Validation of Revenue Funded Projects:

Pre- Stage 2 Approval Key Stage Review

(hub DBFM KSR3 - Pre-Stage 2)

October 2014

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Project SponsorE.g. SGHD, SFC, TS

Procuring Authority E.g. LA, College, Health Board

Project Team

Scottish Government (SG)

Revenue Funded ProjectsPre-Stage 2 Key Stage Review

CONTENTS

Notes to the Reviewer................................................................................................................31.1. Background..................................................................................................................31.2. Timing.........................................................................................................................31.3. Process.........................................................................................................................31.4. Further information.....................................................................................................41.5. Post review..................................................................................................................4

Section 1: Project Outline..........................................................................................................6

Section 2: KSR Update..............................................................................................................7

Section 3: Resourcing................................................................................................................8

Section 4: Affordability............................................................................................................11

Section 5: Risk Management...................................................................................................14

Section 6: Value for Money.....................................................................................................15

Section 7: Compliance.............................................................................................................17

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Notes to the Reviewer

1.1. BackgroundIt is a condition of Scottish Government (SG) funding support that all projects in the revenue funded programme are, in addition to any existing project approvals processes, externally validated by SFT. SFT undertakes validation by carrying out Key Stage Reviews (KSRs) of projects at key stages of procurement. The KSR process is designed to support the successful delivery of revenue funded projects whether delivered through the non-profit distributing (NPD) model or the hub initiative as Design Build Finance and Maintain (DBFM) projects by providing an assessment of the readiness of a project before it moves on to the next stage in the procurement process.

1.2. TimingThis review is required to be completed in advance of the Stage 2 submission being submitted for approval by the Procuring Authority.

The review should be carried out by the member of the Scottish Futures Trust team who normally provides support to the relevant project (the Reviewer). The Reviewer must agree the precise timing of the review and submission of SFT’s report with the Project Sponsor and/or SG to integrate with the other project approvals processes.

In the run up to each review point, the Reviewer will inform and keep up-to-date the SFT validation team of the estimated timetable for carrying out the KSR. The validation team will arrange for a member of the SFT’s senior management team (SMT) to scrutinise the list completed by the Reviewer before it can be submitted to the Project Sponsor and/or SG. The Reviewer should thereafter liaise directly with the allocated SMT member and must return a countersigned copy of the list to the Validation Team upon SMT sign-off. The Reviewer should discuss arrangements with the allocated SMT member and provide a verbal briefing if requested in advance of review so that if required necessary background information can be made available.

1.3. ProcessThe Reviewer must familiarise him/herself of the requirements of the checklist and consider which elements s/he can answer on the basis of existing knowledge of the project and identify what additional information is required in relation to the project in order to complete the remaining sections. The Reviewer should, at the earliest opportunity, explain to the Procuring Authority / Project Team what additional information s/he will require, in what form and by when in order to complete the review within the agreed timescales.

The review is not intended to be a “stop-start” process and the Reviewer should refer to the list throughout each delivery stage so that all sections of the checklist can be completed without delay to the project. The process involves the Reviewer completing this pro-forma list on the basis of information obtained in his/her day-to-day dealings with the project, considering whether in his or her view the project is ready to proceed to the next stage of procurement and making recommendations as to what actions may be required to achieve

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appropriate state of readiness. No formal submission, as such, will be required from the Procuring Authority, but the project team will be required to provide the Reviewer with information to allow him/her to complete the list and compile his/her report.

Once completed by the Reviewer, the list and draft report should be submitted to the allocated SMT member for scrutiny. The Reviewer in consultation with the SMT member must agree what follow-up will be required to any recommendations made, in what form and in what timescales before being issued to the relevant Project Sponsor and/or SG and copied to the Procuring Authority. The relevant Project Sponsor and/or SG will thereafter, as part of its overall sign-off process, determine whether and on what basis the project should proceed to the next stage taking into consideration any recommendations made in the KSR report. The Reviewer should liaise directly with the Project Sponsor and Procuring Authority as may be required to address any queries arising from the KSR report or recommendations.

1.4. Further informationPlease contact the Validation Team for further information on the KSR process. Queries relating to the revenue funded programme requirements should be directed to the SFT Finance Team.

1.5. Post reviewOnce the review document has been agreed with the Procuring Authority a copy of the final document (preferably in Word -format) must be submitted to SFT validation team.

The Reviewer is responsible for updating the SMT member (or where SFT has a seat on the SPV Board, the relevant SFT representative) with progress made in accordance with the agreed follow-up plan.

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Section 1: Project OutlineSFT Reviewer(Primary Reviewer)SFT Secondary Reviewer (SMT Member)

Project title

Brief project description

Outline of scope of services in project (please identify the services and who will provide those services)

Planned Stage 1 Approval Date

Project Timetable

Project Contact Details

Project Sponsor /SG Responsible Officer

(name & contact details)

Project Authority Responsible Officer

(name & contact details)

Project Director/Manager (name & contact details)

Principal legal, technical and financial advisers (firm/company & name of main contact)

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Section 2: KSR Update

A) Please provide an update in respect of any outstanding Pre-Stage1 KSR recommendations and provide a reason for delay.

Recommended actions: To be completed by: Status:

B) If any of the agreed KSR follow-up actions remain outstanding please restate these here and provide reason for delay.

SFT follow up actions: Reporting requirement: Status/Update:

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Section 3: Resourcing The key objective of this section is to ensure that the necessary resources ahead of the construction and operational stages of their projects are in place to be able to support and manage the contract going forward.

Question Yes/No Comments

1. Have governance, project management arrangements and a resourcing strategy been put in place to follow financial close, covering the construction and commissioning and operational phases?

- Do job descriptions and the recruitment strategy consider, where applicable, the needs of the Procuring Authority in relation to the following:

2. - Performance monitoring;

3. - Life cycle expenditure;

4. - Safety inspection certification;

5. - Disaster management planning;

6. - Insurance renewals;

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7. - User satisfaction surveys etc.;

8. - Post-occupancy evaluation;

9. - Refinancing;

10. - Major incident planning;

11. - Change requests;

12. - Benchmarking;

13. - Interface issues between the services provided by the Procuring Authority and any external service provider;

14. - Use of external advisers.

15. Have steps been taken to ensure continuity of personnel and sharing of knowledge between phases?

16. How will performance monitoring be undertaken and how will it link back to the payment mechanism, Key Performance Indicators (KPIs) and project objectives?

17. Is a process in place for how project liaison and stakeholder communication will be undertaken?

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18. Are all required joint occupation and interface agreements in place and what steps have been undertaken to ensure that the service interfaces will operate in practice?

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Section 4: AffordabilityThe key objective of this section is to confirm that the final proposal is affordable and provides Value for Money.

1) Please complete the following project affordability table below covering the duration of the contract period applicable to your project (25 or 30 years etc) and provide an outline of any key assumptions1:

OBC (£m) NPR Stage1 Stage2

Construction cost (nominal cumulative)Design fees(nominal cumulative)hub development costs2 (nominal cumulative)Sub-hubCo costs (in construction)(nominal cumulative)Hard FM costs(real per annum)In-house service costs (for services not included in the hubCo contract)Lifecycle costs(real cumulative)Sub-hubCo costs (in operations)(real per annum)Operational Term(years)Percentage of unitary charge indexationSwap rate3

1 It is expected that these costs will be based on internally generated estimates pre-NPR2 Including success fees3 Including any buffer

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OBC (£m) NPR Stage1 Stage2

Unitary charge(nominal year 1 of operations)Unitary Charge(NPV)SG funding support (nominal year 1 of operations)SG Funding Support(NPV)

Question Yes/No Comments

19. Please outline reasons for any major cost movements between the Stage 2 proposal and pre-Stage1 cost estimates together with any key assumptions, exclusions, prime and provisional sums included in the proposal.

20. Has a review by the Technical Advisers of the Stage 2 Pricing Report been completed and have matters arising been resolved?

21. Has a review of hubCo’s financial model been carried and have input assumptions been checked and verified to be in line with available benchmarks by project advisors?

Please describe the steps that the Procuring Authority and advisers have taken or will take to

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assess the sufficiency/efficiency/competitiveness of proposals in relation to the following:

22. - capital cost inputs

23. - SPV average annual operating costs

24. - SPV project development costs

25. - lifecycle maintenance fund and profile

26. - tax efficiency

27. - subordinated debt return

28. Does the project remain affordable taking account of the total project costs and has the final position been formally signed off by the Procuring Authority and the Project Sponsor?

29. Is the proposed funding route deliverable and does a protocol exist to track funding rates and their implications on affordability throughout final negotiations?

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Section 5: Risk Management The key objective of this section is to ensure that commercial issues have been sufficiently tied down and that the project team has a robust risk management strategy in place

Question Yes/No Comments

30. Have the key risks in relation to successful completion of the project and the risks in relation to realising long term benefits been identified and are mitigation measures in place?

31. Does the project team have the relevant authority, sign-offs and delegated powers in place to close the project?

32. Are there any outstanding commercial issues and have the risk associated with these been assessed?

33. Have hubCo, its sub-contractors and funders singed off the project proposals?

34. Has a programme been produced by hubCo (and agreed with their funders) for the various due diligence processes required to reach financial close and is it realistic and synchronised with the overall projected timescale to reach financial close?

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Section 6: Value for Money The key objective of this section is to ensure that the achievability, viability and desirability of the solution and the funding route have been reviewed.

Question Yes/No Comments

35. Have the payment mechanism and related notice thresholds been tested and calibrated to ensure best value and to incentivise good long term performance of the contract and have these been fully signed off by all contract parties?

36. Has the authority taken steps to comply with its obligation (as detailed in the SG conditions of funding letter dated 22 March 2011 and/or the outline business case approval) to minimise capital and operating costs by reference to design and specification development within the agreed project scope?

37. Have Procuring Authority and its financial advisers considered the competitiveness and deliverability of financing proposals? Do these comply with SFT guidance on managing financing aspect of projects?

38. Is the project IRR compliant with the contract in terms of:

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A. Levels; andB. Sharing?

39. Has the Procuring Authority assessed the requirements for demonstrating VfM in accordance with SFT VFM Guidance?

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Section 7: Compliance The key objective of this section is to test that the project has considered and adopted procurement best practice and that the project sponsors are aware of any outstanding commercial issues.

Question Yes/No Comments

40. Has the Procuring Authority adopted relevant standard documentation and have all derogations have been signed off by SFT?

Specifically, has agreement been reached in relation to the following matters:

41. - vandalism risk

42. - warning notice and termination triggers

43. - payment mechanism

44. - TUPE and pensions

45. - funders direct agreement

46. Have the proposed lenders to the project signed off the project documentation and agreements?

47. Has the ESA95 treatment been signed off by Scottish Government?

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Is the project ready to proceed to the next stage?

(*Delete as applicable)

Yes.*

Yes , subject to recommendations below*

No, due to reasons outlined below.*

Reasons / Recommended actions: To be completed by:

Signature of Primary Reviewer Signature of Secondary Reviewer

Date: Date:

Procuring Authority Declaration I confirm that I am not aware of any information that would materially change the assessment and review of the project.

Name and Position: Date and Signature:

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SFT follow up action: Reporting frequency / deadline: Date of completion: Signature of Secondary Reviewer on completion:

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