An audit of matters relating to the concession awarded to Vitals Global Healthcare by Government Part 1 | A review of the tender process

The National Audit Office (NAO) was requested by the Public Accounts Committee to audit the
concession awarded by Government to Vitals Global Healthcare Ltd (VGH) in relation to the Gozo
General Hospital, Saint Luke’s Hospital and Karin Grech Rehabilitation Hospital. This part of the Office’s
review focuses on the procurement process leading up to the award to the VGH, while the contracts
entered into and the eventual transfer to Steward Health Care are addressed in parts 2 and 3,
respectively, yet to be issued.

Drawing the Office’s immediate concern in this regard was the Agreement that parties representing
Government reportedly entered into prior to the request for proposals (RfP) with a subset of the
investors of the VGH. The overlap between this Agreement and the concession was clear and created
major doubt and concern regarding the integrity of the eventual concession. The NAO’s concerns are
heightened in light of Government’s reluctance to provide this Office with a copy of the Agreement.
This Office is of the opinion that this Agreement provided grounds for the disqualification of the VGH
from the RfP.

Significant failures were noted in developments leading to the issue of the RfP. The Health division
within the Ministry for Energy and Health (MEH) was not appropriately involved, with the Energy
division driving the process in its stead. The Ministry for Finance was not consulted regarding the
disbursement that was to result from the concession, while the authorisation of Cabinet was similarly
not sought prior to the issuance of the RfP. Of greater concern in terms of the governance of the
process was that no ministerial authorisation was sought or provided in relation to this concession,
resulting in the anomalous scenario where three public hospitals were conceded for operation by third
parties without anyone actually assuming responsibility for this decision.

The feasibility assessment, which ought to have established the basis for Government’s decision to
concede the hospitals was bereft of any form of independent analysis or critical thought. Furthermore,
several shortcomings were noted in the design of the RfP, most significant of which was the
subjectivity of the evaluation criteria and the term set for the concession, which should have been
established based on analysis and not in the arbitrary manner that it was.

Although the bid submitted by the VGH satisfied all the requirements set by Government, this Office
is of the opinion that the bid was essentially robust in form but flawed in substance. Of grave concern
to the NAO was documentation submitted by the VGH as proof of access to finance. A letter issued by
the Bank of India sanctioning funding for the “Malta Healthcare Projects” and put forward by the VGH
in respect of the bid was dated 13 March 2015, that is, well before the publication of the RfP on 27
March 2015. This Office deemed this document as definite evidence of the VGH’s prior knowledge of
the planned project and proof of collusion with Government, or its representatives.

Other notable shortcomings identified by the NAO related to the professional and technical elements
of the bid by the VGH. This Office noted that the business experience cited by the VGH was not
attributable to it, but to the holding company Oxley Group or its strategic partners, or to partners that
the VGH had involved in the project. Of note was that the experience cited for Oxley Group mainly
related to real estate investment trusts and funds, asset management and financing.

Evident was that the timeframes committed by the VGH for the redevelopment of the hospitals were
overly ambitious and unrealistic. Similarly, overly ambitious were the projections made with respect
to medical tourism, particularly when one considers that it was the revenue forecasted from this
source that was to render the project feasible.

The bid by the VGH was assessed by the Evaluation Committee in terms of its commercial, technical
and financial strength, and the degree to which it exceeded the minimum requirements specified in
the RfP. In this Office’s opinion, the evaluation carried out was lacking in terms of critical analysis, with
several parts of the evaluation report merely a restatement of the bid by the VGH. Furthermore, the
NAO maintains that the marks assigned in relation to the technical and operational component of
evaluation were not entirely merited. Concerns emerge in the Evaluation Committee’s assessment of
the financial soundness of the VGH, its professional and technical qualifications and management
experience, the key financial assumptions that underpinned the viability of the project and cost
comparisons between rates proposed and actuals incurred by Government.

Although the shortcomings identified by the NAO in relation to the evaluation process remain, these
must be acknowledged in terms of the broader and far more significant concerns relating to the
integrity of the entire procurement process. The evidence indicating collusive action between the
parties acting on behalf of Government with the investors of the VGH renders the entire process
dubious, irrespective of whether the process was in adherence with procedural and regulatory
requirements.

The NAO maintains that, beyond the assertion of compliance to administrative requirements and the
determination of whether the technical criteria set out in the RfP were met and to what extent, it is
reasonable to expect that the process of evaluation would include an element of due diligence on any
bidder. This Office is of the opinion that the due diligence carried out by Government to verify matters
relating to the VGH in its capacity and relationship to it as the preferred bidder to run three public
hospitals was grossly inadequate.