The financial close of the Royal Jubilee Hospital (RJH) P3 renewal project in British Columbia was achieved remarkably quickly - signalling the continuation of a strong social infrastructure P3 market in the Canadian province.

The DBFM project brought together a range of domestic and international private sector firms - demonstrating that the appetite for Canadian PPPs remains healthy.

The Vancouver Island Health Authority (VIHA)-led project was designed to renew inpatient facilities and modernise the delivery of health in the Vancouver Island area of BC - an issue nationwide.

Drivers/Rationale

The RJH site was established in 1888 and since that time, the development of inpatient accommodation has occurred in a "piecemeal fashion" in many buildings across the site in Victoria.

The average age of RJH inpatient buildings is 55 years, with the oldest being the East and South block (85 years).

RJH's aging infrastructure is in poor condition and needs replacement for a variety of reasons - an issue throughout the Canadian provinces.

Some of the most pressing reasons are:

• MRSA infection rates three times that of Victoria General Hospital (built in 1983)
• all hospital buildings with patient bedrooms are vulnerable to seismic events with existing structures designed to 20 per cent of current building code requirements
• exterior walls and fascia crumbling - falling debris poses a safety problem
• portions of buildings closed due to health and safety concerns - asbestos and mould
• inpatient room configuration does not meet modern health care standards or requirements as identified through accreditation

The renewal of facilities at RJH was expected to result in a new Patient Care Centre (PCC) designed to provide high quality patient care, deliver a centre of excellence in elder care and attract and retain the best healthcare professionals possible.

In 2002, a new Diagnostic and Treatment Centre at RJH opened, and facilities and services were significantly upgraded. However, the inpatient areas of the hospital were not upgraded at this time.

Background

In 2005 the poor condition of inpatient buildings at the RJH led to the identification of the PCC project as an urgent need. It was defined as the replacement of all inpatient beds with sufficient additional capacity to meet demand through to 2020.

The project was identified as a top priority within the VIHA's Strategic and Infrastructure Plans.

On 4 May 2007, the British Columbia government formally approved the PCC project and on 11 May the request for qualifications (RFQ) was issued, closing on 7 June.

The authority announced a shortlist on 19 September 2007 and issued a request for proposals (RFP).

The shortlist was:

• B&B Royal Jubilee - Babcock & Brown Canada, Parkin Architects, CEI Architecture Planning Interiors, EllisDon Corporation, Kinetic Construction, Honeywell and ARAMARK Canada
• ISL Health - Health Care Projects Canada, Innisfree, Lark Group, Cannon Design, Moore Paterson Architects, Ledcor Design/Build (BC), Angus Consulting Management, H.H. Angus & Associates, Investec North America and Compass/Crothhall
• Plenary Health - Plenary Group, Deutsche Bank, PCL Constructors Westcoast, Jonathan Bailey Associates, Jensen Group, Johnson Controls and Sodexho

In early April 2008 ISL Health was named the preferred bidder and the project closed on 18 July 2008 - a remarkably short procurement process, at just 14 months.

Construction work started on 30 July and is now due for completion in 2010.

Project

The 30-year project includes the development of a new eight-storey 500-bed 38,000m² facility located on the southern tip of Vancouver Island.

The winning consortium, ISL Health, includes BC-based companies with international firms experienced in the delivery of health PPPs.

The ISL Health is a group of companies qualified through the RFQ stage, consisting of:

• Health Care Project Canada - project sponsor and lead
• Innisfree PFI Fund III - equity provider
• Acciona - equity provider
• Lark Care (Royal Jubilee) Investments - equity provider
• Acciona - construction
• Lark Group - construction
• Ledcor Construction - construction
• Cannon Design - design
• ACML (Angus Consulting Management Western) - facility operations & maintenance
• Acciona - facility operations & maintenance
• HH Angus & Associates - consultancy engineer (mechanical and electrical)

The VIHA will be carrying out a value for money (VfM) project report this autumn to provide further details and the final project agreement will also be released once reviewed.

Financial close was reached remarkably quickly - only 11 months from RFP release to FC. This may be a Health PPP industry record.

Fraser Milner Casgrain acted as legal adviser to ISL Health, Investec North America provided financial advice, Health Care Projects Canada was clinical adviser, Jardine Lloyd Thompson Canada was insurance adviser, while BTY was the cost consultant.

Ogilvy Renault acted as legal adviser to the banks, while Arup was technical adviser.

Bull, Housser & Tupper provided legal advice to the VIHA, Ernst & Young Orenda was financial adviser, while Zeidler Partnership Architects acted as technical adviser.

ADR Chambers was appointed as fairness adviser to oversee and monitor the evaluation process and followed the requirements outlined in the RFP.

The VIHA adopted three "pillars" that guided the design, construction, operation and maintenance of the PCC:

• "Pacific Green" - environmental
• "Magnet Workplace" - staff
• "Elder Friendly" - patients

The PCC will be the first ever "Pacific Green" hospital, incorporating safer building products, safe working practices, clean air, energy and water efficiency, education, and a commitment to public health demonstrated through waste volume and toxicity reduction.

It will also be the first "LEED Gold" certified acute inpatient facility in Canada - including high indoor air quality - 100 per cent fresh air - and the maximisation of the use of natural light.

The PCC is being designed and built to be a "Magnet" hospital - a facility that attracts and retains staff by creating a working environment in which nurses, physicians, and other healthcare providers have a high level of job satisfaction and where there is a decreased staff turnover rate.

The "Magnet" designation means that the hospital has created an environment that supports nursing practice and focuses on:

• professional autonomy
• decision making at the bedside
• nursing involvement in determining the nursing work environment
• professional education
• career development
• nursing leadership

The new centre will also be designed to promote functional ability by incorporating the following "Elder Friendly" attributes:

• lounges and outside places to walk to
• hand rail assist and seating throughout
• non-glare flooring and lighting
• inboard ensuite bathrooms that allow for faster staff responses
• flat level entry to ensuite shower area
• large percentage of private bedrooms
• room for families in each bedroom
• creation of a therapeutic environment by the use of colours, textures and design
• rooms with the capacity to store patient belongings
• easy way finding with clear signage and elder friendly fonts

Financing

The Can$208 million project was financed by Depfa Bank and Dexia Credit Local, each providing 50 per cent - Can$96 million each - of the Can$192 million senior debt, financed at 5.71 per cent.

The project equity of Can$16 million was provided by the following three investors:

• Innisfree PFI Fund III - 40 per cent - Can$6.4 million
• Acciona - 40 per cent - Can$6.4 million
• Lark Care (Royal Jubilee) Investments - 20 per cent - Can$3.2 million

The debt to equity split is roughly 90:10.

Payment during the construction phase from the public sector totals Can$85 million.

The capital value of the project is Can$348.6 million.

Conclusion

The rapid speed with which the RJH reached financial close demonstrates that the P3 market in Canada is far from slowing down or stalling - particularly in the current financial climate.

Health is one of the key infrastructure needs in Canada - along with Transport - where growing population numbers and ageing facilities in many provinces has meant that hospitals are being procured and financed as PPPs.

The VfM report will be publicly available soon and is expected to show that the P3 model is not just a way to solve lack of funds, but also efficient with regards to costs, time, organisation and risk allocation.

The project at a glance