Madam Speaker – I would like to update the House on the Royal Hobart Hospital redevelopment project.

The Royal Hobart Hospital is Tasmania’s major teaching hospital. It is also one of the oldest hospitals in Australia, having operated on the current site since 1820, with buildings dating back as far as 1939.

In 2006, the former Government announced it would build a new hospital on a greenfields site at Macquarie Point, arguing the current site was constrained and to build on this site would present major redevelopment problems.

In 2009, the former Government abandoned the greenfields site after spending over $10 million on its planning, because of cost escalations and worsening economic conditions for Tasmania.

In 2010, the former Federal and State Governments agreed to redevelop the existing site, with funding of $225 million from Tasmania and $361 million from the Commonwealth.

The largest component of the redevelopment was the $365 million inpatient precinct.

The former Government handed the management and governance of this major redevelopment to the hospital itself, then to a peak multi-agency review body, which was subsequently superseded in May 2012 by the RHH Redevelopment Review and Advisory Committee.

Although this Committee did not govern the project, in September 2012 it had identified significant planning deficiencies.
In December 2012, a new project governance structure was established by the former Government, transferring the project from the hospital to the Department of Health and Human Services, and creating an Executive Steering Committee.

By early 2013, the Steering Committee had established the project could not be built within budget, was inconsistent with the Development Application approved by the Hobart City Council, was inconsistent with the Intergovernmental Agreement signed with the Australian Government, and had less than half its models of care signed off by Royal Hobart Hospital clinicians.

The hospital redevelopment had changed so much that a new Agreement was secretly signed with the former Prime Minister Kevin Rudd just hours before the Federal election was called.

This new agreement reduced the size and scope of the project, and revealed that timeframes had significantly blown out.
For the first few years of the project, the Royal Hobart Hospital imposed a “no decant” condition on the project, as a non-negotiable element necessary for success and patient safety, and original tenders were sought on that basis.

The hospital then changed its position on the construction methodology, and former Minister, Michelle O’Byrne, announced this in late November, under the guise of a faster, safer build.

However, what the former Minister did not tell Tasmanians was the new methodology involving decanting 30 per cent of hospital patients would come at a multi-million dollar cost and new, potential…significant potential … for further delays and penalties that would leave the redevelopment project with a contingency budget that is now deemed inadequate.

The former Minister also did not to tell Tasmanians that the Executive Steering Committee, which she herself established, had written to her expressing serious concern about the management of hospital to effectively deliver on hospital-related project and decanting activities necessary for the project to proceed.

While a Guaranteed Construction Sum was negotiated just prior to the caretaker period in February this year, such were the inherent risks associated with the redevelopment project, including the decanting, that the Executive Steering Committee would not and did not recommend that the Crown accept that offer, despite the former Minister requesting such advice. These facts have never been provided to the Tasmanian community before today.

Just two days before election day she decided to table a letter written to the Chair of the ESC indicating concern with the governance of the project and exposure to the State.

Since first raising the prospect of a new hospital in 2006, the previous Labor and Labor-Green Governments have spent millions of dollars with no outcome for Tasmania’s health system and Tasmanian taxpayers.

Madam Speaker, this was the situation that confronted the incoming Government.

Immediately on taking office, the Government prudently sought advice on the status of the redevelopment project.

That advice raised a number of concerns about the outstanding risks and capacity to deliver the new inpatient precinct on time, on budget and with minimal disruption to existing health service delivery.

In particular, concerns were raised about the costs and risks of decanting and the subsequent exposure to the Crown to risks from the changed method of construction. These risks included financial, timing and patient safety. We were advised that it is clear that the original timeframes required to allow the demolition of B block in a timeframe consistent with the Managing Contractor’s GCS offer simply could not have been met, thereby imposing significant costs.  Costs which Tasmanian taxpayers would have to pay.

The new Government was informed that key risks must be properly addressed if the project could ever be considered to proceed to construction.

The initial advice to our Government also related to recurrent funding available at the project’s completion for the operation of the hospital at increased capacity, representing a further budget risk from 2017 onwards.

Subsequent to receiving that advice, the Premier sought and received further advice from the Department of Premier and Cabinet, and the Department of Treasury and Finance.

I can indicate that both Departments expressed significant concern about the management of the Royal Hobart Hospital redevelopment project since inception, and indicated the project still faced major risks including adverse budget impact due to significant capital cost overruns and increasing operating costs, major delays in completing the proposed works and service disruption.

Further, the Government learned it was unlikely the current proposed construction could be completed within the available capital budget, notwithstanding that more than half the contingency was required before construction had even commenced largely due to the need for a full decant of patients arising from the very late change to construction methodology in November 2013.

Like the Auditor-General’s report into this project, which found the project had been hampered by mismanagement and poor governance, we were advised the redevelopment had had multiple design changes, often in contradiction to earlier positions, and these changes had resulted in iterative planning decisions conservatively estimated at $7 million.

Advice received was that proceeding now to accept the GCS for the RHH redevelopment project presented a high level of financial and other risk.

Madam Speaker, the Royal Hobart Hospital project is already almost $25 million over budget.

In addition, almost 30 per cent of the sums included in the guaranteed construction sum are provisional, allocations in the budget for costs such as ICT and furniture, fixtures and equipment are clearly inadequate, and the real costs of the decanting required to enable the project to proceed have been under-estimated.

We believe, when all these factors are taken into account, the project at its current stage of readiness as the Government has inherited it could go to as much as $70 million over budget.

On top of that, there are increasing recurrent operating costs into the future which have not been factored into the forward estimates.

Significantly, these concerns are backed by the report from the Commission on Delivery of Health Services in Tasmania – an independent panel of eminent health experts appointed by the previous Federal and State Labor Governments. The Commission comprises members Mr Alan Bansemer, Dr Heather Wellington, and Associate Professor Alasdair MacDonald.

The Commission has expressed serious concern about the mismanagement of the Royal Hobart Hospital redevelopment and recommended the development be placed on hold in its interim report to both Governments released last week.

The Commission found the development under the previous State Government was ‘flawed’ and displayed a ‘lack of appropriate planning and consultation’, including substantial spaces and excess capacity that will not be used. The Commission’s interim report also said that, “from the information available to the Commission, it would appear that the planning process was seriously deficient. What is of most concern is that it has been divorced from any connection to a statewide service plan or regard to new capital assets elsewhere in the State.”

It concluded the current building design over-capitalises anticipated future demand, questioning how it was possible to plan and build capacity that was not operationally affordable.

Madam Speaker, the Government has been transparent and honest with Tasmanians.

We have outlined the exposure to Tasmanian taxpayers associated with the current project, and the Government has determined that the redevelopment project cannot proceed as is.

This project is riddled with risk, and is over-budget and unaffordable into the future.

It would be foolhardy and irresponsible for my Government to continue with the current project as it stands, and how it got to this stage will be subject to an independent investigation and report to Government.

However, I want to assure Tasmanians and Tasmanian health professionals of this: The Government will not abandon the redevelopment of the Royal Hobart Hospital despite these significant challenges we face.  Last week, the Government resolved to rescue the redevelopment, and we remain committed to that.

Cabinet has now agreed to establishment of a high level Royal Hobart Hospital Rescue Taskforce.

That taskforce will comprise three members with expert credentials, backed by a reference group made up of key stakeholders with an interest in, and commitment to, the redevelopment.

The Rescue Taskforce will commence its work immediately and report to myself as Minister, and to Cabinet, within six months.

The terms of reference of the Taskforce will be to –

(1) examine and make recommendations regarding the overall capital and operating financial risk profile of the project, and the hospital following completion of the works;

(2) examine the construction methodology of the project and evaluate its achievability, level of risk to patients, cost implications and timeframes against viable alternative methods of construction and make a recommendation about the preferred construction methodology for proceeding with the project;

(3) recommend a comprehensive, costed and implementable decanting plan that supports the preferred construction methodology;

(4) recommend a project governance and management structure sufficient and able to effectively and efficiently govern and manage the next stage of the project;

(5) Provide an overall recommendation on whether to proceed with the acceptance of the Guaranteed Construction Sum presented by the Managing Contractor, to reject that offer or to proceed with another course of action;

(6) Examine and make recommendations on any other matters related thereto.

In undertaking its work the Rescue Taskforce must consider the Royal Hobart Hospital redevelopment in light of the broader context of Tasmania’s health care system into the future – as recommended by the Commission on the Delivery of Health Services in Tasmania.

The timeframe for review is up to six months, but I hope it will be quicker than that.

The overall cost of the review is not expected to exceed $1 million, which will be drawn from the redevelopment funds.
The operation of the Taskforce will also be supported by a secretariat provided by the Department of Health and Human Services.

Madam Speaker, I am pleased to advise the House that the joint venture partners have agreed to hold their bid open during that period so the Crown faces no financial penalties while we are seeking the best way forward for the redevelopment.

I can also confirm that I have spoken to the Federal Health Minister, the Hon Peter Dutton, who is supportive of our approach, and will not seek to claw back redevelopment funds or otherwise penalise us.

While there may be some re-direction of roles of project staff currently seconded to the redevelopment, these matters will be examined as part of the role of the task force to oversee care and maintenance aspects of the project.

The current governance arrangements including the operation of the Executive Steering Committee, Project Control Group and the Governance Instrument will be suspended forthwith, while the Rescue Taskforce completes its work.

Monthly reports will be provided by the Rescue Taskforce to Cabinet and the Australian Government, and the final report will be provided to Cabinet.

To all Tasmanians and to Tasmanian health professionals, I want to stress that the review of this project I am announcing today is not aimed at abandoning the redevelopment of the Royal Hobart Hospital. Nor are we contemplating a greenfields site option.

This Taskforce has an explicit and necessary purpose. We want to rescue the Royal redevelopment, that’s what this Taskforce is all about.

The membership of the expert Taskforce, and the make-up of the reference group, will be announced at the earliest opportunity to ensure the review can commence immediately.

We know that Tasmanian health professionals and hospital workers have been frustrated by constant change of plans and setbacks with this project, and discouraged by the lack of direction and poor governance associated with the project.  And I will be inviting key stakeholders to be part of the Rescue Reference Group, so that their views can be heard.

At the conclusion of the work of the Taskforce, the Government will be in a position to act decisively for the future of the Royal Hobart Hospital with a clear direction.

More importantly, we will be able to ensure the delivery of a redeveloped hospital that not only meets the State-wide health needs of Tasmanians now and into the future, but provides a modern and operationally efficient hospital that our health professionals will be proud to work in.

This Government remains strongly committed to this objective.

Madam Speaker, the Government will resolve the mess it inherited with the Royal Hobart Hospital redevelopment and I will be further updating the House on developments as the work of the Taskforce progresses.

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