The 2018/19 audit of NHS Lothian
Delay to the opening of the Royal Hospital for Children and Young People
Prepared for the Public Audit and Post Legislative Scrutiny Committee by the Auditor General for Scotland
Made under section 22 of the Public Finance and Accountability (Scotland) Act 2000
December 2019

Auditor General for Scotland
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Introduction
1.	I have received audited accounts and the auditor's report for NHS Lothian for the year ended 31 March 2019. I submit these accounts and the auditor's report under section 22(4) of the Public Finance and Accountability (Scotland) Act 2000, together with this report, which I have prepared under section 22(3) of the Act.
2.	The auditor issued an unqualified audit opinion on the 2018/19 financial statements. As part of the 2018/19 audit the auditor carried out a high-level review of the arrangements around the settlement agreement between NHS Lothian and the contractor, Integrated Health Services Lothian Limited (IHSL) considering project governance and value for money.
3.	The purpose of this report is to draw Parliament's attention to the issues surrounding the delay to the opening of the Royal Hospital for Children and Young People, the Department of Clinical Neurosciences and the Child and Adolescent Mental Health Service in NHS Lothian. There has been much speculation about the issues and the costs incurred and this report sets out a factual account of what I currently understand about the situation.
4.	It draws on the annual audit report and the reports of the reviews carried out by KPMG and NHS National Services Scotland (NSS).1 2 3 4 I may, in due course, report again under section 23 of the Public Finance and Accountability Act 2000. 
Summary
5.	The Royal Hospital for Children and Young People, Department of Clinical Neurosciences and Child and Adolescent Mental Health Services project (the project) is a high profile, strategically important development for NHS Lothian. A number of organisations and experts have been involved in the project, which has been subject to several delays and incurred extra costs.
6.	The initial business case for the new hospital was approved in 2008, as part of modernising, redesigning and integrating services. In 2010, the Scottish Government announced that a Non-Profit Distributing (NPD) funding route would be used for the project. NHS Lothian appointed Integrated Health Services Lothian Limited (IHSL) to design, build, finance and maintain the project. The full business case was approved by the board and the Scottish Government in April 2015. Total costs were estimated at £230 million, made up of construction costs of £150 million, plus enabling and equipment works of £80 million outwith the agreement with IHSL.
7.	Early in 2017 it became clear that the hospital would not open in July 2017 as originally planned. A series of technical and contractual disputes continued throughout 2017. In May 2018, NHS Lothian agreed the principle of a Settlement Agreement with IHSL. In February 2019, NHS Lothian signed the Settlement Agreement with IHSL, with Scottish Government approval. An £11.6 million payment was agreed to facilitate resolution of several issues with the building.
8.	Later, in February 2019 the Independent Tester (Arcadis NV) issued a Certificate of Practical Completion. This meant the construction phase came to an end and the operational phase started; the hospital was handed over to NHS Lothian and the board began making unitary payments of £1.35 million per month.
9.	The hospital was due to open on 9 July 2019 but final compliance checks revealed that the ventilation system within the Critical Care department did not comply with the current guidance. On 4 July 2019 the Cabinet Secretary for Health and Sport made the decision to halt the move to the new site. As a result, children’s services will remain on the current site until autumn 2020, and the Department of Clinical Neurosciences (DCN) is expected to move in spring 2020. Additional costs for rectification work are estimated at £16 million.
10.	The Cabinet Secretary commissioned two independent reviews by KPMG and NHS National Services Scotland (NSS). The focus of the KPMG review was to establish what decisions were made by NHS Lothian in relation to the air ventilation issues and any other material issues that led to the delay. The KPMG report sets out a picture of human error and confusion over interpretation of the relevant specifications and guidance and missed opportunities to spot and rectify that error.
11.	NSS undertook a two-phased review, carrying out a series of checks to ensure that the relevant technical specifications and guidance applicable to the new hospital had been followed and are being implemented. They identified a range of issues and NHS Lothian have drawn up action plans in response to the recommendations made by NSS.
12.	NHS Lothian currently faces a number of wider challenges. There has been an increasing reliance on non-recurring savings in 2018-19, financial sustainability continues to be a significant risk for 2019-20 onwards, and work continues to ensure that all the actions raised following the 2017 investigation into waiting times reporting are implemented.
13.	Due to the scale of the challenge relating to the delivery of the new hospital, NHS Lothian has been escalated to level 4 in the NHS Board Performance Framework for this specific issue. Scottish Government has put in place a Senior Programme Director to strengthen the management and assurance arrangements for completing all of the outstanding works necessary to open the new facility. A public inquiry is to be held to examine the issues at the new Royal Hospital for Children and Young People in Edinburgh and the Queen Elizabeth University Hospital in Glasgow.
Findings
14.	There has been much public and parliamentary interest in the issues surrounding the delay to opening the hospital. What follows summarises:
•	the parties involved
•	a timeline of events leading up to the decision to postpone the opening
•	what is currently known about the costs involved
•	findings from the reviews by KPMG and NSS
•	the Scottish Government response; and
•	issues for further consideration.
Roles and responsibilities
15.	Building a new hospital of this scale is not something an NHS board does often and presents a number of risks from the outset. A significant number of organisations and advisors have been involved to date. Exhibit 1 provides a summary of each party involved in the project and their respective roles and responsibilities.
Timeline of events
16.	The development of the new hospital began back in 2008. Exhibit 2 provides a summary of key dates and Exhibit 3 provides a detailed timeline of significant events throughout the project since its inception.
Budget
17.	The Scottish Government announced as part of its budget for 2011/12 that the re-provision of the Royal Hospital for Children and Young People and Department of Clinical Neurosciences would be delivered using a Non-Profit Distributing (NPD) Model, with support from the Scottish Futures Trust. The full business case, approved in April 2015, outlined total costs of £230 million. This was made up of construction costs of £150 million, plus enabling and equipment works of £80 million outwith the agreement with IHSL and to cover:
•	the cost of the work required to prepare the site for the new building, such as the diversion of sewer pipes and the provision of flood defences
•	changes within the Royal Infirmary of Edinburgh, such as adaptations required for the pharmacy to serve the Royal Hospital for Children and Young People and Department of Clinical Neurosciences
•	medical equipment and furniture for the new hospital (these have been procured as part of normal NHS processes).
18.	It is currently estimated that the additional work required to ensure the new hospital complies with the relevant specifications and guidance and keeping the current site open whilst this is done will cost an additional £28 million (Exhibit 4).
Findings of independent reviews
KPMG review5
19.	KPMG LLP was commissioned by the Cabinet Secretary via NSS to independently establish the facts surrounding the decision to delay the move to the new hospital. The focus of the review was to establish what decisions were made by NHS Lothian in relation to the air ventilation issues and any other material issues that led to the delay. The report concluded that:
•	The issue which led to the delay was non-compliance with the SHTM 03-01 for air change rates in some of the critical care areas in the hospital.
•	Throughout all stages of the project there were references to the requirements of the project to adhere to the SHTM, including specifically SHTM 03-01 relating to ventilation systems.
•	Notwithstanding contractual obligations, there had been confusion between the parties as to the application of the current guidance. This appears to have stemmed from an error in a document, the Environmental Matrix (EM), produced by NHS Lothian at tender stage in 2012. The EM included details on the environmental specifications for the hospital. Elements of the EM were inconsistent with SHTM 03-01, in particular reference to both the single-bed cubicles and four-bed rooms in critical care requiring four ac/hr. This was the wrong specification for this ventilation system and should have been 10 ac/hr.
•	The guidance note at the front of the EM document provided at the tender did, however, suggest that all critical care areas should be in accordance with SHTM 03-01 and have 10 ac/hr.
•	In a later version of the EM (26 November 2015) this inconsistency between the guidance note and the EM appears to have been removed by the insertion of the words ‘for isolation cubicles’, suggesting that only 'isolation cubicles' in critical care should have an air change rate of 10 ac/hr. This addition was never flagged as a change to the NHS Lothian project team, and it is not known who was responsible.
•	NHS Lothian told KPMG they had not reviewed the EM in detail from a technical perspective and they reviewed it for ‘operational functionality’, as detailed in the project agreement. It was assumed by NHS Lothian that any changes to the EM would be highlighted by IHSL for discussion with them, and that they would be in compliance with SHTM 03-01. In January 2019, the board asked IHSL for specific assurance that all critical ventilation systems were to be 'inspected and maintained in line with SHTM 03-01: Ventilation for healthcare premises'. IHSL confirmed in their response that all ventilation systems had been designed, installed and commissioned in line with SHTM 03-01.
•	The role of the independent tester was to certify that the design had been built in accordance with what had been agreed between the parties. The EM was used as the basis for this agreement between the parties and the Independent Tester did not consider that it was responsible for reviewing its accuracy. The Independent Tester expected both parties to the project to have undertaken a detailed review of the EM.
20.	KPMG found that the governance structure surrounding the construction and commissioning of the hospital was operating as planned and issues were being escalated through the appropriate channels. There was regular dialogue between NHS Lothian and Scottish Government throughout the project, with evidence of the escalation of issues where required albeit more focused on financial than technical matters.
21.	Once the issue which led to the delay had been identified, steps were taken by NHS Lothian to notify Scottish Government of the issue which led to the decision by the Cabinet Secretary to delay the opening of the hospital.
22.	Overall, KPMG found the issue was due to human error and confusion over interpretation of the current guidance and that several opportunities to spot and rectify the error were missed on numerous occasions. There is no evidence that professional or technical advisers identified the issue before June 2019.
NHS National Services Scotland review6 7
23.	NSS was commissioned by the Scottish Government to undertake an external series of checks, led by Health Facilities Scotland (HFS) and Health Protection Scotland (HPS), to ensure that the relevant technical specifications and guidance applicable to the new hospital had been followed and are being implemented.
24.	Phase 1 of this review, published 9 September 2019, identified a range of issues:
•	ventilation systems – in addition to the ventilation issues in critical care, remedial action required on the quality of work in several other areas, with specific issues identified in haematology/oncology
•	water systems – independent testing identified no widespread contamination of the water systems, but NSS has recommended some remedial and precautionary actions, as well as system-wide disinfection prior to occupation
•	drainage and plumbing systems – NSS recommend active monitoring, but both areas are considered low risk.
25.	Phase 2 of NSS’s review, published 30 October 2019, assessed fire, medical gases and electrical safety and again identified some issues:
•	fire systems – NSS recommended action to include remotely resettable fire and smoke dampers within the ventilation system serving all sleeping accommodation areas where ducting leads to a corridor serving as an evacuation route and that identified fire doors should be upgraded
•	electrical systems – NSS recommended that remedial action is required within both the high voltage and low voltage installations
•	medical gases – the review of the medical gas installations confirmed that they have been designed installed and commissioned in accordance with the relevant standards.
26.	NHS Lothian accepted all the recommendations from phase 1 of the NSS review and produced an action plan. The plan outlines each recommendation identified in the phase 1 of the review and what action NHS Lothian is taking to address them.8 In response to phase 2 of the review NHS Lothian published a response setting out a programme of activity to address the findings following an assessment of the work to be completed.9 A wider action plan bringing together both reports will follow in due course.
Scottish Government response
27.	The Scottish Government escalated NHS Lothian to level 4 in the NHS Board Performance Framework in relation to the new hospital. Health boards are considered at Level 4 where there are 'significant risks to delivery, quality, financial performance or safety' and where senior level executive support is required.
28.	A Royal Hospital for Children and Young People Oversight Board has been put in place and has overall responsibility for ensuring the completion of the works and the hospital opening, reporting directly to the Cabinet Secretary. The Oversight Board is chaired by the Scottish Government’s Chief Nursing Officer and includes senior figures from Scottish Government Health and Social Care Directorates, NHS National Services Scotland, Scottish Futures Trust and NHS Lothian.
29.	The Scottish Government has put in place a Senior Programme Director, to strengthen the management and assurance arrangements for completing all of the outstanding works necessary to open the new facility. The appointment formally commenced on 16 September 2019 and will be reviewed on a rolling quarterly basis. Her substantive role is Director of Strategy, Performance and Service Transformation at NSS. She will report directly to the Scottish Government, overseeing the actions to ensure the Royal Hospital for Children and Young People and the Department of Clinical Neurosciences are fit for occupation.
30.	The Programme for Government 2019-20 outlines plans to create a new national body to ensure patient safety by strengthening infection prevention and control, including in the built environment. The body will have oversight of the design, construction and maintenance of major infrastructure developments within the NHS. The new body will provide advice and challenge to all capital investment projects currently in development, including the Elective Centre Programme, the Monklands Replacement Project, the Baird and Anchor in Aberdeen and various primary health and social care centres across the country.
31.	On 17 September 2019, the Cabinet Secretary for Health and Sport announced that a public inquiry will be held to examine issues at the new Royal Hospital for Children and Young People in Edinburgh and the Queen Elizabeth University Hospital in Glasgow. The inquiry will determine how issues relating to ventilation and other key building systems occurred, and what steps can be taken to prevent this being repeated in future projects. At the time of writing, further details on the inquiry have not been published.
Next steps
32.	At this stage key questions remain unanswered. The KPMG review was unable to answer three key questions:
•	Why the original EM was inconsistent with SHTM 03-01.
•	Who changed the EM dated 26 November 2015.
•	Why opportunities to spot the error were missed.
33.	In her statement to Parliament on 11 September 2019, the Cabinet Secretary said there were clear issues of accountability in the board to be considered, which must be done carefully and with due process. She plans to advise Parliament of the outcome of that work in due course.
34.	NHS Lothian have asked their internal auditors to review what happened. Phase 1 of the internal audit plans to produce a timeline of the key events and decisions over the project lifecycle; consider the scope and remit for all advisors (internal and external) to the project over the timeline and explore the root cause of the underlying issues (focused on why). This will help understand any gaps in NHS Lothian’s governance or internal control arrangements. Phase 2 is dependent on the outcome from phase 1. If the internal auditors identify any matters which indicate that either individuals and/or advisors did not act in accordance with the agreed role and remit a further review will be undertaken to determine any potential failings and the actions NHS Lothian could consider taking.
35.	There are several other issues which need to be considered in order to understand what went wrong and ensure lessons are learned for future projects of this nature. The public inquiry may wish to consider:
•	The clarity and application of the appropriate specifications and guidance: There is a disclaimer on page 5 of the SHTM 03-01 that states: 'The contents of this document are provided by way of general guidance...Any party making any use thereof or placing any reliance thereon shall do so only upon exercise of that party’s own judgement as to the adequacy of the contents in the particular circumstances of its use and application.' There are several areas that need to be better understood including:
­	the status, clarity and currency of the relevant specifications and guidance
­	their interaction with local clinical practices
­	their incorporation as a contractual requirement and the management of this requirement through the specification, tendering, design, delivery and testing phase of the project by all parties involved.
•	The contractual implications: Brookfield Multiplex (now known as Multiplex Construction Europe Ltd) is a Canadian owned company whose headquarters are in Australia. The Queen Elizabeth University Hospital in Glasgow was also built by Brookfield Multiplex, and an independent review is investigating whether the design, build, commissioning and maintenance has had an adverse impact on infection risk. The review will look at areas including the overall design, with particular reference to the safety of water, drainage and ventilation systems. What role did IHSL play in the current situation in Edinburgh and what are the contractual implications?
•	The role and accountability of all parties and the effectiveness of oversight and scrutiny: Some of the issues resonate with the findings from the independent inquiry by Professor Cole into the Construction of Edinburgh Schools, published in 2017.10 The report recommended the need for a clear understanding among all parties of their roles and responsibilities; clear protocols regarding the escalation of significant issues; effective and independent scrutiny and inspection; sufficient oversight and quality assurance of construction works and the need for truly independent certification. It would be beneficial to better understand the support offered and the role played by the Scottish Government, the SFT, the professional advisors and the independent tester, and whether the issues that were emerging at the Queen Elizabeth hospital should have prompted greater scrutiny in Edinburgh.
36.	I will monitor the progress of the various inquiries that are taking place and may, in due course, report again under section 23 of the Public Finance and Accountability Act 2000.

Endnotes
1.	NHS Lothian Annual Audit Report 2018/19, Scott Moncrieff, June 2019. 
2.	Royal Hospital for Children and Young People: independent assessment of governance arrangements, KPMG, September 2019.
3.	Royal Hospital for Children and Young People and Department of Clinical Neurosciences: review of water, ventilation, drainage and plumbing systems, NHS National Services, September 2019.
4.	Royal Hospital for Children and Young People and Department of Clinical Neurosciences: review of water, ventilation, drainage and plumbing systems - supplementary report, NHS National Services, October 2019.
5.	Royal Hospital for Children and Young People: independent assessment of governance arrangements, KPMG, September 2019.
6.	Royal Hospital for Children and Young People and Department of Clinical Neurosciences: review of water, ventilation, drainage and plumbing systems, NHS National Services, September 2019.
7.	Royal Hospital for Children and Young People and Department of Clinical Neurosciences: review of water, ventilation, drainage and plumbing systems - supplementary report, NHS National Services, October 2019.
8.	Royal Hospital for Children and Young People and Department of Clinical Neurosciences: response to the review of water, ventilation, drainage and plumbing systems, NHS Lothian, September 2019.
9.	NHS Lothian response to actions identified in the NSS National Services Scotland Review of Fire Systems, Electrical Systems & Medical Gas Installations, NHS Lothian, October 2019.
10.	Report of the Independent Inquiry into the Construction of Edinburgh Schools, Professor John Cole, February 2017.