This report analyzes the challenges being faced in the project of Royal Adelaide Hospital and discusses the initiatives taken the authorities to manage the challenges. Furthermore, it includes the analysis of the stakeholders involved in the project. Eventually, it analyzes the funding models and financial arrangement took place in the project of RAH.
The new Royal Adelaide Hospital is the biggest project of social infrastructure till date. It was budgeted around $2.3 billion. This hospital is supposed to be most advanced and equipped hospital in the Australia. It is a very massive project in nature (Dunstan and Tiedtke, 2012). However, from the analysis of case study of Royal Adelaide Hospital, it is found that there were different risks in this project such as delay in the project due to its massiveness, cost pressure, incapable to meet the requirements in PPP contract, industrial conflicts, and lack of training to the staff, and others.
Therefore, the project of New Royal Adelaide Hospital is facing different issues and challenges in further steps after construction, facility testing, and transformation planning to the target newly decided in November 2016 (GOSA, 2015). The project is going through the crucial and critical stage of project life cycle that is transition stage. The RAH is being transited into the new RAH that is very large and complex project not done ever before. Therefore, it poses great challenges and risk which includes:
The SA Health and governance committee has extended the opening date 76days ahead that might help in mitigating the risk previously identified in the project (GOSA, 2015). However, the project is still facing number of challenges and difficulties such as
To face out these challenges, the project team management team in the project of new Royal Adelaide Hospital focused on the detailed transition and operational readiness planning. To manage the project effectively and to overcome the issues above discussed, the SA Health hired an independent consultant so as to take the functional review as well as governance review of new RAH project or program. The consultant provided the SA Health and Governance Committee with some recommendation to manage the project (GOSA, 2015). The Calcutta group and sub consultants Accenture performed the role of assurance for new RAH program. Four reviews have been undertaken that include Governance Review (2013), Governance Implementation Review (2014), Functional Review (2015), and Governance Implementation Review (2015). These reviews have helped to identify the potential risk and challenges in project implementation such as time and budget constraints and others (Puddy, 2016).
The project is at very large scale facing various challenges of budgetary pressure and time constraints. The SA health can review and improve the term of reference of Operation Board to control the diminishing effectiveness of the Board. The State and Project Co must effectively and clearly identify the key milestone to complete the project on time. The SA Health can focus on the operational and transition planning to remove many of the challenges. The Deed of Settlement has been highly highlighted in the case study to settle all the contamination claim of extension of time, increasing budget and others. The subcontractors have been used in the project that can help in managing the project and completing the project on time.
Stakeholders are the parties directly linked to the project execution and functioning or services of the project. The stakeholders may be such as government goodies and agencies, project team, employees, project manager, customers, suppliers, and others stakeholders. In the project of new RAH includes different stakeholders such as SA Health, Private Builder, IT Management, Health care management, and planning department, Environment Protection Authority, Patients, project manager, health care providers, public, NGO, RAH itself and others. The case study highlights and discusses the content and arrangement of public private partnership (GOSA, 2015). The project has been erected by the partnership organization comprising of the Statement government and Project Co. (SA Health Partnership Pty Ltd). The project is based on the PPP arrangement.
Furthermore, the stakeholders are highly involved in the project management and controlling of the new Royal Adelaide Hospital. The SA Health and Governance Committee is the public body stakeholders of the project, which is engaged and closely related to the project. They involve in the project to keep the execution and implementation on the track. Apart from this, the Department of Health Care, Private Builder, Project Manager, and others are highly involved in the project implementation. The SA Health and an external consultant hired are highly involved in the project management of the new RAH (GOSA, 2015). SA Health and external independent consultant review the project in terms of functional and governance review at different point of time during the period of project implementation to address the issues and challenges and develop the actions to remove the challenges in order to complete the project on time and within the budget. Along with this, Project Co is the partner in the project with SA Health that plays a vital role in the designing, developing the project and funding as well.
Source: (Harrison et al, 2010)
The above chart is showing that which stakeholders are more concerned and interested in the project. The external consultant and project manager have low interest in the RAH program, however, have a high influence on the project. It is because the external consultant has reviewed the implementation of the RAH project and programs in terms of function and governance of the project. Similarly, the SA Health and Project Co are highly involved in the project because they work according to the requirement of PPP arrangement in the execution of the project of new RAH programs.
There may be potential conflicts between the partners in the project. There may be potential tension and conflicts between SA Health or State and Project Co as State will have to pay for the maintenance, construction, and operational services of Project Co. The project has a deviation in the budget and in time as well that may cause the tension between them (GOSA, 2015). Apart from this, they two have breached some condition and terms of the project arrangement between them that may also result in conflicts between them. Therefore, the Minister for Health or State representatives and Project Co can execute a Deed of Settlement for resolving their disputes, settling the claims, and project modification. Apart from this, there should be effective negotiation and conciliation take place between the stakeholder’s group such as Minister for Health, SA Health, Financers, and Project Co (Worldcom, 2017).
There are different stakeholders group in the project of RAH. Therefore, every stakeholder has a different concern to the project. Public and private stakeholders are included in this project. The need of SA Health, Project co, Financers, Builders, and Subcontractor were identified by need analysis for the stakeholders (Aconex, 2017). The requirement of the project helped in identifying the need for stakeholders. The model used above states that which stakeholders should be given more attention. However, a PPP arrangement was made between Project Co and State, which defines their responsibilities and role in the project (GOSA, 2015). This arrangement was used to resolving the competing interest between public and private stakeholders.
There are contractual agreements between the stakeholders that manage their interest in the project. Every stakeholder was assigned with responsibilities and roles in the execution of the project (CTB, 2017). The project agreement transfers most of the risk to the Project Co. There was agreement between the stakeholder that if any stakeholders cause delay and do not perform its responsibility, it will have to pay for it (GOSA, 2015). This has helped in managing the interest of the stakeholders in the project. Along with this, this has caused supportive relationship among stakeholders that is also beneficial in managing the interest of the stakeholders (Harrison et al, 2010).
The new RAH project is being completed and funded by PPP arrangement and by the Works Funded by State. The PPP deliver y model has been used to raise the fund for the project. Apart from this, initial cost model has been used to estimate the cost to be incurred in the project.
Source: (GOSA, 2015)
From the above picture, it is well clear that what funding models and what financial arrangement has been used in the project of new RAH. The finance for the project was raised from the state government as well as external financiers.
The project is too massive and complex project. It was allocated the budget of $2.3 billion. However, the project was not financially sustainable as it the project cost has exceeded the budget approved (Scopelianos, 2017). In starting the Cabinet approved the budget of $244.7 million for state works but it was not enough to complete the project. Therefore, the Cabinet revised the budget and increased it to $248.1 million in 2012. Apart from this, an additional fund of $176.6 million was approved by Cabinet for the effectively transiting the RAH to the new RAH (GOSA, 2015). At the same time, the construction and design were funded in PPP arrangement by Project Co that was approximate $1849.8 million. However, there was cost pressure in the project. For resolving the issue, the State revised the budget and increased the fund capital to complete the project.
The PPP arrangement has created a contractual obligation and trades off between the services of stakeholders and building infrastructure. According to this arrangement, if the subcontracted builders delay in the project, then the Project Co could apply for getting its damages liquidated from its builders and to pay further to its financiers (Grimsey and Lewis, 2007). Similarly, if there is a delay due to State prior to Commercial Acceptance, the state will have to pay about $1 million per day to compensate the prolongation cost and finance cost of the project (GOSA, 2015). After commercial acceptance, the Project Co has been liable to pay full-service expenses both finance and operating cost.
There is still opportunity before the State and Project Co to raise and manage the finance for the project. There are only financiers and state cabinet of the project right now. The State can issue the bond in public and the Project Co can issue the equity to meet the requirement of project finance. The state can issue bond and Treasury bill as well (Gatti, 2013). The bond may be at zero coupon rates, floating rate, and fixed rate. Bank Loan may also be the effective source of the loan. But for the best mechanism and method, there are different factors, the Project Co and State must consider such as Cost of the source, cash flow, maturity, control dilution, availability, yield curve, time and the risk linked to the source and methods of project finance. The public private partnership and Private Finance Initiative contract provide the opportunity to have the advantage of large funding to the project (Davies et al, 2009)
Conclusion:
From the above analysis, it can be said that the report has effectively analyzed the challenges, stakeholders and funding model and financial arrangement from the case study of new RAH. The project is facing challenges such as budgetary pressure and delay in project delivery. Apart from this, the State, SA Health, builders, financiers, Project Co, and Subcontractors are the main stakeholder of the new RAH. These are highly involved and have high interest in the project. Further, PPP cost arrangement and State Works Funding model have been used in this project.
References:
ABC (2017). New Royal Adelaide Hospital construction will end in March, SA Government promises. Retrieved from https://www.abc.net.au/news/2017-02-12/new-royal-adelaide-hospital-court-action-ends/8263538
Aconex (2017). Aconex delivers Rx for managing large hospital project. Retrieved from https://www.aconex.com/projects/royal-adelaide-hospital
CTB (2017). Section 8. Identifying and Analyzing Stakeholders and Their Interests. Retrieved from https://ctb.ku.edu/en/table-of-contents/participation/encouraging-involvement/identify-stakeholders/main
Davies, A., Gann, D., and Douglas, T. (2009). Innovation in Megaprojects: Systems Integration at London Heathrow Terminal 5. California Management Review, 51( 2), pp 106-108.
Dunstan, K., & Tiedtke, D. (2012). Maintaining nutritional intake in adults admitted to an acute medical ward in a tertiary hospital: A best practice implementation project. PACEsetterS, 9(2), 30-35.
Gatti, S. (2013). Project finance in theory and practice: designing, structuring, and financing private and public projects. UK: Academic Press.
GOSA (2015). Report of the Auditor General: New Royal Adelaide Hospital report: November 2015. Retrieved from file:///C:/Users/pintu/Downloads/New_Royal_Adelaide_Hospital_Report_2015.pdf
Grimsey, D., & Lewis, M. (2007). Public private partnerships: The worldwide revolution in infrastructure provision and project finance. UK: Edward Elgar Publishing.
Harrison, J. S., Bosse, D. A., & Phillips, R. A. (2010). Managing for stakeholders, stakeholder utility functions, and competitive advantage. Strategic Management Journal, 31(1), 58-74.
Puddy, R. (2016). Defects and delays keep Royal Adelaide Hospital on critical list. Retrieved from https://www.theaustralian.com.au/news/inquirer/defects-and-delays-keep-royal-adelaide-hospital-on-critical-list/news-story/eb8f5a578761be87b9d06d94eabaa365
Scopelianos, S. (2017). Timeline: New Royal Adelaide Hospital plagued with issues from the start. Retrieved from https://www.abc.net.au/news/2017-01-24/new-royal-adelaide-hospital-plagued-with-issues-from-start/8204004
Worldcom (2017). 5 strategies for effective stakeholder management. Retrieved from https://worldcomgroup.com/5-strategies-for-effective-stakeholder-management
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