State Special Inquirer John Langoulant has named the contract awarded to Serco for Fiona Stanley Hospital services the single "worst case of financial risk taking for the State" across the entire scope of his inquiry into the previous government's management of 31 major projects from 2008-2017.
The former under-treasurer examined eight Health projects, five being significant infrastructure projects costing more than $8.2 billion, and while some were considered well managed and good value for money, others were seen as evidence of highly risky decisionmaking.
While not taking substantive issue with much of the report, WA Health pointed out in its responses that many process improvements had taken place over the nine years the report covered.
While there have been several inquiries into FSH, this one focused on the $4.3 billion Serco services contract and the decision-making process for outsourcing those services in the first place.
The report found there was no way of knowing if FSH's Serco contract was delivering value for money. There was no stand-alone business case for the decision and logical opportunities to prepare one between 2009 and 2010 were missed.
WA Health referred the inquiry to a 2007 business case, but this did not directly refer to outsourcing of facilities management.
When questioned by the Special Inquirer about the decision to proceed with an outsourced facilities management model, WA Health advised: "It was always intended in the development of the original business case about leaving the option in to outsource."
The report found a standalone case could have helped avoid the problems that dogged the hospital, including the withdrawal from the sterilisation service contract seven months after the opening.
The inquiry found no cost benefit analysis, no assessment of clinical and other risks and poorly-scoped financial modelling.
"It is astonishing further consideration was not given to preparing a stand-alone business case for a $4.3 billion contract, especially given the complexity and uniqueness of the project, the workforce implications and the financial and non-financial risks to the state," the report said.
Given this, the state was "fortunate" the contract had ended up successful.
It remained "unsatisfactory" that WA Health was unable to understand readily what savings it was making compared with providing the same services itself.
"We are just lucky frankly that it has worked out to be a reasonable contract ... you need something better than luck," Mr Langoulant told Radio 6PR on Tuesday.
The report also investigated the $1.16 billion Perth Children's Hospital, finding that though it remained within budget, it was projected to open four years after the original projected date.
There was no way of predicting cost blowouts that were still possible due to outstanding defects, contractual claims and continuing additional works.
Perth Children's Hospital is on budget. So far. Photo: Richard Wainwright
It said while planning, procurement and the appointment of John Holland as a contractor were reasonable, there had been poor oversight of John Holland and the PCH steering committees and taskforces.
These governmental units had struggled to work together productively amid the tensions of escalating issues and delays, including lead in the water supply and asbestos found in building materials.
The report also criticised the drafting of the contract to outsource the management of the Queen Elizabeth II car park. It said the contract had failed to allow for potential delays in the delivery of PCH, or for the state to cap parking costs for hospital staff.
This meant the state had by August 2017 already paid nearly $16 million in compensation to the private provider, Capella. The taxpayer was now effectively subsidising the capped staff rates and the car park had been and continued to be a financial burden on the State.
It remained "questionable" whether the public-private partnership model would eventually generate value for money for taxpayers.
The report also found that by the expiry of WA Health's IT contract in 2018, up to $81 million would have been wasted on unnecessary IT services after the contract nearly doubled in cost, having been ineffectively managed.
The delivery of St John of God Midland was beyond reproach. Photo: Richard Wainwright/AAP
The jury was out on NurseWest, a centralised casual pool of nurses for WA hospitals established in 2003 with an annual operating budget of $2 million and a total spend on contracts of $375 million for the 2008-19 period.
While a 2017 overview said this saved about 25 per cent over using nursing agencies, the Langoulant report said this did not include the overall cost of the operation and further assessment was needed.
"The Special Inquirer is of the view that the NurseWest program provides an important service for WA Health. But there are several shortcomings, including apparent inadequate oversight of its operations, to be able to fully appraise its effectiveness," he said.
The jury was also out on WA Health's increasing practice of outsourcing the transcribing of doctors' voice-recorded notes to medical typists across Australia and overseas. This cost $3.95 million from 2014-2017. While it potentially represented significant cost and time savings over in-house services, it was also fragmented, inconsistent and posed potential privacy risks for patients. A whole-of-health contract that addressed the risks was recommended.
On a positive note, the report found the $360 million St John of God Midland Public Hospital project was well managed and provided the government with value for its $180 million contribution.
Karratha Health Campus had also been managed well, though public statements that put the total cost at $207 million understated the true figure of $234 million.
The 2004 Reid Report, aimed at guiding the future direction of WA Health, was the impetus for the building of FSH, PCH and SJOG Midland, projects all intended to help improve access to and manage demand for hospitals into the future.
WA Health employs 45,000 people and is projected to make $5.13 billion and spend $8.94 billion this financial year. Last financial year it received $89 million of Royalties for Regions funding and $2.28 billion federal funding.
It represents one-third of WA's overall spending and its expenses are growing faster than those of the rest of government.
In its written submission to the Special Inquirer, WA Health stated the system had undergone much transformation and improvement over this period, particularly in the areas of governance, procurement and project management.