An audit of matters relating to the concession awarded to Vitals Global Healthcare by Government Part 2 | A review of the contractual framework

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. The first part of this audit, issued in July 2020, focused on the procurement process leading to the award of the concession to the VGH. This part of the Office’s audit focuses on the negotiations leading to entry into the concession contracts, a review of this contractual framework and its implementation until the transfer to Steward Health Care. The third part, yet to be published, addresses the transfer to Steward Health Care.

Concerns arise on the negotiation process between the Government and the VGH, which process remained opaquely concealed to the NAO due to the lack of documentation kept and conflicting accounts provided by those involved. The lack of visibility provided further cause for concern on consideration of the deviations or inclusions in the contracts that changed the concession’s scope, altered the risk level retained by either party, or bore impact on the level of operational and financial feasibility, as well as the profitability of the project, when compared with the Request for Proposals (RfP). Graver still was the Government representatives’ failure to consult with critical stakeholders. This resulted in the concession failing to meet its objectives, be it the health infrastructure improvements and the classification of the concession as off-balance sheet, with the VGH’s capital expenditure on the project registered on the Government’s accounts.

The dichotomy characterising this project, with the Energy division within the Ministry for Energy and Health overseeing the capital investment and the Health division within the same Ministry tasked with operational management, created ideal grounds for the VGH to capitalise on Government’s weaknesses. This allowed for the concession to remain unimplementable, an insurmountable challenge and irreparable situation for the Government to manage, whose administrative and political weaknesses were readily exploited by the VGH.

None of the major concession milestones were achieved when the concession was under the VGH’s control. The VGH’s inability to secure financing was the crucial shortcoming on which rested all subsequent failures registered in this concession by Government. All the VGH’s commitments regarding the envisaged improvements to infrastructure and services were rendered unattainable in view of this failure. The Government’s acquiescence to the evident inadequacies of the VGH reflected ineffectiveness, mirroring the VGH’s failure to deliver on its commitments. Instead, the Government’s representatives, while bypassing Cabinet, endorsed multiple waivers of the requirement to secure financing, thereby perpetuating the failure that this concession came to represent.

Significant concerns emerged in the NAO’s review of the contractual framework regulating the concession. In the Services Concession Agreement, critical departures between that originally stated in the RfP, that subsequently contracted and later amendments effected substantially altered Government’s control over completion of the concession milestones. The changes effected consistently favoured the VGH’s interests, with Government rendered powerless in holding the Concessionaire accountable.

Although the Government established the health deliverables expected of the concession through the Health Services Delivery Agreement, these were quickly revised. The revisions were consistently adverse to Government, with a significant reduction in services without any change in the compensation due and an increase in the number of beds guaranteed for use by Government coupled with a corresponding increase in the amount payable.

The Labour Supply Agreement stipulated that the Government employees to be deployed with the VGH as leased resources were to continue benefiting from the same conditions of work as public officers and public servants. However, of note to the NAO in its review of this Agreement was Government’s ill-preparedness for this concession. Most glaring was the mismatch of resources allocated to the VGH by the Government with the charge that was to be recovered. The discrepancy arising from this mismatch was borne through public funds.

The NAO established that no valuation of the sites was undertaken by Government prior to their transfer through the Emphyteutical Deed. Concerns emerge on the mismatch between the 30-year concession period and the potential 99-year title granted over the sites and whether Government will realise the economic benefits envisaged through their continued use for medical tourism.

The NAO made several attempts to meet with the Hon. Konrad Mizzi, which requests remained unaddressed. The gravity of this failure was rendered evident in the NAO’s report through the pivotal role played by Hon. Mizzi in this concession. His failure to attend to the several requests made by the NAO was deemed a serious shortcoming in terms of the level of accountability expected of a former minister of Government and in terms of the standard of good governance that ought to have characterised a project as material and as important to the national health services as was this.

To view Abridged report (.PDF) please follow link.