16/08/2017 - 12:56

Contract disputes add to costs at Fiona Stanley

16/08/2017 - 12:56

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The auditor general has found Serco’s provision of non-clinical services at Fiona Stanley Hospital to be acceptable, but has called for better cost control amid a $7 million outlay for contract disputes.

Contract disputes add to costs at Fiona Stanley

The auditor general has found Serco’s provision of non-clinical services at Fiona Stanley Hospital to be acceptable, but has called for better cost control amid a $7 million outlay for contract disputes.

Colin Murphy tabled a report in parliament today on Serco’s provision of non-clinical services at FSH as the hospital’s facilities manager.

Serco was contracted in 2011 to provide 27 services at the hospital prior to its opening, but that was cut back to 25 services in 2015 after the company failed to achieve certain performance targets, for which Serco incurred a $1 million penalty.

The company is subject to about 480 key performance indicators.

The contract was for an initial 10 years with two five-year extensions; at 20 years, the contract would be worth $4.3 billion.

At that rate, Serco’s annual revenue from the contract would be about $215 million. However, at the beginning of every year, both Serco and SMHS come together to draft up a 12-month service plan.

Mr Murphy said he had found Serco’s provision of services at FSH in the past two years to be acceptable, but has called on the South Metropolitan Health Service (SMHS) to better manage costs and contract issues.

“The contract is costing more than originally estimated, and with patient numbers having grown faster than planned, increasing service demand and costs, the cost impact needs to be monitored,” he said.

“SMHS needs to be thinking what this might mean over the 10, 15 or 20 years that the contract could last.

“We also found that the contract includes extensive reporting to ensure compliance with requirements and contract specifications which to date has required a lot of effort on both sides.”

In his report, Mr Murphy found seven existing contract disputes between Serco and SMHS, four of which have been unresolved for nearly two year, and have racked up about $7 million in extra costs.

Mr Murphy warned that contract interpretation issues could also have significant implications.

“There are over $10 million in financial claims that are not resolved,” he said in his report.

“SMHS has rejected $8 million of these claims but (Serco) does not agree, and may escalate the claims to dispute resolution.

“Although there has not been an impact on service delivery, the longer disputes run, the greater the risk of service disruption.”

The report also recommended changing the annual service plan between Serco and SMHS with a plan that has a more longer-term outlook.

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