The government committed $250 million in capital funds to the redevelopment of the new hospital, with $60 million expected to be provided from the disposal of existing RWH property assets, after the commissioning of the new hospital.
This intention was detailed in the project's business case and relevant media releases, although approval for the redevelopment was not contingent on an asset sell-off. To date, no final decision has been made on whether proceeds from DHS asset sales or specifically the old RWH site will be used to fund the balance of the state's contribution of $60 million.
Over the 25-year operating phase of the contract, which commences after the construction of the facility is complete, the state will make quarterly service payments totalling $1 073 million in nominal dollar terms3.
The quarterly service payments represent both the capital cost of construction and costs of services delivered by the private sector over the term of the agreement.
As the majority of risks associated with the ownership of the hospital over its life are retained by the state, the value of the physical assets and the associated liabilities will be included on the state's balance sheet, when construction is complete. The liability recorded represents the present value of the state's obligation to finance the capital cost of building the facilities.
As well as the service payments to be made over the contract term, a total of $68.02 million has been budgeted for other costs related to the project and its management, such as enabling works, project management, contingency and relocation costs.
This amount has excluded some additional costs that are also related to the project but have not been included in the above budgeted costs. These costs include:
● $3.1 million for the purchase of office space at 55 Flemington Road-this cost did not form part of the business case as the need for it did not become apparent until the Royal Women's Hospital and Royal Children's Hospital split into two health services on 1 July 2004. This resulted in some of the administration functions at RWH no longer being able to be housed at the Royal Children's Hospital, thus requiring additional office space.
● other less significant costs relating to the:
● assignment of the Frances Perry House lease
● preparation of a business case for the car parking revenue
● a contribution to the costs relating to the preparation of a business case for the development of a shared retail precinct with Melbourne Health.
3 According to the 2006-07 annual report of the RWH, this is valued at $421.5 million in net present value terms.