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

The Nova Scotia government purchased this unfinished hotel for $34 million to convert it into a transitional care unit. (Paul Poirier/CBC - image credit)
The Nova Scotia government purchased this unfinished hotel for $34 million to convert it into a transitional care unit. (Paul Poirier/CBC - image credit)

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."

The report reveals for the first time that the province secured a sole-source, 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.

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.

Opposition calls to examine deal

Not only did opposition members raise questions about the amount of money the government spent to purchase the unfinished hotel — both the Liberals and NDP called on Adair's office to examine the deal — but a report obtained last year by CBC News raised questions about the viability of the site to house patients.

The report, prepared for the government by Nycum + Associates, suggested it could take costly renovations to convert the property from a place designed to house hotel guests to a location appropriate for patients awaiting a long-term care placement or convalescing until they're ready to return home.

Adair's report noted that the consultant's findings not to convert the building had no impact on the government's decision to buy 21 Hogan Court because it came after the government granted approval to purchase the property.

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

'Highly unusual' purchase

But LeBlanc has maintained that the project makes sense and will result in more new beds for the system much sooner than if the government commissioned a project from scratch. The aim is to ease the congestion that exists with acute care hospital beds now, a problem connected to overcrowded emergency departments because patients cannot be moved out and into hospital beds fast enough.

Adair's report, however, deemed the government's 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 told reporters last week that there is no timeline yet for when the work on the second transitional care unit will happen and be completed. Given that Hogan Court is slated to have 68 beds, the site in Bayers Lake will need to have 127 beds to make good on the announcement from December 2022.

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.