Royal Hospital for Children and Young People: independent assessment of governance arrangements

An independent assessment, by KPMG LLP, of the governance arrangements surrounding NHS Lothian's Royal Hospital for Children and Young People.

6 Governance and escalation arrangements

To establish the governance arrangements that were in place in relation to the Project and the line of sight of NHSL and SG, along with the escalation arrangements to NHSL and SG.

6.1 Introduction

6.1.1 In this Section, we consider the structure of the governance arrangements that were in place for the Project from the point of the Project Agreement onwards, and how matters were escalated through this structure to the NHSL Board and, ultimately, to SG. This is addressed in Sections 6.2 and 6.3 and in Section 6.4 we detail the escalation specifically in respect of the Delay.

6.1.2 In undertaking our review of the governance and escalation processes, we have, to the extent that the information was available to us allows, sought to obtain evidence that these processes were working in practice.

6.1.3 As set out in Section 5.3, the Settlement Agreement specifically addressed two of the agreed resolutions which were pertinent to the Delay. As such, in Section 6.4, we have also separately presented the governance arrangements which, we understand from our discussions and document review, were in place in relation to the Settlement Agreement and its implementation.

6.2 Governance and escalation structure within NHSL

6.2.1 The governance structure for the Project within NHSL is set out in the diagram below:

Figure 2: Governance structure

Figure 2: Governance structure

6.2.2 We set out further information in relation to each party in the governance structure and their respective interactions with other parties in the paragraphs which follow.

6.2.3 This summary is compiled from interviews performed during the course of our work, together with a review of available documentation, including minutes of the NHSL Board, Programme Board and F&R Committee. The minutes we have seen indicated that the governance structure was operating in line with that described and issues were being escalated through the appropriate channels.

Project Team

6.2.4 The Project Team, led by the Project Director, is responsible for the day-to-day Project activities and is located at the Hospital site. The Project Director provides a monthly presentation to the Programme Board, detailing progress on the Project and areas of non-compliance, along with next steps in terms of Project activities.

6.2.5 We are advised by NHSL that individuals were selected for the Project Team on the basis of their experience, both in their specialism and involvement in other projects. The Project Team includes individuals with diversified specialisms, including those with engineering, clinical, medical and operational backgrounds. The Project Team also includes technical advisors from Mott MacDonald.

Programme Board

6.2.6 As set out in Section 3 above, the Programme Board comprises of the Project Team as well as representatives from clinical and operational areas, the Deputy Chief Executive, the Director of Finance, the Director of Communications, an NHSL Non-Executive Director, a representative from SG and other stakeholders.

6.2.7 We understand that the Programme Board is responsible for oversight of the Project. Specifically, this involved:

a) Creation of a business case for the Project for approval by the F&R Committee and the NHSL Board;

b) Ownership of the procurement process and tender documentation, and the selection of three bidders (the final selection of the preferred bidder was performed by the F&R Committee); and

c) Oversight of the Project through to commissioning and completion.

6.2.8 The specific Terms of Reference (“TOR”) for the Programme Board changed over time as the Project evolved from the tender stage, through to the construction of the Hospital and beyond.

6.2.9 The Programme Board meets on a bi-monthly basis, although we are advised by NHSL that ad-hoc meetings were also held during the course of the Project, as required. The Programme Board receives a progress update from the Project Director at each meeting. In our discussions with NHSL personnel, we were informed that any actual or potential issues in respect of the Project (including the technical details) would be discussed and challenged by the Programme Board. Further, we were advised that solutions put forward by the Project Team would also be challenged and either supported or rejected by the Programme Board.

6.2.10 Matters or recommendations that needed to be escalated were typically referred to the Director of Finance as one of the two Executive Leads (the other being the Project Owner (the Deputy Chief Executive)), or the DCPP. Issues escalated would include significant changes to design, cost escalation, issues of non- compliance identified and any matters where an opinion or a decision was required from the Executive Leads. The respective Executive Lead would escalate this to the NHSL Board and also inform the F&R Committee if the issue had an impact on the financing of the Project or its duration.

6.2.11 We were advised by NHSL that, during the course of a project, it is normal practice for the Executive Leads to regularly attend the Programme Board meetings. Due to the nature of the issues that were being raised on this Project, one or more of the Executive Leads attend the bi-monthly meetings, with the Deputy Chief Executive typically chairing the meetings.

F&R Committee

6.2.12 The F&R Committee comprises:

a) Four executive directors (who were also members of the NHSL Board); and

b) Seven non-executive directors.

6.2.13 It is our understanding that the F&R Committee has delegated authority from the NHSL Board in relation to financial governance, property and asset management strategy and strategic capital projects (such as the Hospital). The F&R Committee meets on a bi-monthly basis and its remit is to ensure that value for money is obtained from projects.

6.2.14 In advance of the F&R Committee’s bi-monthly meetings, a paper called the Property and Asset Management Investment Programme (“PAMIP”) is prepared by the DCPP for discussion at the F&R Committee. This document provides an independent view of all projects overseen by the F&R Committee and gives an update on the status of the Project and any issues identified which require the F&R Committee’s consideration. The DCPP receives updates from the Programme Board and/or Project director on the status of the Project for the purpose of compiling this report.

6.2.15 We were advised by NHSL that, as the problems with the Project started to escalate around November 2015, supplemental documents were prepared by either the Project Director, DCPP or the Director of Finance, outlining these issues and recommendations which were submitted to the F&R Committee along with the PAMIP.

6.2.16 We were advised by NHSL that the papers submitted by the DCPP for any project should provide a level of assurance on specific individual matters. This level of assurance is determined by reference to NHSL’s assurance model. This model provides a rating indicating the level of assurance attributed to the issue or action, being “Significant”, “Moderate”, “Limited”, “None” or “Not Assessed Yet”. This rating is included in any recommendations made to the F&R Committee.

6.2.17 We have seen examples of this rating being given on some, but not all, of the documents we have reviewed. We understand from our discussions that, the F&R Committee would concentrate its review on those areas where the assurance rating attributed was “Moderate” or below.

6.2.18 A copy of the PAMIP and associated documents, together with a copy of the F&R Committee minutes, are approved by the NHSL Board (although, as noted above, there is significant overlap between the members of the Programme Board, F&R Committee and the NHSL Board in any event).

6.2.19 A Risk Register is also provided to the F&R Committee. This is completed by the Project Director and uses a “RAG[160] rating system to assess the risks identified and associated with the Project. A copy of the Risk Register is provided to the F&R Committee for review and to inform its view of the overall level of assurance and/or risk attached to the Project.

6.2.20 As noted above, the Programme Board does not report directly to the F&R Committee. Instead, the Executive Lead for the Project updates the F&R Committee in relation to key issues that have arisen with the Project, such as issues leading to instigation of the Dispute Resolution Process (DRP) and any significant changes to design. The F&R Committee also approves the business case for the Settlement Agreement, which is discussed in more detail in Section 6.5.

6.2.21 While the Programme Board does not have a direct reporting line to the F&R Committee, the F&R Committee does have clear sight of the operation and status of the Project and the issues that are being identified. We were advised by NHSL that, the F&R Committee provide challenge and ask questions in relation to the Project, which would normally be answered by either the DCPP or the Director of Finance (who is also a member of the F&R Committee). The technical information provided to the F&R Committee is less granular than at Programme Board level.

NHSL Board

6.2.21 As detailed above, the NHSL Board delegated its authority for the Project to the F&R Committee. The F&R Committee does not formally report into the NHSL Board. However, there is significant overlap in terms of membership.

6.2.22 While the NHSL Board has delegated authority to the F&R Committee, the minutes of the F&R Committee are reviewed and approved by the NHSL Board. As such, the NHSL Board has oversight of the status of the Project and any issues raised.

6.2.23 Issues escalated by the Programme Board to the Executive Leads for the Project are formally discussed with the NHSL Board. The NHSL Board either provide support to help resolve the position, or accept or reject recommendations made to it after discussion of the issue.

6.2.24 The Programme Board submits papers to the NHSL Board containing recommendations for the NHSL Board’s consideration. An example of this was the Programme Board suggesting that the DRP should be implemented following issues of non-compliance having been identified on the Project.

6.2.25 The NHSL Board raise challenge and questions on papers presented in respect of the Project. However, this is not a technical level of challenge. The papers submitted to the NHSL Board make reference to the technical advice provided by professional advisors on the Project. We were advised that it is not expected that the NHSL Board will review the technical advice in detail.

6.3 Escalation process for reporting to Scottish Government

6.3.1 We understand that quarterly meetings are held between the DCPP, the Head of Property and Asset Management Finance (both of NHSL) and a representative from SG’s Health Finance and Infrastructure team[161].

6.3.2 These quarterly meetings are in relation to all projects being undertaken by NHSL and primarily focus on the monitoring and future expectations for the funding of major projects.

6.3.3 The meetings (together with written correspondence between NHSL and SG) became more frequent when issues arose on the Project (for example, the dispute which arose between NHSL and IHSL and the Delay), in order to allow the Cabinet Secretary to be briefed on the position, its potential impact on the financial aspects of the Project, and the proposed course of action.

6.3.4 We were advised by NHSL that a representative from SG has a formal role on the Programme Board. However, whilst they rarely attend in person, they receive a copy of the minutes of these meetings.

6.3.5 In addition to the above meetings, NHSL provide an annual report to the Chief Financial Officer (CFO) for Health and Social Care at SG, giving an update on ongoing and potential future projects, together with a monthly Finance and Performance report. We understand that there was (and remains) open dialogue between the NHSL Board and the CFO at SG to allow any significant issues to be raised and discussed.

6.3.6 In summary, there is a formal process, in addition to an open dialogue, for the NHSL Board to raise issues with SG.

6.3.7 We were advised by NHSL that, following the Settlement Agreement, there were no issues raised to the NHSL Board in relation to the Project that required escalation to SG, or that would prevent the Hospital opening as planned on 9 July 2019.

6.3.8 In Section 3, we set out the background to the ventilation issue which ultimately prevented the Hospital from opening and how this was communicated through NHSL to SG. As set out at Section 3, once the issues which caused the Delay were brought to the attention of the NHSL Board on 1 July 2019, these were escalated to SG within 24 hours.

6.4 Escalation in respect of the Delay

6.4.1 We note that, due to the urgency of the matter, when it became known, the ultimate escalation of the ventilation issues was made direct to Executive Directors (as members of the NHSL Board) and not through the normal governance structure (by-passing the Programme Board and F&R Committee). However, by virtue of their roles in other parts of the governance structure (as described below), members of the Programme Board and F&R Committee were automatically involved in the discussions of the options that could be available to resolve the issue and not postpone the move into the new Hospital.

6.4.2 It is clear from the minutes that, ventilation issues regarding air pressure, although not specific to Critical Care, were discussed by the Programme Board and contributed to its recommendation to pursue a DRP, which was accepted by the NHSL Board. This issue was escalated through the normal governance process.

6.4.3 We have seen no discussion of, or reference to, issues specific to air changes in any of the minutes for the respective boards and committee. This is in line with our understanding that, the specific issue (being ac/hr requirements in Critical Care areas not complying with the SHTM 03-01 standard), which gave rise to a decision being made to delay the opening of the Hospital, was not known to NHSL until 24 June 2019, when IOM completed its testing of the ventilation system, and subsequently identified to the NHSL Board on 1 July 2019.

6.5 Governance arrangements in relation to the Settlement Agreement

6.5.1 In this Section, we summarise the governance arrangements that were in place in relation to the Settlement Agreement and its implementation.

Approval of the Settlement Agreement

6.5.2 As referred to in Section 5.3, we were advised by NHSL that the Settlement Agreement contained resolutions to a number of issues which had arisen during the course of the Project. We understand from NHSL that these issues had built up over time and came from a variety of sources, including the residual risk register, Project Co Changes, a list of outstanding works and proposed, but not yet approved, Project Co changes.

6.5.3 We understand from NHSL that, depending on how they had arisen, some of these issues had been subject to discussions between the Project Team, Mott MacDonald and Project Co. Such issues were raised with the Programme Board and discussed and noted at the time they arose (for example, the ventilation issue relating to pressure in four bedded rooms).

6.5.4 The negotiated solutions to these issues became the TS that was incorporated into the Settlement Agreement. The governance around approval for the TS and the Settlement Agreement are detailed below.

6.5.5 As described in Section 6.2 above, pursuing the DRP was proposed by the Programme Board and approved by the NHSL Board. Once the approval to pursue the DRP was given, discussions centred around the content of the commercial proposal put forward by IHSL to resolve the issues and avoid litigation. This proposal formed the basis of the Settlement Agreement. The F&R Committee approved the Programme Board’s recommendation to engage with IHSL to discuss their proposal and, consequently, the business case for the Settlement Agreement. The NHSL Board ratified this decision and delegated responsibility to the F&R Committee to authorise the Director of Finance and Deputy Chief Executive to sign the Settlement Agreement on behalf of NHSL.

6.5.6 The negotiations leading up to the Settlement Agreement were conducted by the “Principals Group”, which comprised the Deputy Chief Executive and Director of Finance of NHSL, and Directors from IHSL and Project Co. Others were involved, such as the Project Director and DCPP, as appropriate.

6.5.7 We set out further information in relation to each party in the governance structure and their respective interactions with other parties in relation to the Settlement Agreement in the paragraphs which follow. As before, this summary is compiled from interviews performed during the course of our work, together with a review of available documentation, including minutes of the NHSL Board, Programme Board and F&R Committee. These minutes indicated that the governance structure was operating in line with that described and issues were being escalated through the appropriate channels.

Programme Board

6.5.8 We were advised by NHSL that the issues ultimately included in the TS had evolved over a period of time and been considered by the Programme Board as they arose. We have seen evidence that, in July 2018, the Programme Board was advised by the Project Director that the TS was to be included as part of the Settlement Agreement.

6.5.9 NHSL advised us that a lot of the items in the TS were being negotiated between the Project Team and Project Co and that, as such, the TS evolved over time, with the items to be included in the TS being discussed between July 2018 and early 2019, prior to the Settlement Agreement being signed. We are advised that the TS discussed with the Programme Board included proposed resolutions to issues that were not “ideal” from NHSL’s perspective, but were “safe” for the purposes of moving towards an agreed resolution in order to open the Hospital as soon as practicable.

6.5.10 We were advised that the Programme Board was aware that Mott MacDonald (as technical advisor) was consulted in the drawing up of the TS. This was on the basis that the Project Team had been working closely with the technical advisors on the Project. The Programme Board would be provided with details of each item in the TS so they could review this and raise questions on it.

6.5.11 We are advised that the Programme Board supported and approved the content of the TS within the Settlement Agreement, although there was no formal “sign- off” process for this. In addition, in November 2018, the Project Team identified a further three major issues for inclusion in the proposed Settlement Agreement, being the void detection system, drainage, and heater batteries.

6.5.12 The Programme Board minutes in February 2019 evidence that, by that point, the Settlement Agreement had been updated for these three issues, had been agreed between the parties, and would be signed soon.

F&R Committee

6.5.13 We were advised by NHSL that, the business case for the Settlement Agreement was detailed in a paper dated 25 July 2018, presented to the F&R Committee by members of the Programme Board. Challenges and questions by the F&R Committee were answered primarily by the Project Director and DCPP, but also by the Deputy Chief Executive and Director of Finance, as required. As mentioned in Section 6.2 above, the business case for the Settlement Agreement was approved by the F&R Committee.

6.15.14 In January 2019, the F&R Committee minutes noted that the Settlement Agreement was to go to the NHSL Board for approval in February 2019.

NHSL Board

6.5.15 As described at paragraph 6.2.19, the F&R Committee provided copies of its minutes to the NHSL Board for review and approval as standard. However, a specific briefing and papers were provided to the NHSL Board by the Director of Finance on 6 February 2019 outlining the Settlement Agreement. Again, this demonstrates the escalation of issues through the governance process. We were advised by NHSL that whilst no technical details were provided regarding the proposed solutions, all papers submitted to the NHSL Board contained reference to the legal or technical assurance that underpinned the solutions. Given the governance structure in place, the technical assurance given in respect of the Settlement Agreement and TS was visible to the NHSL Board.

6.5.16 The NHSL Board minutes from February 2019 evidence that the NHSL Board discussed the draft Settlement Agreement, its terms and the potential risks arising from entering into it. Approval for the Settlement Agreement was granted by the NHSL Board on 6 February 2019 and the Deputy Chief Executive and the Director of Finance were authorised to continue negotiations on its behalf, and for either of them to sign the agreement.

Implementation of the Settlement Agreement

6.5.17 The Settlement Agreement was signed on 22 February 2019. The Hospital was due to open 19 weeks later, on 9 July 2019.

6.5.18 We understand that the implementation of the Settlement Agreement was monitored through weekly on-site meetings between the Project Team and Project Co, and that the Project Team was also on-site to observe the progress being made. At these weekly on-site meetings, Project Co were required to provide a plan of the work they were going to perform over the course of the following week. We were advised that this gave the Project Team the opportunity to challenge or question the Project Co as appropriate.

6.5.19 In addition, we understand that daily “huddles” were held amongst specialist teams, such as with clinical representatives, who would discuss matters with members of Project Co to resolve any issues identified through commissioning, or to determine when access to certain areas could be obtained. We were advised by NHSL that these regular meetings ensured that progress was being made.

6.5.20 We were advised by NHSL that the above process provided assurance to NHSL that the work that had been agreed was progressing as planned.

6.5.21 NHSL advised that the final level of assurance would be given following the sign- off by the IT. The IT would be providing sign-off based on what was contained in the design specifications. The IT would expect that these design specifications had been agreed by both parties, i.e. NHSL and IHSL/Multiplex. NHSL therefore expected that, as the IT had signed off on the building, there would be no issues when IOM performed its testing. As such, NHSL was surprised when the ventilation system was highlighted to not be performing in line with requirements.

6.5.22 We were informed that, once the issue in relation to air ventilation had come to light through the IOM report, an internal Incident Management Team (“IMT”) was set up by the NHSL Board to investigate the matters raised in the IOM report and to liaise with IHSL going forward in relation to how these matters could be rectified.

6.6 Summary

6.6.1 The governance processes and procedures surrounding the construction and commissioning of the Hospital operated in line with the structure that was put in place.

6.6.2 There was regular dialogue between NHSL and SG throughout the Project, with evidence of escalation of issues where required, albeit this was more focused on financial rather than technical matters.



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