AS our government went through its budgeting process last year and had to come to terms with our fiscal deficit, one of the items which came to attention was the cost of the public sector. Even while wages and salaries were stagnant, the cost of the public sector continued to rise because of increases in pension benefits.
There are “hidden” costs to employment, so that quite apart from salaries, NIC and pension benefits, there is also the cost of additional staffing required to accommodate vacation, casual leave, and sick leave for staff. Add to this the cost of travelling allowances, the significant but lesser recognized costs of office accommodation and maintenance, and utilities.
So that when accounting for costs in the private sector, the “rule of thumb” is that the fee which a consulting firm charges for a service is six times the salary paid to the person employed to provide that service. That fee will usually be substantiated by the consultant’s rates and time, but, in general, the “rule of thumb” holds.
This might help to explain the fees shown as being charged by Halcrow at St. Jude, a public display of which has, however, led to the (most probably) mistaken impression that those fees are salaries paid to individuals.
With Government having accepted Halcrow’s fee structure, Halcrow’s salary payments to staff are an internal matter, and in Part 3 of this series, I indicated that I had no concern with Halcrow’s fees as they fell within an acceptable percentage of the construction budget. There is, however, always room for negotiation of consultants’ fees.
So that while we have long complained about the high cost of private sector health services at Tapion, we are now being forced to recognize the true cost of providing professional services in the public sector.
When this government bobs and weaves its way into discrediting the rebuilt St. Jude Hospital, thereby seeking to encourage us to accept the idea of constructing a new hospital, it has to be the depth of dereliction of its fiscal responsibility as there are simple ways for assessing the true cost of this proposal.
As a means for comparison of different building designs, the cost of ownership of a building over a typical 30-year life, (Life Cycle Cost), is usually considered. This includes the cost of financing the construction, and operating, maintenance and renovation costs. That Life Cycle Cost usually ranges between six and ten times the initial capital cost of a building.
According to a feasibility study conducted for the US Department of Veterans Affairs on its Hospital Building System, with the savings resulting from this system the life cycle cost of its hospitals was estimated to be 8.7 times the initial cost, nap.edu/read/1750/chapter/3. For simplicity, we will use a factor of 10.
For every EC$100 million spent on hospital construction, then, we can expect to incur costs of EC$1 billion over the next thirty years. Again for simplicity, we can take this as meaning that some EC$33 million a year will have to be budgeted for.
It has been suggested that St. Jude Hospital will cost about EC$150 million on completion, and so the annual cost of operation and maintenance is likely to be in the region of EC$50 million. To this must be added the cost of staffing, and if the Budget Estimate for 2017/2018 for Victoria Hospital is assumed, staffing of St. Jude Hospital at a level similar to Victoria Hospital will cost EC$20 million a year.
The newly-rebuilt St. Jude Hospital will, therefore, cost about EC$70 million a year once in operation. Considering Government’s budget allocation for St. Jude Hospital this year of EC$17 million, a shortfall in the region of EC$53 million can, therefore, be expected.
The figures may not be exact, but the picture is clear. And if this seems academic, we only have to consider the condition of our schools and the statement by the Ministry of Education in August 2016 that while their maintenance costs exceeded EC$13 million, only EC$1 million had been allocated in the 2016/2017 Budget.
So that if, as suggested by Minister Joseph during his October 23, 2017 press conference, the reconstructed St. Jude Hospital is to be repurposed and a new specialist hospital built, that new purpose must generate approximately EC$53 million in annual revenue if government’s account is not to further deteriorate.
Unable to find the additional EC$30 million a year for OK-EUH, and with no indication of where the EC$53 million a year required for St. Jude Hospital is to come from, this government is actively considering committing this country to expenditure of a further EC$33 million a year for a new “state-of-the-art” hospital in Vieux Fort — for the tourists! (Prime Minister’s press conference, October 5, 2017 (youtube.com/watch?v=7VT-oEzDv50 , 1:38:13).
If this reckless behaviour was to take place on the Board of Directors of any private sector organization, that Board would have long since been terminated. But this is government, and political advantage is the only criterion that matters to politicians.
We pay the price of their vanity.
Next week, we examine Prime Minister Chastanet’s October 5, 2017 press conference.