

Management (Quantity Surveying) Degree from Dublin Institute of Technology.

It is the result of my own independent work and has never been submitted in part or in

whole for any other coursework or dissertation.

All secondary sources of information have been acknowledged and a reference of all

literature used has been provided.

Signed: ______________________________________________________________

Date: ________________________________________________________________

III

ACKNOWLEDGEMENTS

I would like to thank my thesis supervisor Mr Kevin OReilly and Dr Alan Hore, for

their time, expertise and constant help during my work on this dissertation.

I dedicate my work to my parents who had to wait for so long to witness my academic

achievement.

I would like to thank Ania who gave so generously of her time, taking care of our little

son Jonatan especially during the course of this research. Without her support, this

thesis would not have been possible.

IV

List of Tables

Table 2.1 Indicative Financial Requirements15

Table 2.2 Accommodation Project Capital Value.16

Table 2.3 Conventional Procurement.......................... 19

Table 2.5 Operating Lease................................... 21

Table 2.6 PPP.................................... 22

Table 5.1 Area Schedule...41

Table 5.2 Life Cycle Costing....42

Table 5.3 Maintenance cost..43

Table 5.4 NPV analysis....45

Table 5.5 IRR analysis..47

Table 7.1 Variants comparison....56

V

LIST OF FIGURES

Figure 1.1 Sample PCT.. .............................................. .7

Figure 2.1 PPP PCC bundle.. ...13

Figure 2.2 Partners in delivery of PPP..................................................................... 16

Figure 2.3 Construction Stage: Payments....................................................... 17

Figure 2.4 Operational Stage: Payments 18

Figure 2.5 Decision Tree on DBOF PPP Contracts..... 22

Figure 2.6 PPP.......................................... 23

Figure 5.1 Doughiska PCC info request via e-mail ............................ 36

Figure 5.2 Doughiska PCC drawings via e-mail .............................................37

Figure 5.3 Doughiska, Co. Galway, Primary Care Centre- exterior........................... 38

Figure 5.4 Doughiska, Co. Galway, Primary Care Centre- interior.................... 39

Figure 5.5 Take-off panel screen shot. ........................... 39

Figure 5.6 Elemental Cost Plan40

Figures 5.7 IRR graph............. 48

VI

List of Abbreviations

AFL - Agreement For Lease

CPA - Certified Public Accountants

CPI - Consumer Price Index

DBFM - Design Build Finance an Manage

DOE - Department of Education

DPER - Department of Public Expenditure and Reform

EC - European Committee

FDI - Foreign Direct Investment

GCCC - Government Contract Committee for Construction

GP - General Practitioner

HSE - Health Service Executive

IAPC - Irish Association of Primary Care

IAS - International Accounting Standards

IMO - Irish Medical Organisation

IRR - Internal Rate of Return

IT - Information Technology

NDFA - National Development Finance Agency

NPV - Net Present Value

OJEU - Official Journal of European Union

OJHC - Oireachtas Joint Health Committee

VII

PCC - Primary Care Centre

PCCC - Primary Care Centre Committee

PCF - Primary Care Facility

PCT - Primary Care Team

PIM - Preliminary Information Memorandum

PPP - Public Private Partnership

PQQ - Pre-Qualification Questionnaire

PSI - Pharmaceutical Society of Ireland

QS - Quantity Surveyor

TD - Teachta Dla

VIII

TABLE OF CONTENTS

ABSTRACT...................................................................................................................... I

DECLARATIONS........................................................................................................... II

ACKNOWLEDGEMENTS............................................................................................ III

LIST OF FIGURES ........................................................................................................IV

LIST OF TABLES ..........................................................................................................V

LIST OF ABBREVIATIONS ........................................................................................VI

TABLE OF CONTENT...........................................................................................VIII

1. Chapter One.......................................................................................... 1

1.1 Introduction ...................................................................................................... 1

1.2 Dissertation aims .............................................................................................. 2

1.3 Research goals............................................................................ ..2

1.4 Outline methodology......................................................................... ...3

1.5 Outline chapters ............................................................................................... 4

2. Chapter Two Literature Review Part One................................................................. 6

2.1 Introduction....................................................................................................... 6

2.2 Primary Care A New Direction ................................................................... ..6

2.2.1 Common facilities .................................................................................. 8

2.2.2 Retail Pharmacies & Primary Care Centres.......................................... ..9

2.3 Current Delivery Models HSE Direct Build...10

2.4 Operational (or Operation) Lease................................................................... 10

2.5 PPP Design, Build, Finance and Maintain.....12

IX

2.6 Accounting in HSE Projects......................................................................... ..19

3. Chapter Three Part Two- Challenges and Opportunities......................................... 23

3.1 Introduction.................................................................................................... 23

3.2 Current Government Stance.....23

3.3 GPs Opinions.... ..24

3.4 Developers Opinions ..................................................................................... 25

3.5 Pharmacists Opinions............................................................... .26

3.6 Incentives ....................................................................................................... 28

3.7 Summary ................................................................................................. ...29

4. Chapter Four - Methodology.......................................................................... 30

4.1 Introduction.............................................................................................. ...30

4.2 Strategy ................................................................................. .30

4.3 Methodology .......................................................................................... 31

4.3.1 Surveys vs. Interviews..................................................................................31

4.3.2 Sampling........................................................................ ..33

4.4 Case Study ..................................................................................................... 34

4.5 Conclusion ......................................................................................... ...34

5. Chapter Five Case Study......35

5.1 Introduction......................................................................................... ...35

5.2 Choice of A Model....................................................................................... ...35

5.3 Facility Description .........................................................................................37

5.4 Take-off & Cost Plan ..................................................................................... 39

5.5 Rental Division ................................................................................. .41

5.6 Life Cycle Cost.................................................................................. .41

5.7 Operational Maintenance Cost........................................................................ 43

X

5.8 NPV & IRR Analysis.................................................................................... 43

5.8.1 Net Present Value................................................................. 44

5.8.2 Internal Rate of Return....................................................... .46

6. Chapter Six - Interviews .................................................................. 49

6.1 Introduction................................................................................. 49

6.2 Summary of Interviews....................................................................................49

6.3 Conclusion ...................................................................................................... 53

7. Chapter Seven - Conclusion ................................................................. .......54

7.1 Introduction Dissertation Aim........................................................ .55

7.2 Comments on Research Objectives................................................................. 55

7.3 Limitations & Obstacles to Research............................................ .56

7.4 Further Research Recommendation............................................ ...57

BIBLIOGRAPHY ......................................................................................................... 58

APPENDIX A: List of PCC Development Progress .................................... .61

APPENDIX B: Take-off Mark-up Drawings .................................................................67

APPENDIX C: Cost Plan............................................................................ ...82

APPENDIX D: Financial Analysis ..............................................................................106

APPENDIX E: Thesis Proposal ...................................................................................118

1

Chapter One

1.1 INTRODUCTION

What a difference a year makes? Whilst 2013 represented another tough year in the

construction industry it also marked the first year since the start of the downturn where

certain sectors experienced growth and a real sense of optimism took hold, (Mitchel,

2014).

The Head of Aecom in Ireland, Paul Mitchel, introduces his company annual review of

the construction market, stating that the influx of foreign direct investment continued

unabated and exceeded the investment made in 2012. We saw new corporate brands

enter the market and reduce the percentage of surplus office space in our cities. 2013

saw the first of the new office buildings commence construction towards the end of the

year, signifying the viability tipping point in the market, (Mitchel, 2014). There is a

significant upsurge in further investment in high technology infrastructure data

centres, Intels industrial developments, pharmacology. Increasing Foreign Direct

Investment (FDI) is a strong indication of approval for current reforms and expanding

presence of the worlds largest companies and investors works as the best invitation for

other players to join the Irish stage where it is seen as safe, despite recent years turmoil,

and most importantly, seen as a profitable market again.

This is in stark contrast to stagnant Public sector developments harnessed by limitations

in public expenditure and worryingly unbalanced residential market, which in contrast

with the lack of investment over recent years, enters a so called two-tier market. The

situation characterised by oversupply of dwellings in areas with virtually no demand

and densely populated, urbanized areas where demand exceeds supply yielding

constantly growing prices.

The Government is bound to deliver public infrastructure in transportation, education

and healthcare, revives the concept of involvement of private equity in the delivery of

public infrastructure. The Infrastructure Stimulus Plan, announced in 2012 by the

Minister for Public Expenditure and Reform, Mr Brendan Howlin TD, amounted to

2.25 billion in multi-annual infrastructure investment will be used to facilitate the

2

delivery of Phase I of a Public Private Partnership (PPP) programme and to support

further labour intensive capital projects (DPER, 2012).

Under this plan, there is a designation for 115 Million for development of a bundle of

16 Primary Care Centres under PPP scheme, highlighting controversial issues present

with developments on Health Service Executives reform. The ambitious strategy

described in Primary Care A New Direction(HSE, 2008), where one of most

important tasks of the undergoing reform is supply of new infrastructure is valued in

excess of 1 billion. The rollout of facilities seemingly lags behind the schedule and

also political controversies surround development of the projects.

Unclear information policy,

conflicts among stakeholders,

call out for involvement of private investors and,

Constantly repeated necessity for off balance sheet accounting.

What is a factual situation in PCC rollout? Is there a space for private investors and if

so, can the Health Care be an alternative option for investment opposed to the proven

office or technology sectors? In this dissertation, I will research the issues of PCC

development by utilizing core Quantity Surveying skills and professional expertise in

relevant fields of cost planning, project appraisal and from that formulate the answers.

1.2 DISSERTATION AIMS

The Author aims to research private investment opportunities arising due to

development of new infrastructure for Primary Care Teams, currently being

implemented along the reform of Health Care structure and services in Ireland.

1.3 RESEARCH GOALS

The Author has selected a number of primary objectives for the research:

The review of short history of the PCC infrastructure development, review of

relevant legislation, outline output requirements;

The review of current delivery models, factual progress of implementation and

current status;

3

The level of participation of private sector in infrastructure delivery, business

models, opportunities and challenges.

1.4 OUTLINE METHODOLOGY

The Author wishes to establish the outline methodology with the aim to execute the

research in a structured and comprehensive manner;

Stage One: Literature Review.

The Literature Review consisted of research and analysis of publicly available sources

of information on recent history, legislature, technical specifications, economic and

financial basis, relevant statistics, and reports on development of PCC infrastructure in

Ireland.

The primary source contained topical, government publications. The secondary source,

which proved to be an invaluable source for the most current data and opinions:

healthcare, construction journals, newspapers, magazines, online publications, databases

of quantity surveying practice involved in work on PCC projects.

Stage Two: Case Study.

The Author concludes development of a theoretical model for Construction Cost of

development of standard sized building, designed to accommodate three Primary Care

Teams (PCT). The model has been based on an existing building, currently in service of

HSE Board under Operational Lease in Doughiska, Co Galway. The facility was

designed by Cullen Payne Architects for a private operator.

The Model build up consists of:

A Quantity Take-Off assisted by dedicated quantity surveying software CostX

v.3.53 which is a standard software being used in Dublin Institute of Technology

(DIT) and which operating knowledge is a part of current curriculum at DT111.

The Author is a holder of current Student Licence and under its terms is entitled

to use aforementioned software for academic purposes.

Compilation of cost plan by estimation of construction costs of materials in

quantities measured in on screen take-off and relevant works value accordingly

to current, market tendering costs. Costs data sourced from a choice of recently

4

tendered winning bids on similar size and specifications projects administered

by PQS in Dublin.

Data usage restricted by copy rights and identification of projects withheld by

the owner of intellectual property, Aecom, due to commercial sensitivity.

Modelling of life cycle approximate costs of hard maintenance; Analysing of rental arrangements under HSE operational lease scheme; Simple financial model for project appraisal identifying financial risks of HSE

operational lease scheme;

The case study aimed, by researching of feasibility into potential development of PCC

for an Operational Lease business model, to acquire the knowledge if projects are a

valid option for private equity involvement considering current macroeconomic trends

and the long term (25 years) future.

Stage Three: Supplementary, semi structured interviews.

The Author has chosen the semi structured interview as a supplementary to conducted

research of the Case Study. This method of communication is important in its results, by

bringing the views of industry professionals.

Stage Four: analysis of the results

The results of research are combined in the final chapter.

1.5 OUTLINE CHAPTERS

This thesis comprises of seven chapters briefly described as follows:

Chapter One:

Here the author outlines the research area, describes the thesis and introduces the

methodology undertaken to execute the research.

Chapter Two:

The author undertakes the literature review of the researched subject. This chapter is a

first part focused on the inception of new Primary Care Centres strategy, adequate

5

legislation, HSE requirements, and Government macro level strategy. It will also outline

PCC delivery specifics, context of current, government capital investment strategy and

current delivery models.

Chapter Three:

This is a part two of the literature review concerned with research of current issues troubling PCC development. The author researched published opinions of involved stakeholders.

Chapter Four:

The author discusses the research methodology of the Case Study and supplementary research of opinions among industry leading professionals.

Chapter Five:

This chapter will build a Case Study for theoretical investment model in PCC development, the basis upon a PCC built under Design & Build procurement method in Doughiska, Co Galway. The author undertakes measurement and cost planning followed by financial analysis for privately financed, designed and build facility with a purpose to be leased to HSE.

Chapter Six:

This chapter focuses on presenting the results of interview analysis.

Chapter Seven:

In the final chapter the author concludes the results of the undertaken research. It will be

an overall commentary with indication of proposed solutions to the delivery of PCC in

Ireland.

6

Chapter Two Part One; Literature Review.

2.1 INTRODUCTION

Part one of literature review undertakes a comprehensive secondary data collection,

comprising reviews of numerous publications in the form of Government, Ministerial

and Departmental policy statements, strategy outlines, case and annual reports,

scrutinising planned developments and listing officially registered progress in

implementation of PCF delivery.

2.2 PRIMARY CARE A NEW DIRECTION

In line with PCCC Transformation program which outlines changes to national strategy

for delivery of optimal outcome from both health care and cost effectiveness

perspectives. Between 90% to 95% of the health and personal, social service needs of

our population can be delivered in a primary care setting. These services provide first

level contact that is fully accessible by self-referral and have a strong emphasis on

working with communities and individuals to improve their health and social well-

being. (HSE, 2008)

Alsothe aims of the proposed developments are to provide:

A greatly strengthened primary care system which will play a more central role

as the first and on-going point of contact for people with the health care system;

An integrated, interdisciplinary, high-quality team-based and user friendly set of

services for the public;

Enhanced capacity for primary care to complement the existing diagnosis and

treatment focus in the areas of prevention, early intervention, rehabilitation and

personal social services. (HSE, 2008)

New health care network is based on a core Primary Care Team PCT, offering

health services as a hybrid model including co-operating private and public

specialists. A typical PCT consist from 5 GPs, Public Health Nurse,

Physiotherapist, Occupational Therapist and Social Worker and in principle

7

should be sufficient to care for approximately 3000 people. Depending on

requirements of local population (catchment area) teams can offer a second tier of

extended care range including Psychologist and Dentist. Based in larger catchment

areas PCT capacity will be extended by simple multiplication up to 5 PCT placed

in the same location creating a Primary Care Network. The network could cater for a

population of ca.10, 000 people serving as a focal point for inclusion of other health

and social services not considered as a standard scope of the PCT.

Figure 1.1 Sample PCT; source HSE 2008

The reform, initiating an unprecedented scale shift of health care services from existing,

centralised hospitals and small, scattered around the country, obsolete healthcare units

to PCT or networks, require completely new, purpose designed and built infrastructure.

HSE has prepared the list of general indicators to be considered during development of

Primary Care Centres which base on the number of PCT per catchment area principle.

According to guidance notes - space in the facilities shall be divided to those occupied

by private (General Practitioners) and public (Health Service Executive) specialist

allowing ca. 546-670 sq.m per one PCT Centre including 364-535 sq.m for shared area.

A centre accommodating two PCTs - ca. 739-836 sq.m with 466 605 sq.m of shared

area and in case of 3 PCTs - with 518-647 sq.m of shared area. Shared areas - Common

Facilities- include all areas in the building which are accessible by, or in use by both -

8

private and HSE tenants and patients. The size of GPs rooms has not been predefined

but the average required space is 16-20 sq.m

The general division of PCC space between private, public and shared areas has the

implication for facility management and allocation of rental/management costs hence

the need to clearly set out proposed room allocation.

2.2.1 COMMON FACILITIES

Facilities to be shared between the public and private healthcare service providers

include:

Reception and Waiting Area.

Public female/male toilets.

Enabling toilet (female/male) with baby changing facility.

Staff Changing / toilet / showers.

Bookable Room for visiting clinics.

Group Room / Meeting Room.

Student Room (to facilitate students from any discipline attending the

Centre).

Records Room.

Baby & Parent Room.

Childs Play Room.

Kitchen / Break Room.

Wheelchair trolley bay.

Photocopy room / Stationery Room.

Clean Utility Room.

Dirty Utility Room.

Clinical Waste Room.

Household Waste Room.

Cleaners Store.

General Store.

IT/Communication Room.

Plant Room.

Boiler House.

Circulation Area including Stairs / Lifts.

9

In the case of development plans offering non-standard services (not included in core

Primary Care or Social Care Network), extended range of services/facilities should be

considered as with common potential and share of its maintenance - costs/rental shall

be negotiated with all parties involved.

Potential Common Facilities Menu:

Crche and Play Room.

Centre Manager/Security Officer.

Coffee Dock.

Porters Base.

Gym - adult rehabilitation (shared).

Gym - paediatric (shared).

Conference Room.

Library.

Paper Shredding Room.

Archive Area.

Social Worker student room 4-5 students.

Medical Gases Manifold.

2.2.2 RETAIL PHARMACIES & PRIMARY CARE CENTRES

HSE acknowledge an existing trend of co-locating pharmacies in PCC throughout the

country as an attempt to accomplish one-stop-shop set up, but recognises associated

risks.

The potential for an abuse of position of trust among GPs and co-located pharmacists;

can result in possibility of patient recruitment purposes in order to maximise return on

investment, loss of choice of service supplier, inappropriate referral, inappropriate

proximity and access to medicinal products including controlled drugs, inappropriate

professional integration in the care process.

The need for effective regulation of the risk has been addressed by development of the

policy applicable in case of PCC development. Schedule of accommodation for HSE

owned PCC doesnt include an option for a retail pharmacy; dispensary is only subject

to permission. In case of facilities leased by HSE, co-locating a retail pharmacy is to be

10

a subject to approval of local planning authorities with the stipulation that a pharmacy

cannot be accessed directly through the PCC. There should also be recognition that all

contract and relevant professional guidelines should be adhered to including those that may

be developed by the HSE for regulating such co-located environments. (HSE, 2008)

2.3 CURRENT DELIVERY MODELS: HSE DIRECT BUILD.

This is a conventional model where Government procures public infrastructure facilities

funded by the Exchequer (Howes and Robinson, 2005). The HSE Board procures

construction services only.

The authority supplies a site, detailed architectural project with all other relevant tender

documentation and secure granting of planning permission. The facilities are developed

under obligatory GCCC contract assuring transparency of the process and transfer of

construction risks to the contractor ensuring best practice in management of expenditure

of public funds. Upon finalising construction works HSE takes over the possession of

the site and remains a sole owner occupier in charge of maintenance and servicing of

the facility. Arguably in the long term, it is the most efficient way of procurement since

the client remains in full control over the project development from design stage,

contract administration, quality control until takeover, however this model requires

spending the capital which is not available in post recessionary economy not to mention

that even in times of prosperity the funds are always somewhat limited.

The additional considered factor for HSE commitment to develop and own a facility is

dynamically changing demographics. While it is safe to assume that in densely

urbanised areas there will always be a need for delivery of health services and it is

anticipated that demand will almost certainly grow requiring future expansion of PCTs

and relevant accommodation, demographic trends in rural areas indicate that taking on

ownership of infrastructure might eventually render not viable in long term. Somewhat

distant and reserved but reasonable approach of HSE Board towards definitive

investment in infrastructure is understandable.

2.4 OPERATIONAL (OR OPERATION) LEASE.

Delivery of the Primary Care Teams (PCT) services accommodated in facilities

acquired via Operation (Operating) Lease, are an alternative to Direct Build

11

procurement model pursued since the introduction of the current HSE strategy. This

model involves active participation of commercial entities. The authorities interested in

placing PCT services in a particular area agree to enter in to an operational lease on an

already existing, suitable, privately owned facility or more often agree to enter into the

lease on the facility to be purposely developed in compliance with HSE PC output.

The standard lease of the facility is considered upon fulfilling by the investor strict

criteria. The Board of HSE considers a scheme viable only if the proposed location has

agreed participation of GPs, suitable site possession is secured by the future landlord

(there is no option of private development on HSE owned land and the authority do not

consider land swaps) and required funding for development has been agreed and

guaranteed. The Letter of Intent which is a non-binding document - mere stating an

interest is being issued to the bidding entity or to the Most Advantageous Bidder in case

of competition. The projects design is developed; the interior adheres to HSE criteria

(Board of HSE, 2006) and envelope of a building accordingly to criteria of local

planning authorities. The future tenant have limited influence on the employed

technology or building design in terms of its sustainability. Upon completing pre

construction proceedings, providing HSE requirements are fulfilled, the investor is

awarded with an Agreement for Lease (AFL). This is a legally binding document

opening the way for commencing a construction of a facility, however still not

guaranteeing a lease. Eventually after completion of construction, upon occupation by

GPs the HSE will sign a lease subsequently accommodating its own staff. The lease for

a minimum of 15 years and a maximum of 35, with no break clause in, must offer

significant discount to current local market rents any reviews reserve a continuity of a

discount and depend on fluctuations of CPI. According to HSE in 2008-2010 the

discount achieved equalled 18 per cent however discount on leases entered to from 2011

was closer to five per cent since rents fall in general. (HSE/Comptroller, 2012)

Particular lease agreement might contain option for HSE to acquire a freehold from year

10 onwards. In particular cases the HSE might consider entering in to short term (3-5

years) lease on temporary accommodation if service delivery in the area is urgent while

waiting for construction of a fully suitable facility.

The HSE Board questioned by Office of Comptroller on rationale behind such an

extensive use of Operational Lease model and sustainability, especially versus PPP

model utilized successfully by other departments (Department of Education - Author),

argued however that both models are broadly similar in terms of costs acquired during

12

tenancy. The final outcome, takeover and ownership, is not necessarily desired and

advantageous. The key difference to a PPP is not the ownership in year 25, as this

small residual value is included in Cost Benefit Analysis, but rather it is the ability of

the HSE to break the lease and vacate the building if GPs are not present (i.e. due to

lowering demographic) in the building and participating in primary care teams. [] The

HSE considers the program to be progressing well in current economic climate and the

cost to the Exchequer compares very favourably to traditionally funded health projects.

(HSE, 2012) It is important to note that all currently leased facilities are under

operational as opposed to Financial Lease as HSE has no legal capacity to enter the

latter. I shall discuss the reasons and illustrate accounting implications in simplified

financial model in a dedicated paragraph. Currently, a majority of operating PCC

buildings are privately owned. Since 2006 HSE leased 112 centres and ca. 90 locations

are being considered. (Office of the Comptroller, 2012) Full list of facilities and

locations compiled by the author and current as per March 2014 can be found in

Appendix A.

2.5 PPP DESIGN, BUILD, FINANCE AND MAINTAIN

This is the current model being implemented for delivery of PCC infrastructure through

Public Private Partnership (PPP). Experiences acquired during past developments and

administration of PPP schemes for School Bundles 1, 2 and 3 encouraged the authorities

to introduce this form of development into a new field Primary Care Centres. The

National Development and Finance Agency (NDFA) acting as the States Financial

Advisory body for all public investment projects greater than 20 million (on both PPP

an non PPP projects) on behalf of contracting authority Minister for Health,

sanctioning authority Department of Health and finally the sponsoring authority

Health Service Executive - is in charge of procurement process and management of

construction stage through to Service Commencement. (NDFA, 2012) As mentioned

already in previous chapter a number of PCC facilities have been qualified as suited to

be developed via PPP vehicle. Complete and detailed business case has been carried out

on pre-qualified 30 locations taking to consideration indications of the HSE report on

Accommodation Needs Assessment for Primary Care Teams. Stakeholders

consultations with range of groups including GPs, HSE staff, local communities and

planning authorities has been concluded and resulted with an ultimate choice. Facilities

in sixteen locations with size ranging from 1500 m2 to 5000 m2 have been compiled to

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a bundle forming a two tier package of construction works valued at ca. e115 million

and Facility Maintenance contract for term of 25 years of lease.

Figure 2.1 PCC PPP bundle: source: HSE, NDFA

Currently the PCC PPP bundle contract published in Official Journal of European

Union (OJEU) Contract Notice accordingly to bounding in such instance Directive

2004/18/EC (as Services Contract) has passed the deadline for formulating queries and

submission of prequalification questionnaires as a form of expression of interest in

participation in the scheme. It is in fact the beginning of the long procurement process

which is best illustrated by a table on the next page.

14

Figure 2.2 Summary of Negotiate process: source: HSE, NDFA

Under the Design, Build, Finance and Maintain (DBFM) scheme the winning bidder,

called the PPP Co, will be presented with the design for facilities based on HSE Output

Specifications advanced to the stage enabling for planning application and then required

to develop and finalise the project. All aspects of financing the investment are the sole

responsibility of the PPP Co and any participation in project costs by the Exchequer are

not considered. Upon completion of the buildings, the PPP Co is required to fit out,

ensure supply of all required medical, technical and social equipment and is bound to

execute on-going maintenance for a period of 25 years post construction including:

15

Contract Management:

Building Management & Maintenance:

Life Cycle replacement;

Limited Grounds maintenance;

Security;

Cleaning;

Pest Control;

Porterage;

Non clinical Waste Management

The operation of the PCCs will continue to be the responsibility of the HSE, including

the provision of GPs (NDFA, 2012).

During prequalification process the Authorities will scrutinise the candidates assessing

their ability to successfully manage simultaneous multi-site operation (portfolio of

previous works however there is no strict requirement to identify preferred contractors

at PQQ stage). Works programme, project management and HR capacity as well as

financial condition. NDFA has published notes on indicative financial requirements

which are illustrated in the table below.

Table 2.1 Indicative financial requirements; Source: NDFA 2012

As already illustrated the complexity of the project and applying criteria makes the

tendering process particularly resource and money exhaustive over 11 months, between

publishing PIM and announcing the preferred Tender. The authorities implemented bid

compensation strategy, the Author presents general conditions in the form of the table.

Minimum Turnover (annual, averaged over 2 years)

Net Assets

Equity providerTotal (Aggregate) n/a [100million]

Construction ContractorTotal (Aggregate) [120 million] [40 million]Individual [40 million] n/a

FM Services ProviderTotal (Aggregate) [10 million] n/a

Indicative financial requirements

16

Table 2.2 Typical Accommodation Project; Source: NDFA 2012

Series of charts below illustrate structure of engagement of stake holders and payment

patterns.

Figure 2.2 Delivery partners in PPP; Source: NDFA 2012

Unsuccessful Tender payment: each Tender 300000Authority decision not to award during Tender period: all 300000Authority decision not to award during PT period: Preferred Tender ("PT") payment

900,000 + disbursed cost for any statutory payment

included

Typical Accommodation Project with capital value euro 100 million or greater

Delivery partners in a PPP

Sherholders to PPP Co. Equity

Funders Senior Debt

Contracting Authority

Works Co. Design & Build Contractor

Services Co Soft & Hard FM

DesignTeam

Works Contractor FM Contractor

PPP Co.

17

Figure 2.3 Construction stage payments; source: NTFA 2012

As can be seen from the chart above, there is no transfers due from contracting

Authority to PPP Co. in lieu of construction work. Contractors work is deemed to be

fully financed from the PPP Co. shareholders equity. Upon closing Construction Phase

and successful commencing of health services (Operational Phase) the PPP Co. is to be

remunerated by a monthly Unitary Charge including apportioned cost of construction

works and payment for an on-going service. The Contracting Authority assess PPP Co.

actual performance on monthly basis and has a range of administrational-financial

tools available to ensure a satisfying outcome. Service availability and service based

deductions from Unitary Payments are considered a sufficient incentive for service

improvements in case of less than satisfactory performance.

18

Figure 2.4 Operational stage: payments: Source: NDFA 2012

In the final year of lease a joint committee of tenant and landlords agents will assess

the condition of the buildings and agree upon works needed to be executed to bring their

condition to the standard as at the beginning of initial occupancy and the landlord will

be required to procure, execute and cover costs of works. Finally upon exhausting term

of the lease the HSE will take over ownership of the facilities completing the scheme.

As all other previously implemented PPP schemes, the framework created under the

Finance Minister, Mr Charles McCreevey in 2001 is customarily designed to

accommodate both experience from past projects and specific requirements of PCC.

Long and very rigorous prequalifying proceedings do not guarantee tendering process

and the award of the scheme to any potential bidder. As of yet, there is no information

available on an actual interest. It can be viewed as a pilot scheme and the exact outcome

can be anticipated rather than planned or foreseen. The 18 months reserved for

tendering process until the construction phase can begin, combined with 24 months on

average (Aecom, 2013), for a facility construction and fit-out allow to assume that first

results to be available for review not earlier then mid-2017. There is no specific

information available on any plans for subsequent PCC PPP schemes at least not until

19

the pilot scheme has been completed and operating, however it shall be noted that

authorities work on Bid Regime improvements aim to shorten procurement process (on

as much as 6 months) through fully developing Specimen Designs along with securing

full planning permissions by the Authorities which indicates an interest in future

developments.

2.6 ACCOUNTING IN HSE PROJECTS

The austerity measures introduced by the Government in an attempt to balance books

impose very strict limitations on capital spending. The 20 billion euro gap between

annual revenue and spending, impose consequent reductions on infrastructure

development, funded from public means. Hence the Government pursuit of an

alternative to capital spending which does not affect the national balance sheet

negatively.

In the case of any project financed directly by the public body according to International

Accounting Standards, it has to be brought on the Balance Sheet as General

Government Expenditure accruing expenses as per acquire of an asset (IAS, 2005)

Table 2.3 Conventional Procurement; Source: NDFA

The HSE working along the stringent accounting rules for management of Government

Finance consequently follows a strategy of non-accrual of additional capital

expenditure.

ConstructionTotal

Project Costs

Year 1 1 2 etc 25 over 25 years

GGBalance impact -115 -1 -1 -1 -140.0EBalance impact1. Voted Current Expenditure 0 -0.5 -0.5 -0.5 -12.52. Voted Capital Expenditure -115 0 0 0 -115.03. Central Fund 0 -0.5 -0.5 -0.5 -12.5

Total EBalance impact -115 -1 -1 -1 -140.0Capital Envelopes impact -115 0 0 0 -115.0

Conventional Procurement (On Balance sheet)

Operation

20

The accounting practice for leased assets disclosure according to IAS 17 (International

Accounting Standards, 2005) determines options of Financial and Operating lease.

Difference in classification is based on allocation of substantial risks and rewards either

to the vendor or lessee.

IAS 17 has significant implications for key accounting ratios used to analyse financial

statements. Currently, under IAS 17, operating leases do not have to be capitalised. This

means that if a lease can be structured such that it can be classified as an operating lease

then the lease will act as a form of off balance sheet financing. This is very attractive to

public bodies because a contract that allows for the use of an asset, but does not convey

rights of ownership of this asset is accounted for as a rental expense and can improve

financial ratios (Certified Public Accountants, 2011).

HSE leases negotiated on PCF leave all substantial risks and rewards associated on the

side of lessor; the owner of the facility covers the costs of its maintenance, and suffers a

fall in value of an asset due to its technological obsolescence. It is a lessor to use an

asset through to the end of its useful life, accruing profits. The ownership doesnt pass

to HSE in the end however there is an option of buyout. A persuasive factor in

classifying a lease as an operating lease is if at inception of the lease the present value

of the minimum lease payments amounts to at least substantially all of the fair value of

the leased asset (Kelly, 2010) This condition is sufficed by HSE through entering to the

lease on discounted to average market rates. Lease cancellation clause which can be

triggered by absence of GPs in PCC does not inflict any costs to the public body. The

fluctuations in fair value at the end of the lease do not accrue to the HSE and are a sole

risk of Lessor- private entity.

To identify the characteristics of a lease over land and buildings the two elements

should be separated. Land is generally considered to have an infinite life and therefore

an associated lease will normally be classified as an operating lease, unless there are

other characteristics, such as title of the land transferring to the lessee, that suggest

otherwise. (IAS, 2005) HSE lease on PCF has all characteristics of Operation Lease

therefore brings to the Government the benefit of Off-Balance-Sheet disclosure.

The figure below demonstrates typical allocation of accrued costs and balance sheet

disclosure.

21

Table 2.5 Operating Lease; Source: NDFA

Procurement of infrastructure through PPP Schemes from accounting point of view is

essentially a form of lease. If it is a government intention to avail of benefits Off

balance sheet disclosure, it has to be assured that during both, construction phases, all

or majority of construction risks and during operational phases of the scheme the

substantial availability and demand risks are allocated accordingly to already outlined

above rules. Figure 2.5 shows simplified structure used for qualifying construction PPP

projects as required.

Figure 2.5 Decision Tree: Source: NDFA

ConstructionTotal

Project Costs

Year 1 1 2 etc 25 over 25 years

GGBalance impact 0 -1 -1 -1 -25.0EBalance impact1. Voted Current Expenditure 0 -1 -1 -1 -25.02. Voted Capital Expenditure 0 0 0 0 0

Capital Envelopes impact 0 0 0 0 0.0

Operating Lease (Off Balance sheet)

Operation

22

The table below demonstrates typical allocation of accrued costs and balance sheet

disclosure on PPP Schemes.

Table 2.6 PPP; Source: NDFA

ConstructionTotal

Project Costs

Year 1 1 2 etc 25 over 25 years

GGBalance impact 0 -5.6 -5.6 -5.6 -140.0EBalance impact1. Voted Current Expenditure 0 -5.6 -5.6 -5.6 -140.02. Voted Capital Expenditure 0 0 0 0 0

Capital Envelopes impact -115 0 0 0 -115.0

PPP (Off Balance sheet)

Operation

23

Chapter Three Literature Review Part Two - Challenges and

Opportunities

3.1 INTRODUCTION

In part two of the literature review the author attempts to investigate the current

government stance on progress in PCC development, opportunities and challenges as

seen by the private stakeholders.

3.2 CURRENT GOVERNMENT STANCE

The strategy sought is to shift the emphasis from the current over-reliance on acute

services, such as hospitals, to one-stop-shops where patients would be able to access a

team of GPs, nurses, physiotherapists, chiropodists, social workers and home helps.

Minister Risn Shortall, assessing implementation of healthcare reform reminds that

ca. 425 PCTs are currently in operation (2012, Author), however the majority of these

teams are virtual in nature, meaning that they are not housed within the same building

and are spread across many sitesfacilities are in various stages of maturity and

development. About 55 primary care centres had been built across the country, a figure

she described as hugely disappointing. The government is to consider locating primary

care centres (PCCs) in former Garda stations and other state-owned premises. Hospital

wings and empty state buildings, such as those earmarked for decentralisation, could be

used to house badly-needed primary health care facilities. We need to work with what

we have. We might be able to use existing buildings.The private sector has a role to

play given the scale of the need for good-quality premises. We need a number of

different strategies to deliver this. There is huge ground to be made up. Very little

progress in terms of delivering on what was a 2001 strategy has been made. We should

be much more advanced. There should be a whole network provided at this stage, she

said. I am very open to (private sector involvement Author). The problem is that the

market hasn't delivered. (Shortall, Mitchell, 2012)

24

3.3 GPs OPINIONS

Private stakeholders point out that there is a lack of clarity in authorities approach to

the problem. The state is currently unable to sufficiently finance and progress PCC

strategy and is referring to private sector involvement. There is large interest on the part

of investors and implementation of incentives which would make PCC not attractive

alone but simply viable, would be welcome. The numbers of repeating issues have been

disclosed by leading healthcare sector investors and developers.

George McNeice, the Irish Medical Organization chief executive, voiced strong

criticism of the Government approach, In the few areas where centres have been

established, the state has shamefully stood back and encouraged GPs to invest heavily

in infrastructure, and then used the recession to achieve deals and rents that undermine

the very viability of these developmentsIn other areas, the state stands idly by as

banks refuse finance necessary to develop centres (Sunday Business Post, 2012).

Dr David Molony, one of the investors in 25 million Mallow Primary Healthcare

Centre (the very first facility developed under a leasehold model), warns other GPs to

be cautious with building similar facilities elsewhere. Development shared with other

GPs is facing large bank loans in currently very difficult environment, with a burden of

local authority rates and much reduced HSE payments after renegotiation on movement

of hospital services to PCCs. Primary care centres could do a lot of the outpatient work

that is done in hospitals, and for a lot less money. We were promised new services and a

new model for the delivery of care. There has been a lot of talk, but little else. To be

honest, at this stage I am in despair. Nothing has happened. (Molony, 2012) The one of

the objectives of the reform transfer of some, specialist services from hospitals

accruing high cost to more efficient delivery network of community PCCs havent been

implemented and costs of those services are being refused to be covered by HSE. The

patients in large numbers see the opportunity in the change and shift to localized service

provider but the money doesnt follow the patient. Health insurers are refusing to pay

for treatment in PCCs, even though they will pay for the same treatment in a hospital

setting, which invariably costs a lot more. (Baxter, 2012)

A lack of support for GP developed PCCs is another failure of the Government strategy

in healthcare reform claims Martin Daly, the GP leader with the Irish Medical

Organization (IMO). The initial strategy saw GPs and the independent, private sector

partner to HSE as a driving force in the development of the shared facilities. However,

25

initial response was optimistic and the organisation felt that private healthcare

companies and building consortiums had an unfair advantage over ordinary GPs in the

submission process and proposed that the model shifted towards third-party providers.

GPs were feeling pressurised by such companies and felt that they could not compete.

(Baxter, 2010)

3.4 DEVELOPERS OPINIONS

According to AJ Noonan, the director of Rhonellen Developments (which in summer of

2012 has begun development of a 3.5 million euro PCC in Mayo), was seeking planning

permissions for a number of other facilities; rolling out PCC around the country has

stalled due to difficulties in securing finance and buy-ins from GPs. (Noonan, 2012)

He was very concerned by Minister Shartalls comments on plans to convert empty

Garda stations and other state properties into primary care centres, and commented: we

have had a strategy for ten years, and invested money on the back of that strategythe

backing from international investors for the other projects has been withdrawn

(Noonan, 2012) [after public announcement from Minister Shortall, T.D.- Author].

Jack Nagle, a chairman of the Irish Association of Primary Care (IAPC), stated: It is

safe to say that most are struggling, because the debt mountain they are sitting on has

been made all the more challenging by the fact that services that were due to move into

the primary care environment have not moved as promised,[] many of these centres

were developed on the premise that they would be able to secure more work from the

state. This hasn't happened and made GPs to approach with reserve. (Nagle, 2012)

The Pharmaceutical Society of Ireland a body representing other important

stakeholders creates more uncertainty through its strong opposition to the co-location of

pharmacies and GP practices. Such co-location is critical to the financial success of

one- stop- shop strategy of these projects.

The lease break clause, that allows the HSE to pull out if GPs withdraw from the

project. The HSE argues that this provides flexibility, but Nagle said the clause was

deterring funders. This view was seconded by Malcolm Moss, founding partner of US

private equity firm Beringea. Americans were interested to invest part of their $600

million fund in PCC services in Ireland but the company pulled out after negative

outcome of risk analysis.

26

Prime Healthcare, the primary care centre development company run by Sean McGuire,

opened its first centre in Carlow in 2009 and the second in Killarney in 2011. In

January, it was placed into examinership, with high rental costs and property

development issues reported to be at the centre of its financial problems. The Killarney

centre also had a number of planning problems.

AJ Noonan of Rhonellen Developments said incentives were needed to help develop

primary care. The health committee did an entire report on the incentives needed for

primary care centres; none of their recommendations has been implemented. (Noonan,

2012) Despite the lack of certainty in the market, Centric Health has said it will open a

centre in Newbridge in Co Kildare next year, and start the construction of a centre on

the Navan Road in Dublin soon afterwards. The company also plans to submit a

planning application for a primary care centre in Celbridge. 'I'm taking a five-to-seven-

year view right now; the money is not following the patient. When it happens - and I

believe it will - the situation will change (Noonan, 2012).

3.5 PHARMACISTS OPINION

According to actively pursued by private developers one-stop-shop strategy locating a

pharmacy in the Primary Care Centre is mutually beneficial for the patients and

medicine supplier. The patients benefit from a central presence of multidisciplinary

specialist and immediately after consultation are able to purchase the prescribed

medication while the pharmacy benefits from PCC induced high footfall.

Seemingly simple, mutually beneficial arrangement can, as noted by HSE, be at least

controversial and potentially can be damaging to healthcare system. According to many

members of the pharmaceutical profession, locating pharmacies in PCC creates grounds

for two main concerns; wellbeing of patients and integrity of the professionals involved.

According to Dr Stack, a local GP based in Killiney, 15 per cent of prescriptions are

new 85 per cent are repeat prescriptions, (2010) that means that the overwhelming

majority of patients are already acquiring their medicine in their local shops. They are

known to personnel. Pharmacies store records of issued medication assuring the highest

level of care for patients wellbeing. Closing existing shops may be one of the outcomes

disturbing the already balanced network. Relocating shops from their current locations

will require transfer of stored data, very possibly leading to mistakes which can affect

patients.

27

The second major concern arises from the introduction of more free market approach in

operating of pharmacies. The reform of the system introduced a new model of

commercial entity a retail pharmacy - which allows to merchant products other than

medication only and thus creating an opportunity to generate a bigger income. Increased

earning potential makes pharmacies a very sought-after business partner and in a tough

economic climate this draw can place their management, or owners, under unwelcome

pressure.

The Pharmaceutical Society of Ireland (The Pharmacy Regulator), decided to strongly

address reservations mentioned above, more in the form of an advice rather than

prescription. Memorandum of Advice circulated in 2011 by the Pharmaceutical

Society of Ireland (PSI), who 'do not favour' what it describes as a 'hybrid model of

primary care provision involving the co-location of retail pharmacy and GP practices

The retail pharmacy business becomes a significant (and sometimes key) financial

driver for the success of the enterprise (PCC, Author). The disproportionate contribution

which a retail pharmacy business is sometimes called upon to make in terms of the price

paid for a shop premises or the rent offered therefore is an unhealthy one insofar as

patient safety is concerned. The emergence of such a hybrid model also thwarts the

development of primary care units as envisaged by the Government and supported by

the PSI and the profession of pharmacy gen Further the PSI points out to Pharmacy Act

(2007) which is clearly designed to prohibit the creation of improper relationships

between pharmacists and doctors and between retail pharmacy businesses and medical

practices. From a common-sense standpoint it is clear that the two healthcare

professionals, doctor and pharmacist, should be independent of each other in the

treatment of patients. (PSI, 2011)

Business model with retail pharmacy as in opposition to traditional model of medicine

dispensary to be placed in PCC can lead to planning issues as it happened in case of

Killarney Town PCC. Zoning of the land didnt allow for inclusion of commercial

entity and development of health centre - valued at euro 40 million - dependant on

participation of pharmacy, sharing high developments costs, was deemed to be

necessary. The spokesman for Killarney Town Council argued that: There is planning

there for a primary care unit. Their claim is that the commercial element is crucial to the

whole project. Further developments disclosed that applicant submitted updated plans

28

including this time purely dispensary pharmacy which according to Dr Stack changed

the business plan and ultimately they couldnt tender for the land. The decision, taken

because the pharmacy element of the scheme contravened the zoning of the area, had

national implications Quite a number of other primary care centres may be looking

at HSE sites as well, and those sites would be similarly zoned to ours, Dr Stack stated

(Culliton, 2009).

3.6 INCENTIVES

The numbers of existing players in the primary care are frustrated on a number of levels

and Mr Noonan point out that the Oireachtas Joint Health Committee has issued an

entire report on the incentives needed for primary care centres but none of their

recommendations have been implemented (Noonan, 2012).

A new report by the committee says fewer centres that were of higher quality would

encourage engagement by general practitioners (OJHC, 2012).

The committee says that the provision of primary care centres is essential to the

operation of primary care teams. It acknowledges that there are obstacles, particularly in

relation to funding; to the development of new centres and that a system of incentives is

required to expedite delivery. The committee was of the opinion that a partnership

approach was needed in order to create more primary care centres around the country.

Capital allowances were backed for GP groups that are involved in building such

clinics, as the committee felt that nothing much had happened in respect of this issue.

In view of the current economic situation, the committee team thought that the

timeframe for the rollout of primary care in the community should be extended, so that

the centres can provide a top-quality service. It urged the introduction of a range of

different incentives. They set out a menu of options in this regard:

Capital tax allowances against all income;

Stamp-duty relief on the purchase of a site;

Double rent relief for health professional tenants;

Double the interest relief on all loans, and capital investments, for owner-

occupiers;

The provision of a tax relief for significant innovation and/or delivery of new

clinical services not previously available in primary care, e.g. diagnostic

29

services, chronic -disease services, endoscopy, etcetera. Such relief should be

strictly limited to the first five years to reflect the high set-up costs;

Rates relief should be provided. (At present, the Health Service Executive is

exempt from rates, whereas all other health professionals working from a

primary care centre are subject to the payments.) (Irish Medical Times, 2010)

The committee also suggested that there should be a waiver of local authority

development levies (either in full or in part); there should be direct grants and subsidies;

accelerated capital allowances; and a mortgage rent relief scheme.

However, the committee strongly opposed the corporatisation of the development of

new primary care infrastructure. (Baxter, 2010)

3.7 SUMMARY OF LITERATURE REVIEW PART ONE & TWO

The controversial subject is also present in printed and electronic media addressing both

general public interest and stakeholders professionally involved in the process, namely

medical, construction professionals and general business. By its very nature daily

newspapers and online media are providing the most current account on opinions, trends

and developments and often are a forum for a lively discussion on burning issues which

allows for a multi angled insight in to the topic. The literature review helped to acquire

solid, introductory knowledge on new healthcare strategy, technical output, frame work

for implementation and most importantly disclosed widely acknowledged unsatisfactory

progress in infrastructure development. Signalled issues has helped to outline the areas

for further research and necessity for further studies strategy had to be draught and

implemented.

30

Chapter Four Methodology

4.1 INTRODUCTION

In this chapter the Author described development of his own, primary source research

strategy, guides through his research design process, assesses available methods,

restates the aims of the dissertation and explains his choice of methods used to satisfy

research goals. Furthermore, describes development of a case study and the process of

construction and execution of interviews, undertaken in order to create basis for

development of a final theory for the topic.

4.2 STRATEGY

The literature review outcome disclosed that hard and reliable data necessary to

successfully conduct qualitative studies are virtually not available. There are no

detailed statistical data on PCC development published, neither statistically tracked

development, nor researches concluded to verify issues surrounding particular cases.

The numbers available are confusing, since all available data refers to numerous, often

overlapping periods of time and no records have ever been officially amended and

published. Finally a variation of opinions on PCC issues among stakeholders doesnt

help in formulating a theory. It became clear that exploratory research which is

intertwined with a need for a clear and precise statement of the recognized problem-in

other words formulating the theory is the most suitable model to be adopted in my

research.

The choice of qualitative method above quantitative research was the only natural

consequence emerging from a need for a theory development. Qualitative research

aims in analysis of existing order of the things by quantifying outcomes. It helps to

classify results and enables to issue the statement which might prove or disagree with

tested theory. While secondary sources research already painted a picture of lacklustre

PCC development- I was interested in finding out why this is happening and

qualitative approach is best suited to achieve this aim.

31

4.3 METHODOLOGY

Theoretical or conceptual framework for further research is self-designed and has been

formed as a result of a literature review coupled with informal interviews with

quantity surveying professionals. Their present and past involvement in healthcare

projects on behalf of private investors guaranteed accessibility to wealth of

information about the subject. After numerous consultations with QS mentor at my

work place - taken along progressing literature review enabling constant feedback to

direction of studies we have agreed that a case study approach combined with

sampling valuable opinions of people in the heart of a problem will be the best

combination of fieldwork approaches in the attempt to fulfil aims of the dissertation.

To identify new, business model opportunities emerging in Ireland due to implementation of new Health Care strategy utilising core aspects of Quantity

Surveying practice;

Examine feasibility of construction projects were development is an integral part of new HSE strategy;

Examine proposed development variants HSE led vs. Developer led;

Determine if there is an economic ground to attract private investors;

However in the light of literature review results the initial aims have evolved since the

original proposal, research of the short history of PCC development, screening

employed solutions, diagnosing HSE led vs. privately led development have remained

the core tasks in the attempt to find out causes of the fall-outs in PCCs roll-out and

formulating a theory on feasibility of the business model.

4.3.1 SURVEYS VS. INTERVIEWS

The results of secondary source research indicated aims for further investigation of the

subject. Highlighting issues in the specialized areas of PCC development called for in-

32

depth primary source research and it has been agreed that approaching people involved

in the process is one of the best methods. Seeking professional opinions in the subject

was a priority and the next step was to decide on the most advantageous technique to

be employed.

The surveys are helpful in addressing large number of respondents with fairly similar

backgrounds or approaches to the problem. Results are focused on analysis of the large

sample concerned with generalized opinions, however I felt that there is a potential to

reinforce the patterns already emerging from research of secondary source (Literature

Review) this will most likely not help to gain the deeper in-sight to the issues in

question. Limitations of questionnaires (listed by Naoum, 2008) mention suitability for

asking simple, straightforward questions which usually are succinctly explained and

are seeking only brief answers. Assessment of data sourced by on-line questionnaire

risks shifting the research direction into a quantitative area which wasnt intentional.

Further questionnaires do not offer any opportunity to follow up with additional

questioning, since there is no interaction with respondent. Focus on finding out why

the process is not efficient and why it isnt proving so far as a viable business model

suggested interviews as a method suited for reaching out to specific person in search

of specific information, their view on the subject or issue - enabling more in-depth

studies.

According to Dr Naoum use of personal interviews to utmost benefit requires:

need for interpersonal contact to explain or explore questioned issues;

all targeted participants to share common characteristics which in case of my

research is personal involvement in PCF development, however varied on basis

of profession or stakeholders interest;

advanced knowledge of the subject enabling to question specific issues in

detail;

seeking for detailed views, opinions, clarifications on undertaken Case study

investigation,

designed questions to be too complex to be answered as per questionnaire in

form of short: Yes, No, etc. (Naoum, 2007)

Among three standard types of interview techniques available I have already tested

Unstructured Interviews during strategy design phase and while it proved to be

perfectly suitable to discuss general direction of the research in a form of a friendly

33

chat with only one person involved at the time I have felt I need to employ more

structured form to achieve a common platform among the numbers of different

interviewees for comparison purposes. Structured interviews with a standard set of

questions to be asked people with different approach to the problem seemed tobe too

close in approach to questionnaires and could potentially limit benefits coming from

face to face discussion. Set of standard questions applied equally to all participants

simply wouldnt work as interviewing people with different scope of interest creates

an opportunity to investigate deeper issues which are less familiar to other

participants. Semi-structured interviews allow freedom of catering to suit changes in

order to maximise benefit of questioning a variety of sources. Including closed-end

questions as a starting point or a question leading to further investigation with open

end questions reaching further into details can be utilised and there is no strict order of

questioning required.

Construction costs and risks, HSE led development and Developer/GPs led

developments are three groups of questions designed to address specific stakeholders

and to contain questions designed to investigate relevant issues. The main aim was to

ask all participants the questions from a common framework and possibly follow up in

each persons main interest area.

I have compiled an initial list of 28 questions and reviewed for a merit content with the

help of a professional member from a leading in the field quantity surveying practice.

After narrowing list to optimal length and timing the questionnaire has been submitted

for a further review by a member of an academic staff from DIT to ensure that the

wording of questions complies with the criteria of chosen method.

4.3.2 SAMPLING

As mentioned above the three major categories originate in construction cost/risk,

HSE involvement and private development areas hence the interviews ware targeted at

professionals currently involved or involved in the past. Quantity Surveyors working

on healthcare projects, HSE employees implementing healthcare reform and possibly

GPs or pharmacists participation were considered as a possible resource.

The list of individuals has been prepared, contacts, names, phone numbers and e-mail

addresses have been sourced on-line from various institutional web pages or from

34

previously reviewed publications. Finally, just two out of a long list of desired

professionals agreed to participate in the interview.

A. Niall Butler MRICS MSCSI working as Project Surveyor in HSE

B. Brian Kevans BBS MSc QS MRICS Senior Quantity Surveyor in Aecom

Terms and conditions for interviews have been agreed and meetings arranged.

4.4 CASE STUDY

In order to test particularly prevalent arguments raised by the stakeholders disclosed in literature review I have been encouraged by my colleagues at work to undertake in-depth analysis of a model project for PCF. The theoretical nature of the model eliminated a descriptive and analytical type of approach to the case study as simply not enough details could be gathered to satisfy a fully scientific approach fulfilling those methods.

I thought that, explanatory case study of which theoretical approach describes/explains casualty and tries to show a link among the objects of the study, ask why things happen the way they do is a most suitable method, considering a type of information and degree of detail available. According to Dr Naoum this type of research collects facts and studies the relationship of one set of facts to another, with the hope of finding some causal relationship between them (Naoum, 2007) which is basic to logic of the hypothesis (Bouma & Atkinson, 1995 - cited by Naoum, 2007)

This exercise was aimed to help formulate my own opinion on profitability potential and support or dismiss claims of private stakeholders at PCF low profitability artificially inducted by HSE discounted rental agreements which in consequence force developers to look for additional income from other retail tenants (i.e. retail pharmacies), in an attempt to balance books.

4.5 CONCLUSION

This chapter has reviewed and assessed the various methodology used in the process of primary data collection and demonstrated why I have opted for explanatory strategy of research through qualitative methodology.

35

Chapter Five Case Study

5.1 INTRODUCTION

The following case study undertakes an investigation into a cost/benefit model of a

privately developed, Design & Build Primary Care Facility. Methods and practices

used follow procedures of best quantity surveying practice, commonly employed during

early stages of feasibility studies on such projects. Cost planning exercise is based on

measurement of architectural drawings, taking-off quantities, preparation of elemental

cost plan and cost estimation according to current market trends based on pricing of

recently developed, similar works.

In the second part of a case study exercise, the architectural drawings for floor layout

will be marked up with a purpose of indicating rental responsibility of public and

private tenants in shared facility and will served as a base for indicator of a financial

responsibility of the parties involved.

Net Present Value and Internal Rate of Return analysis in three scenarios for

development and lease arrangements will be undertaken as part of a project appraisal

process aimed to give information on financial grounds of a project. Primary sourced

information by undertaking this case study aim to help establishing validity of claims

for low profitability and presence of numerous risks highlighted by stakeholders in

reviewed literature sources which allegedly impair viability of business model.

5.2 CHOICE OF A MODEL

Research on specialized healthcare infrastructure led me to have a close look at the case

study of feasibility studies/ cost planning undertaken by PQS I was working for at the

time. I thought that an investigation of cost planning process, perhaps construction

phase and operational financial model while having an access to drawings, technical

specifications and contact with professionals involved in the project was a great

research opportunity. Unfortunately data on operational costs were perceived by a client

as commercially sensitive and it turned out that my access would be heavily restricted

and I wasnt able to carry out my research as originally planned;

Use of the original drawings to report on cost planning of construction works;

36

Report on possible Value For Money or Value Engineering, specification level

considerations etc.;

Gain contact with engaged parties (a client, business strategy);

Report on development of any issues and applied solutions;

Link the values of construction costs with benchmarked rents.

I didnt want to abandon this particular project, as this modern building developed

specifically to incorporate HSE output specs and accommodate three PCTs, I deemed to

be close to a generic facility in type for PCC and as such I thought it an ideal model

for a case study. I have tried to gain access to relevant data by approaching the

Architects, unfortunately my request was denied again.

Referring to online data bases for planning permissions and public procurement projects

I have established the following: A project has not been published on e-Tenders web

site indicating that indeed Public sector bodies have not been involved in the

procurement of construction works. Planning permission identified a project but

returned no data whatsoever (usually there are: a copy of planning application, planning

stage drawings, notices, letters of intent, etc.);

I have assumed that the HSE Board should have some information of interest to me on

the subject and I contacted the Facility Manager for HSE West region, Mr Joe Molloy,

with a request for information.

Figure 5.1 Doughiska PCC info request via e-mail, source: the authors electronic

correspondence;

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Facing thus far unsuccessful pursuits of the Doughiska project, and being under rising

pressure of time, I had to look for any other suitable model. Eventually an online search

on e-Tenders database returned PCC development in Glenties, Co Donegal. Opened for

service in 2007, the facility wasnt a perfect choice due to its size, (at730 sq.m and

designed to accommodate just one PCT) but because it was procured in the traditional

way by the public authority, I thought there was a chance that general data would be

more accessible. Subsequent search on Galway city planning authority web site

disclosed a number of drawings available for download. Unfortunately the drawings

havent contain enough details for undertaking a comprehensive cost plan but could be

used with some assumptions for undisclosed details like ground works, finishes etc.

During work on my backup PCC model I have received an email from the Architect of

Doughiska PCC positively addressing my request forwarded to them by Mr Molloy.

Eventually, I had access and permission to use the project which I intended to use

initially.

Figure 5.2 Doughiska PCC drawings via e-mail, source: the authors electronic correspondence;

An access to architectural drawings and Room Data Sheets was sufficient enough to

undertake a cost planning exercise and investigate approximate cost of building works.

5.3 FACILITY DESCRIPTION

The facility is a Design and Build Primary Care Health Centre in Doughiska, Galway,

to provide primary care services in the eastern suburbs of the City is privately led

development in co-operation with HSE West and comprise of construction of the

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modern, 1750m2 facility including a steel frame, insulated Kingspan cladding; double

glazed aluminium windows and external door; gypsum sound proofing partitions;

mechanical & electrical installation and full fit out. The building was officially opened

in April of 2011.

Doughiska PCC complies with departmental output specifications and is built to the

highest medical building standards, namely the UK Technical Memorandum Standards.

It acts as a base for the City East and Ballybane Primary Care teams and includes

services such as GPs, public health and practice nurses, physiotherapists and

occupational therapists. There are no retail services provided within this facility. By

accommodating three PCTs, the facility caters for a local population of ca. 7000 people

and can be viewed as an example very close to generic understanding of HSE scheme.

Figure 5.3 Doughiska, Primary Care Centre exterior; source: HSE

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Figure 5.4 Doughiska, Primary Care Centre interior; source: HSE

5.4 TAKE-OFF & COST PLAN

Quantities take-off and following cost planning have been undertaken to ascertain

construction costs for the PCC in Doughiska, which I planned to use subsequently, for

financial analysis in feasibility studies. The simplified cost planning exercise typical for

early stages of project development was based on drawings containing limited data

purposed therefore with general cost estimation. I have not engaged in a detailed

description of measured elements focusing more on quantities and value things

relevant to further studies on lifecycle costs of the building.

Figure 5.5 Take-off panel screen shot; source the Author

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The estimated value of construction works and materials are valued at 2,028,707 and I

added fifteen per cent pro rata for not measured (due to unknown scope) external works

and preliminaries at seven per cent. Total estimated cost carried from cost planning to

financial analysis is 2,496,323.96.

A table below shows elemental division of estimated costs, full BOQ is available in

Appendix B.

Figure 5.6 Elemental Cost Plan; source the Author

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5.5 RENTAL DIVISION

PCCs are divided between private and public tenants under specific lease arrangements.

Based on Doughiska private tenants GPs, have a lease on ca. 240 m sq. which are solely

for their own designated use. Similarly HSE is in the lease of ca. 1302 m sq. for their

own use only. Shared areas comprising of ca. 450 m in meeting rooms, administration,

IT support etc. are accessible by both tenants and contribute to rent payments together.

The payments are based on designated areas occupancy ratio between tenants and

calculated against GFA, less shared areas. In this particular case GPs whom occupy

18.5 per cent of tenants designated areas are bound to contribute its 18.5 per cent

equivalent in shared areas. The table below explains lease schedule.

Table 5.1 Area Schedule- lease division; source the Author

5.6 LIFE CYCLE COST

The life span of all measured elements has been assessed according to industry guidance

and placed in a lifecycle replacement schedule. Apportioned costs projected to