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[P.P.4K Report of the Auditor-General Supplementary Report for the year ended 30 June 2015 _______________________________________________________ Tabled in the House of Assembly and ordered to be published, 19 November 2015 __________________________________________________________________ Second Session, Fifty-Third Parliament New Royal Adelaide Hospital report: November 2015 By authority: P. McMahon, Government Printer, South Australia ____________________________________________________ 2015 General enquiries regarding this report should be directed to: Auditor-General Auditor-General’s Department Level 9 State Administration Centre 200 Victoria Square Adelaide SA 5000 Copies may be obtained from: Service SA Government Legislation Outlet Ground Floor 108 North Terrace Adelaide SA 5000 Website: www.audit.sa.gov.au ISSN 0815-9157 Level 9 State Administration Centre 200 Victoria Square Adelaide SA 5000 DX 56208 Victoria Square 18 November 2015 Tel +618 8226 9640 Fax +618 8226 9688 ABN 53 327 061 410 audgensa@audit.sa.gov.au www.audit.sa.gov.au The Hon R P Wortley MLC President Legislative Council Parliament House ADELAIDE SA 5000 The Hon M J Atkinson MP Speaker House of Assembly Parliament House ADELAIDE SA 5000 Dear President and Speaker Report of the Auditor-General: Supplementary Report for the year ended 30 June 2015: New Royal Adelaide Hospital report: November 2015 Pursuant to the provisions of the Public Finance and Audit Act 1987, I present to each of you a copy of my Supplementary Report for the year ended 30 June 2015 ‘New Royal Adelaide Hospital report: November 2015’. Content of the Report Part A of the Auditor-General’s Annual Report for the year ended 30 June 2015 referred to audit work on the new Royal Adelaide Hospital that would be subject to Supplementary reporting to Parliament. This report provides detailed commentary and audit observations on aspects of the review of the new Royal Adelaide Hospital project. Acknowledgements The audit team for this report was Andrew Corrigan and Philip Rossi. I also express my appreciation for the cooperation and assistance provided by the staff of the Department for Health and Ageing and the Department of Planning, Transport and Infrastructure during the course of the audit. Yours sincerely Andrew Richardson Auditor-General Table of contents New Royal Adelaide Hospital report 1. Executive summary ...........................................................................................................................1 1.1 Introduction ...........................................................................................................................1 1.2 Audit approach and scope......................................................................................................1 1.3 Project delivery status ............................................................................................................2 1.4 Project budget and cost status ................................................................................................3 1.5 Summary of key audit findings and observations .................................................................3 1.5.1 Project governance, assurance and reporting arrangements ....................................4 1.5.2 Budgetary and financial management .....................................................................4 1.5.3 Risk management ....................................................................................................5 1.5.4 Contract administration and management ...............................................................5 1.5.5 Procurement.............................................................................................................5 1.5.6 ICT functional, procurement and contractual dependencies ...................................6 1.5.7 Other key observations ............................................................................................6 1.6 Key challenges .......................................................................................................................8 1.7 Concluding comments ...........................................................................................................8 2 New Royal Adelaide Hospital Program background ......................................................................10 2.1 Background ..........................................................................................................................10 2.2 Drivers and expected benefits of the new Royal Adelaide Hospital ...................................11 2.2.1 Reforms to the State public health system ............................................................11 2.2.2 Project objectives ..................................................................................................11 2.2.3 Strategic drivers for the project .............................................................................12 2.2.4 Project risks ...........................................................................................................13 2.2.5 Contamination remediation contractual risk .........................................................14 2.3 Implementation approach for the new Royal Adelaide Hospital ........................................15 2.3.1 Overview of the project delivery arrangements ....................................................15 2.3.2 Responsibilities and services provided by Project Co...........................................16 2.3.3 Project Co subcontractors ......................................................................................17 2.3.4 Responsibilities and services provided by the State ..............................................17 2.3.5 Key contractual terms, conditions and dates .........................................................18 2.3.6 Role of the Independent Certifier ..........................................................................19 2.3.7 Overview of obligations and financial implications relating to project delays .....................................................................................................................19 2.3.8 Recent developments affecting the contractual arrangements ..............................20 2.3.9 Implications of the revised contractual arrangements ...........................................23 2.4 Project governance and organisational structure .................................................................24 2.4.1 Overview of governance arrangements .................................................................24 2.4.2 Program organisational structure...........................................................................25 2.4.3 Roles, responsibilities and reporting arrangements ...............................................26 2.4.4 Overview of Program work streams ......................................................................27 Table of contents 3 Project delivery status ..................................................................................................................... 29 3.1 Description of project facilities ........................................................................................... 29 3.2 Status of works .................................................................................................................... 30 4 Project budget and expenditure to date ........................................................................................... 30 4.1 Total project budget for the new Royal Adelaide Hospital ................................................. 30 4.1.1 Total construction and State funded works budget ............................................... 30 4.1.2 Net present value of construction and operating services costs provided by Project Co ......................................................................................................... 30 4.1.3 Summary of project budget approvals to 30 June 2015 ........................................ 31 4.1.4 Budget for PPP construction costs ........................................................................ 32 4.1.5 Budget for State funded works to 30 June 2015 ................................................... 32 4.1.6 Costs relating to the project not included in the project budget ............................ 35 4.2 State funded project expenditure ......................................................................................... 35 4.2.1 Summary of project expenditure incurred from inception to 30 June 2015.......... 35 4.2.2 Project cost pressures ............................................................................................ 36 5 External reviews of the new Royal Adelaide Hospital ................................................................... 36 5.1 Assurance reviews by independent consultants .................................................................. 36 5.1.1 Governance review – June 2013 ........................................................................... 36 5.1.2 Governance implementation review – May 2014 ................................................. 37 5.1.3 Functional review – January 2015 ........................................................................ 37 5.1.4 Governance implementation review – April 2015 ................................................ 38 6 Detailed audit findings .................................................................................................................... 40 6.1 Program governance, assurance and reporting arrangements ............................................. 40 6.1.1 Assurance framework ............................................................................................ 40 6.1.2 Role of the Integrated Program Management Office ............................................ 41 6.1.3 Reliability of reporting .......................................................................................... 42 6.1.4 Review of the new Royal Adelaide Hospital Operations Board ........................... 42 6.1.5 Reporting by the Project Director ......................................................................... 43 6.2 Project business case ........................................................................................................... 44 6.2.1 Completing and monitoring the new Royal Adelaide Hospital business case ........................................................................................................................ 44 6.2.2 Monitoring of whole-of-life costs ......................................................................... 46 6.3 Risk management ................................................................................................................ 47 6.3.1 Reporting of risks and mitigation strategies .......................................................... 47 6.3.2 Other areas of risk management practices requiring improvement....................... 48 6.4 Budgetary and financial management ................................................................................. 49 6.4.1 Reporting to the new Royal Adelaide Hospital Steering Committee.................... 49 6.4.2 Reporting of project forecasts ............................................................................... 51 6.4.3 Management and reporting on the project contingency ........................................ 52 6.4.4 Funding new Royal Adelaide Hospital ICT Program cost pressures .................... 53 6.4.5 Information to support funding requests to Cabinet.............................................. 55 Table of contents 6.5 6.6 6.7 Contract administration and management ...........................................................................56 6.5.1 State funded clinical equipment – contract management framework and plans.......................................................................................................................56 6.5.2 Professional service and ICT contracts – contract management processes...........57 6.5.3 PPP Contract Administration – contract management framework .......................58 6.5.4 PPP Contract Administration – reporting arrangements .......................................59 ICT functional and contractual dependencies .....................................................................60 6.6.1 Planning for enterprise systems and coordination of works with the Master Works Program .........................................................................................60 Procurement .........................................................................................................................61 6.7.1 State Procurement Board governance and reporting arrangements – clinical equipment .................................................................................................61 6.7.2 Probity assurance arrangements ............................................................................62 6.7.3 Reporting on the status of procurements – clinical equipment .............................64 6.7.4 Reporting on installation dates – clinical equipment ............................................64 6.7.5 Renegotiation of installation dates – clinical equipment .......................................66 6.7.6 Strategic acquisition planning – new Royal Adelaide Hospital ICT Program .................................................................................................................67 6.7.7 Management of procurements – new Royal Adelaide Hospital ICT Program .................................................................................................................68 7 Key challenges and recommendations ............................................................................................70 7.1 Introduction .........................................................................................................................70 7.2 Transitional and operational readiness planning .................................................................70 7.3 Business planning and Transforming Health reform initiatives ..........................................71 7.4 Delivery of critical enterprise ICT systems .........................................................................71 7.5 Extension of contractual dates and delayed opening date ...................................................72 7.6 Resolution of Facility Management Subcontractor claims..................................................72 7.7 Outstanding independent consultant recommendations ......................................................73 8 Timeline of key events ....................................................................................................................73 8.1 Summary of key events .......................................................................................................73 New Royal Adelaide Hospital report 1. Executive summary 1.1 Introduction The new Royal Adelaide Hospital (new RAH) is the largest social infrastructure project ever undertaken by the State. The new RAH is to be built, maintained, financed and provided with non-medical services and equipment using a Public Private Partnership (PPP) arrangement. A Project Agreement covering 35 years has been entered into between the State and the preferred PPP proponent, SA Health Partnership Pty Ltd (Project Co). The total value of the arrangement at contractual close in June 2011 provided for a capital cost for design and construction by Project Co of $1.85 billion (nominal). This excluded the Department for Health and Ageing’s (SA Health’s) State funded works budget of $244.7 million (nominal) towards the overall hospital development and consists of those elements to be delivered and financed by the State, including core clinical equipment and precinct works. The features of the new RAH include:  providing 800 beds, comprising 700 multi-day beds and 100 same-day beds  standardised single inpatient rooms with individual ensuites  40 technical suites (operating theatres, intervention suites and procedural rooms)  the use of leading technology to ensure that supplies are easily and efficiently transported throughout the hospital using automated guided vehicles  biomedical equipment and other clinical equipment which are electronically tagged. The Project Agreement documents the contractual obligations of both the State and Project Co. 1.2 Audit approach and scope The new RAH project is a generational project in terms of its scale, complexity, cost, the resources allocated and its importance in providing enhanced and sustainable health care services and outcomes to the public of South Australia. The new RAH forms part of a reform program being developed to ensure the State has a responsive and sustainable health system for the future. Establishing and maintaining robust governance arrangements and effective management oversight processes is crucial to the successful delivery of this complex project. In particular, it is essential that effective and efficient management and decision-making systems and processes are in place and regularly reviewed and revised throughout the project lifecycle. 1 Our review of aspects of the project has been ongoing1 and will continue throughout its lifecycle. Our review is progressing in phases reflecting the ongoing nature of the project, and the key project lifecycle stages and milestones. This phase of our review focused on the project status and reviewing the arrangements established by the State to enable the project to be delivered on time, within budget and with the intended benefits realised. We gave specific focus to project governance, management and reporting arrangements including: project governance and organisational structure assurance processes business planning risk management budgetary and financial management contract administration and management procurement.        There were a number of other important management arrangements and initiatives impacting on the project, such as transition planning, operational commissioning, health reform initiatives and the readiness strategy for the project that were not subject to detailed assessment as part of this phase of our review. Aspects of these arrangements and initiatives will be considered in subsequent audits. Further, it is important to note that our observations, findings and conclusions reflect our understanding, discussions, enquiries, testing procedures and evidence obtained at a point in time. SA Health and the new RAH Program are continually reviewing and revising systems, processes and practices to address emerging issues. These issues have been highlighted from governance committee decisions and action items, outcomes from reviews by independent consultants and our ongoing review process. Consequently, where appropriate and relevant, our findings and recommendations will be subject to follow-up in subsequent review phases. 1.3 Project delivery status Design and construction works continue to be progressed by the subcontracted builder. At the time of this Report most design work has been completed. Construction works are well advanced with packages of works being progressively completed and commissioned. Further, external State funded works facilitated by the Department of Planning, Transport and Infrastructure (DPTI) continue to be progressed. Independent advice obtained by SA Health during 2014-15 indicated that works were behind schedule and the original contractual Commercial Acceptance date (18 April 2016) was likely to be exceeded. The project was also at risk of delay from completing components of clinical equipment, information and communications technology (ICT) and requests for facility m ...
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