Contracts And Procurement Case Study: Review Of New Royal Adelaide Hospital Auditor General Report

Introduction and Project Context

The Royal Adelaide Hospital (RAH) is one of the large-scale public- private partnership hospital projects in Australia. The hospital presently, provides secondary clinical services to the people of Adelaide’s city centre (Royal Adelaide Hospital, 2018). The medical centres or the hospitals are the part of an extensive modernization program in Australia. There is a need of new ambulatory services, skilled labour, long-term care facilities, a cutting- edge technology and equipment along with providing a modern care and comfort to the patients. This particular paper focuses on the contract and procurement management of the Royal Adelaide Hospital (RAH) in terms of creating modern healthcare facilities for the residents of Australia. The modern healthcare services will help in improving the comfort of the patients along with providing them the efficient and safe health services (El Taguri, 2008).  Procurement management can be defined as the form of management in which, the goods and services are acquired from other firm or organizations. Royal Adelaide Hospital (RAH) also needs to procure bulk of supplies and equipment so as to develop the modern care facilities for the residents of Australia (Torabi, 2017)

This particular paper will focus on the procurement process of RAH in context of developing the modern healthcare services. In this context, the major issues and risks associated with procurement will be identified along with the recommendations for the same. The major purpose of the report is to focus on important aspects and issues in context of procurement process.

The procurement process of RAH will focus on sourcing, purchasing and negotiating the best equipment and supplies for creating a modern healthcare facility. The procurement department of RAH will help in ensuing that the hospital gets the right product at the right place, time, price and quantity, so as to provide best modern healthcare services to the patients.  In order to procure the equipment and supplies for the modern healthcare services, the hospital will go through stages of procurement lifecycle that are discussed below:

                                                     

The above figure shows a typical procurement life cycle of RAH for procuring the modern equipment and supplies, for developing the modern healthcare facilities.  

The first stage of the RAH’s procurement lifecycle for the procurement of modern equipment and supplies includes, the need identification phase. In this phase, hospital needs to identify the need in terms of particular supplies such as the beds and surgery equipment. The first stage of the lifecycle also includes the specifications associated with the supplies that are given to the suppliers (O’Meara, 2010). Once the needs are recognized and specified, the next stage of the procurement life cycle focuses on seeking the quotations and proposals from the different suppliers. RAH focuses on using a formal solicitation process. The suppliers in the next phase are evaluated on the basis of some pre specified criteria such as quality, price, delivery of the medical equipment and other supplies.  Once the suppliers are selected after the evaluation stage, the selected supplier is awarded. The last phase of the project lifecycle is the contract management in which, a contract is developed with the supplier for the future supplies of the hospital. Currently, RAH is in the last phase of the procurement life cycle that is contract management (Strategic Dynamics Firm, 2018). In RAH Firm Fixed Price Contract is used. This is one of the simple forms of contracts that ensure that the supplier agrees with the compliances discussed in the contract. In the ‘Firm Fixed Price Contract’ the hospital pays the fixed amount to the supplier regardless of the actual cost incurred by the suppliers for completing the delivery of goods and equipment (Ravi, 2017). These types of contracts are used in RAH because the scope is clear for both the supplier and hospital regarding the modern equipment and supplies. The firm-fixed-price contract is not subjected to any adjustments on the previous experience of RAH regarding the cost compliances of the supplies. This particular type of contract places maximum risk and cost on the supplier (Upcounsel, 2018). This indicates that the types of contracts used in RAH are good.

Key Risks and Mitigations

The key issues that have been recognized in the procurement process of RAH are associated with the contract management plans that were developed for procuring the clinical equipment. There was no documentation of the contract practices that have to be followed while procuring the clinical equipment. The officers had the responsibility of ensuring the compliance with the Public Private Partnership (PPP) project arrangement. The overall analysis of the procurement cycle of the RAH indicates that there was no documentation of the contracts and the suppliers are not awarded effectively. There were some major issues in the governance of the RAH new project. For example, there was a lack of an assurance framework and robust process of monitoring the performance of the suppliers of the clinical equipment for the new RAH. An ineffective leadership and governance in the procurement of RAH has negatively affected the overall scope, timing and cost of the project (LaPointe, 2018).

The procurement process of RAH was associated with a number of risks that will be highlighted in this particular section. The overall analysis of the risk management of RAH indicates that there was a need to improve the information that was provided to the committee regarding the nature, consequences and the strategies that can be used for mitigating the risks. (Allen, 2018). The major types of risks associated with the procurement process in RAH are as follows: project delays, increased costs, failure to meet contractual compliances, industrial disputes, inadequate delivery of the outcomes and services, insufficient training of staff and inadequate delivery of the sustainable modern healthcare model (Procurement Journey, 2018). The above risks associated with the procurement process of RAH can be mitigated with the help of following recommendations:

The focus of RAH should be on developing a sound risk management process that includes the processes and practices related with risk identification, implementation along with a continuous monitoring of the risk mitigation strategies. In addition, the focus should be on improving the information in the risks registers that are one of the important tools used for identifying and mitigating the procurement risks (Procurement Classroom, 2017). The risk register of RAK contains a brief and general description of the procurement risks but, there is a need of a detailed description of each of the risk in the register so that the nature and consequences of the risks can be easily understood (Crowe Horwath, 2018). Further, the risk register should also include the strategies that can be used for mitigating the risks identified in the risk register. In addition, the individuals who were responsible for identifying and managing the risks should also be trained so as to understand the nature and consequences of the risks (Simplicable, 2018).

In essence, it can be indicated that RAH needs to change the roles and responsibilities of the risk management officials by expanding their roles from identification of the risk to communication and mitigation of the risks to the committee members. The roles and responsibilities of the managers should also be expanded to ensure the compliances with the suppliers, on the basis of specific clauses. In addition, the risk management managers in RAH should also be given the responsibility of regularly reporting the compliance status to the senior management. Further, the changes must also be made in the specification briefs that are given by the company to the suppliers (Richardson, 2015).

Summary of Key Findings and Best Practices

There were some contractual dependencies associated with the procurement process of the new RAH ICT program such as the overall process was dependent on the working of the detailed plans offered by the ICT. Further, the procurement was also dependent on a strategic acquisition plan so as to ensure a consistent procurement approach.

RAH offers secondary clinical services. The need for new ambulatory services, long-term care facilities, skilled labour, cutting edge equipment and technology and modern comfort to patients is there. Hence, the need for contract and procurement management in hospital is for developing modern healthcare facilities. RAH also requires to procure equipment and supplies. The focus of procurement is upon purchasing, negotiating and sourcing best supplies. The procurement will support in ensuring that right product is procured at the right price, right time and in right quantity. The process of procurement of modern supplies and equipment helped in identifying the need of supplies and specifications. The proposals and quotations from different suppliers are identified. The suppliers are evaluated based on delivery, price and quality of supplies. The contract management for supplies is developed. The main issues in procurement process related to contract management plans are developed. Officers were responsible for ensuring compliance with Public Private Partnership (PPP) project arrangement. No documentation of contracts was there as well as no such awards were offered to the suppliers during the process of procurement. Some major issues were there in governance of a new project. Many risks were associated with procurement process. Through the analysis of risk management, it has been found that there is a need to improve information provided to committee about consequences, strategies and nature for risk mitigation. The different risks that can emerge during procurement process are: increased costs, project delays, industrial disputes, inability to fulfil contractual compliances, insufficient training to employee and inadequate delivery of services. It is important for RAH to develop the process of risk management. It is also important to improve information in risks registers for mitigating the risks. The need to specify the description of risk in risk register is important to understand consequences and nature of risks. The staff should also be provided training to mitigate the risks. The need to bring the changes in the responsibilities and roles of officials of risk management is important. It is important to improve the procurement process and develop the strategies that can help in mitigating the risks. It is also important to train the employees so that they can identify the risks and mitigate them in an effective manner.

 In context to the best practices for procurement and contracts management, it is essential to improve the delivery by understanding the supply markets. Apart from this, it is important to make sure that the contracting authorities should have the capabilities to harness the potential. The hospital should focus on market engagement process so that the delivery of services can be ensured in an effective manner. The effective understanding of market helps in enhancing the innovation and trust in the contracts of public service (Global Infrastructure Hub, 2018). Hence, this can help in establishing the ability of the providers and the clients to build solutions and ensuring the services to the meet the needs of the customers. In partnerships, clients can draw contractor in for the purpose to help and manage the pressure. It is important to promote the commercial skills for improving the delivery and run the process of procurement. The skills in the area of contract management, model design, market management and project management are important. Along with this, the hospital should also share the knowledge related to their experience and good practices. The delays and the uncertainties should be avoided in order to save the costs (CBI, 2006). The procurement managers are responsible for identifying the activities that can be out outsourced. The managers should reduce the costs and manage the inventories and technology so that the services can be delivered on right time to the customers. Managing the risks is highly important in order to deliver the services as well as it is important for the manager to focus on enhancing the delivery of the services by managing the process of supply chain effectively (Supply Chain Mechanic, 2018).

Procurement Lifecycle of RAH

The above analysis of the audit indicates that the procurement process of the company needs to be improved. This should be done specifically by focusing on the detailed description of the risks along with the strategies that can help in mitigating the risks in the organization.  In addition, the governance system of the organization should also be encouraged and trained to facilitate the process of reliable and timely identification of the risks along with the action plan that will be used for mitigating the risks (El Taguri, 2008). Other recommendations that can help in improving the procurement process of RAH include and effective communication among the participants of supply chain with the help of different mediums such as mails and messages. An effective communication in the supply chain process will help in ensuring that all the participants are well informed about the supply. RAH can also consider taking the feedback of supply chain participants so as to determine major issues in the supply chain. This can be done with the help of questionnaires and interviews. Once the issues are identified that focus should be shifted to the ways that can help in improving the efficiency of the supply chain (Procurious, 2015).

Conclusion:

The above paper concludes that in order to complete the project of RAH, SA needs to focus on the strategies that can help in ensuring that the project is completed within the pre-defined time and cost, In this context, the focus should be on re defining the roles and responsibilities along with establishing a detailed procedure of risk identification, description, and management.

References:

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CBI. (2006). Improving delivery: Realising best practice in procurement and contract management. Retrieved from Epos.de: https://www.epos.de/sites/epos.de/files/users/ppt/realising_best_practice_in_procurement_and_contract_management.pdf

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Procurious. (2015). 4 recommendations for achieving world-class procurement performance – Procurement news. Retrieved 2018, from Procurious.com: https://www.procurious.com/procurement-news/4-recommendations-for-achieving-world-class-procurement-performance

RAH. (2018). About us. Retrieved 2018, from RAH: https://www.rah.sa.gov.au

Ravi. (2017). Types of procurement contracts in project management. Retrieved 2018, from Scholar99.com: https://www.scholar99.com/types-of-procurement-contracts-project-management/

Richardson, A. (2015). New Royal Adelaide Hospital report:. Retrieved from Audit.sa.gov.au: https://www.audit.sa.gov.au/LinkClick.aspx?fileticket=qNJw81Pt27M%3D&tabid=452&portalid=0&mid=1477&forcedownload=true

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Upcounsel. (2018). Different Types Of Procurement Contracts: Everything You Need to Know. Retrieved from Upcounsel.com: https://www.upcounsel.com/different-types-of-procurement-contracts