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Serco Paid Millions Over Budget for West Australia Hospital with No Patients

by Fatima HansiaCorpWatch Blog
March 11th, 2014

Fiona Stanley Hospital. Photo: Ref54. Used under Creative Commons license.

Some 230 staff are being paid to work at the new Fiona Stanley Hospital in West Australia, even though it will not open to patients till March 2015. The project has been labeled a “privatization disaster” and Serco, the contractor, has come under fire for the soaring costs.

Serco was awarded the A$4.3 billion (($3.9 billion) contract to manage Fiona Stanley Hospital in 2011 with a scheduled opening date of March 2014. It was the latest move in a wave of privatization in West Australia that has seen multiple essential hospital services transformed from public to private guardianship such as administrative and records management, cleaning and patient care assistance.

Today, the contract is already A$330 million ($298 million) over budget. Of this A$120 million ($108 million) has been paid out for information technology and as much as another $50 million may be needed to complete a paperless computing system. Serco has also been paid A$118 million ($106.6 million) in operating costs for 2014 despite the fact that the hospital is not open.

“The workforce is turning up for duty seven days a week, 24 hours a day to be at a hospital without a single patient and Serco is cashing in,” Roger Cook, the opposition Labor party health spokesman told Perth Now newspaper. “It is an outrageous waste to see so many people being paid to go to work in an empty hospital when that money could be used to reduce hospital waiting lists or avert job cuts in our schools.”

Questions are also being asked about the contract award process by the Liberal party government of Colin Barnett. Typically government projects undergo a six to twelve months review but the Fiona Stanley contract was rushed through in an unprecedented time of two weeks, say state officials.

“We were all put into a situation of ‘Give us your comments quickly or you’re going to hold up the opening of the hospital,” Tim Marney, Under-Treasurer, told the Education and Health Standing Committee at the time. “Somebody … was not giving the Premier good advice. He would normally not sign off on anything where there is some huge risk involved.”

“Why was the Barnett government in such a rush to award this $4.3 billion contract to Serco before it had given it appropriate scrutiny?” Mark McGowan, the leader of the West Australia Labor party demanded in a media statement. “This is a financial scandal of the highest order that has created a massive loss of taxpayers’ money.”

McGowan claims that Serco has had an undue influence on the system of state privatization in West Australia via its think tank – the Serco Institute – which submitted lengthy recommendations to Western Australian Economic Audit Committee’s Report back in 2008.

SercoWatch, a citizen-run organization, says that Serco is now profiting from its own advice. “The former Director of the Serco Institute (Gary Sturgess) has a long connection to the Liberal Party,” writes SercoWatch in a submission to West Australia’s Public Accounts Committee. “He regularly visited Perth where he used his connections with Ministers, MP’s and Ministerial Staffers to sell Serco’s key capabilities and promote the benefits of contracting out and privatization of public good and services.”

This is not the first time that the privatization of West Australian hospitals have been criticized. The Royal Perth Hospital and the Sir Charles Gairdner Hospital have been accused by the Health Services Union of West Australia of providing low quality care, inefficient management, greater work for reduced wages and overall lower hospital standards after services were privatized.

Nor is this the first time Serco has come under fire for cost overruns and poor performance. Privatization of pathology services at two major UK hospitals, under the care of Serco and a joint venture named GSTS in 2011, were accused of losing money and major clinical “incidents” such as inaccurate kidney damage readings and a patient receiving “inappropriate blood.” Budget mismanagement caused GSTS to go over-budget by £5 million ($8.1 million) while Serco as a whole continued to profit.

Serco has also been heavily scrutinized for its role in immigration detention policies toward asylum seekers at Christmas Island in Australia. Various human and refugee rights groups have accused Serco guards of brutality and calling the Australian Federal Police force to fire tear gas and rubber bullets at protesting detainees. (see Nightmare on Christmas Island: Serco's Australian Detention Center)

Ironically Serco itself will make less profit than it expected from the Fiona Stanley contract because the West Australian government has delayed the opening of the hospital. “There is no benefit to Serco from the delay,” Joe Boyle, Serco’s transition director at Fiona Stanley Hospital told The West Australian. “The value will be reduced by about 40 percent in 2014 as a result of the delay.”