Hospital board was warned five years ago builders were lodging ‘low-cost bids’

The national children’s hospital board was warned five years ago that builders were lodging “unsustainable low-cost bids” to win contracts before trying to recoup the money, confidential documents now revealed show.

Board members were warned that companies were doing this “with a view to recovering their costs through active claims management from the outset of construction”.

“This has led to little or no collaboration, poor value, dispute resolution and a lack of cost certainty,” a report presented to the board in 2014 states.

Taoiseach Leo Varadkar said on Tuesday that the Government would examine if companies have been submitting low tenders to win construction contracts and then seeking to increase the budget.

Hospital board discussed spiralling costs seven times in 2017-18

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Harris told hospital overruns could reach €400m ahead of budget, documents show

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The Government is coming under pressure to get to grips with how the cost of the hospital rose from an estimated € 800 million in 2014 to the current figure of € 1.73 billion.

“We have a real concern that some companies have been low-balling, coming in with very low tender prices to get the contract and then coming back with claims thereafter,” Mr Varadkar said.

New documents show that members of the National Paediatric Hospital Development Board, the board with statutory responsibility for the oversight of the project, discussed a “procurement strategy report” in February 2014 which highlighted the issue.

The report examined if there was “a better way to procure the construction of the new children’s hospital to be located on the St James’s campus”.

It also looked at the effects of tendering for the project normally, and tendering for it using a two-step process. The latter process, which was chosen, allowed the work to begin on site while the final design brief was finalised, thereby saving on time. The procurement report found that the project could be delivered a year or two earlier through this process.

But it warned that this approach was “more aggressive and would place added pressure on the design team”, and this could lead to a “poor quality” guaranteed maximum price.

Materials

It has already emerged that a “bill of quantities” for the first stage was based on a partially developed design. It was only in the second stage that the design – and actual quantity of materials – was finalised, at which point costs began to rise.

The finalisation of the design added € 94 million to the project, and omissions in tender documents added € 20 million.

Further concerns were raised in 2014 about the potential behaviour of contractors.

The issue of the “low-balling” of contracts was also raised later in the project in a report by Linesight, the quantity surveyors of the project, the first version of which was given to the board in 2016, and which was then updated in 2018.

It found that “artificially low tendering strategies” were being adopted by contractors, with contractors “often submitting tenders which were below cost, a situation which was simply not sustainable in the longer term”.

“Tender inflation in the Irish construction industry in recent years has been substantially above inflation in the wider economy. This reflects a recovery within the industry from historically low output and tendering levels which occurred in the wake of the very severe recession in the industry in 2008/2009 and resultant artificially low tendering levels during this period.”

Cost overruns

The Minister for Health, Simon Harris, was questioned in the Dáil on Wednesday night about the cost overruns. He pledged that the Government would “act swiftly” on the recommendations of a PWC report which has been commissioned to examine the overruns.

“We will not be found wanting when it comes to acting against any entity or any company if errors were made,” he said.

“If the report finds the requirement for governance or personnel changes, I have stated clearly that I will act upon those.”