Procurements and Contracts: Review of New Royal Adelaide Hospital Auditor General Report

This paper provides a critical evaluation of Australia's largest social infrastructural project, the new Royal Adelaide Hospital, based on the auditors' report. It analyzes various aspects of procurement, finance, marketing, and human resource support, as well as third-party contract approaches. The challenges faced by the project and their mitigation strategies are also discussed.

Running Head: PROCUREMENTS AND CONTRACTS
Topic- Case study report: Review of new Royal Adelaide Hospital Auditor General Report
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2PROCUREMENTS AND CONTRACTS
EXECUTIVE SUMMARY
The paper is based on the auditors’ report of the new construction project of new Royal
Adelaide Hospital (new RAH). The various aspects of procurement, finance, marketing and
human resource support along with third party contract approaches are evaluated based on the
information collected from the report. Various perspectives of risks, shortcomings and project
delay causes are analyzed for the hospital and final reflection on the issue is drawn based on the
discussion areas. The project is basically a PPP partnership where the South Australian state
funded the ICT design and equipment supply and the other private firms fund the rest of the
construction parts. Various aspects of construction policies and procedures are evaluated with
key roles of project and procurement manager in project completion. The various challenges
faced by the project is also analyzed and how they are mitigated to a large extent is also
mentioned here in the report. Thus, a critical evaluation of Australia’s largest social
infrastructural project is undertaken in this report to provide a holistic view of the actual aspects
and complexities of project management.

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TABLE OF CONTENTS
PART A- INTRODUCTION...........................................................................................................4
PART B- KEY RISK IDENTIFICATION AND MITIGATION...................................................7
PART C- SUMMARY OF KEY FINDINGS...............................................................................10
PART D- REFLECTION JOURNAL...........................................................................................13
REFERENCES..............................................................................................................................15

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PART A- INTRODUCTION
Context of procurement
The project encompassing the new Royal Adelaide Hospital (new RAH) is the largest
project on social infrastructure ever undertaken by the state of South Australia (Varano, 2017).
Currently it is progressing through a critical transition phase of design and construction to
operational phase and services of the existing hospital are being transitioned to the new one. It is
in the verge of closure stage and past three stages of initiation, planning and execution have
already been completed (Royal Adelaide Hospital, 2019). Design and construction work are in
work in progress stage where most design works have been completed and construction works
were well advanced to the final stage of completion (Royal Adelaide Hospital, 2019). But it is
also claimed that works were behind scheduled date delay risks are associated with completion
of clinical equipment, ICT support and facility modifications.
Complexities and key issues
A number of complexities and unresolved issues are summarized in the Audit report
findings. The assurance framework is not up-to-date and need to be improved to support program
and process assurance. The business case for the project has not been completed and updated and
formal monitoring process development is yet to be completed to support the business plan
(Owen, 2018). The whole-of-life costs of clinical equipment were also not provided which
increases the difficulty level in monitoring. Also, the scope of improving reporting is nil in this
case. In addition to these the budget and finance reports are not updated and forecasts were not
adequately documented. Information on project contingencies provided to the committee was
insufficient in enabling effective oversight of the project prospects (Arashpour et al., 2017).

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Shortfall in funding and increase in cost pressure were also not mentioned. The contract
management framework for clinical equipment and ICT support was not up-to the mark and has
a number of loopholes in it (Owen, 2018). Other notable challenges include timely settlement of
claims, communication and decision-making issues, insufficient training of staffs, industrial
disputes, enhanced risk assessments and lack of a well framed service delivery plan in line with
operational planning (Arashpour et al., 2016).
Project environment and organizational aspects
The new RAH comprises of two areas of design and construction having total nominal
budget of $2.3 billion approx. It is a part of the health reform program by the Government that
ensures that the state has a well-articulated, responsive and suitable system of health for meeting
future contingencies (Royal Adelaide Hospital, 2019). The hospital has teaching and research
facilities and is located near the South Australian Health and Medical Research Institute and
University. The new RAH replaced the existing RAH and provides both secondary and tertiary
heath care services (Bernstein, 2015). The new RAH will play extensive roles in terms of
complex medical, diagnostic, surgical and other state-wide support services (Owen, 2018). The
location has close proximity to amusement parks, river Torrens and other state transportation
services. The PPP model is used in the project where the state will only provide the clinical
equipment to the hospital and other arrangements are to be supported by the private sectors
involved (Varano, 2017).
Leadership and governance
The key leadership governance includes Minister of Health on behalf of the state, SA
Health administrative unit, Project Co, financers, designers, builder subcontractors and other

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facility management subcontractors (Bryde, Broquetas & Volm, 2013). The Calcutta group
independent consultant was in charge of overseeing the project and in ensuring that the intended
benefits are in line with the health system of South Australia. A governance framework for
examining accountability and responsibility is recommended along with the establishment of a
new RAH program to support operational success of interrelated projects (Bygballe, Swärd &
Vaagaasar, 2016). Integrated Program Management Office was established, a new steering
committee was appointed and also a new operations board was developed. An interim Program
Director was appointed to focus on oversight works (Davies & Harty, 2013). Also, the DPTI was
in charge of managing infrastructural delivery. The change in leadership governance has
influenced the current situation in a positive manner. The leaders in each work stream are
accountable in delivering their specified work package based on time, cost, responsibility,
quality and other benefits (Ekeskär & Rudberg, 2016).

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PART B- KEY RISK IDENTIFICATION AND MITIGATION
Reporting of risk and mitigation strategies
One of the main features of sound project management is establishment of effective risk
management strategies that includes identification, implementation and monitoring of the various
risk mitigation strategies (Eriksson, 2017).
From 2014 September, onwards a Strategic Registrar is present in the Committee and the
role of the registrar is to list the high, moderate and low risk situations and provide a brief
description of each kind of risks. But in many cases the description provided was vague and was
not able to convey the exact message to the committee and as a result the understanding of the
exact nature and origin of the risk was difficult (Fewings, 2013). Also, the strategies
implemented to mitigate the risks were also not mentioned and so the current stage of progress
remained in vague. In case of delivering the project a number of risks were significant which
increased the complexity of project delivery and time frame, patient safety and financial
exposure to risk did not lower significantly (Jelodar, Yiu & Wilkinson, 2016). Here faults from
the side of the Registrar are considered as it was assumed that the individuals in charge of the
responsibility of management and monitoring did not have clearer idea of what need to be done
and as a result risk mitigation strategy lose their effectiveness (Kayış, Erhun & Plambeck, 2013).
Risk exposure
The exact nature of the various project risks, exposure and mitigation of risks may not be
fully understood by the committee and therefore management suffered.
Recommendations

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SA Health is highly recommended to revise the risk information and related strategies to
ensure the committee better understanding of the nature and consequence of the risks so
involved. Detailing of strategies is also recommended (Krantz & Larsson, 2017).
Response
The SA Health mentioned that the risk reporting that are provided to the committee are
been progressively improved and treatment measures were additionally included in strategic risk
management plans and a summary of control and independent assessment of the risk status is
also provided by the iPMO.
Other areas of risk management that needs improvement
In addition to the above there are a number of other areas that need immediate improvement
and attention of the management, such as,
 There is a lack of policy guidance about who can approve the key changes made in the
information being recorded in the risk register. Also, the basics and approval for addition
or removal of risks from the registrar are also not documented most of the times
(Merschbrock & Munkvold, 2015).
 There are many such instances where the risk names and description of the risk varies
from register to register which makes it really difficulty to identify the specific risk and
track them on monthly basis.
 The due treatment dates for the recorded risks in the strategic register in many cases
elapsed without timely update available.

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 The inconsistencies in risk information provided by the risk registrar and the project
director make it difficult for the committee in deciding upon which information to rely on
(Kwakye, 2014).
Risk exposure
The members of the governance committee may not understand the basis of the changes
being made to the risk information that are recorded in the risk registrar. And this will cause
ineffective management of project risks and will case complexity in risk mitigation (Pandey et
al., 2017).
Recommendations
A well-structured policy guidance establishment is recommended so that changes are
made in compliance with the policy. The key changes thus made are highlighted and disclosed to
the committee voluntarily (Mignone et al., 2016). A mechanism is also recommended to
implement that will ensure consistency of the information being recorded and so that discrepancy
in policy changes is understood beforehand.
Response
A new Integrated Risk and Program Committee is established that will recommend
various changes for approval by the committee and a new RAH Project risk is implemented that
has a unique ID for monthly review of risk information and also has additional policy guidance
for better documentation process (Owen, 2018).

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PART C- SUMMARY OF KEY FINDINGS
A summary of the key findings is provided below.
Project governance, assurance and reporting arrangements
The independent consultant focused on governance, resource and PPP relationships, ICT
programs, procurement and operational commissioning based on the previously followed up
recommendations. Significant progress was found in most areas but a few areas still need quick
actions. The assurance matrix framework needs to be redefined to support independent assurance
to the committee on program achieved so far. The business plan also needs to be completed and
updated to the committee to support effective plan monitoring (Pandey et al., 2017). The whole-
of-life costs of the clinical equipment need to be reported so that monitoring of overseas project
becomes comprehensive for the committee. And above all there is scope of reporting
improvement by the Project Director.
Budgetary and financial management
Budget and financial reporting need to be improved in areas of actual date, expenditure,
variances, forecasts and documenting so that fund allocation become easier and meaningful
(Fewings, 2013). All forecasts need to be documented along with project contingency
information so that delay in project delivery can be restricted (Roehrich & Lewis, 2014). Policy
guidance of approval need to be followed. ICT budget has cost pressure issue and need to be
reviewed so that gap in budget can be mitigated effectively (Davies & Harty, 2013). Any kind of
budgetary shortfall need to be mentioned and should not be like the case of ICT budget which
was not reported in front of the committee. Documentation improvement scope is there which

11PROCUREMENTS AND CONTRACTS
will allow the cabinet to reconsider the funding request and will thus support timely completion
of the project (Roumboutsos & Saussier, 2014).
Risk management
Information in risk provided to the committee need to be improved so that better
understanding of the nature, status and consequences of the strategic risks are supported and
optimal mitigation strategies are undertaken (Roehrich & Lewis, 2014). Process improvement is
also needed to approve the key changes which needs to be highlighted to the committee and
should be documented properly in the risk registers.
Contract administration and management
For the clinical equipment procurement program there was insufficient contract
management framework and status review of the various ICT professional services need to be
focused upon (Davies & Harty, 2013). Enhancement scope is there which can be done by proper
and timely documentation of contract information and ensuring timely reporting of compliances.
Procurement
Previously Project Co has various non-agreed terms and conditions in regard to
procurement services of PPP but now they have been sorted out and a commercial settlement is
reached. The frequency and content provided in case of clinical equipment procurement
programs can be improved which will also improve reporting (Roehrich & Lewis, 2014). The
probity assurance service agreement does not provide sufficient details and the risks so
associated with it need to be focused on in a deeper manner.
ICT

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The new RAH ICT program is developed in line with enterprise ICT program and the
plans so associated to it are in different stages of completion and maturity. A strategic accusation
plan needs to be developed so that ICT service consistency, transparency and effective resource
utilization is ensured at large (Davies & Harty, 2013). A number of contract management
arrangement areas in aspects of ICT procurement need to be improved to support effective
completion of the project on due time.
The roles of project and procurement manager in successful delivery of the project is
noteworthy. The procurement manager ensures company budget is maintained and operations are
profitably viable. They play and integral role in monitoring business trends and product
availability so that quality and delivery time are not sacrificed at any means (Kwakye, 2014).
Healthy relationship maintenance with suppliers is also supported by the procurement managers.
The whole function of the purchasing team is overseen by the procurement manager. A project
manager is the backbone of the project where the overall responsibility of the timely project
completion is in his/her shoulder. The main tasks include initiation, planning, designing,
execution, monitoring, controlling and final project closure (Roumboutsos & Saussier, 2014).
Risk management is another important job role of a project manager. A project manager is
responsible for taking the right decision on behalf of the organization and the strategic level
managers support the decision made by the project manager. So, no project can be accomplished
without the help of both procurement manager and project manager.

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PART D- REFLECTION JOURNAL
Managing complex projects is not everyone’s cup of tea and for this market knowhow
and experience both matters equally. For construction projects the main complexity is in the
financial and procurement areas. A pre-evaluation of various expenditures needs to be made and
based on that budget allocation is to be divided. Procurement budget is not equal for all areas and
there is a sharp fluctuation in budget requirements (Ekeskär & Rudberg, 2016). For example, in
the case of new RAH the ICT equipment budget is much higher than other budgets and service
transition cost of this new RAH is much higher than the existing one. For PPP projects fund is to
be divided among both government and private entities supporting the project. Here the ICT
funding is to be supplied by the state and rest by the private companies. And if there is any
budget constraint the whole project will suffer and it supports the $640 million over budget in
new RAH (Owen, 2018). Settlement payment claims, operating costing and delay costs have
increased the financial burden of the new RAH project and more find it to be arranged to reduce
the delay time of 18 months of project completion. A co-operative approach on project
completion delay is been agreed upon by both the state and the Project Co and along with this a
specified pricing methodology is also agreed upon that will ensure no further project delay and
no miscommunication among parties involved (Varano, 2017). The procurement manager could
extend vendor negotiation in areas of other design structuring so that the project succeeds within
the provided budget. The procurement manager and the project manager need to be more flexible
in their approach and need to have a clear understanding of various market volatilities so that
contingencies can be mitigated effectively (Kwakye, 2014). And for that excellent team support
and clear interaction in the hierarchy is necessary. Performance-based contract should be focused
and it should be mentioned in the contract beforehand that under-performance should not be

14PROCUREMENTS AND CONTRACTS
tolerated by any means. Also, a lot of external factor contingencies play major roles in the
completion of larger complex projects and for that a higher level of market fluctuations and risk
situations need to be considered from the initial stages and alternative plans should be decided
upon previously (Krantz & Larsson, 2017). What is suggest here is that the team support should
be higher and increased team cohesion will enable timely completion of the project, however
complex it may be.

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