Business Case - Automotive Purchases and Alternative Solutions

Transcription

1 THE SCOTTISH AMBULANCE SERVICE BOARD FULL BUSINESS CASE FOR THE REPLACEMENT OF EMERGENCY, PATIENT TRANSPORT AND SUPPORT VEHICLES 2009/ /12 Scottish Ambulance Service National Headquarters Tipperlinn Road Edinburgh EH105UU Tel: Fax: January 2009

2 TABLE OF CONTENTS Page Section 1 - Executive Summary 4 Objectives of Business Case 4 Description of the Preferred Option 4 Summary of Financial Appraisals 6 Asset Life 7 Financial Requirements 8 Stakeholder and Board Approval 9 Conclusion 9 Section 2 - Strategic Context 10 Background to the Business Case 10 Business Case Objectives 10 Size and Scope of Business Case 10 Section 3 - Appraisal Process 12 Introduction 12 Affordability 12 Section 4 - The Preferred Solution 16 Description 16 Timetable 16 Section 5 Procurement Method 17 Procurement Method 17 Vehicle Life (Value for Money Issues) 19 Section 6 - Risk Management Strategy 22 Risk Assessment and Management 22 Section 7 - Conclusion 23

3 LIST OF TABLE AND FIGURES Page Table 1/1 - Change to Fleet Size/Mix 6 Table 1/2 - Summary of Preferred Option 7 Table 1/3 - Financial Requirement 8 Table 3/1 - Financial Costs of the Best Fleet Size Mix: - Option 2 - Predicted Change 13 Table 4/1- Preferred Option 16 Table 4/2 - Preferred Option Procurement Timetable 2008/09 16 Table 5/1 - Economic Appraisal and Procurement Methods 17 Table 5/2 - Support Vehicles, Leasing v Purchasing 18 Table 5/3 - Outcome of Cost/Benefit Analysis of Different Vehicles LIST OF APPENDICES Appendix 1 Economic and Financial Appraisal of Procurement Method Appendix 2 Cost/Benefit Analysis of Different Asset Lives for Each Vehicle Appendix 3 Annual Revenue Costs and Capital Charges

4 SECTION 1 - EXECUTIVE SUMMARY 1 OBJECTIVES OF BUSINESS CASE The Service has an agreement with the Scottish Government Health Directorate that it will submit a business case every three years for funds to continually replace its vehicles. The Business Case covers three years worth of replacement, this being the period over which there is normally sufficient certainty about the size and mix of the fleets to fix a funding package. The existing Business Case approvals cover fleet replacement programme over the three year period 2006/07 to 2008/09. The objectives of the Business Case are shown below. To ensure that vehicles are fit for purpose, safe, reliable and adaptable as operational requirements change; To ensure that ambulances can be procured over the next three years using replacement policies and procurement methods which offer good value for money and which are affordable (including requirements for savings); Environmentally sound The scope of the Business Case covers the annual replacement of: A&E vehicles (front-line Accident and Emergency Units, Rapid Response Vehicles and Mid Tier Vehicles), Patient Transport Vehicles (large and small), and Support Vehicles (cars for the staff car scheme and vans to support fleet maintenance and operating divisions). Vehicles for specific service developments are excluded as these categories of vehicles would be covered by the relevant service development Business Case. The Business Case addresses the two key vehicle affordability issues: procurement method (purchase, contract hire, finance lease, or operating lease); and asset life. Other issues such as the cost benefit analysis, personnel and technology issues are also considered in determining the preferred option. The Outline Business Case was presented and agreed by the Scottish Ambulance Board on 29 October The Outline Business Case (OBC) was approved by the Scottish Government on 15 December 2008 and this Business case builds on the information contained in the OBC and further develops the costs, as known tendered prices are now available. 2 DESCRIPTION OF PREFERRED OPTION The Preferred Option as determined in the OBC is for the Predicted Change option as the size/mix of vehicles is one that meets the requirements of the Service and the asset lives of the vehicles are affordable. The Predicted Change option is the more feasible as it allows Service Delivery to continue and meet future service requirements. Scottish Ambulance Service Page 4 January 2009

5 This option will deliver: A service where patients will be transported in modern, safe, functionally suitable, and operationally reliable ambulances; A value-for-money option where ambulances will be procured over the next three years using replacement policies and procurement methods which offer good value for money and which are affordable. Whilst it would be desirable to reduce asset lives where they demonstrate benefit, it would not be affordable for the Service at this time. In addition, there will be no risk to patient care from these vehicles as generally when vehicles reach seven years they are moved to be operational spares. In this Business Case, options for altering asset lives were explored. However, the option arrived at OBC was found to be the most affordable. The majority of vehicles will be purchased outright, with the Support Vehicles Levels 1 and 2 being leased, as this is affordable and offers choice to staff. In previous years, there was a greater mix of lease to purchase. Now that most of the leases have expired, all replacements will now be by outright purchase. In addition, outright purchase is more cost-effective. The capital cost of this option will be 8.5 million per annum. The costs are similar to the OBC as the most current prices were used from the tendering process at the time of writing the OBC. Scottish Ambulance Service Page 5 January 2009

6 3 SUMMARY OF FINANCIAL APPRAISALS 3.1 Fleet Size Mix The fleet size mix is currently being appraised due to reviews of both the Patient Transport Service and of emergency operational responses. These reviews are not yet complete, and require further iterative development as the engagement process proceeds. At the time of preparing this Business Case there is a requirement for flexibility in the size and mix of both these fleets. Therefore, three options have been considered to ensure that the value for money and affordability of each option is considered. The table below shows the expected change to size/mix of fleet of the Predicted Change option. The table excludes specialist vehicles for specialist operations, ie Search and Rescue. VEHICLE Support Vehicle level 1 Support Vehicle Level 2 PTS Small/Medium PTS Large Vehicle TABLE1/1 CHANGE TO FLEET SIZE/MIX NUMBER OF VEHICLES NUMBER OF VEHICLES 05/06 08/09 FUTURE VEHICLE MIX 11/12 PREDICTED CHANGE Island Vehicle MidTier/ Urgent Tier A&E Vehicles RRU Support vehicle - Van TOTAL The option for the future vehicle mix will be the Predicted Change. This option allows the Service to provide changes in future service developments and continue providing effective front-line services. Scottish Ambulance Service Page 6 January 2009

7 3.2 Procurement Method An analysis of the economic and financial costs of different procurement methods and the fleet size mix indicates that that generally all types of vehicles should be purchased except for Support Vehicles Level 1 and 2. However - in terms of the Support Vehicles Level 1 and Level 2 Cars - the preferred option is leasing, due the desire to ensure that Scottish Ambulance Service staff have the same options as other NHS Staff. It is also possible to obtain improved leasing rates by ensuring that national procurement contracts are adhered to. Currently Support Vehicles Level 1 and Level 2 are procured via leasing for a three year period and it is proposed to continue with the existing procurement method. The cost of remaining on this option is 20,440 total revenue costs per annum less than purchasing the vehicles. Therefore it is cost efficient and users receive a choice of vehicles. 4 ASSET LIFE The table below summarises the preferred option in terms of asset life: TABLE 1/2 - SUMMARY OF PREFERRED OPTION TYPE OF VEHICLE PROCUREMENT ASSET LIFE (YEARS) CURRENT CURRENT PROPOSED Support Vehicle Level 1 Contract Hire 3 3 Support Vehicle Level 2 Contract Hire 3 3 PTS small Purchase 5 5 PTS large Purchase Mid tier Purchase 7 7 Island Vehicle Purchase 7 7 Accident & Emergency Unit (AEU) including 4x4 vehicles Purchase 7 7 Rapid Response Unit (RRU) Purchase 4 4 Support Vehicles - Van Purchase 5 5 A cost/benefit analysis of each of the options on different asset lives for each type of vehicle indicates that in most cases the shorter the asset life the benefits tend to be better. The cost/benefit analysis shows that for the PTS large vehicle the costs and benefits of a shorter life from 10 years to seven years are more appropriate. However, the additional costs to the service outweighs the benefit of the shorter life, and therefore the Service cannot afford to reduce the asset life. In addition the PTS strategy, whilst Scottish Ambulance Service Page 7 January 2009

8 not fully developed, has indicated that a move from large PTS to smaller vehicles would be desirable. Resource modelling work undertaken by the University of Stirling supports this view. Therefore the number of large PTS vehicles will naturally reduce, and as the majority at seven years transfer to become operational spares, there is no risk to patient care. Alternative asset lives were explored to increase some of the shorter lives to reduce the large PTS. However, the table above is the one that is most affordable. The cost/benefit analysis in Section 5 supports the preferred option in terms of the benefits provided to patients and the business. 5 FINANCIAL REQUIREMENTS The financial requirements of the preferred option are detailed below. The current capital and revenue budgets for 2008/09 are 7.5 million for capital and 10.9m for revenue in relation to fleet. This includes leasing costs, maintenance and all capital charges. The Annual Revenue Cost figures for the preferred option include maintenance costs and the capital charges. TABLE1/3 - FINANCIAL REQUIREMENT No of vehicles No of vehicles replaced annually Annual Capital required Predicted Change Annual Revenue costs required Predicted Change m 2.29 The financial requirements are based on the preferred option of Predicted Change as it is the most likely option that will happen. The Predicted Change allows the service to change its size and mix to meet the requirements of the service over the next three years. The annual capital requirement of 8.49m and Annual Revenue costs of 2.29m are included in the Service s financial plans. The preferred option also has to be affordable in terms of revenue costs. The predicted costs of 2.29m are the total revenue costs, which include maintenance costs and capital charges. The difference in costs from the OBC is 0.014m less and is due to the tendering process. The capital charges and lease funding for the vehicles replaced in 2008/09 are 2.63m for a full year. Therefore, the 2009/10 total revenue costs relating to Fleet will be 10.6m. The net savings of 300k come from savings in lease costs and vehicle running costs. In the first year of purchase it is unlikely that full year capital charges are incurred as vehicles are bought at different times Scottish Ambulance Service Page 8 January 2009

9 throughout the year. There are a number of vehicles that are leased and will be replaced throughout the year by purchasing vehicles. 6 STAKEHOLDER AND BOARD APPROVAL The Outline Business Case was presented and agreed by the Scottish Ambulance Board on 29 October Prior to the Outline Business Case being presented to the Board, consultation with Senior Management and New Ways of Clinical Working Board members was undertaken. 7 CONCLUSION The proposed procurement option as detailed above will meet the Business Case objectives in terms of providing patients and staff with modern, safe, functionally-suitable and operationally-reliable vehicles, whilst using procurement methods and replacement policies that offer value for money and that are affordable. The option will also deliver sustainability and, environmentally, the vehicles will be within a range that is fuel-efficient and minimises CO 2 emissions. Scottish Ambulance Service Page 9 January 2009

10 SECTION 2 - STRATEGIC CONTEXT 1 BACKGROUND TO THE BUSINESS CASE As stated in the Outline Business Case, the Full Business Case covers three years worth of replacement, this being the period over which there is sufficient certainty about the size and mix of the fleets to arrange a funding package. 2 BUSINESS CASE OBJECTIVES In the Full Business Case objectives are as follows: To ensure that patients will be transported in modern safe, functionallysuitable and operationally-reliable ambulances; To ensure that ambulances will be procured over the next three years using replacement policies and procurement methods which offer good value for money and which are affordable. Therefore, Predicted Change has been selected as the preferred option as it allows Service Delivery to continue to meet future service requirements and meet the above objectives. The future service requirements take into account proposed changes from the PTS strategy, New Clinical Ways of Working and consultation with fleet staff. 3 SIZE AND SCOPE OF BUSINESS CASE 3.1 Fleets covered A&E, PTS and Support Vehicles are covered. The A&E fleet includes frontline ambulances and Rapid Response Vehicles. The PTS fleet covers small vehicles, including non-emergency service pool vehicles; medium-sized vehicles and large vehicles. The Support Vehicle fleet primarily relates to the vehicles used in the Staff Car Scheme and to support vehicles used in Workshops and Operational Divisions. The case does not consider vehicles required for the Emergency Planning function, which have been addressed under separate Business Cases. 3.2 Time Period The OBC outlined three years worth of procurement that is required. The Predicted Change option identifies the proposed changes to fleet mix in the next three years. It is not feasible to specify now, for each fleet, the precise size of the fleet and the precise mix of vehicles that will be required in each of the next three years. The Service will need to have some scope to vary the size and mix of each fleet, and will ensure that the funding packages are not exceeded. These assumptions are still valid for the Full Business Case. Scottish Ambulance Service Page 10 January 2009

11 3.3 Key Issues for the Appraisal and Procurement This case is primarily about the most financially efficient way to replace the fleet. Benefits for patients, staff, and for the organisation are all relevant when determining the appropriate life for each type of vehicle, but otherwise the case is concerned with the most financially efficient way of replacing vehicles. The key issues are: Determining the Size and Mix of Vehicles for each Fleet: What changes can we expect to the size and mix of fleets, given the Service s direction of travel, excluding specific developments. Procurement Method: How vehicles will be procured and where should the vehicles be purchased in terms of local v national purchase contracts. Vehicle Life: How long should each type of vehicles be used before it is replaced, taking account whole life costs and any benefits accruing from younger fleets? Environmental impact: The fleet strategy is both environmentally focused and sustainable in terms of meeting the environmental agenda. Sustainability: The fleet is replaced in a method that ensures that the service being delivered to the public is not impacted on by any changes in vehicle type or mix. Affordability: Is the best value for money package of procurement affordable, given its capital and revenue consequences? Scottish Ambulance Service Page 11 January 2009

12 SECTION 3 - APPRAISAL PROCESS 1 INTRODUCTION The OBC identified the size and mix of vehicles for each fleet and its affordability. The overall size of the fleet has not changed. However, there has been a change to the A&E Vehicle mix, and its impact on affordability is detailed in the table 3.1 and Appendix 3. 2 AFFORDABILITY The approach adopted here is to determine the capital and revenue packages with regard to the proposed fleet size mix. The most affordable package will relate to fleet size mix and asset lives. For the predicted model, the annual capital requirements for each of the following three years will be 8.5 million and the revenue costs, which include cost of leasing, maintenance and capital charges, will be 10.6 million. The capital cost has decreased by 2k and revenue costs by 14k from the outline Business Case. At the time of writing the OBC the most up-to-date prices from current tendering process for vehicles were used and therefore there are only minor changes to the expected capital and revenue costs. As recommended in the OBC, the Predicted Change option allows continued service provision, whilst re-designing clinical models of care and providing as flexible a fleet mix as is possible within the bounds of affordability. The Service has tendered for several manufacturers of AEU vehicles and has completed trials of the vehicles. This has informed the choice of vehicles to be procured. Appendix 3 shows the model of affordability. The table below shows the economic and financial costs of the options. Scottish Ambulance Service Page 12 January 2009

13 TABLE 3/1 - FINANCIAL COSTS OF THE BEST FLEET SIZE MIX OPTION 2 - PREDICTED CHANGE PROCUREMENT LIFE OF VEHICLE TOTAL REVENUE COSTS NO OF VEHICLES REPLACED LY CAPITAL COST OF A SINGLE VEHICLE TOTAL CAPITAL SPEND Support Vehicles Type 1 Contract Hire 3 282, Support Vehicles Type 2 Contract Hire 3 118, PTS Small Purchase 5 261, , ,000 PTS Large Purchase , ,000 1,020,000 Mid Tier/urgent vehicle Purchase 7 76, , ,000 Island Vehicle Purchase 7 25, , ,000 A&E Vehicle Purchase 7 908, ,250 4,427,500 A&E 4x4 vehicle Purchase 7 134, , ,000 RRU Purchase 4 260, , ,600 Support Vehicles-van Purchase 5 49, , ,800 TOTAL 2,295, ,491,900 Scottish Ambulance Service Page 13 January 2009

14 The Business Case has undertaken an analysis of varying Asset Lives in relation to the OBC model. The original OBC identified the Predicted Change option as the preferred option. Within the preferred option, further calculations were undertaken by reducing the asset life of the Large PTS and increasing the asset lives in smaller vehicles. Three options were considered and are detailed below. The original OBC Model financial costs for the Preferred Option and the changes in financial costs from the OBC are detailed in the table below. SUMMARY CHANGE TO REVENUE COSTS INC/(DEC) CHANGE TO CAPITAL CHARGES INC/(DEC) CHANGE TO CAPITAL SPEND INC/(DEC) Preferred option Option 1 87,185 86, ,700 Option 2 122, , ,300 Option 3 9,566 30, ,300 Option 1 is the reduction in asset life of Large PTS vehicle from 10 years to 7 years and increasing Small PTS, Support Vehicle Vans by 1 year and RRUs by 2 years. Option 2 is the is the reduction of asset life of Large PTS vehicle from 10 years to 7 years and increasing Small PTS, Support Vehicle Vans and RRUs by 1 year each. Option 3 is the reduction of asset life of Large PTS vehicle from 10 years to 8 years and increasing Small PTS, Support Vehicle Vans and RRUs by 1 year each. The conclusion is that the Asset Lives in the OBC are the most cost-effective for the organisation. Whilst in Option 3 the increases in annual revenue costs and capital charges are only 41K and the increase in capital of 346K would give the large PTS vehicles a shorter asset life, it would mean a large amount of the small PTS, Support vehicle vans and RRUs having their asset lives extended by a year. It has been evidenced that longer asset lives on smaller vehicles have more repairs and cost more in maintenance and running costs. Scottish Ambulance Service Page 14 January 2009

15 The preferred option (Predicted Change) is affordable in terms of revenue costs. The predicted costs are 10.6m are the total revenue costs including leasing costs, maintenance costs and all capital charges. This is a reduction of 14k in total revenue costs from the OBC. The budgets for 2008/09 are 10.9m for a full year. With regard to priorities, the Service is currently evaluating the various options. Potentially the impact this may have on the A&E operation may result in the number of A&E vehicles that the Service operates reducing and the number of Island, Mid Tier and Rapid Response vehicles increasing. With regard to the Patient Transport Service (PTS), in future the options that are being considered will result in the number of large PTS vehicles reducing, and the number of PTS small vehicles increasing. The decision relating to which type and mix of vehicle is appropriate for PTS will relate to the capacity and patient categories that the service predicts it will transport in future years. Work is ongoing with NHS Boards to identify mechanisms to predict future patient demand and type. The Predicted Change option has been selected as the preferred solution as it is more feasible and it allows Service Delivery to continue and meet future service requirements. This option will deliver: A service where patients will be transported in modern safe, functionally suitable, and operationally reliable ambulances; A value for money option where ambulances will be procured over the next three years using replacement policies and procurement methods which offer good value for money and which are affordable. NO OF VEHICLES NO OF VEHICLES REPLACED LY CAPITAL REQUIRED PREDICTED CHANGE REVENUE COSTS REQUIRED PREDICTED CHANGE ,491,900 2,295,508 The changes in affordability from the OBC are a reduction of 2k in annual capital required and 14K in annual revenue required. Scottish Ambulance Service Page 15 January 2009

16 SECTION 4 - THE PREFERRED SOLUTION 1 DESCRIPTION The table below summarises the preferred solution: TYPE OF VEHICLE TABLE 4/1- PREFERRED OPTION CURRENT PROCUREMENT METHOD PROPOSED PROCUREMENT METHOD CURRENT ASSET LIFE PROPOSED ASSET LIFE Support Vehicle Level 1 Contract Hire Contract Hire 3 3 Support Vehicle Level 2 Contract Hire Contract Hire 3 3 PTS Small Purchase Purchase 5 5 Island Vehicle Purchase Purchase 7 7 PTS Large Purchase Purchase Accident and Emergency Unit (AEU) Purchase Purchase 7 7 Rapid Response Unit (RRU) Purchase Purchase 4 4 Support Vehicles -Van Purchase Purchase 5 5 The above table shows that there are no changes in current asset life and proposed asset life. The Service would like to reduce the asset life of the PTS Large from 10 years to seven years; However, the additional costs to the service outweighs the benefit of the shorter life, and therefore the Service cannot afford to reduce the asset life. 2 TIMETABLE The table below indicates the planned procurement timetable for purchased fleet, much of which has already been completed. These are maximum time scales and will be determined by the type of vehicle, contract specification and whether the contract is a full OJEU advert or restricted advert. The Service uses national contracts in place for provision of support vehicles. TABLE 4/2 - PREFERRED OPTION PROCUREMENT TIMETABLE 2008/09 ACTION A&E PTS SV OJEU Advert August 2008 August 2008 National Contracts in place Tender Return September/ October 2008 October 2008 Tender evaluation and contract negotiation Approval of Tender Report and Contract Execution November 2008 November 2008 January 2009 February 2009 Delivery of Completed Vehicles From April 2009 From April 2009 = Completed Scottish Ambulance Service Page 16 January 2009

17 Scottish Ambulance Service Page 17 January 2009

18 SECTION 5 PROCUREMENT METHOD 1 PROCUREMENT METHOD This section identifies the best procurement method and the best value for money for the vehicle life. The table below summarises the outcome of the financial analysis of the different types of procurement method. To simplify matters, here we are considering procurement of one vehicle of each type under the different procurement methods. The key cost indicator is the equivalent annual charge, a cost indicator derived from analysing all the costs/credits associated with the vehicle over its whole life. Annex 1 contains the detailed analysis. TABLE 5/1 ECONOMIC APPRAISAL OF PROCUREMENT METHODS TYPE Support Vehicles - Level 1 Support Vehicles Level 2 ASSET LIFE (YEARS) COST (EQUIVALENT CHARGE : 000S) PURCHASE COST (EQUIVALENT CHARGE : 000S) FINANCE LEASE COST (EQUIVALENT CHARGE : 000S ) OPERATIONAL LEASE COST (EQUIVALENT CHARGE : 000S) CCH MOST ECONOMIC PROCUREMENT METHOD 3 6,451 7,784 6,493 6,155 Contract Hire 3 6,215 7,717 6,183 5,919 Contract Hire PTS small 5 3,463 4,420 3,936 Purchase PTS Large 10 7,527 9,795 - Purchase Mid Tier/ Urgent Vehicles 7 10,309 13,939 11,369 Purchase Island Vehicle 7 10,309 13,939 11,369 Purchase AEU 7 16,802 22,028 19,097 Purchase AEU 4x4 7 19, Purchase RRU 4 8,224 9,403 8,509 Purchase Support Vehicles- Van 5 2,611 3,022 2,840 Purchase Scottish Ambulance Service Page 18 January 2009

19 Normally, purchasing assets tends to be more economic in the long run than leasing assets and the above analysis confirms this applies for each of the types of vehicle. (Leasing tends to be more expensive than purchasing for Government departments because: the cost of capital tends to be higher in the private sector than for Government departments; the lessee typically pays a little extra for the benefit of having the cost of acquisition spread over the life of the vehicle; and the lessee typically pays a little extra for the lesser carrying the risks of ownership, eg the risk that residual values might be more/less than expected. The affordability issues are addressed in the affordability section below. There are two types of vehicle where issues other than pure economic and financial costs have a bearing on the procurement method decision. Support Vehicles Level 1 and 2 vehicles (staff car scheme) are currently procured via contract hire. Due to the leasing company s ability to bulk purchase, the Service, in conjunction with NHS Scotland, is able to receive extremely competitive leasing arrangements. Therefore, for this category, contract car hire is more attractive financially. This method of procurement allows the Service to offer a wide choice of cars to users. If the Service were to purchase these vehicles, the range of choice available to users would diminish hugely because a) the Service would need to standardise to secure the bulk purchase discounts on which the purchase costings are based, and b) the Service could not practically manage a scheme whereby the Fleet Department were arranging one-off purchases each year. This is similar to other NHS bodies whereby there is a standard base rate and users get a choice of vehicles. The figures are calculated on a base car for Leve1 and 2. Leasing for the future options will be per annum (in annual revenue costs) more cost effective than purchasing. TABLE 5/2 - SUPPORT VEHICLES - LEASING VERSUS PURCHASING OPTION Support vehicle Level 1 Support vehicle Level 2 NO OF VEHICLES 11/12 AVERAGE REVENUE COSTS TOTAL REVENUE COSTS NO OF VEHICLES REPLACED LY AVERAGE CAPITAL COST OF A SINGLE VEHICLE LEASING REVENUE COSTS CAPITAL , , TOTAL 400, Support vehicle Level 1 Support vehicle Level 2 PURCHASE REVENUE COSTS CAPITAL AVERAGE CAPITAL SPEND , , , , , ,340 TOTAL 420, ,290 Scottish Ambulance Service Page 19 January 2009

20 Consideration has been given to move from leasing to purchasing for Support Vehicles Levels 1 and Levels 2. However this would impact on user choice and there may be personnel issues. By continuing to remain on leasing the cost will be per annum less compared with outright purchase. 2 VEHICLE LIFE (VALUE FOR MONEY ISSUES) This section looks at a range of options with respect to vehicle life and produces, for each type of vehicle, a VFM rank order of vehicle life options. The key issue here is whether the benefits of a younger fleet are worth the extra costs associated with more frequent replacements. The vehicles in a younger fleet are more up to date in terms of design and more mechanically reliable, environmentally friendlier therefore benefiting both patients and staff. On the cost side of the equation, younger fleets avoid the heavy maintenance costs associated with older vehicles, but incur heavy replacement costs arising from more frequent replacements. The table below summarises the cost/benefit analysis for each type of vehicle. Appendix 2 contains the detailed cost/benefit analyses. TABLE 5/3 - OUTCOME OF COST/BENEFIT ANALYSIS OF DIFFERENT VEHICLE LIVES TYPE ASSET LIFE (YEARS) BENEFITS (TOTAL WEIGHTED BENEFIT SCORE) COST (EQUIV- ALENT CHARGE 000S) COST PER BENEFIT ( 000S) RANK SENSI- TIVITY AEU , AEU , RRU , RRU , RRU , Mid Tier /Urgent , Mid Tier 8, /Urgent Island , Vehicle Island , Vehicle PTS Large , PTS Large , PTS Small , (60.6) PTS Small , % Scottish Ambulance Service Page 20 January 2009

21 TYPE ASSET LIFE (YEARS) BENEFITS (TOTAL WEIGHTED BENEFIT SCORE) COST (EQUIV- ALENT CHARGE 000S) COST PER BENEFIT ( 000S) RANK SENSI- TIVITY % Support Vehicle Level 1 Car Support Vehicle Level 1 Car Support Vehicle Level 2 Car Support Vehicle Level 2 Car Support Van Support Vehicle Van (0.05) The table above shows that the shorter life options typically offer better value for money than the longer life options, ie the benefits of younger fleets outweigh the extra costs associated with more frequent replacements. The sensitivity analysis carried out on the cost/benefit analysis for each type of vehicle show that it would require large movements in either the costs or the benefits to change the VFM rank order for PTS small vehicles. For the other vehicle types, value for money issues are more marginal - quite small movements in costs or benefits would be sufficient to switch the rank order of the leading options. The service, where affordable, has already moved to younger fleets because they offer better value for money. The best value for money procurement package would be composed of the younger life options for each vehicle type; however, the issue is whether the Service could afford to do this. There is no proposed change in the asset lives for this Business Case as it would not be affordable to the Service. Alternatives were examined; however, they were all more costly than the model proposed in the OBC. Scottish Ambulance Service Page 21 January 2009

22 The OBC evaluated the cost /benefit analysis, which is based on a set of criteria that is determined after consultation with staff and patients for each vehicle category. The benefit criteria are based on the requirements on the groups of patients, staff, organisation and stakeholders that use the Service. Each criterion is evaluated against each of the above groups needs by applying a scoring system of importance out of 100 points with an overall percentage weighting. A system of design scoring is used ranging from 1 - not meeting the criterion to 10 - meeting the criterion exceptionally for each vehicle category. Each group criteria is given a weighted scoring. The asset life options are then scored against these benefits and how they impact on patients, staff, organisation and stakeholders. Costs are evaluated against the total weighted benefit score using the economic annual charge. Whilst the model is useful for determining the best value for both patients and staff and establishing a cost per benefit, it is subjective in calculating the categories, rationale and options for benefits. See Appendix 2. Scottish Ambulance Service Page 22 January 2009

23 SECTION 6 - RISK MANAGEMENT STRATEGY RISK ASSESSMENT AND MANAGEMENT The OBC identified the main risks associated with the Business Case. This is a low risk Business Case: as one would expect, the Service has a long track record of procuring replacement vehicles effectively and efficiently. The Business Case Team have nevertheless assessed the risks and put in place measures to manage the risks. Scottish Ambulance Service Page 23 January 2009

24 SECTION 7 - CONCLUSION As per the OBC, the Business Case considers a number of options for the replacement of Emergency, Patient Transport and Support Vehicles. It identifies a preferred procurement package, via economic and financial appraisal, and sets out the Business Case management arrangements and the timetable for implementation, once approval was secured. It also indicates how the Business Case would be evaluated on completion, so that lessons could be learned and incorporated into the next Business Case for procurement. The preferred option (Predicted Change) would meet the Business Case objectives in terms of providing patients and staff with modern, safe, functionally suitable and operationally reliable vehicles. The Predicted Change offers the organisation flexibility to meet the needs of the New Ways of Clinical Working and the PTS Strategy. The Business Case uses procurement methods and replacement policies that offer value for money and that are affordable. Scottish Ambulance Service Page 24 January 2009