There was a fatal flaw in the children’s hospital tendering process

Lack of final design before signing contracts sowed seeds of disaster

 The national children’s hospital construction site. Administrative and political lessons must be learned from this scandal.  Photograph: Tom Honan

The national children’s hospital construction site. Administrative and political lessons must be learned from this scandal. Photograph: Tom Honan

 

Having chaired four meeting of the Joint Oireachtas Health Committee taking evidence from the national paediatric hospital development board, officials from the Department of Health and HSE and finally from the Minister for Health and secretary general of the department, I believe the cost of the national children’s hospital project will not be limited to €1.433 billion.

The present location is undoubtedly contributing to the costs. The limitation of the site ultimately put substantial strain on the design and the cost of the project. Preparing the site at St James’s Hospital, including the demolition of existing buildings in addition to all the expected and unexpected ground conditions of a confined brownfield site surrounded by the existing hospital and residential property comes at a premium when compared to the cost of building on a greenfield site.

Space for expansion, which will inevitably be needed in years to come, is limited, especially when the footprint for the relocation of the Coombe maternity hospital, planned to be connected to the national children’s hospital, is taken into account. Having a major maternity hospital physically connected to the new children’s hospital was seen as essential for the welfare of critically ill newborn infants. One has to wonder when the Coombe will now be relocated.

The tendering and procurement process, based on preliminary design, was porous and not fit for purpose, resulting in uncontrolled cost escalation. The design continually changed as the project developed without a final finite cost limit. Each change led to additional costs which were not controlled or anticipated.

This two-stage procurement process was chosen to avoid client-contractor confrontations, which traditional fixed-price contracts where subject to.

However, we now see the weakness of the two-stage contract process where cost escalation is inevitable unless there is strict cost-control and supervision. The failure to have a final design before signing construction contracts is the fundamental flaw in this project.

Cost overruns

Undoubtedly the seeds of these cost overruns were sown within the original tender documents, together with the subsequent rolling design of the plan once the initial contracted documents were signed. Complexity and innovation should not have prevented exact cost prediction.

The national paediatric hospital development board together with additional oversight bodies chaired by some of the most senior officials in the Department of Health and the HSE were not able to predict or react swiftly enough to contain the runaway spiralling costs. The complexity of the project, the fact that it is to be a digital state-of-the-art project and the unique costs of building in Dublin are being offered as reasons for this being the most expensive children’s hospital ever build.

This does not bode well for all other capital health projects. The children’s hospital will have 6,150 rooms to support 470 beds, together with two satellite hospitals at Connolly and Tallaght, which will have day-care facilities but will not provide overnight accommodation. When comparing costs of construction with that of other children’s hospitals, it is more sensible to use cost per square metre than cost per bed. Even so the children’s hospital is way outside the next most expensive hospital by a large margin.

Oversight bodies

The departments of Public Expenditure and Health along with the HSE were detached and disconnected from the project, in spite of having membership on the project team and oversight bodies. To date the Department of Public Expenditure has not appeared before the health committee to explain its role in this controversy despite several invitations. The Department of Public Expenditure correctly identifies health as the responsible Government department for this project.

However, given the enormous cost of the project and its astounding overrun, it is incumbent on the Department of Public Expenditure to explain its involvement. The department is involved in the tendering and procurement process to ensure cost certainty at the tender award stage, value for money and efficient delivery of public works projects. The department would have had to approve the additional €320 million cost escalation and additionally, the chief procurement officer in the department was a member of the national paediatric hospital development board, yet he did not officially inform the department that there were serious concerns about unforeseen cost escalations, as it was not his board function to do so.

The Government has commissioned PricewaterhouseCoopers to provide an independent review examining the cost of this project, reporting by March 29th. This reports will examine in detail how this project was managed, including why the costs escalated from the original tender price of €637 million to the final guaranteed price of €1.433 billion. This guaranteed maximum price comes with some health warnings.

Final construction bill

Should cost inflation rise above the expected rate, should additional design omissions be identified, should the project be delayed and should the scenario analysis commissioned by the Government identify additional costs, then the final construction bill will rise above €1.433 billion.

The eventual unbudgeted extra capital cost of the children’s hospital will be taken from other capital projects across all Government departments, but most particularly health projects.

This “re-profiling” will inevitably defer or delay the delivery of many urgently needed projects such as the expansion in bed capacity by 2.600 beds including elective-only hospitals, the relocation of maternity hospitals and the expansion and upgrading of residential elderly care units. Watch to see if your local regional project is affected.

Administrative and political lessons must be learned from this scandal. Political decisions which go wrong, have serious consequences for the health of patients. The nation has been let down by those entrusted to manage its health service. Efficient management of resources, accountability and transparency are still distant aspirations. Michael Harty is a GP, Independent TD and chairman of the Joint Oireachtas Health Committee

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