Purchase of unfinished hotel for patient care facility a 'highly unusual transaction': AG

The Nova Scotia government's decision to spend millions of dollars to buy an unfinished hotel and convert it to a patient care facility was a "highly unusual transaction" that did not demonstrate adequate due diligence to obtain value for money, according to a new report from the province's auditor general.

The government announced plans in December 2022 for two transitional care units, facilities that could house patients who no longer need hospital beds but are not ready to return home or are awaiting a long-term care placement.

A report released by Auditor General Kim Adair on Tuesday found that the government has spent $81 million in untendered contracts that did not comply with procurement protocols, as part of that process.

Adair found that the decision by the Progressive Conservatives to buy the property at 21 Hogan Court, just off Highway 102 near Bedford, for one of those facilities featured "an inadequate market scan of alternatives, a purchasing arrangement which reduced the province's ability to minimize costs and a valuation not based on the condition of the building at acquisition."

"Why not get an appraisal that was valid and that they could use to assess whether or not what they were intending to pay was reasonable," Adair told reporters during a briefing in Halifax.

The report reveals for the first time that the province used an alternative procurement plan to secure a five-year, $67.5-million contract with a third-party operator to run Hogan Court once the facility is operational. Adair notes that Nova Scotia Health is applying a health and social services exemption to facilitate the deal.

In December, the government quietly announced that Shannex would operate the site, although the announcement did not include the value of the contract.

Seven proponents were considered for the contract and Adair notes that Nova Scotia Health started the process before getting approval to use an alternative-procurement process and that no conflict-of-interest declarations were completed by the evaluation team. Because such a requirement does not exist within the health authority, officials relied on people self-declaring any issues.

• Read the full report

Negotiations started with developers, not property owner

The Tories paid Cresco Holdings $34.5 million for 21 Hogan Court and subsequently said they are spending another $15 million to renovate the site to make it suitable to house patients. Adair's report pegs those renovation costs at $17.4 million.

Although the work was supposed to be complete early this year, Colton LeBlanc, the cabinet minister responsible for major health-care construction projects, told reporters last week that renovations would continue until sometime in the middle of the year before the site is turned over to Nova Scotia Health.

It would be up to officials with the health authority to determine when the property will begin receiving patients.

Adair's report notes that when the government first started talking with Cresco, the company did not own the property. Rather, the company was in negotiations to buy the property and would then sell it to the province. Adair found this compromised the government's ability to get the best deal possible.

"We were looking for value for money and what we expected to find was an environment where the due diligence work was done to make sure they would achieve the value for money."

Government stands firm

But cabinet ministers responsible for overseeing the project and its eventual operation argued Tuesday that the need to improve the health-care system justified the process.

LeBlanc and Health Minister Michelle Thompson said the 68 beds that will eventually open at the site will help move people out of hospital beds when they no longer need them, but are not ready to return home or are waiting for long-term care. That in turn will ease congested emergency departments, they told reporters.

"Value for money represents much more than just the appraised value of a building," said Thompson.

"Our hospitals are full in Halifax and around the province. We need more beds and we need them as fast as possible."

The Tories were elected to fix health care, said LeBlanc. To do that, the government needs to deliver "meaningful solutions" that will improve how it's delivered.

Opposition slams government process

But opposition MLAs said the government has nothing to show for the spending so far and total costs will likely be higher than necessary.

"They have massively overspent [on] a project that was dubious to begin with," NDP Leader Claudia Chender told reporters.

"The promise of this project for which apparently expedience was needed has not come to pass."

Liberal MLA Braedon Clark said Adair's report has "more red flags than [he] can count."

"This is a government that talks a lot about health care but I think this is another example of style over substance. They put on their budget document last year 'more health care faster,' and what we see from this report today is less health care slower and more expensive."

Speed cannot be at the expense of accountability

Adair's report also said the government was already committed to buying the Hogan Court properly when it requested an expert opinion about the potential to renovate it for a health-care site.

That document, prepared by Nycum + Associates and first reported on last year by CBC, warned that even with costly renovations the location would not be appropriate for all patients.

"The province entered into a significant purchase arrangement without a comprehensive understanding of the building's suitability for conversion or the associated costs," Adair's report says. "This has contributed to project timeline delays, issues with code compliance, unforeseen costs, and changes to the patient profile."

It notes that Hogan Court will not be able to house patients who are younger than 18, who require secondary rehabilitation, require a sitter or security, and who have a high risk for infection or pneumonia. The Nycum report noted that Hogan Court, because of its design, would not be able to meet certain infection-control standards.

'Highly unusual' purchase

Adair's report deemed the purchase of Hogan Court "highly unusual" and she identified significant concerns, including:

• A memorandum of understanding signed between Nova Scotia Health and a developer, rather than the property owner, which reduced the province's ability to minimize costs.

• Reliance on an appraisal report which assumed the Hogan Court property was fully constructed.

• The $15-million conversion budget was approved without detailed cost estimates.

• Construction work was procured with sole-source contracts, rather than public tenders.

• Fewer beds than the facility was originally expected to house: from 75-80 down to 68.

Adair's office also found no conflict-of-interest disclosure requirements for the approvers of the alternative procurements, and inaccurate and inappropriate details on the alternative procurement awards were posted on the government's public procurement portal.

Hogan Court is one of two transitional care units the Tories announced in December 2022. The second is to be constructed from scratch in Bayers Lake. Combined, the two sites are supposed to have 195 beds.

LeBlanc would not say on Tuesday whether the number of beds at the Bayers Lake site would be increased to account for the shortfall at Hogan Court. Nor could he say when construction at the second site would begin.

Adair's report notes that $3 million in initial planning and site work contracted for the Bayers Lake facility are not in compliance with alternative procurement guidelines and that changes in the estimated cost for the project may need further approval by government.

The report makes six recommendations, all of which were agreed with by the government. They include:

• signing contracts with private sector partners before work commences.
• that Nova Scotia Health require conflict-of-interest disclosure by teams evaluating and approving procurement.
• that the procurement division of Service Nova Scotia review changes to alternative procurements including cost increases and expansions to the scope of work and assess whether a project requires public tendering.