Harvard Case - Ospedale Papa Giovanni XXIII: Fixed-Price or Public-Private Partnership?
"Ospedale Papa Giovanni XXIII: Fixed-Price or Public-Private Partnership?" Harvard business case study is written by Jury Gualandris, Marco Carsana. It deals with the challenges in the field of Operations Management. The case study is 8 page(s) long and it was first published on : Jun 1, 2016
At Fern Fort University, we recommend that Ospedale Papa Giovanni XXIII (OPGXXIII) pursue a Public-Private Partnership (PPP) model for the construction and operation of its new hospital. This approach offers a unique blend of public sector oversight and private sector efficiency, enabling OPGXXIII to leverage the expertise of both entities while ensuring the project aligns with its mission and values.
2. Background
Ospedale Papa Giovanni XXIII, a public hospital in Bergamo, Italy, is facing a critical decision: how to finance and manage the construction and operation of a new, modern hospital. The hospital is currently operating in a facility that is outdated and insufficient to meet the growing needs of the community. The case study explores two potential options: a fixed-price contract with a private construction company or a Public-Private Partnership (PPP) model.The main protagonists in this case are the hospital's management team, led by Dr. Alessandro Sanson, who are tasked with making the decision. They are faced with the challenge of balancing the hospital's financial constraints with the need to provide high-quality healthcare to the community.
3. Analysis of the Case Study
To analyze the situation, we can use a framework that considers both financial and operational aspects. This framework can be broken down into the following key areas:
Financial Analysis:
- Fixed-Price Contract: This option offers predictable costs, but it may lead to potential cost overruns if unforeseen issues arise during construction. The hospital would bear the full financial risk.
- PPP Model: This option allows the hospital to share financial risk with the private partner, potentially leading to more efficient cost management. However, it requires a more complex negotiation process and may involve long-term contractual obligations.
Operational Analysis:
- Fixed-Price Contract: This option provides less flexibility in terms of design and construction, as the hospital would be bound by the contract specifications.
- PPP Model: This option offers greater flexibility in design and construction, allowing for more efficient and innovative solutions. The private partner can bring expertise in project management, construction, and facility management.
Key Considerations:
- Financial Capacity: OPGXXIII needs to assess its financial capacity to handle the potential costs and risks associated with each option.
- Project Management Expertise: The hospital needs to consider its own project management expertise and the potential need to engage external consultants.
- Long-Term Sustainability: Both options should be evaluated in terms of their long-term sustainability, including operational costs, maintenance, and technology upgrades.
4. Recommendations
Based on the analysis, we recommend that OPGXXIII pursue a PPP model for the new hospital project. Here's why:
- Risk Sharing: The PPP model allows for risk sharing between the public and private sectors, mitigating the financial burden on the hospital.
- Expertise and Innovation: Private partners bring expertise in construction, project management, and facility management, potentially leading to a more efficient and innovative project.
- Flexibility and Adaptability: The PPP model allows for greater flexibility in design and construction, enabling the hospital to adapt to changing needs and incorporate new technologies.
5. Basis of Recommendations
Our recommendation is based on the following considerations:
- Core Competencies and Mission: The PPP model aligns with OPGXXIII's mission to provide high-quality healthcare to the community while ensuring financial sustainability.
- External Customers and Internal Clients: The PPP model allows the hospital to focus on its core competency of providing healthcare services while leveraging the expertise of private partners for construction and facility management.
- Competitors: The PPP model can help OPGXXIII maintain its competitive edge by ensuring the new hospital is equipped with modern facilities and technologies.
- Attractiveness: The PPP model offers a more attractive financial proposition, with potential for cost savings and improved efficiency.
6. Conclusion
The PPP model presents a more advantageous option for OPGXXIII, enabling the hospital to build a modern and efficient facility while mitigating financial risks and leveraging the expertise of private partners. This approach aligns with the hospital's mission and values, ensuring a sustainable and high-quality healthcare experience for the community.
7. Discussion
While the PPP model is recommended, it's important to acknowledge potential risks and limitations:
- Contract Negotiations: The negotiation process for a PPP agreement can be complex and time-consuming, requiring careful planning and legal expertise.
- Long-Term Obligations: The PPP model involves long-term contractual obligations, which may require careful consideration of potential future changes in healthcare policy or market conditions.
- Transparency and Accountability: Ensuring transparency and accountability in the PPP model is crucial to maintain public trust and avoid potential conflicts of interest.
8. Next Steps
To implement the PPP model successfully, OPGXXIII should take the following steps:
- Develop a detailed project scope and requirements document.
- Conduct a thorough market analysis to identify potential private partners.
- Develop a robust negotiation strategy and secure legal counsel.
- Establish clear performance indicators and monitoring mechanisms.
- Develop a comprehensive communication plan to engage stakeholders and build consensus.
By following these steps, OPGXXIII can successfully implement a PPP model that delivers a modern and efficient hospital while ensuring financial sustainability and meeting the healthcare needs of the community.
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Case Description
In September 2014, a real estate and procurement expert was preparing his notes for an upcoming strategic meeting with the management team of the Regional Council of Lombardy (RCL), the governing body of one of the 20 regions in Italy. The RCL wanted to analyze the procurement process for two of its most important projects: the construction of Ospedale Papa Giovanni XXIII, a new cutting-edge, high-technology public hospital; and the construction of the hospital's surrounding parking area. During the construction of the hospital, a number of scope changes had been introduced and a major issue emerged. Construction had concluded at the end of 2012-€156 million over budget. The surrounding parking area was also subject to some issues, but with relatively minor economic and reputational impacts. Two years after the end of construction, the RCL was performing post-project reviews with the intent of improving future project procurement performance.
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