Children's hospital overrun would have happened regardless – report

The cost overrun on the national children’s hospital would have materialised even if a contractor other than Bam had been selected to build the project, according to a confidential report into the price-setting process.

Even though Bam’s bid was significantly lower, the same problem with price increases would have arisen with other bidders due to inflation and changes to the amount of materials needed for the project, the report says.

The report, carried out last autumn by the HSE at the request of the Department of Health with specialist external input, warned significant amounts of funds invested in the project to date would be unrecoverable if a decision was taken not to proceed to construction.

The development board building the hospital has spent €260 million to the end of last December, most of which will be lost if the project does not proceed as planned at St James’s Hospital.

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Ministers were briefed about the HSE and other reports as part of Cabinet deliberations on the issue in December. This resulted in a decision to go ahead with the €1.43 billion hospital, despite a €450 million cost increase in the space of a year.

Tender process

The report concluded the two-stage tender process appeared to have been followed correctly, but the way the price was set meant there was a potential risk of increases before the final price was determined. Briefing his colleagues, Minister for Health Simon Harris advised of the report's finding that "this risk always sat with the funder".

In 2016, the development board set a budget for constructing the hospital of €571 million but Bam's bid, while the lowest, came in at €636 million. It was €178 million lower than the next highest bid received, from John Sisk.

Two other bids, from Dragados/Collen Construction and FCC Construction/Walls Construction, came in even higher.

To address relationships between the National Paediatric Hospital Development Board (NPHDB) and Bam as the hospital is being built, the HSE review called for the use of external expertise, strong systems to identify cost pressures and a continuing role for an independent expert.

“The review advises it will be necessary to ensure that the NPHDB and Bam are facilitated in further developing a collaborative relationship while still enabling the NPHDB to hold Bam to account, within the context of the contractual mechanisms,” Mr Harris advised the Cabinet.

The amount sought by Bam increased by 28.7 per cent between its tender price in 2017 and the guaranteed maximum price agreed last November. However, the mechanical contract awarded to Jones Group increased by 65.4 per cent over the same period, and the electrical contract with Mercury Engineering grew by 60.2 per cent.

Bam got special permission from its Dutch board to tender for the children’s hospital project at over €600 million without an external joint venture partner, as the normal limit is €300 million.

‘Grave concern’

The Irish subsidiary wrote to the employer’s representative on the project last August saying its parent board had expressed “grave concern” about the very significant increase in the “scale” of the project. While seeking assurance the project was properly priced and funded, it warned full employment in Ireland and the development of other large projects might place “impossible strains on the labour resources to complete the project as planned”.

That month, Bam submitted an additional €200 million in cost claims, which it linked to inflation, the need to pass on wage rises due nationally to construction workers and mark-ups in the appointment of mechanical and electrical specialists, according to a briefing note from the Department of Health.

In November, after Bam’s additional claims were reduced to €60 million through the involvement of an independent expert, agreement was reached on the price and Government approval to proceed with construction was sought.

Last week, Taoiseach Leo Varadkar criticised the “lowballing” of public contracts. The company called on Mr Varadkar to clarify his Dáil comment and the Taoiseach’s spokesman said he was not referencing any specific company.