Oireachtas Joint and Select Committees
Thursday, 31 January 2019
Public Accounts Committee
National Paediatric Hospital Development Board: Financial Statements 2017
9:00 am
Seán Fleming (Laois, Fianna Fail)
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We are now back in public session. This morning's session will involve an examination the National Paediatric Hospital Development Board financial statements for 2017. From the National Paediatric Hospital Development Board, we are joined by Mr. Tom Costello, chairman; Mr. John Pollock, project director; Dr. Emma Curtis, medical director; and Mr. Jim Farragher, finance officer. From the Department of Health, we are joined by Mr. Jim Breslin, Secretary General, and Ms Tracey Conroy, assistant secretary. From the HSE, we are joined by Mr. Dean Sullivan, deputy director general and chief strategy and planning officer, and Mr. Jim Curran, HSE head of estates.
I remind members, witnesses and all those in the public gallery to switch off their mobile phones. That means switching them to aeroplane mode as merely putting them on silent can still interfere with the recording system. I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.
Members of the committee are reminded of the provisions of Standing Order 186 to the effect that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies. While we expect witnesses to answer questions put by the committee clearly and with candour, witnesses can and should expect to be treated fairly and with respect and consideration at all times in accordance with the witness protocol. We will start by hearing the opening statement from the Comptroller and Auditor General.
Mr. Seamus McCarthy:
The National Paediatric Hospital Development Board was established in 2007 as a "special purpose" agency to procure and oversee the planning, design, construction and fit out of the new national children's hospital and associated paediatric outpatient and urgent care centres based at Tallaght and Connolly hospitals. Separately, the Minister for Health formally established Children's Health Ireland with effect from 1 January of this year to plan for, and ultimately to operate, the hospital services. The agency took over this role from the Children's hospital group, which previously operated within the HSE. It is expected that the hospital buildings will transfer from the board to Children's Health Ireland in due course.
To date, the board has been funded by State grants provided via the Health Service Executive. In 2017, such funding amounted to €67.2 million. Total accumulated project costs of the board to end 2017 amounted to €132 million, inclusive of VAT. This excludes €35.5 million of capital expenditure that was written off in 2013 following a Government decision to change the location of the hospital.
As members are aware, the budget for the development of the hospital has escalated significantly. In 2014, the Department of Health approved a total budget of €790 million for the board's work. As of December 2018, the costs expected to be incurred under the board's remit were estimated at €1.433 billion. However, additional costs will be incurred by other agencies, including Children's Health Ireland, to fully equip and commission the hospital before it can get up and running.
I note that the Department of Health is engaging a firm of consultants to review the causes of the budget cost increases. Members will be aware that all public capital projects are subject to the provisions of the Department of Public Expenditure and Reform's public spending code. This sets out key principles and a framework for the appraisal, planning and management of capital projects. It includes specification of the respective roles and responsibilities of project contracting authorities, project sponsoring authority and sanctioning authority.
A core requirement for all capital projects is that they are underpinned by a suitably detailed project appraisal setting out projected capital and running costs and expected benefits and explaining the assumptions underpinning the projections. This should be capable of being readily updated as planning proceeds and new information about costs and benefits becomes available so that ongoing decision-making is properly informed. The code may provide a useful context and benchmark for the committee's consideration of the project cost escalation that has occurred in this case.
Seán Fleming (Laois, Fianna Fail)
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We will now move on to the other opening statements from Mr. Jim Breslin from the Department of Health and Mr. John Pollock from the National Paediatric Hospital Development Board, which we received late last night so we are only seeing them this morning. Witnesses must bear with us as we did not get an opportunity to review them yesterday. I know the witnesses have appeared before other committees. I know it is late but I understand why; I will just put it that way. I invite Mr. Breslin to make his opening statement.
Mr. Jim Breslin:
I thank the Chairman and members for giving me the opportunity to make a brief opening statement. I am here in my capacity as Secretary General of the Department of Health and Accounting Officer for the Health Vote. I am accompanied by Tracey Conroy, assistant secretary, acute hospitals policy division. While the invitation to me for today specified that it was to assist the committee in its examination of the 2017 financial statements of the National Paediatric Hospital Development Board, I am aware that the committee also recently requested the development board to provide additional information in advance of this meeting relating to the current position on the children's hospital project. I will, therefore, also comment with regard to the project overall.
The National Paediatric Hospital Development Board is established under the National Paediatric Hospital Development Board (Establishment) Order 2007, SI 246 of 2007. Under the order, the board is charged with keeping all proper and usual accounts and all special accounts as the Minister may from time to time require and to submit an annual financial statement to the Comptroller and Auditor General for an audit report to be carried out in accordance with the Comptroller and Auditor General (Amendment) Act 1993. The board's annual financial statements for 2017 were submitted to the Department on 24 August 2018 following the completion of the Comptroller and Auditor General's audit and were laid before each House of the Oireachtas on 25 September 2018 pursuant to section 11 of the Comptroller and Auditor General (Amendment) Act 1993.
The board has full statutory responsibility for the design, procurement, build and equipping of the new children's hospital and the outpatient and urgent care centres. It receives its capital funding for the project from the HSE as the sanctioning body for the new children's hospital programme. As set out in the 2017 financial statements, costs of €67.2 million were incurred by the National Paediatric Hospital Development Board in 2017. Following Government approval of the construction investment decision in April 2017, the main contractor, BAM Building Limited, which had been selected as the preferred bidder through a procurement process overseen by the development board, was contracted in August 2017 to build the new children's hospital and outpatient department, OPD, urgent care centres and instructed to begin phase A - substructure works. Work began on site in October 2017. Work was also progressed on the detailed design for phase B. When Government approved the construction investment decision in April 2017, the capital cost for the delivery of the hospital build project following the evaluation of main construction tenders and selection of preferred contractors was €983 million, of which €916 million was to be met by the Exchequer. In December 2018, following completion of the guaranteed maximum price, GMP, process, the capital cost for the delivery of the hospital build project now stands at €1.433 billion. The total of €450 million requires net additional Exchequer funding of €320 million, of which €50 million is VAT, and an additional €130 million in philanthropy funding.
In December 2018, when the Government approved the construction investment to allow phase B of the hospital to be instructed, the Government made very clear its serious concerns at the major escalation in the cost of the project. Accordingly, the Government has also approved the commissioning of an independent review of the escalation in cost in determining the adjusted contract sum. This independent review, which was commissioned by the HSE, is under way and will examine the contributory factors and associated responsibilities in order that any potential weaknesses are identified and comprehensively and speedily resolved in the interests of the successful completion of the project and the effective management of public funds. The development board is fully committed to collaborating with this review and to implementing any recommendations arising. The HSE and the Department will equally fully support the expeditious conduct and implementation of the review.
In advance of the meeting, I circulated a briefing note prepared by the Department for the Oireachtas Committee on Health earlier this week that sets out the detail of the cost escalation. At the committee, the Minister and I put on the record our deep unhappiness with the escalation in the cost of the project from €983 million to €1.433 billion.
As Accounting Officer I take this situation extremely seriously and regret the very significant increase in public funds over that originally committed by the Government based on the business case submitted by the development board. The Minister also outlined that the Government is resolved that the project should proceed to completion without delay so that, at long last, children in need of specialist paediatric care can access it in a modern and appropriate setting with all the facilities and technology that can support staff to deliver the best outcomes. I am happy to address any queries committee members may have.
Mr. John Pollock:
I thank the Chairman and committee members for inviting us here this morning. I am joined from the National Paediatric Hospital Development Board by Mr. Tom Costello, chairman, Dr. Emma Curtis, medical director, and Mr. Jim Farragher, finance officer.
The National Paediatric Hospital Development Board was appointed in August 2013 to design, build and equip a new children’s hospital. A planning application was lodged in August 2015 and An Bord Pleanála granted planning permission in April 2016 for the new children’s hospital, the paediatric outpatients and urgent care centres at Connolly Hospital and Tallaght Hospital and related developments, including the children’s research and innovation centre and a 53-bed family accommodation unit adjacent to the new children’s hospital. This was a significant milestone for the project.
There were many other significant milestones during 2017, principal of which were as follows. In April 2017, the definitive business case, including the full project cost, was approved by Government for €983 million. In May 2017, a foundation stone was cast for the new children’s hospital. In October 2017, the first sod was turned for the 5,000 sq. m. new paediatric outpatient and urgent care centre on the grounds of Connolly Hospital. This new facility will be operational in 2019 and will be followed in 2020 by a second facility at Tallaght Hospital. In October 2017, the development board, in association with Enterprise Ireland, organised a meet-the-buyer event for the new children’s hospital in the Royal Hospital Kilmainham for the more than 200 construction suppliers who attended the event.
The expenditure to date at 31 December 2017 was €67.2 million, and the detail is listed in the documentation supplied to committee members. The 2017 accounts have been audited and approved by the Comptroller and Auditor General. As requested by the committee, the draft unaudited expenditure to 31 December 2018 has been provided and is summarised in the documentation provided to the committee. It totals €129.1 million.
The scope of the project was defined in the HSE approved outline design brief. This set out the requirements needed to deliver a modern children’s hospital that will care for our sick children for future generations. The board put in place a plan, approved by stakeholders, to appoint a design team, obtain planning permission, clear the 12 acre site at the St. James's Hospital campus, and procure and appoint contractors in a two stage procurement process. A procurement subgroup, comprising the development board, the HSE and members of the Government construction contracts committee, agreed over a number of months that the most appropriate approach was a two stage procurement process to ensure competitive tendering and cost and programme certainty ahead of any decision to proceed with the main contract works, namely, the Phase B above ground works. This stage was reached in November 2018.
The costings for the project were developed at three distinct stages in the design process. These were in February 2014 prior to any design work; in February 2017, based on receipt of tenders for the Phase A works full design and Phase B partially developed design of mid-2016, when we tendered the project; and November 2018, based on fully completed and co-ordinated design. The February 2014 figure of circa €800 million was an early stage cost estimate prior to the appointment of a design team in August 2014, and used floor areas from the outline design brief and 2013 construction rates. It is estimated these rates will have virtually doubled by 2022 when the children's hospital will be completed, following a decade of construction tender inflation. The February 2017 figure was €983 million, which was the approved business case. The project was tendered on a two stage basis. The bill of quantities for the first stage was based on a partially developed design. The second stage included involvement of contractors with designers in finalising the design and confirming the actual quantity of materials. This included a targeted schedule of €66 million value for money savings. The November 2018 figure of €1.433 billion is the cost to completion in 2022 based on a completed and fully developed design. All risks on quantities, programme, omissions, co-ordination and ground conditions are now transferred to contractors.
Construction costs for the children’s hospital are now €890 million, an increase of €320 million over the approved 2017 business case. Seven key construction cost drivers have contributed to the increase of €320 million in construction costs, and are included in the documentation provided to the committee. The 2017 approved business case construction cost was €570 million, which included targeted value engineering savings of €66 million. The first cost driver was a reduction in the delivery of the €66 million targeted value engineering savings. A total of €20 million in savings was delivered but the overall cost was increased by €46 million. Statutory issues, specifically changes in fire regulations following the Grenfell Tower fire and the requirement of An Bord Pleanála to add additional sprinklers to the building, contributed to an additional €27 million in costs. The user engagement process had not fully completed and completing the process added a further €21 million. At this stage, the cumulative costs from the approved business case had increased from €570 million to €664 million.
The next cost driver was the finalisation of the detail design, including specification, detailing and itemising quantities of all materials in each of the 6,000 rooms. This added €94 million. Omissions in tender documents amounted to €20 million. There was also the impact of an additional nine month construction programme to complete the project in 2022 and, separately, additional costs for preliminaries due to the increase in scope. Additional claims from the contractors to reflect changes in scope amounted to €22 million. All of these factors amount to €320 million, bringing the adjusted construction sum to €890 million.
As well as the increase in construction cost of €320 million, there are additional costs of €130 million, as set out in the documentation provided to the committee. These include costs of €16 million for equipping the urgent care centres and the main children's hospital. It also includes costs of €53 million for other construction contracts, including for the outpatient centres, decanting and aspergillus, development board costs, design team fees and specialist consultants. There is also an increase in the risk provision on the main children's hospital of €11 million and VAT of €50 million. These items total €130 million. The final project cost is now €1.433 billion, €450 million higher than the figure of €983 million approved by the Government in 2017.
An international benchmarking report, completed by AECOM in October 2018, concludes that the average construction cost per square metre for international hospital projects similar in scale to the national children's hospital is €5,951 per square metre, with a recorded high of €8,000 per square metre. The average of €5,951 is more than twice the estimated cost of construction in 2013. Based on the award of the Phase B works, the construction cost of delivering the national children's hospital is €890 million, equating to a cost of €6,500 per square metre for the main hospital. The equivalent figure for the two outpatient and urgent care centres at Connolly Hospital and Tallaght Hospital is circa €5,200 per square metre.
Cost per bed is not an appropriate metric. It is akin to describing house prices on cost per bedroom and that is why we adopt cost per square metre.
Once we became aware of significant additional costs emerging and presented to the board, we set in place a review of alternative options. Contractually, we did not have to proceed with the phase B main contract works with BAM and we had the option to complete the phase A basement, stop all works and retender the phase B above ground works. This option, and others, were considered and carefully evaluated. The eventual outcome was a recommendation by the board, which was accepted by the HSE, the Department of Health and the Government, to proceed with the contract as it offered the best solution commercially and ensured the completion of the children’s hospital in the shortest possible timeframe.
Finally, the timeline to deliver the new children's hospital from the appointment of the board in August 2013 to project completion in 2022 is nearly ten years. It will deliver a fit-for-purpose children’s hospital fulfilling all the requirements of the design brief. The final cost is in line with international benchmark costs for hospitals of a similar scale and complexity. We are deeply disappointed that costs have increased so significantly and acknowledge the challenges these pose. We are also mindful of the Government's concerns to ensure the project is indeed delivered now within the agreed time and within the revised budget.
Our focus now is on ensuring all parties work safely and collaboratively to deliver a hospital of outstanding quality and a project that we will all be proud of which transforms the delivery of paediatric services and provides unsurpassed care for the nation's sick children for generations to come. We welcome the independent review of the cost escalation. Any issues identified will be dealt with speedily and comprehensively in the interests of successful completion of the project and the effective management of public funds. I thank members for their attention. My colleagues and I will be pleased to deal with questions.
Seán Fleming (Laois, Fianna Fail)
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I thank Mr. Pollock. Before we start with questions from members, I want to contextualise this matter. This is an unusual meeting. I understand the witnesses have been before the Joint Committee on Health three times in the past fortnight. Those meetings lasted for almost 11 hours, approximately. We are coming in after that point. I will clarify some of the key issues. While some Oireachtas Members, and perhaps some members of the public, will be conscious of some of the discussion at the health committee over those three meetings, many members here and many members of the public may not be aware of what has been said so far.
The gist of the two presentations this morning is to explain the increase in the cost from €983 million up to €1.433 billion. That is an increase of €450 million based on what was approved by the Cabinet. In the briefing material the witnesses sent to us and the health committee, however, it is stated that the starting figure was €637 million for the business case. That business case was made some time before it went to Government. The witnesses are starting today, however, with a figure of €983 million and not dealing with that additional €346 million.
Seán Fleming (Laois, Fianna Fail)
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People do not understand.
Mr. Jim Breslin:
The figures are consistent. The €637 million is included in the €983 million, and was calculated on the same day at the same time using the same information. Regarding the €637 million, in table 3 of the briefing note I gave to this committee, if we add the tender prices up it comes to €637 million.
Seán Fleming (Laois, Fianna Fail)
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That is where I am getting my figure.
Seán Fleming (Laois, Fianna Fail)
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Mr. Breslin is stating that the construction costs for the three main contractor groups was €637 million but all along there was another €346 million not included as part of that first figure.
Seán Fleming (Laois, Fianna Fail)
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Table 3 does not mention that. We are going to ask for a note. We will not do it now because I am sure the health committee has made requests. We have started with the price for construction at €637 million. All along, however, there was another €346 million that was not included in what people understood the cost to be.
Mr. Jim Breslin:
No, when Government signed off, everybody understood it to be €983 million. The Chair's opening remarks are relevant. As the health committee was interested in contractors and the type of money they were going to get out of the job, I set out in table 3 the specific sums that would go to the contractors for the project.
Seán Fleming (Laois, Fianna Fail)
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It is confusing because it refers to the approved business case. That business case was not the full business case. It was only a subset-----
Seán Fleming (Laois, Fianna Fail)
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Mr. Breslin will understand how members of the health committee, and the public watching, saw this figure of €637 million as the cost, while all along he knew the figure was really €983 million.
Seán Fleming (Laois, Fianna Fail)
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That is fine. The €637 million was only for the main contractors all along. There was always another €346 million, which came in time for the Government approval of the €983 million. A sum of €450 million has since been added to that amount. Mr. Breslin has used the phrase "including .. equipping", which refers to searching out the equipment to make it fit for purpose once there is a handover. Does that include all computers and IT?
Seán Fleming (Laois, Fianna Fail)
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Why are we talking about a figure of €1.433 billion, if Mr. Breslin is stating that does not include a single computer?
Mr. Jim Breslin:
As referred to by the Comptroller and Auditor General in his opening statement, the development board has responsibility for a large portion of the project costs but some of the costs are being met from outside of the development board. In particular, the HSE is meeting the ICT and electronic health record costs. That is because it is forming part of a national electronic health record programme.
Seán Fleming (Laois, Fianna Fail)
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I understand that. From the point of view of this committee, confining the session to the construction site costs, underground, above ground and everything, and the figure of €1.433 billion will not be a full discussion of what we are here to talk about. Mr. Breslin, as Secretary General of the Department of Health, is now telling us there is another €300 million out there that is going to be part of this project. It is in respect of Children's Health Ireland, previously the Children's Hospital Group, which does the IT.
Has that €300 million gone through the same rigour as the €1.433 billion? Are we going to be told that €300 million will increase to €500 million? What other costs, not captured by Children's Health Ireland and the development board, may be needed to get this hospital fully operational? We feel we are being given bits of information. The €1.433 billion is only for some of the costs. We accept that. This other organisation, however, is also involved. This is our worry. Different groups are involved in different aspects of this project and it falls to Mr. Breslin, as the Secretary General, to pull the whole thing together. Will he give us the full breakdown of the €1.733 billion? I ask this question because the witnesses have been before the health committee for 11 hours of discussion. That is good.
Seán Fleming (Laois, Fianna Fail)
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I want people to have a pen picture of where the work of that committee has finished and ours is starting to establish further detail. Many people do not get this yet.
Mr. Jim Breslin:
I fully appreciate there are many elements. As the Chairman stated, we have worked through the elements at the health committee. I am also very happy to do so here. In addition to the €1.433 billion, the elements that sit outside of that include a children's research and innovation centre, which will not be funded by the Exchequer. We have been asked, however, for what the total costs of the developments on the site will be. We have included €18 million for a children's research and innovation centre.
Catherine Connolly (Galway West, Independent)
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What was that?
Seán Fleming (Laois, Fianna Fail)
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To be clear, the €1.733 billion is not the cost of the project. It is the cost to the Exchequer. How much funding from philanthropic sources will be added to that? What is the project going to cost?
Seán Fleming (Laois, Fianna Fail)
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How much of the €1.433 billion is Exchequer funding? Let us start with that.
Seán Fleming (Laois, Fianna Fail)
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So that is hope.
Seán Fleming (Laois, Fianna Fail)
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We had interminable debates on the sale of the national lottery licence.
The €200 million yield from the sale of the national lottery was to fund it. Is it included as part of the Exchequer funding?
Seán Fleming (Laois, Fianna Fail)
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So, there was never a separate cheque from the sale of the national lottery licence for €200 million, which was promised one hundred times on the floor of the Dáil specifically for this project.
Seán Fleming (Laois, Fianna Fail)
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It gobbled it up.
Seán Fleming (Laois, Fianna Fail)
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The yield from the sale of the national lottery licence, which everybody in Ireland was assured would do directly towards funding the hospital, went directly to the Exchequer.
Seán Fleming (Laois, Fianna Fail)
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It went into the central fund of Government. I want to put it on the record that it did not go directly to the children's hospital. I am sorry for the interruption but €200 million is a lot of money.
Seán Fleming (Laois, Fianna Fail)
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Does Mr. Breslin have a schedule which he can share with the committee?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Did Mr. Breslin say €18 million?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Is that from the Exchequer.
Mr. Jim Breslin:
That is from the Exchequer. Some €52 million is for the electronic health record system. Integration, for Children's Health Ireland to mobilise the move of the three constituent children's hospitals over to the site and to bring the project to completion through operating the projects, staff movement, change management costs and so on, is being funded from revenue and that is €86 million. For completeness, we have included the cost for the Mater campus of €40 million. There was money spent on the Mater campus at the start of this project, which is €40 million. That comes to €293 million and that gets us to €1.7 billion.
Catherine Murphy (Kildare North, Social Democrats)
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Did Mr. Breslin say €4 million or €40 million?
Seán Fleming (Laois, Fianna Fail)
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Now that Mr. Breslin has mentioned the Mater, how much has been written off by the Department?
Seán Fleming (Laois, Fianna Fail)
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Is there another €40 million to deal with the Mater issue?
Seán Fleming (Laois, Fianna Fail)
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Will Mr. Breslin elaborate on the €40 million he mentioned in regard to the Mater campus?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Mr. Breslin has given an awful lot of figures.
Seán Fleming (Laois, Fianna Fail)
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Will Mr. Breslin ask one of his support staff to have that information emailed to the committee?
David Cullinane (Waterford, Sinn Fein)
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Is the €293 million all Exchequer funding?
Seán Fleming (Laois, Fianna Fail)
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We are not a bit happy but we are listening.
David Cullinane (Waterford, Sinn Fein)
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The €293 million is the additional funding, separate from the €983 million, but how much of that is Exchequer funding?
Seán Fleming (Laois, Fianna Fail)
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We are coming to that.
Mr. Jim Breslin:
The €293 million is on top of the €1.433 billion. Before I deal with Exchequer and non-Exchequer, the only thing that has changed in the €293 million is an additional €9 million for ICT. Since the Government decision in 2017, that element has not moved, with the exception of an additional €9 million for ICT. The €450 million has moved in the development board costs but there has been a €9 million shift in the €293 million.
Seán Fleming (Laois, Fianna Fail)
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Did that go through the same rigor as the bigger additional spend?
Seán Fleming (Laois, Fianna Fail)
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Okay, so we are at €1.73 million.
Mr. Jim Breslin:
On the question on Exchequer, going back into the €1.433 billion, I have said €150 million of that is to be financed, so non-Exchequer. Going back into the €293 million, which I have just given, it is the children's research centre, the CRIC, which will be €18 million, and which will be non-Exchequer. If that money is not raised, it does not get built.
David Cullinane (Waterford, Sinn Fein)
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What is the additional Exchequer funding?
Seán Fleming (Laois, Fianna Fail)
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It is €270 million.
Seán Fleming (Laois, Fianna Fail)
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The Department is hoping to get philanthropic funding of €270 million.
David Cullinane (Waterford, Sinn Fein)
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That is included in the €1.4 million.
Seán Fleming (Laois, Fianna Fail)
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No, it is in the €1.7 million.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Can I clarify, it was €1.433 billion; there was €97 million for ICT; €52 million for the electronic record; €86 million for Children's Health Ireland for integration; €40 million for the Mater campus, which is an additional €275 million. That is Exchequer funding. Outside of that, there is €18 million to be provided by way of philanthropy. Of the €1.4 billion, we are hoping to get €150 million from outside sources. That is it.
Catherine Murphy (Kildare North, Social Democrats)
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Does that include VAT?
Catherine Murphy (Kildare North, Social Democrats)
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I would like to discuss the Mater campus because I am very unclear about it. If there are design features that can be incorporated why is that a cost? I do not understand that.
Seán Fleming (Laois, Fianna Fail)
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I will open up the meeting to Deputies in a few minutes. I want first to get clarification on some of the large figures because there is total confusion, which is due to the volume of information. The total cost as of now to get the hospital up and running is €1.733 billion and of that the Department expects to get €150 million by way of philanthropy, plus €18 million for the research unit.
Mr. Jim Breslin:
I am sorry to interrupt but I need to clarify one thing lest I have misled the committee, there is a further €47 million built into those figures in the €1.433 billion, which is not philanthropy. It is car park and retail. There will be shops in this facility. There will be €47 million of that, which will be constructed as part of the project, but that is not Exchequer either. We expect to get paid for those facilities.
Seán Fleming (Laois, Fianna Fail)
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Okay, we are nearly there. We are at €1.733 million. We are accustomed to seeing hospitals constructed but lying idle with no staffing. What will be the annual operating costs for the children's hospital when is up and running?
Mr. Jim Breslin:
That figure is available but I do not have it immediately to hand. Children's Health Ireland, which was in at the health committee, was able to provide an update on that. The main movement on that, which we might have at hand, has been around pay increases. There is a baseline of staffing that has been calculated as to what the hospital will need. That gets updated for national pay increases. I will get the figure for the Chairman.
Seán Fleming (Laois, Fianna Fail)
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We need that figure soon. I ask Mr. Breslin to have one of his staff ensure it is sent to us now by email.
Seán Fleming (Laois, Fianna Fail)
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I would have expected to be told the operating costs of the hospital. Is the Department making provision for this additional cost?
Mr. Jim Breslin:
Yes. The core of the operating costs will be the amalgamation of the three constituent hospitals, which are now, from 1 January, under Children's Health Ireland. It has the budget for those three hospitals but there will be some additional cost to be introduced for that. There will also be some efficiencies arising as we do that.
Seán Fleming (Laois, Fianna Fail)
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I have one final question, following which I will call Deputy Kelly. I would prefer if the information requested could be emailed to the secretariat which can then distribute it to members because that is the best way of ensuring we all get it. Phase A was the ground works below ground level. Phase B is the construction above. The detailed design was done for the phase A tender and for phase B a detailed design had not been done before the contractor went on site. I know that the Department was not obligated for contractor B. Of the €1.433 billion, how much is for phase A and phase B, respectively?
Seán Fleming (Laois, Fianna Fail)
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I ask Mr. Pollock to repeat that, please.
Seán Fleming (Laois, Fianna Fail)
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We are at €1.433 billion.
Seán Fleming (Laois, Fianna Fail)
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Okay. What is the cost of phase B?
Seán Fleming (Laois, Fianna Fail)
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Phase A is approximately €100 million, inclusive of VAT. Phase B is €800 million. The total in this regard is €900 million. Where is the €500 million that is not account for in phase A or phase B?
Seán Fleming (Laois, Fianna Fail)
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Are they separate?
Seán Fleming (Laois, Fianna Fail)
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In terms of the main phase B for the construction of the hospital, how many contractors tendered for the phase B work on the site at St. James's?
Seán Fleming (Laois, Fianna Fail)
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For phase B.
Seán Fleming (Laois, Fianna Fail)
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There was one tender. The statement provided by Mr. Pollock indicates that BAM completed phase A. It states, "we had the option to complete the Phase A Basement, stop all works and retender the Phase B above ground works." Phase B is by far the more substantial portion of the works. The groundworks account for €100 million of the project cost. Phase B is the larger element of the project. How many firms tendered for the separate works for phase B?
Seán Fleming (Laois, Fianna Fail)
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For phase A.
Seán Fleming (Laois, Fianna Fail)
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Exactly.
Mr. Jim Breslin:
When it came to phase B, the successful tenderer who had been awarded the contract then repriced the job based on the revised design and bill of quantities. The tenderer was required to use the prices for the items that were quoted in the original tender. Although there were also specialist contractors, only one overall contractor priced phase B based on the prices it had come up with at competitive tender.
Seán Fleming (Laois, Fianna Fail)
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The contract indicated that cost of construction of phases A and B would be €1 billion. Phase A, which accounts for approximately 10% of the contract, was the only aspect for which a detailed design was done.
Seán Fleming (Laois, Fianna Fail)
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The detailed design for phase B, which accounted 90% of the job, was not completed when the contract for the full project was awarded. It is very simple. It was open to a contractor to get on site to do phase A, which accounts for 10% of the job, knowing that it had landed the entire contract and that the board had no bargaining position because a detailed design had not been done. It essentially awarded-----
David Cullinane (Waterford, Sinn Fein)
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I wish to raise a point of order.
Seán Fleming (Laois, Fianna Fail)
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I will allow the Deputy to do so when I have finished speaking. No detailed design was completed for phase B, which accounts for 90% of the job - a sum of €800 million or €900 million - prior to the award of that contract. The only specific thing on which contractors could bid was the first 10% of the work, relating to underground works. Once the contractor had its foot in on the site, it had the contract for phase B, leaving the board with no bargaining position. It could have thrown the contractor off the site and not proceeded with the project but that would have been a Hobson's choice. The board has left the taxpayer with a Hobson's choice between proceeding with the project at a ransom price, if the contractor was minded to charge such, or not kicking the contractor off the site and starting again.
Seán Fleming (Laois, Fianna Fail)
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I will take the point of order.
David Cullinane (Waterford, Sinn Fein)
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The point of order is that approximately seven or eight members are in attendance------
Seán Fleming (Laois, Fianna Fail)
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There is a point of order but I have stated------
David Cullinane (Waterford, Sinn Fein)
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May I make my point of order? I ask the Chair to allow me to finish. He has had a good run. He stated that context is important and I have no difficulty with that. However, votes will soon be taking place in the Dáil and committee members are required to be present in the Chamber. It is our job to tease out these issues. I propose that we move to the first speaker. If further context needs to be provided by the Chair, that can be done while the questions are being put.
Seán Fleming (Laois, Fianna Fail)
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I will finish on this. I am going through this in such detail because there have been 11 hours of debate on the matter at three Oireachtas committees. I want to put the big picture in place before people become totally confused. I will call Deputy Kelly but, first, Mr. Costello wishes to comment briefly.
Mr. Tom Costello:
On the preliminary design, the layout of the hospital had been agreed and the overall design brief had been specified to us. It it is not as though a rough design went out. When it went out, phase A, which was the basement works, was complete. In regard to phase B, there was a quantity against the rates of all elements and the quantities were finalised in the design development. However, there was specification for every element of the job, including doors, windows, cables and so on. The way two-stage tendering works is that the design is developed for a very complicated process such as this. At the end of the design phase, one is in a position to progress the project. We are in a very competitive tendering market and the rates we got in 2016 are now applied to the updated quantities. In a way, it is a relatively simple mathematical exercise. The contractor is bound by the rates it bid in 2016. The opportunity referred to by the Chair does not exist.
Alan Kelly (Tipperary, Labour)
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It should be noted that we should be on our third speaker by now as the time allotted to our first and second speakers has been used. I have spent weeks preparing for this meeting and I ask the Chair to note that. I believe the other members of the committee agree with me.
I have asked to be provided with correspondence on several occasions and parliamentary questions have been tabled in that regard. I have requested information at meetings over the past number of weeks. I ask the Secretary General, as the most senior representative before us, to note that getting information has been like pulling teeth. I sought information from Mr. Costello, Mr. Pollock and others at the health committee two weeks ago but have not been provided with that information. I want it by tomorrow. The delay is unacceptable. If it has been provided in the past 24 hours, that is fine. I ask our guests to look to the transcripts. I presume information requests are noted and the information then provided. It has not been provided to me. For example, I raised issues regarding figures for bed usage in the three hospitals currently and for the past three years. I have not been provided with that information. I asked a range of other questions and tabled several parliamentary questions. Mr. Breslin is aware of my concerns in that regard. I expect them to be appropriately addressed.
We are operating under time constraints and I want my colleagues to have the opportunity to put questions. I wanted to get in a second time but that will not be possible. I ask our guests to provide concise answers. I do not mean to be curt but this is the situation we are in.
I understand the breakdown given by Mr. Breslin. I ask that he provide the table to which he referred to all members. It has been made available to me. Is Mr. Breslin confident that the entire project including the fit-out and all associated works such as the satellite centres and so on will be completed for less than €2 billion? Can he guarantee that the project will come in for less than €2 billion?
Mr. Jim Breslin:
The only variable in the guaranteed maximum price relates to the exclusions from the contract. We have been asked by the Government to carry out a scenario sensitivity analysis on the impact of those exclusions. That is not complete but it includes inflation of approximately 4% from July 2019. I do not think that would result in the project cost increasing to over €2 billion but we will complete analysis and advise the Government on exactly what the sensitivity will be.
Alan Kelly (Tipperary, Labour)
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When will that be done?
Alan Kelly (Tipperary, Labour)
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Mr. Breslin cannot guarantee that the project will come in under €2 billion and that an exercise is being carried out to see how much scope creep or cost creep there will be again. In the light of from where we have come and given that the fit-out and other aspects of the project have increased the cost to €1.73 billion, as an occasional betting man I do not think the project will come in for less than €2 billion. The sensitivity analysis is the right thing to do because I do not believe that Mr. Breslin is confident that the project will come in at the current estimate costs but, rather, thinks there will be further associated costs. There have been so many surprises, some of which I will go through, that have take a long time to come up the line that I believe this project is highly unlikely to come in for less than €2 billion. Mr. Breslin cannot guarantee that it will. I am glad that the exercise is being carried out. However, as we sit here with the public watching on, it is mind-boggling to think that we cannot guarantee that it will come in for less than €2 billion. Until September last, the Department was officially telling the public that the cost would be €983 million. Four months later, we cannot guarantee the taxpayer that it will come in for less than €2 billion.
Alan Kelly (Tipperary, Labour)
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I appreciate that and the Department is right to do that exercise. For the public and members of the committee who are not members of the Joint Committee on Health - I am the only person present who is a member of both committees - it is new information that not only do we have a project which is at €1.433 billion, but also that when it is fitted out, it will be €1.7 billion and there is now a process in place to see what the final figure will be. That is in parallel with an investigation costing half a million to find out how we got here in the first place. Is that not all accurate.
Alan Kelly (Tipperary, Labour)
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Some €450,000.
Alan Kelly (Tipperary, Labour)
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What I just said was that we started off with a situation where we were looking at a cost of €983 million. In four months, it has gone to a case where we cannot guarantee the cost will be under €2 billion. The cost then went to €1.433 billion. Due to the additional cost of fitting it out that Mr. Breslin has outlined, the cost has increased to €1.7 billion. There is now a parallel PricewaterhouseCoopers study under way to provide an estimate to the Government of where this will land. Is that accurate?
Alan Kelly (Tipperary, Labour)
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I understand that.
Alan Kelly (Tipperary, Labour)
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That increase has knock-on effects as regards extra costs. The Department would not be undertaking a study if Mr. Breslin was confident that that was not the case.
Mr. Jim Breslin:
I agree with that with one proviso. This is not a traditional project where the claims come in after the contract is awarded. It has a guaranteed maximum price. The study we are doing is for things that would not normally be provided for under a contract. It is an achievement to have a guarantee on the maximum price which means that the contractor cannot come back during the course of building this and say that more cement or more fittings are needed.
Alan Kelly (Tipperary, Labour)
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I understand what Mr. Breslin is saying. However, information on the scope, ancillary costs and all of that is not available to the public. We are now in the situation where the Government, through the Department, will get a document which will go through everything relating to the escalating costs. I will lay a bet that it will come in at a figure well above €1.7 billion.
Alan Kelly (Tipperary, Labour)
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I am talking about the cost of the project. The figure will come in at well in excess of €1.7 billion. I believe that this project will go to the €2 billion mark and I do not hear Mr. Breslin saying it will not. In fairness, I do not believe he is in a position to do that. The public has lost confidence in how we as a country administer large projects such as this. People have given up and do not believe we can deliver such projects at the initially estimated costs. I say that as a member of the Government that first started and signed off on this project. There is no way that the Government of the day would have done this if we had known or it had been projected where this would go.
My next question is for Mr. Curran. I apologise for shocking him. I understand that he has had to do much work over the last months to determine what will be dropped, suspended and profiled. The word "profiled" is very important. It means projects that were commencing or going forward where contracts had not been signed now have to move to more distant dates. One cannot create more money and Mr. Curran has a difficult job because many things have been sucked up by the excessive costs of the children's hospital. Is that not true? What projects have ceased, been postponed and, most important, profiled out? We have announcements relating to a range of strategies, including the national maternity strategy. Announcements are one thing but where are we with regard to capital investments and projections to 2028?
Alan Kelly (Tipperary, Labour)
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When will that be completed?
Mr. Jim Curran:
We will have to contribute an additional €50 million from the health capital Vote towards the cost of the children's hospital and determine how we can profile that area. In the context of the future years, we are still awaiting advice from the Department of Public Expenditure and Reform in relation to whether there is any additional funding coming into health capital from 2020 onwards.
Alan Kelly (Tipperary, Labour)
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I know Mr. Curran has to be careful in what he says and I do not want to put him under pressure. Incidentally, €50 million is a small amount in the context of what the Department will have to cancel and profile. Will he list one or two projects that he knows will not proceed in accordance with the intended timescales?
Alan Kelly (Tipperary, Labour)
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Is everything going ahead as normal?
Alan Kelly (Tipperary, Labour)
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Mr. Curran is not saying much, to be fair. He has to be open here. Projects will not go ahead and the Department must have taken decisions. It would look fairly inefficient if decisions were not being made about projects. Public announcements have to be made and contracts have to be signed.
Alan Kelly (Tipperary, Labour)
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I was asking Mr. Curran a question. I will ask Mr. Breslin a question when I want to do so.
Alan Kelly (Tipperary, Labour)
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I will make it easy for Mr. Curran. There has been an announcement of a new unit for University Hospital Limerick, which has the most overcrowding in Ireland. I have not seen anything on budget lines about where that money is coming from. Is that project currently in the capital programme?
Alan Kelly (Tipperary, Labour)
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Is it currently in the capital programme? It is a "Yes" or "No" answer.
Alan Kelly (Tipperary, Labour)
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The Minister announced it last year. He said the money was there. Is it currently in the capital programme? I only picked one but I could have picked ten.
Alan Kelly (Tipperary, Labour)
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Will Mr. Curran confirm the project is in the capital programme? If it is not, he should just say so.
Mr. Jim Breslin:
It will only be in the capital programme if the Minister for Health and Minister for Public Expenditure and Reform approve it. We are engaging with the HSE on that process.
Alan Kelly (Tipperary, Labour)
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I think I have proved my point. Over the last period, I have gone through all the steering group minutes from the children's hospital project steering group. Mr. Dean Sullivan chairs the steering group. I have many questions on that. My first question is for Mr. Breslin because it does not relate to Mr. Sullivan's role. Why was somebody from the Department of Public Expenditure and Reform not involved in this? Somebody from the Department of Finance with tendering and contract experience was on the steering group. Given the scale of the project, why was somebody from the Department of Public Expenditure and Reform not involved? I have read all the minutes from 29 August to December and the costs keep escalating. Was there ever a thought about having somebody from the Department of Public Expenditure and Reform on this group because there seems to be somebody from everywhere else on it?
Mr. Jim Breslin:
We finalised those governance structures. They were introduced after April 2017. As part of the April 2017 decision, they were discussed across Government, including with the Department of Public Expenditure and Reform, but in the finalisation of those, the Department was not on the board.
Alan Kelly (Tipperary, Labour)
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Was that a weakness, in hindsight?
Alan Kelly (Tipperary, Labour)
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This is one of the largest projects in the State.
Alan Kelly (Tipperary, Labour)
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On 29 August 2017, an update on spending was provided and Mr. Pollock raised concerns regarding the costs of this project. Why did he raise those concerns?
The chair of the group at that time was the director general of the HSE. It subsequently changed to Mr. Sullivan, did it not? Why did Mr. Pollock raise concerns in respect of costs on 29 August 2017? The director general at the time requested an update at every meeting regarding the expected versus current progress of the construction project with funding streams and interdependencies to be included. Why was Mr. Pollock raising concerns in August 2017?
Alan Kelly (Tipperary, Labour)
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Was that the only concern of the National Paediatric Hospital Development Board?
Mr. John Pollock:
We highlighted a number of concerns. There was concern regarding the sprinklers. There was an issue about programme alignment among the mechanical and electrical contractors which would have an impact on the overall programme project costs, including design team costs. There was a total of €61 million identified.
Alan Kelly (Tipperary, Labour)
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Those were Mr. Pollock's main concerns?
Alan Kelly (Tipperary, Labour)
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There was a substantial amount of commentary in the minutes of a meeting on 20 October about the cost of the project. Mr. Pollock said that the estimated capital costs were exceeding the available funding at that time. He said he would not be reasonably certain about the size of this funding deficit until March 2018. Did Mr. Pollock have additional concerns between August and October? It seems that it was a substantial discussion. Did anything change between those two dates?
Alan Kelly (Tipperary, Labour)
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That is fine. Four possible options for addressing the capital cost deficit were discussed on that date in October, including de-scoping the capital project, reallocating capital from the HSE plan, mitigating the deficit through philanthropic funding, which is not an empty pot, and engaging with the Department of Public Expenditure and Reform for additional funding. Mr. Pollock also quotes a phrase that I hate, but I have to bring it into this meeting, "exploring backstop options in the event that a sizeable deficit cannot reasonably be avoided". What were the backstop options the board was asked to look at?
Alan Kelly (Tipperary, Labour)
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Were areas identified?
Alan Kelly (Tipperary, Labour)
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Where did that de-scoping exercise end up? Did it ever see the light of day?
Alan Kelly (Tipperary, Labour)
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Did Mr. Pollock put those forward as options and they never materialised? Is that basically it?
Alan Kelly (Tipperary, Labour)
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To the board?
Alan Kelly (Tipperary, Labour)
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The October 2017 minutes are quite astonishing because there is a sense that there was deep concern. There is no way there would be discussion of four possible options like that unless there was deep concern. I am aware of the €61 million, but I am also aware that there must have been concerns about other issues which brought the figure up to €200 million which Mr. Pollock was aware of in August 2018. Those were engineering, electrical and similar issues.
According to the minutes of an April 2018 meeting, Mr. Pollock said that the GMP was significantly at risk. On 25 June 2018, BAM was asked for its response about the impact of delays on the project. On 27 August, BAM said the delay would be three months. That is not long ago and we now know that the timelines are a lot longer, which obviously has an impact on the costs. I am intrigued about the following. On 22 October, the GMP process was noted as not concluded. There must have been a nervousness at that stage as to where this was going. Would that be fair to say?
Alan Kelly (Tipperary, Labour)
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That comes across clearly. It is strange that the GMP process had not been concluded. Mr. Sullivan was so concerned that he said an additional meeting would be needed, according to the minutes, but the next meeting was not until 10 December. This is quite confusing and I will say the following for the benefit of the pubic. The development board, of which Mr. Costello is chair, reports into the oversight or steering committee, which was subsequently chaired by Mr. Sullivan, which then reports in to Mr. Breslin on the board at Department level, and then reports to the Minister. Despite the fact that it is clearly stated, given the concern, that there needed to be an additional meeting, there was no meeting until 10 December. It is barely mentioned in the minutes of that meeting that the GMP had been concluded and a recommendation gone forward.
What I am trying to find is that, if Mr. Sullivan needed another meeting to go through the recommendations on the GMP and to consider whether to go forward, and we know about all the options, and discussions of other potential options, why that meeting did not take place.
Seán Fleming (Laois, Fianna Fail)
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I am going to have to move on. The Deputy will get a second chance before the vote.
Alan Kelly (Tipperary, Labour)
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I will not get a second chance because 35 minutes has been used up before I began.
Seán Fleming (Laois, Fianna Fail)
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The Deputy will get a chance before the vote. There are other Deputies to come in.
Alan Kelly (Tipperary, Labour)
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It has taken 35 minutes.
Seán Fleming (Laois, Fianna Fail)
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The Deputy will get a second chance before the vote but I am moving on.
Alan Kelly (Tipperary, Labour)
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Talk about ruining the moment.
Seán Fleming (Laois, Fianna Fail)
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We have to move on to Deputies Cassells, Cullinane, Catherine Murphy, Connolly and MacSharry. Deputy Kelly will be allowed back in.
Alan Kelly (Tipperary, Labour)
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The Chair's timing is great.
Mr. Dean Sullivan:
As mentioned in the minutes of the October meeting, there was an expectation of a further meeting on receipt of the GMP report but that report was not received until 13 November. We knew that would have to be considered by the board meeting on 16 November and there simply was not time to organise a steering group meeting in advance of that.
Alan Kelly (Tipperary, Labour)
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Mr. Sullivan was basically bypassed.
Alan Kelly (Tipperary, Labour)
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Mr. Sullivan was bypassed.
Alan Kelly (Tipperary, Labour)
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What does Mr. Sullivan mean when he says he saw the report?
Mr. Dean Sullivan:
I mean I was briefed, in my role as chair of the steering group, on the content of it in advance of forwarding it to the board that Mr. Breslin chairs. The report came in on 13 November and was forwarded to the board on that date to give board members as much time as possible. In the normal course of events, it would have gone through the steering group and then on to the board but I took the decision, in discussion with the Department, in this case-----
Alan Kelly (Tipperary, Labour)
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Normally reports would go through Mr. Sullivan, in fairness.
Alan Kelly (Tipperary, Labour)
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Did the development board not bypass Mr. Sullivan in August as well?
Alan Kelly (Tipperary, Labour)
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The National Paediatric Hospital Development Board informed the Department directly about its concerns about the €200 million in August. This is not the first time.
Alan Kelly (Tipperary, Labour)
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To conclude, on the two occasions in August and November, meetings were not held but the National Hospital Development Board told Mr. Sullivan?
Mr. Dean Sullivan:
The November situation recognised the realities of where we were. The GMP report had been concluded. Clearly, there was significant time pressure around closing out the process and reaching a decision on the way forward in the context of the need to sign, or not sign, the contract with BAM and, if we were to sign the contract with BAM-----
Alan Kelly (Tipperary, Labour)
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Considering Mr. Sullivan went through all the options-----
Alan Kelly (Tipperary, Labour)
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Considering that Mr. Sullivan went through all the options before, and I have outlined how that is reflected in the minutes, it is frankly amazing that the group did not come together to make a recommendation to the board. The steering group was set up in order to make recommendations and get into the detail. The steering group had gone through the detail but never actually made any recommendation to the board, even though it was minuted that another meeting would be needed to do so. It never happened.
Seán Fleming (Laois, Fianna Fail)
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Deputy Kelly will get back in before the vote. Everyone else wants to get in. We have been asked to stick to the time and Deputy Kelly will get a second go before the vote. Deputy Cassells has 15 minutes because other members have asked to be strict on time this morning and everyone will get back in a second time.
Shane Cassells (Meath West, Fianna Fail)
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I welcome our guests. A lot of figures have already been quoted. I want to keep things straight so we can focus on drilling down into the figures. In answering the Chairman's question about the €637 million, Mr. Breslin said that was not inclusive of VAT. That is at odds with what the then Minister for Health, Deputy Varadkar, said in April 2016. He said it was an all-in figure, inclusive of VAT, add-ons and contingencies. That is a direct contradiction of what Mr. Breslin's then boss said at that time.
This was noted this week in the Irish Independent' editorial, in which reference was made to a hobgoblin. We cannot have a situation where the Secretary General refers to that figure here this morning and says it is not inclusive of VAT and the Minister for Health said it was.
On the €637 million-----
Shane Cassells (Meath West, Fianna Fail)
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Yes, certainly.
Mr. Jim Breslin:
As I think we have illustrated, different elements of the project are being funded in different ways. It is important - and I can check the record - that when anyone refers to a figure, he or she refers to the same parts of the project coming within that figure. We would have to compare like with like. That is an important point.
Shane Cassells (Meath West, Fianna Fail)
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One cannot get more conclusive than the Minister saying "all in".
I want clarification on the €637 million, which has been referred to and asked about. What were phase A groundworks at the time of the business case being priced at?
Shane Cassells (Meath West, Fianna Fail)
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Okay, so €100 million all in. Phase A works are nearing completion. Is that correct?
Shane Cassells (Meath West, Fianna Fail)
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What are they likely to come in at? Are they likely to come in on budget, at around that €100 million mark?
Shane Cassells (Meath West, Fianna Fail)
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It is important to note that they of course had a detailed design. They are coming in pretty much on budget which means that phase B of that €637 million was coming in at €500 million plus, yet we see a project where the add-ons alone are now equalling or exceeding the original business case price. Correct?
Shane Cassells (Meath West, Fianna Fail)
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Yes. It is quite amazing. Mr. Breslin referred to table 3 in terms of the comparison of the business case versus the guaranteed maximum price. The difference there, I think, comes in at 40%. That is surely a misleading of this committee, or indeed any other committee, when we see that that is quite frankly not the case.
Mr. Jim Breslin:
Sorry, I am not going to accept that I am in a position of misleading the committee. A different comparison can be done, but that is a fair comparison and compares like with like. It compares the tender with the outcome of the contract sum. The Deputy can do his own comparison but he does not need to say I am trying to mislead the committee. That is not what I am trying to do.
Shane Cassells (Meath West, Fianna Fail)
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Anyone can accept a small change in price, but this is a business case that was coming in at €637 million and in respect of which the groundworks were actually going to come in on price, and then there was more than a doubling of the construction costs. This is simply quite unfathomable to the rest of the public.
I ask the witnesses to talk to me about the €346 million that was then added on top of the €637 million. Here we have a public procurement process, a sum of €637 million and, hocus pocus, an immediate add-on of €346 million, this despite the fact that, as I said, in April 2016, on the "Six One" news, the then Minister, Deputy Varadkar, said it was €650 million all in, including VAT. Was the then Minister misled by people here that he was able to go out and say categorically, based on advice from people here, that the cost was €650 million all in? I ask the witnesses to explain this to me and the people listening to these proceedings. How can a Minister be able to say that? He bases that on the advice he gets from the professional people in this room. Did he mislead the Irish public with the advice he got? I ask the witnesses to explain that to me.
Shane Cassells (Meath West, Fianna Fail)
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No. This is not a political charge.
Shane Cassells (Meath West, Fianna Fail)
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I do not care about the man's politics, but he went on the "Six One" news and told the people €650 million-----
Seán Fleming (Laois, Fianna Fail)
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The Deputy has to be fair. If he has a question about the then Minister's words, there is only one person who can answer it.
Shane Cassells (Meath West, Fianna Fail)
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He was informed by somebody, though. He did not dream the figure up.
Seán Fleming (Laois, Fianna Fail)
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I know, but-----
Shane Cassells (Meath West, Fianna Fail)
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Okay. Again, I am asking how the then Minister could get that so wrong, how he could tell the people of Ireland that that was the price, all in. It is not a political charge.
Seán Fleming (Laois, Fianna Fail)
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I know that. The Deputy is referring to any Minister.
Shane Cassells (Meath West, Fianna Fail)
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The Minister only makes a comment based on the professional advice from the board, the Secretary General and the other people to whom he is listening. He takes the information from them. I am asking the people who provided the information how a Minister can be given information that then turns out to be so categorically wrong.
Mr. Jim Breslin:
There is a procurement process to complete. I have said previously in committee and here today that I am absolutely unhappy with this situation. The core of the issue, however, is that the movement from phase A to phase B through the procurement process adds €450 million to the cost. That is enough of a shift and serious enough to concentrate all of our efforts and try to understand it.
Shane Cassells (Meath West, Fianna Fail)
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Would the successful bidder know-----
Seán Fleming (Laois, Fianna Fail)
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The Chairman asked the witnesses a question earlier that I will ask them again. Was a successful bidder lowballing to get the job on the basis that they came in on budget for detail on phase A but were spectacularly wrong when it came to phase B? Were the witnesses had then because they had signed up to this and were then committed to a project that spiralled out of control?
Shane Cassells (Meath West, Fianna Fail)
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Yes, please, Mr. Costello.
Mr. Tom Costello:
To go back to the basis for going for two-stage tendering, internationally, and as is the case historically with major projects in Ireland as well, they are tendered in the traditional form, which means there is not actually cost certainty when one starts. What generally then happens - and this is not just in Ireland, but also in the UK - is that there is a confrontational approach whereby the contractor does indeed set out to recover from perhaps a very competitive tender in the first instance. Then one spends three or four years, at the end of which time one realises how much it has cost.
As for deciding on a procurement approach here, then, we spent at least a year looking at what is done internationally and what works best. At the time there was in government procurement a move towards design-build. When we took over in 2013 the intention was that the designers would be procured on the basis that the contractor would eventually be expected to do his or her own design based on an exemplar design from the designers. In that year we spent interrogating the best way to do things, we settled on the fact that design-build in this case, because of its complexity, was not the most appropriate form. In hindsight this has proven that there would have been no tenders if they were expected to fund the cost of a design. Indeed, in recent times, both here and in the UK, the whole design-build process, certainly in respect of how it has delivered schools, has been shown to have issues. In delivering a children's hospital, then, having an employer design was extremely important. I hope the Deputy can understand this background.
Shane Cassells (Meath West, Fianna Fail)
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I am glad Mr. Costello has come in because I note his long professional career in this country. From his time dealing with big projects in his professional life in this country - and I am aware of some of the iconic projects in which he has been involved, such as Croke Park - has he ever dealt with any project in respect of which the build cost has gone up by the magnitude we see here?
Shane Cassells (Meath West, Fianna Fail)
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No. I appreciate that. I am just asking-----
Mr. Tom Costello:
So not to worry, I will answer the question. The process of the two-stage bid finished just in November. At that stage the design was fully complete and co-ordinated and the bill of quantities was worked up based on that completed design, and the contractors have verified certainty around that. Furthermore, the three main contractors, namely, BAM, Jones Engineering Group and Mercury, in terms of the co-ordination of their efforts, have validated the programme. As I said, the co-ordination of everything goes into it because it is a very complex project. At the end of all this we have also now completed the involvement of the user engagement, which had gone on until recently, and also the statutory issue. There is now certainty around the inputs and matters as we go forward. As Mr. Pollock said earlier in his statement, we are really disappointed by how it has progressed from €983 million to the current figure, but this is the end of a process which we set out to do five years ago to bring certainty before we started the main contract works. There is, then, a huge amount of cost to be expended on this project, yet relative to what is spent. We are in a position that, as we set out on the journey of spending that, we have certainty on the cost and programme.
On the Deputy's question, a number of projects come to mind. In the pharmaceutical industry, which is in the private sector, a project in Cruiserath, north Dublin some years ago set out to be €400 million but, at the end of the day, the cost was close to €1 billion. Recently I was looking at this in terms of what occurred at Battersea Power Station, which is high profile and also in the private sector. With regard to the refurbishment of that power station, those concerned set out to spend €800 million and now it is targeted at €1.2 billion.
Shane Cassells (Meath West, Fianna Fail)
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I am not interested in what the Brits are at.
Shane Cassells (Meath West, Fianna Fail)
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Mr. Costello has had some big ones. People here have admitted concern and worry. A review that was initiated will cost a significant amount but officials are explaining everything away by reference to complexity, as if we were not complex creatures and as if the project were not complex. We are asked to accept the complexity so we can move on but that does not tally. That is what people find confusing. In Mr. Costello's previous life with Sisk, would he or the company have accepted a situation where things were spectacularly wrong to the point of going from the business case figure of €637 million, or even €983 million, to nearly €1 billion over that cost?
Shane Cassells (Meath West, Fianna Fail)
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I am referring to how it would have been handled. There is anger over the view that, because public money is involved, the increase is acceptable. If one had gone to Liam Mulvihill of the GAA and told him that if he wanted a roof on the Hogan Stand, the price would have to go up by €500 million, the GAA would have marched people off the site. Can Mr. Costello understand that?
Mr. Tom Costello:
I can. I will tell the Deputy about an initiative taken by me and the company I worked with in relation to Aviva Stadium. The bid was on a traditional basis. There was not a guaranteed maximum price. This story shows the power of collaborative working. We had a fantastic relationship and, at the end of the day, the quality of the relationship delivered a high-quality job and the cost was set against a guaranteed maximum price. A year into the job, however, the FAI and IRFU advised that they were concerned because the costs were growing. I put in place an initiative with the client that meant we would set a cap and, within three or four months, a guaranteed maximum price. In a way, that is the same sort philosophy we are using here. Before we spend the money, we set out the-----
Shane Cassells (Meath West, Fianna Fail)
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The results-----
Shane Cassells (Meath West, Fianna Fail)
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The results are not the same. There was a reference to me making political charges. There may be a basis in terms of why statements are being made and in terms of what the members of committees and, indeed, the Dáil had been told. I refer to the fact that our colleague, Deputy Barry Cowen, asked in the Dáil the Minister for Health on 18 September last the budgeted cost of the children's hospital and the costs incurred to date and whether everything was going to be on budget. He was told it would be. On 18 September, he specifically asked whether everything was on target. The Minister answered him. We now know, of course, that the Minister had been told on 27 August that this project was out of control. Was the Dáil not misled?
Shane Cassells (Meath West, Fianna Fail)
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Am I getting it right?
Mr. Jim Breslin:
The Minister answered on the budget for the hospital. He was also asked whether the project to date was on profile. As we have just heard, the stage A works were on profile. What we did not have was an agreed guaranteed maximum price. We did not have that until November. In media queries after that period, and as we came up towards that, we were clear that there was a stage B process still to be completed.
Shane Cassells (Meath West, Fianna Fail)
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Is Mr. Breslin telling me that at the time of the question in September, he was not aware that the cost was spiralling towards €1.5 billion?
Shane Cassells (Meath West, Fianna Fail)
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"Emerging trends". Please do not words like that.
Shane Cassells (Meath West, Fianna Fail)
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Excuse me. Was Mr. Breslin aware that cost was heading towards €1.5 billion in September? The answer requires a "Yes" or "No".
Shane Cassells (Meath West, Fianna Fail)
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Let me put it this way: was Mr. Breslin aware it was heading towards an indicative figure of well over €1 billion?
Shane Cassells (Meath West, Fianna Fail)
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This is nonsense. The Department was either aware that the cost was not going to be €983 million or not. Is that a fair point?
Shane Cassells (Meath West, Fianna Fail)
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Why would Mr. Breslin allow his Minister to go into the Dáil and not disclose that to Deputy Cowen when he asked his question?
Shane Cassells (Meath West, Fianna Fail)
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Mr. Breslin is splitting hairs.
Shane Cassells (Meath West, Fianna Fail)
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This is typical of the Department.
Shane Cassells (Meath West, Fianna Fail)
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No, it is a straight question requiring a straight answer.
Shane Cassells (Meath West, Fianna Fail)
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What Mr. Breslin is telling me is that he was not prepared to answer the question asked because the Department did not want the information getting into the public domain, and that he did not ask the question specifically. He is telling me there were trends.
Seán Fleming (Laois, Fianna Fail)
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In answering the question, Mr. Breslin will not be interrupted. He will not answer at a meeting of the Committee of Public Accounts for a statement by the Minister on the floor of the Dáil. If somebody has an issue with what any Minister says on the floor of the Dáil, that is-----
Shane Cassells (Meath West, Fianna Fail)
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Who writes the answers to the parliamentary questions for the Minister? The Chairman's objection is unrealistic.
Seán Fleming (Laois, Fianna Fail)
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The Secretary General is responsible for the information but the words of the Minister on the floor of the Dáil-----
Shane Cassells (Meath West, Fianna Fail)
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They were written by the Department.
Seán Fleming (Laois, Fianna Fail)
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The words of the Minister on the floor of the Dáil are a matter to be discussed in the Chamber. The Secretary General is responsible for his actions. The Minister is not here to answer. Irrespective of the advice the Minister gets from the Department, anything he says on the floor of the Dáil is information for which he is answerable on the floor the Dáil, not at a meeting of the Committee of Public Accounts. The public will be aghast and that is why Deputy Shane Cassells expressed concern. It is said the project was within budget but that it was known there was a problem, with the result that it is said it is within budget because of the position on advice on the budget. It is not splitting hairs; it is-----
Shane Cassells (Meath West, Fianna Fail)
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It is-----
Seán Fleming (Laois, Fianna Fail)
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Mr. Breslin should be allowed to answer the questions.
Mr. Jim Breslin:
The important thing is that the commercial process was under way. Let us consider the position on naming another figure in a situation where the gentlemen were engaged in a commercial process to try to achieve the best value possible for the guaranteed maximum price for the taxpayer. The only stable and reliable reference point at that stage was the approved budget for the project, and that is what was given in the parliamentary reply.
Shane Cassells (Meath West, Fianna Fail)
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The Chairman is protecting the witness so-----
Seán Fleming (Laois, Fianna Fail)
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I am protecting the Minister, who is not present. I will protect any Minister who is not here.
Shane Cassells (Meath West, Fianna Fail)
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The Chairman is around a long time and he knows who writes replies from Ministers.
Seán Fleming (Laois, Fianna Fail)
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I do, and he has given the Deputy the answer. Knowing the issue, the response I suggest might have been given-----
Shane Cassells (Meath West, Fianna Fail)
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Could I ask-----
Seán Fleming (Laois, Fianna Fail)
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-----was that it is under review. There was no indication given of a problem. That is where-----
Shane Cassells (Meath West, Fianna Fail)
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At that point, was it going to be flagged to the Cabinet that there was a potential need for a review of all the costs that were spiralling out of control, given the trends at that point?
Mr. Jim Breslin:
The important thing at that stage was to obtain certainty on the guaranteed maximum price. Let me refer to when the work packages were being costed. In the early stages, they were coming back in online and, particularly towards the latter stages, the mechanical and electrical cost was coming in at a figure above what was originally estimated but it was conjecture until the process was completed. The stress placed on the development board was associated with completing the process with the best return for the taxpayer and, in parallel, we also sought further detailed information and an external review to try to inform a decision that would have to be made on the outcome of the guaranteed maximum price.
Seán Fleming (Laois, Fianna Fail)
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I call Deputy Cullinane. Members will be allowed to contribute again. All Members have indicated they want to contribute early.
David Cullinane (Waterford, Sinn Fein)
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I welcome Mr. Breslin and Mr. Pollock and their respective teams. I am sure Mr. Breslin will understand why members of this committee, the health committee and the public are frustrated by the overrun of costs and the impact this might have on other services. People need to be held to account and we need to get answers to questions. People become frustrated when they put questions and do not get answers.
There are two elements to my questions. I will deal with the second first. Was this a monumental cock-up in the procurement process? The committee needs to examine the process and whether there were weaknesses and failures. Whether there was a cock-up or not, we have been led to believe the overrun will have an impact on other capital projects and other areas of expenditure in the health service.
I want to deal with that first. Mr. Curran was asked earlier about projects which may not now go ahead. The Minister and the Taoiseach have been talking about deferrals. That is a nice way of putting it. Is there a list? Has any decision been made as to which projects will suffer as a consequence of the overrun and which will not?
David Cullinane (Waterford, Sinn Fein)
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Might some capital projects may not go ahead as quickly as possible because of the overrun?
David Cullinane (Waterford, Sinn Fein)
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The answer is "Yes". There will be an impact on some capital projects but which projects has not yet been decided. In my constituency, the second cath lab in University Hospital Waterford is important. The cost of that lab was approximately €4 million. Is that money guaranteed? Is it one of the projects that has been signed off on and with which there is no issue, or is it one of the projects under consideration?
David Cullinane (Waterford, Sinn Fein)
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I have a strong objection to that because, as Mr. Breslin will be aware, Oireachtas Members representing the south east got a clear, unequivocal commitment from the Minister for Health that the project was not at risk. In fact, only last week we were told by the Minister, through a Minister of State in Waterford, that this money would not be affected and that it was 100% secure. I am concerned that Mr. Curran is now saying that this project is one of many which are under review. Will Mr. Breslin confirm that it is the case that this funding, which was committed to the people of Waterford and which we were told was 100% rock solid, is not rock solid and is under consideration by the Department?
Mr. Jim Breslin:
There are two stages to what we will do with the HSE and Mr. Curran. First, we will look at contractual commitments where binding contracts are in place. We will then look at the other priorities. The process requires the sign-off of the Ministers for Health and Public Expenditure and Reform. Through engagement with these Ministers, we will come to a conclusion-----
David Cullinane (Waterford, Sinn Fein)
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We were told by the Minister for Health that he had signed off on the money for the second cath lab for Waterford.
David Cullinane (Waterford, Sinn Fein)
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Will Mr. Breslin bear with me for a second?
David Cullinane (Waterford, Sinn Fein)
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Either the Minister has signed off on that money or he has not.
Mr. Jim Breslin:
I am going to try to help. The Minister may approve something, but a contractual commitment involves the HSE and the supplier entering into a contract. The first priority is those projects to which we are committed contractually, then we will look at the priorities. The Minister will be able to tell the HSE what those priorities are and to make sure that the top priorities are delivered. Even with the €50 million increase for the children's hospital, there is a significant increase in the HSE's capital budget this year. There is a total increase of €130 million. We will be looking at all of the priorities-----
David Cullinane (Waterford, Sinn Fein)
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I understand that.
David Cullinane (Waterford, Sinn Fein)
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I am sorry; I do not want to be rude. I zoned in on one specific project. That is what I am asking about. I understand the process which Mr. Curran has outlined. I am asking a specific question regarding one project. Is there a risk that the project will not be delivered as quickly as we hoped because of this overrun?
David Cullinane (Waterford, Sinn Fein)
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So Mr. Breslin cannot tell me the answer.
David Cullinane (Waterford, Sinn Fein)
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I am outraged by that. All Oireachtas Members representing the south east got a clear commitment on this issue from the Minister for Health. As Mr. Breslin will be aware, a large demonstration regarding this issue was held on the streets of Waterford as well. People will be outraged that, when a Minister is telling us that we have the money, Mr. Breslin is telling us that there is still a process to go through before that money is signed off. It seems to be sleight of hand by somebody.
David Cullinane (Waterford, Sinn Fein)
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That is not my point. My point is that we should have been told that. Mr. Breslin is missing the point. It is not just this project, but all the others. We should have been told that was the case, but we were not. We were told by the Minister for Health that there was no problem and that the money had been signed off. It seems the money has not been signed off because there is still a process under way. Had there been a caveat put on the statement that a process was under way and that it had not yet been decided which projects would be cut, delayed or put back, it would at least have been an answer about which we could have had a quarrel. That is not the information communicated to Oireachtas Members in Waterford and the south east.
Mr. Jim Breslin:
The Minister has written to the HSE instructing it to prioritise that project. We expect that it will be prioritised in the conclusion of the capital plan.
David Cullinane (Waterford, Sinn Fein)
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I have given Mr. Breslin my opinion. I will return to this issue during Leaders' Questions with the Tánaiste because this is a matter for Government to sort out. I refer to the figures on page 3 of Mr. Pollock's opening statement. The Cathaoirleach helpfully dealt with some of this at the start of the meeting.
Seán Fleming (Laois, Fianna Fail)
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Perhaps I took too much time.
David Cullinane (Waterford, Sinn Fein)
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That context was necessary, however long it took. I am again unhappy with the way in which these figures were presented, and I will explain why. The February 2017 figure of €983 million includes the €637 million going to the contractors and separate moneys for the other areas which were not covered by the contractors. This means that the overall cost was €983 million. Underneath this the figure of €1.433 billion is given, but this is not the total cost. The total cost is €1.7 billion, which is what should have been presented to us. The breakdown is now clear to me because we were walked through the difference in the €1.4 billion earlier. I will not go over that again.
There are two issues. This is now dependent on €115 million coming from external sources. Mr. Pollock tells us that he has a strategy regarding philanthropists. That may or may not work. If it does not, I imagine the taxpayer will have to foot the bill. The second issue is how much of the €1.7 billion is going to BAM. That is a straight question. I do not need context. I just need to know how much of the €1.7 billion is going to BAM, because its original bid was for €637 million.
Mr. John Pollock:
I will deal first with the presentation of the figures. Our 2017 business case was for €983 million. This was for the elements of the projects for which we are responsible - designing, building, and equipping the hospital. When we reported on the costs, it was a like-for-like comparison. When comparing the €983 million with the €1.43 billion, we were reporting on the costs for which we are responsible.
With regard to the tender, there were three tenders in 2016. These were the main contractor, which was BAM, the mechanical contractor, and the electrical contractor, which will install all of the systems.
David Cullinane (Waterford, Sinn Fein)
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I do not have a lot of time and, to be fair, that does not answer my question. As the Cathaoirleach also noted, when looking at the figures, it should be a like-for-like comparison. The €983 million was the overall cost but the €1.4 billion underneath is not. The overall cost is closer to €1.7 billion. I asked a straight question. Mr. Pollock has answered the question about how he presented the figures. How much of the €1.7 billion is BAM getting?
David Cullinane (Waterford, Sinn Fein)
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Does Mr. Costello know what the figure is?
David Cullinane (Waterford, Sinn Fein)
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Will he give it to me?
Mr. Tom Costello:
The overall contract is now €890 million. Within that are the amounts seen in table 3 of Mr. Breslin's submission to the Oireachtas joint committee. These figures show that the mechanical contractors, Jones Engineering Group, are being paid €177 million, and the electrical contractor is being paid €157 million. In addition, there is approximately €6 million for lifts. If one was to exclude the specialist contractors, my figures suggest that €550 million worth of works remain. There is a figure of €556 million mentioned, which includes the lifts. It is actually on the list without me having to do the mathematics.
David Cullinane (Waterford, Sinn Fein)
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Let us just look at the bottom-line figures. BAM gave a figure in its tender because this was a bidding process. The bidding process involved a number of tenderers. I understand BAM's tender came in well under the other tenders. I believe it was €130 million lower. In terms of bottom-line figures and percentages, BAM's tender was for €637 million. How much more than this will it get in percentage terms?
David Cullinane (Waterford, Sinn Fein)
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How much is that? Is it more than €100 million?
David Cullinane (Waterford, Sinn Fein)
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Ironically, and coincidentally, that is almost the same amount of money as the difference between that company and the next highest bidder in the tender process.
Mr. Tom Costello:
That is totally unrelated. I accept that the figures are close but they are totally unrelated. There is a very clear procedure in place, from dealing with the tender at stage one, the rates that were bid in 2016, and reaching a determined figure at the end. There were rates bid for every element of the contract. There were rates bid for management costs, in terms of what we call preliminaries. Those are applied by our independent quantity surveyors, and as always there will be some disagreements and disputes. Given how the contract was set up, we appointed an independent expert who came in and arbitrated on those issues. There is actually a very clear process for going from stage one to stage two.
David Cullinane (Waterford, Sinn Fein)
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I have two short questions, and I will return to this matter later. I have to take Leader's Questions in the Dáil. Mr. Pollock spoke about a report from 2017, which examined savings. Was cutting the Blanchardstown satellite centre ever considered?
Catherine Murphy (Kildare North, Social Democrats)
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When this was mooted first, a figure of €450 million was given. The figure then increased to €650 million and then to €983 million. The net figure was €916 million in Exchequer funding from that. Listening to how this has played out, it seems that the detail was only completed last November. This was not an estimate, but rather a guesstimate; not everything was counted. Is that how the Department operates its budget on other capital projects? It did not have the correct numbers and could not put a reliable figure in the budget from the beginning. It did not have the final figure until last November, when the detail was finalised.
Catherine Murphy (Kildare North, Social Democrats)
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This all sounds mad. One would not build an extension to the back of one's house without doing the sums. It is almost as if there is a presumption that the money will be found. One would not build something without a greater degree of certainty than appears to have been the case here. We now have to go off and procure a specialist firm to look at this in detail in retrospect, even before the project really gets under way. What are the terms of reference for that PwC project?
Catherine Murphy (Kildare North, Social Democrats)
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Contingencies are built into the preliminary design.
Catherine Murphy (Kildare North, Social Democrats)
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Has the phase two tender been awarded and have the overground works commenced at the site at St. James's?
Catherine Murphy (Kildare North, Social Democrats)
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The tender has been awarded.
Catherine Murphy (Kildare North, Social Democrats)
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Pausing the contract would not be considered.
Mr. Jim Breslin:
Pausing was considered as an option while the Government reached its decision. We looked at a number of options, including the option we have chosen. We considered not instructing the contractor for phase B and re-tendering, and looked at de-scoping the project. On balance, the Government made the decision to instruct, in order to get the benefits of this children's hospital as quickly as possible and to deliver it in its entirety.
Catherine Murphy (Kildare North, Social Democrats)
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Was that decision made because we are already so far into the project?
Catherine Murphy (Kildare North, Social Democrats)
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I understand that.
Mr. Jim Breslin:
If the €450 million was taken out of the cost of this hospital, the project would have to be reduced by one third. In order to do that, the hospital would have to be redesigned, planning permission would have to be re-applied for, and procurement would have to be sought again. It would add three years to the life of the project. Inflation over that period would probably be 40%. We would, three years later, have to decide whether to award a contract for an inferior hospital at an excess on the cost we currently have.
Catherine Murphy (Kildare North, Social Democrats)
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I ask Mr. Breslin to provide his thoughts on that issue in note form.
Catherine Murphy (Kildare North, Social Democrats)
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It would be very useful. Mr. Farragher has the financial obligation in respect of this project. I presume he has a strong background in this area. Has he worked on projects of this nature before? Have they come in on time and on budget? What expertise does he bring to this that will enable him to he tell us why this has happened?
Catherine Murphy (Kildare North, Social Democrats)
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Mr. Farragher is just accounting for the money that is spent, rather than managing any aspect of the cost of the project tender.
Catherine Murphy (Kildare North, Social Democrats)
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How many companies of quantity surveyors or experts have been involved in this? I presume they would have worked on each detailed area.
Catherine Murphy (Kildare North, Social Democrats)
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Do those companies come with professional indemnities?
Catherine Murphy (Kildare North, Social Democrats)
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If these companies get things wrong what are the consequences for them?
Catherine Murphy (Kildare North, Social Democrats)
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Some capital projects do very well and come in on time and on budget. Motorways, for example, routinely come in on time and on budget. That happens because they get it right at the beginning in terms of design, the management of the project and the addition of penalties. There has been a huge amount of learning. We know that lead authorities, for example, should be those that have experience. It seems to me that in this case there is a degree of learning on the job. The estimates were not nailed down at the beginning; we only reached a final figure in November 2018. Things have been left out. For instance, An Bord Pleanála had to insist on a sprinkler system. I would have thought that a facility with 450 inpatients, vulnerable people, would have insisted on the highest specifications to ensure their safety.
I am surprised that the board had to insist on that. The Grenfell fire happened and things were learned from that. However there were changes in the specifications for hand basins and theatre lights. It looks as though there was a rough idea of what was to be completed when the guesstimate was arrived at, then things were changed and there were administration errors such as the failure to include VAT on one aspect. Projects overrun because they are not properly planned or executed and there are failures.
The Department of Health has a limited budget and there will be knock-on consequences. What are the institutional gaps? If the Department was to commence this project again, what could be done to ensure that some accountability or lessons come out of this?
Seán Fleming (Laois, Fianna Fail)
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The Deputy's ten minutes are up. She will get another turn.
Catherine Murphy (Kildare North, Social Democrats)
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Put me down for another round.
Mr. Jim Breslin:
The reason that the VAT figure has increased is that the overall cost went up, so it is not that VAT was not included in the original cost.
The development board can speak on the sprinklers. There were sprinklers in the patient areas in the hospital design, that is all the inpatient, day-case wards and so on. The change related to the outer concourse. I think that decision was made by the fire officer rather than An Bord Pleanála. The Deputy's point is at the heart of the lessons we must learn on this. We must use the PwC process to identify precisely where the slippage took place. From the work done by the development board and the external reviews there are already areas that we can identify. This includes the control of costs and the quantification of items, the linkage particularly in the mechanical and electrical side and quantity surveying and the development board, and how volumes and omissions are being identified through the design process. Another aspect is how an early warning system did not pick up that it would have an over all cost impact as quickly as it should. There are aspects around the approval processes and using some external review of that, such as using milestone reviews on projects. We are committed to examine every weakness in this process, identify where responsibility lies and also ensure that we put things right, both for this project and for any other project of a similar scale.
Catherine Murphy (Kildare North, Social Democrats)
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Mr. Breslin used the word slippage. Talk about an understatement. This is very expensive learning-on-the-job exercise. We need to know where the institutional gaps exist. We must establish what institutional mechanisms we need to put in place for capital projects, even unique projects such as this, so that it is not a case of someone coming in and learning on the next project such as the national maternity hospital, or another project in health or in a different area.
Mr. Jim Breslin:
If in setting up this project we had not thought about that we would have been deficient. We did think about that. We considered that this project was of such as scale that it would challenge the HSE or any existing body because they would not have had experience of delivering a project of this scale and they would find it hard to deliver alongside the rest of the capital programme. The Government decided to set up the development board to recruit professionals into the development board that had major project experience and to put in place a competency board to oversee it. Were we facing this situation having used the normal approach to capital projects I have no doubt that we would be saying that we had got it wrong because we did not use people who had experience of major construction and that should have been done. However in this situation we went out to achieve that.
Seán Fleming (Laois, Fianna Fail)
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I call Deputy Connolly.
Catherine Connolly (Galway West, Independent)
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It clearly did not work. I am looking back at the meeting of the Committee of Public Accounts on 8 October 2015, when Deputy John McGuinness was the Chairman. Mr. Costello and Mr. Pollock feature prominently at the meeting. The background was the debacle overseen by the previous board. Mr. Costello and Mr. Pollock were representing the new board taking over from a transition board. A board was in place from 2007 to 2013, then there was a transition board and then the current board. Mr. Costello and Mr. Pollock were asked questions by Deputy Joe Costello about what the new board had learned and what it would do. The two men here should read the Official Report. If they did they might provide a different opening statement. Mr. Pollock provided an opening statement to this meeting today, and Mr. Costello provided one to the Joint Committee on Health. Mr. Pollock said:
It was to produce our business case. Prior to getting approval to appoint the design team in August 2014, we had to have the business case updated to show that we were still operating within the figure of €650 million.
Mr. Pollock said that €650 million was the figure in 2015 and he continued saying that "A company, BDO, was appointed to carry out that work." On several occasions, the
witnesses were asked what they had learned. Mr. Costello said:
Unfortunately, we cannot rewrite history, but we have to learn and make sure that in every step we take along the way, in respect of any perceived weakness in the decision-making processes during the five years, we ensure this will not happen.
He was clearly aware that he was taking over what I would not call a poisoned chalice but what was a very difficult situation. He was fully aware that €35 million had been written-off from the previous debacle in relation to the Mater Hospital and some miserable amount like €6 million was saved and carried over. He was fully aware of all that and was alert to it. The previous Committee of Public Accounts teased all this out. Mr. Costello told it that the board would appoint a design team, undertake a stress test and so on. As well as stress tests and business cases, something must be learned. The Comptroller and Auditor General mentioned a project review at the time. A project review is usually done when a project is completed but in this case the Committee of Public Accounts agreed that there should be a review of the failure. Was that carried out?
Catherine Connolly (Galway West, Independent)
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I think that it was to be carried out by the Department. The Department might respond.
Catherine Connolly (Galway West, Independent)
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When was it carried out? Who carried it out? What was the result?
Catherine Connolly (Galway West, Independent)
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I would love a copy of that. I would love to see how this board dealt with that in the following seven years.
Seán Fleming (Laois, Fianna Fail)
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Can Mr. Breslin provide that to the committee?
Catherine Connolly (Galway West, Independent)
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Red lights were flashing all over the place at the point when the new board took over. That was in addition to all the debate on the hospital itself. There was the McKinsey report, the Dolphin report, and we have had reviews on the move from the Mater Hospital to St. James. It was red flagged over and over. Now Mr. Costello and Mr. Pollock are sitting before the committee. I have looked through their statements to see what they have learned and what they have identified as failures, which is all I am interested in, and to know what happened and how can we prevent it from happening in future. I have no confidence that they have learned anything. I do not want to be personal and am doing my best, but it is difficult to read all this material. We are not experts but our job is to look at governance and accountability. The cost given to the Committee of Public Accounts in 2015 was €650 million including VAT. I quote from the Official Report:
The €650 million is the all-in cost. It includes VAT, inflation, contingency sums and the project cost. There are equipping costs and design fees. There are a whole load of other costs.
We know that there are a whole load of other costs but the figure of €650 million included VAT and contingency. Now, today, the figure is at €2 billion. Actually, we will not exaggerate, it is at €1.4-something billion, then €1.7 billion but there is no definitive answer as to whether it will go up to the €2 billion figure.
Mr. John Pollock:
If I may clarify the €650 million figure. When our board was appointed and did its first budget in early 2014, we identified that the €650 million would fund the core children's hospital and the two urgent care centres. Excluded from that, and this was clearly identified, was additional funding which would be required for the third level academic facilities, the school that is part of the children's hospital, the equipping of the hospital - whether it would be procured through capital or through operational expenditure, opex-managed equipment services, the retail and commercial facilities-----
Catherine Connolly (Galway West, Independent)
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Okay, I have heard that. Changes were happening-----
Catherine Connolly (Galway West, Independent)
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Looking at the accounts for 2017, how much was spent on communication?
Catherine Connolly (Galway West, Independent)
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Spending on communications in 2017 was actually €353,616.
Seán Fleming (Laois, Fianna Fail)
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What page is the Deputy on?
Catherine Connolly (Galway West, Independent)
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I am on page 32. While the witness is looking that up, the next question is what were the planning application costs to Dublin City Council which have been recognised and for which a payment plan is in place?
On communications, how can Mr. Pollock justify such a large increase? To whom is this payment going?
Catherine Connolly (Galway West, Independent)
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I understand that. I am asking how much the planning cost is?
Seán Fleming (Laois, Fianna Fail)
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We are referring to the planning applications costs.
Catherine Connolly (Galway West, Independent)
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We have planning application costs and development contributions which are two separate things entirely. Is that correct?
Catherine Connolly (Galway West, Independent)
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What was the cost in relation to the development and contributions?
Catherine Connolly (Galway West, Independent)
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I understand all of that. I am asking how much?
Catherine Connolly (Galway West, Independent)
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How much of that has been paid?
Catherine Connolly (Galway West, Independent)
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In that case, €5.3 million is still outstanding. There is payment plan in place for that. Is that right?
Catherine Connolly (Galway West, Independent)
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On communications costs, what is the position?
Catherine Connolly (Galway West, Independent)
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Sorry, are there other outstanding planning fees from other local authorities?
Catherine Connolly (Galway West, Independent)
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I just want to know whether there are outstanding fees? I do not need to know about the practice. Are there outstanding fees?
Catherine Connolly (Galway West, Independent)
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Okay. Let us return to the cost of communications.
Catherine Connolly (Galway West, Independent)
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Who is that money being paid to?
Catherine Connolly (Galway West, Independent)
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Did it receive that money or were other companies involved?
Catherine Connolly (Galway West, Independent)
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I ask Mr. Pollock to provide the Chairman with a list setting out where the money for communications is going.
Seán Fleming (Laois, Fianna Fail)
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Please provide a breakdown of communications.
Catherine Connolly (Galway West, Independent)
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A breakdown of communications is a very good title. On rent and rates, is the rent for the board's offices?
Catherine Connolly (Galway West, Independent)
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Rent and rates increased to €237,342 in 2017. This is, again, a colossal jump. Will Mr. Pollock explain that?
Catherine Connolly (Galway West, Independent)
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Just explain the change, please.
Catherine Connolly (Galway West, Independent)
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That was free of charge.
Catherine Connolly (Galway West, Independent)
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Yes.
Mr. John Pollock:
As we had the enabling works contract on site which demolished all of the buildings on the St. James's campus, we had to find a new premises. We moved to Herberton, which is a premises that we share with Children's Health Ireland. We have moved from what was essentially free rent to paying rent now.
Catherine Connolly (Galway West, Independent)
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Does Mr. Pollock believe that rent of €353,000 is justified? How many persons are using the building for which that rent is paid?
Catherine Connolly (Galway West, Independent)
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I understand that but this is the board's portion of the rent.
Catherine Connolly (Galway West, Independent)
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No, it is €353,616 of taxpayers' money.
Catherine Connolly (Galway West, Independent)
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I know what the position is in Dublin and all of that. When we add that figure to the figure for communications, what figure do we get?
Catherine Connolly (Galway West, Independent)
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We have, therefore, figures of €353,000 and €232,000. How much is that?
Seán Fleming (Laois, Fianna Fail)
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It is nearly €600,000.
Catherine Connolly (Galway West, Independent)
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That figure presumably arises every year. Did the cost of communications increase in 2018?
Seán Fleming (Laois, Fianna Fail)
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The Deputy's time has concluded.
Catherine Connolly (Galway West, Independent)
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That is fine.
Seán Fleming (Laois, Fianna Fail)
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I hate cutting speakers short but a number of Deputies are offering. I call Deputy MacSharry now and we will have ten minute slots to enable others to contribute. The Deputy can contribute a second time if he wants to.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I will not contribute a second time.
To return to the steering group, Deputy Kelly ran out of time pursuing a line of questioning on the fact that the board did not meet in November 2018 and it met on 10 December, a number of weeks later. Can Mr. Sullivan confirm that it was in that period that the decision was made to go?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I know that and I do not want to talk down the clock.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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No decision was taken at that meeting.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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There was no contract signed.
Alan Kelly (Tipperary, Labour)
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The principal decision.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Was there a principal decision to go made?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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By whom?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Which board?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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That was without a tender.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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That is the bigger part. There was a tender process for the contract of €100 million or thereabouts - €84 million plus VAT.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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We had that tender.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It was decided to go with the same guy. There was no new tender process for the main part of the contract.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It formed a secondary part of the first tender, is that correct?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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When the tendering took place the actual work the companies were tendering for was phase A not phase B. Is that correct?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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They had that expectation. Was an undertaking given that that was likely or possible?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Did the tender documents say that if the contractor did a good job on phase A, it would be looked after on phase B?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I know all of that. I want to get down to the nitty-gritty.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Mr. Pollock will have to be very quick because I have very limited time.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I know all of that.
Mr. John Pollock:
At the same time as that, we also tendered for the main above ground works. We had all of the prices and rates for the doors, the windows and the concrete. While the hole in the ground was being dug, we completed the design and applied the same prices that the contractors had originally tendered.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Okay.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I get the point. How many tenders were submitted for phase A?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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How many tenderers?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Did the other four not take a view that they might be considered for phase B?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I know.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Did the tenderers know that if they won phase A they were sorted for phase B?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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As you were happy, we went with them and did not have a second tender. Is that the case?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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But you went ahead.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Exponentially.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Was that a board decision or a policy of the Government?
Mr. John Pollock:
We brought it to our board in November and it recommended to the HSE that we award the phase B contract.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It had nothing to do with the Government.
Mr. John Pollock:
Once we issued the recommendation to the HSE, which would have been brought to the Department of Health, the Government made a decision.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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When was that decision made?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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That was within six days of the meeting on the 12th.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I am sorry; I am talking about 10 December.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It is important that we read the minutes of the steering group meeting on 28 October:
PD [Phelim Devine] reported that the GMP process has not yet concluded. A report in relation to the GMP process will be submitted to DS [Mr. Sullivan] as chair of the CHP and P steering group in advance of the next board meeting which was to be 16 November 2018 but did not take place until 10 December according to the minutes. It was agreed that an additional meeting of the board steering group will be required to review the report and inform the board. It was noted there was likely to be a delay in submitting the report from the development board to the chair. The actions agreed were: the board to advise Mr. Sullivan of any delay in submitting the GMP report and an additional meeting to be arranged of the steering group in advance of the board meeting.
You said earlier that that did not happen because time did not allow. Do you have plenipotentiary status? You said you had seen the report and decided to overrule the board and say there was no need to have that meeting.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Given the amount of money involved and the recommendations made, do the terms of reference of the steering group include a reference to your discretion in deciding whether to consult it or inform its members?
Mr. Dean Sullivan:
The development board's meeting was only held on 9 November. The board chaired by Mr. Breslin met on 16 November. I received the GMP report on 13 November and, after discussion with departmental colleagues, the view was taken that it simply would not be practical to hold a steering group meeting. To what end would we have done so? There would not have been time for members-----
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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To what end? It could have been for you to say you were making a big mistake.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Did you consult the members? Could you have had a meeting to tell them? You knew that they had serious concerns because they were detailed in a full paragraph in the minutes, but when the board met, there was simply a sentence. It stated the guaranteed maximum price process had concluded in November and that the board recommended continuing with the current contract. It is an awful waste of time to have a steering group when such big decisions are just-----
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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What do your members think? Why could you not have had a meeting by phone or conference call?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Some but not all.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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How did you determine to whom you would speak and to whom you would not speak?
Mr. Dean Sullivan:
The most important milestone at the time was that the report would be considered at the board chaired by Mr. Breslin which was to meet on 16 November. If I was to arrange a meeting of the steering group in advance of that meeting, it would have forced that meeting to be pushed back.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It could have informed them better, could it not? This is particularly the case, given that they had expressed concern at the previous meeting. Did you think to ring Mr. Breslin to say he should put the meeting back by a week? As it had been on the cards since 2007, I am sure another week or two would not have mattered.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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To whom were penalties payable?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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There was no contract. The contract was for phase A.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I do not understand the time pressures. You were on the hook for phase A, but phase B was only an option. As you made a recommendation to go ahead, how would a penalty have accrued to the State because you did not take a decision quickly enough based on a recommendation that had been made?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Does that not indicate that the decision had to be in the affirmative on behalf of the contractor, after which penalties might then have accrued?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Then what is the issue? You could have got back to them and told them that the answer was "No" and that you were not going with them.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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What were the time pressures? Did the contract state BAM had to be informed by 17 December or there would be a penalty?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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What was that date?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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We still have 12 days, if not more. The meeting was held on 16 December and a decision was needed by 1 January.
Seán Fleming (Laois, Fianna Fail)
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On what date was the meeting held?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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On 16 November.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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What was the problem in having a steering group meeting? Why could you have not delayed it? There was still plenty of time before the end of December.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Peculiarly, despite the governance structure we put in place in order that the whole process would be completed in the best possible way to save money for the taxpayer, there was no time for a meeting. What do we need a steering group for? It only meets when required and there is time.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It is a big issue.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It is worth €800 million.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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We did this without having a meeting of the steering group, despite the fact that it had stated a meeting would be required.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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That is not stated in the minutes, funnily enough. They do not state "if time allows".
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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BAM was the applicant in nine litigation cases involving State agencies. Did this come into the considerations of the Department?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Was there anything in it about whether a company was suing an arm of the State or had other issues?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Would it be prudent in the future to check to see if a company had any form in going to court after the fact? Can we look forward to litigation against us when this contract is finished?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I ask the board to look into those nine cases, see what they are and give us a note on it. That is relevant; very much so. It seems that, since 2007, we have been throwing around €2 billion of the people's money based on a plan that has been developed on the hoof. It is going to develop further, and I concur completely with Deputy Kelly. I have seen nothing here today to give me confidence that we will not be going well in excess of €2 billion.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I will not be looking forward to it. Can we expect that? There is form here.
Seán Fleming (Laois, Fianna Fail)
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Am I right in understanding that the State is liable to be charged a penalty for not signing by a certain date?
Seán Fleming (Laois, Fianna Fail)
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There was a time limit in the original contract and if it did not go ahead by a certain date there would be a penalty. How much was the penalty to the State for not proceeding at that time?
Seán Fleming (Laois, Fianna Fail)
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Right. The State would potentially make a loss if it did not sign phase B by a certain date.
Seán Fleming (Laois, Fianna Fail)
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As such there was pressure to sign it in time. If it was not signed in time and there was then a decision to sign it after further consideration, the State would pay a penalty. The witnesses have been here for two and a half hours. This is the first I have heard of that. Was this penalty made clear to the Joint Committee on Health in the previous three meetings?
Seán Fleming (Laois, Fianna Fail)
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Before I go to Deputy Jonathan O'Brien, I must say I am very disappointed to hear that after 11 hours in three meetings of the Joint Committee on Health, three hours in this committee and several opening statements from every representative of the board at all of those committees, it has only now been extracted that the State faced a penalty clause for not signing on time. The witnesses should have been a bit more upfront on that.
Seán Fleming (Laois, Fianna Fail)
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We are not contractors. Mr. Costello should not expect us to understand that.
Seán Fleming (Laois, Fianna Fail)
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Mr. Costello assumed everyone understood all that because he understood it.
Seán Fleming (Laois, Fianna Fail)
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After 14 or 15 hours of Oireachtas meetings, that is only coming out now. I would have hoped this would have come out before. That is all I am saying. The witnesses understood it, but the public did not understand it.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I will try to get through as many questions as possible because I want to come in a second time. I would like to spend the ten minutes clarifying some of the points and figures if I can. The €50 million comes out of the budget of the Department of Health. Is that correct? Another €49 million is to come out of other Departments' budgets to make up the costs. Is that correct?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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As such, the total reduction in capital costs between the Department of Health and other Departments to meet the overrun of the children's hospital is in fact €99 million next year. Is that correct? It is not €50 million.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I ask Mr. Breslin to clarify that, because everyone is under the impression it is €50 million-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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-----but it is actually €50 million from the Department of Health alone. The total cost next year is €99 million.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I want to run through this and clarify some of the figures. The business case figure was €983 million. Of that, €637 million was accounted for by construction costs and €346 million was accounted for by non-construction costs. Is that correct?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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The costs of the construction element eventually went up to €890 million. That is an increase of 41%. The figure in the business case for non-construction costs was approximately €346 million.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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The business case figure was €983 million.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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The construction element of that was €637 million and then there was a saving, as Mr. Pollock said, which brought it down to about €570 million.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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The non-construction element would have been €346 million, based on subtracting the construction costs from the business case figure. That has now ended up at €749 million. Are those figures correct?
Mr. John Pollock:
We are clear on the construction elements. They were priced at €637 million in the tender and have gone to €890 million. In my opening statement I said there was an additional €130 million of other costs above and beyond the €320 million in construction costs. There are construction costs of €320 million linked to the BAM contract under way at St. James's Hospital. There have been a further €130 million in increased costs since the €983 million figure in the business case. Those costs are set out in my statement and they were late too. There are other construction projects: the enabling works contract, the decant project, aspergillus contracts and three hospital campuses, the two urgent care centres at Connolly Hospital and Tallaght-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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What are the total construction costs as of now, including all of those projects?
Mr. John Pollock:
I would need to check that. Off the top of my head, the urgent care centres account for approximately €55 million. The enabling works cost €8 million. Decanting cost €14 million and aspergillus works cost between €3 million and €4 million. Those were the other construction projects.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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So the total construction costs are the sum of €890 million, €55 million, €8 million, €19 million and €3 million.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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What does Mr. Pollock mean by that?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Can someone just give me the total construction costs, all in, as of today?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I am not an accountant. Can somebody please just give me the figure?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Can Mr. Pollock give it to me now?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I would have thought the board would have this figure to hand when coming into a meeting of the Committee of Public Accounts. What are the total construction costs of the project, all in, as of today? It is a pretty basic question and nobody has yet given me the answer.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I am not interested. Mr. Pollock is the project manager. The board should have these figures. This is the Committee of Public Accounts. It is the most basic question the witnesses were likely to be asked today. What are the total construction costs, all in? I am still waiting.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Very well. What are the total non-construction costs, all in, as of today?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Is that excluding the €275 million we identified earlier? I will work out the figures for that. How much are we are talking about?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Approximately €450 million. Construction costs €1 billion.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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This is actually crazy. It is €1 billion for the construction costs all in, including the satellites.
Seán Fleming (Laois, Fianna Fail)
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That figure should be €60 million, I would imagine.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Before we break, can somebody give me the total construction costs, all in, for the project including the hospital and satellites? Can somebody also give me the total non-construction costs, all in, as of today? Those figures should add up to the €1.7 billion which we spoke about earlier. Is that correct?
Seán Fleming (Laois, Fianna Fail)
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I am saying to the Secretary General, who is the Accounting Officer, that we will be adjourning and will be back at approximately 2.30 p.m. We need a sheet on this desk and it is horrific to think it is not available at the drop of a hat. We should have had it in a briefing note. We want, as the Deputy said, the three main contractors, BAM, Jones and Mercury, €550 million, €177 million and €157 million €6 million, which adds up to €890 million. Mr. Breslin is now telling us that there are other construction costs bringing it up to approximately €1 billion. There is another €100 million there and there are non-construction costs of €450 million. We want a breakdown of what they are. The other €275 million that the Secretary General mentioned is being dealt with by Children's Health Ireland, but they are all under his brief. I want a breakdown. When we come back here we want a sheet of paper in front of us for the public giving the breakdown of the €1.733 billion. That is to be here at 2.30 p.m. It is horrific that we have to even ask for it after four Oireachtas committee meetings.
Seán Fleming (Laois, Fianna Fail)
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There is only one overall figure.
Seán Fleming (Laois, Fianna Fail)
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Not the history, just the------
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I understand that there are some costs associated with the HSE and some with the Department, while the remainder are associated with the development board. I am looking for the total cost.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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That is all three of the groups. That is all I am looking for. I am not trying to catch anyone out or anything.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Yes. We now know that there is a process under way that could potentially increase that figure of €1.7 billion. Is the potential increase on the side of the Department or the HSE, or does it have to be met by the development board? Where are those figures potentially going to be? I know it is all Exchequer funding but I want the breakdown if possible.
Mr. Jim Breslin:
The main issue, as highlighted in the footnote on page 2 of the briefing note, is that there are items that have been excluded from the contract that has been entered into. They are set out in the footnote. One is a change in scope, so if the development board or indeed any of us decided this is a different hospital, we want to make it bigger, that would involve more money. Another is excess national construction inflation beyond July 2019 and beyond 4%. If inflation in 2019, 2020, 2021 and 2022 goes above 4%, then the contractor can come back and look for that based on a defined index. Another is changes in legislation; if the Minister for Public Expenditure and Reform increased VAT rates, the overall VAT rate would go up.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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PwC is carrying out that assessment.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Sorry, PwC is carrying out the assessment on why the increase took place initially. Who was awarded the contract for the internal auditor services and the accounting and financial services, the internal compliance?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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What is that contract worth?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I will be coming back to a lot of these questions. I just want to get the information so I can go straight into what I would have thought were the more awkward questions when we come back after the break. There were a number of sub-committees set up under the development board, such as the internal audit and financial control committees. Could Mr. Pollock talk me through the process? We know from the briefing note that in September 2017, the development board identified an additional €61 million. In late August 2018, the development board briefed the HSE and the Department on developments in the GMP process, that it was taking longer than had been planned, that the costs were trending very significantly over the original costs and the main contractor had just submitted very substantial additional cost claims. That is when the development board became aware of it. Would the subcommittees have been aware of it before that?
Mr. John Pollock:
Our reporting structure internally within the development board is that the executive will generally report directly to the individual committees. That could be to the finance committee or the audit and risk committee. The minutes of those meetings and recommendations of the groups are then brought to the board on a monthly basis. The board would have been informed in September 2017 of the sprinkler issue. In June 2018, the board was apprised that packages were starting to be returned with design team assessments.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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That was in June.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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So it was June when the development board knew of the escalating costs-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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-----and it would not have been until August, until the development board briefed the HSE and the Department of those escalating costs.
Seán Fleming (Laois, Fianna Fail)
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I must ask the Deputy to finish up as the voting bloc in the Dáil is beginning. He will get back in immediately afterwards.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Okay. Is Mr. Pollock saying the development board knew before the sub-committees?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Of the significant overruns which were starting to come through in June 2018.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I will be coming back to that because even in the development board's own handbook there are specific functions of the finance committee which I would like to discuss with Mr. Pollock after lunch. This is just to put him on notice that I will be delving into the sub-committees and their role in this whole process.
Seán Fleming (Laois, Fianna Fail)
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I call Deputy O'Connell.
Kate O'Connell (Dublin Bay South, Fine Gael)
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I have attended all the committee meetings on this issue so far. I am none the wiser as a result. It is absolutely shocking that the witnesses did not have the figures to hand. It seems obvious that we would ask for a breakdown between construction and other costs. Mr. Breslin was in this room with me yesterday at the Oireachtas Joint Committee on Health. It seemed very clear that the board was put in place based on competency. Mr. Breslin may correct me if I am wrong. I do not want to misquote him but I think he said earlier that the development board was set up because the expertise did not exist within the HSE to do this.
Mr. Jim Breslin:
I do not want to take from the HSE but we had particular regard for the scale of this project.
Kate O'Connell (Dublin Bay South, Fine Gael)
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Absolutely. I am not suggesting the HSE should know how to do big projects. I am just saying that is what was decided. However, we now see that there was absolutely no point in having this board because it did not seem to have delivered on the competency in terms of keeping control of costs or watching how things were being done. It just seems shocking that a board would be in a position whereby inflation of this magnitude would not be highlighted to the Secretary General at an earlier stage. Mr. Breslin spoke earlier about where the increases are, why they occurred and why they were not flagged. PwC is going to find out. We have talked about early warning systems. I would argue that the whole point of the board was to avoid this situation arising in the first place. We have a document listing all of the auditors.
It listed Mazars, Deloitte and Linesight. It would be very useful to the committee, in order that we would not have to ask for it continually, if an additional column could be inserted indicating the fees for all these experts and auditing processes. Despite having all these experts, we have still ended up with a project that will be almost twice the price quoted when it started.
Is it true to say the guaranteed maximum price, GMP, will be maximum price unless the parties involved say they want to construct an additional building or a new lift, for example? Is that what we are dealing with? Can we guarantee today that the price is the price and there shall be no increase unless we ask for something new to be built?
Kate O'Connell (Dublin Bay South, Fine Gael)
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There would be change of scope, as I described, inflation or VAT.
Kate O'Connell (Dublin Bay South, Fine Gael)
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That would be legislation that would change the price, essentially. Can the witness guarantee I will not be back here next year having the same conversation about why the price has increased to €3 billion? Is the GMP really the maximum price? Is Mr. Breslin giving a guarantee to the committee that unless scope is changed, inflation rockets or different taxation measures are introduced which could increase the price, there will be no increase from where we are today?
Kate O'Connell (Dublin Bay South, Fine Gael)
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I thank the witness. I asked Mr. Breslin at yesterday's meeting of the Committee on Health if we were getting a better product than we were on day one.
Kate O'Connell (Dublin Bay South, Fine Gael)
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The witness said that we were. Will he elaborate a bit on what is better?
Mr. Jim Breslin:
This has been updated at all stages and the particular period of the development board from 2013 onwards has seen intensive engagement with clinicians in a way we have not seen with Dublin children's hospitals before. They are now united under Children's Health Ireland and that is the capstone on the work that has been done in the preceding couple of years, with clinicians mobilising around the project and engaged intensively on it. Dr. Emma Curtis and the Children's Health Ireland side have been able to use the best thinking within Irish paediatrics to influence the project that will be completed. The quality of the project has been informed by all that work.
Kate O'Connell (Dublin Bay South, Fine Gael)
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That has only happened recently. Why did we not get all those people in on day one? Why were those people not included in the competency-----
Kate O'Connell (Dublin Bay South, Fine Gael)
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We do not need to go there. Those experts working in the area were pulled into the process, and that is why we are getting a better product for the children of Ireland than we were initially.
Kate O'Connell (Dublin Bay South, Fine Gael)
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We are waiting for figures to come back on the construction and non-construction costs. There was mention of €66 million in savings in the business case by Mr. Pollock. There was a tender of €637 million and the business case took off €66 million. How was that saved? The figure went from €637 million to €571 million but it hopped back up to €980 million. How did the saving turn into an inflated price?
Mr. John Pollock:
Once we received the tenders in 2016, the tenders came in over our budget so we sat down with our client and design team to draw up a schedule of targeted savings, or areas where we thought we could use a substitution of materials, plant and different systems. That schedule was drawn up as opportunities where we thought we could save money.
Kate O'Connell (Dublin Bay South, Fine Gael)
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To clarify, there was a budget and all the tenders were over the budget so it was decided to descope, essentially, and bring down the price. Is that a correct analysis?
Mr. John Pollock:
We were not looking to descope the project but it was rather about looking for opportunities where a substitution of materials could be achieved. There were rates from contractors for the various elements and we might have decided to use a different material on the floor, the walls or ceilings. We looked at those options and we also looked at the mechanical and electrical system.
Kate O'Connell (Dublin Bay South, Fine Gael)
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They must not have been examined too closely at that point.
Mr. John Pollock:
We looked at all the options and drew up a schedule of savings. We proceeded to complete a detailed design to see if we could deliver those savings. We did not achieve the €66 million figure but rather €20 million of savings. It is one of the reasons the costs increased by €46 million above what was in the business case.
Kate O'Connell (Dublin Bay South, Fine Gael)
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Okay. There would have been substitution of materials, so it was proposed to use stainless steel sinks instead of another type or change the floors, for example. The board thought it could save €66 million but it saved €20 million. The figure then went to €980 million. How did we go from the €20 million being saved to the €980 million figure?
Kate O'Connell (Dublin Bay South, Fine Gael)
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I have enough paperwork so will the witness explain it to the committee please?
Mr. John Pollock:
It is set out in my opening statement where it describes the seven drivers of the construction costs increase to €890 million. The first was mentioned by the Deputy, the value engineering. We did not achieve the €66 million figure but rather €20 million in savings. The cost therefore went up by €46 million. There were statutory issues and I come back to the Deputy's comment on the sprinklers. We were very aware of the need to provide the very best facilities for children in the hospital. In our fire certificate application to Dublin City Council we exceeded the building regulations. We put sprinklers on the three floors of the inpatient wards, additional fire escape stairs and wet risers. We exceeded all the building standards by a considerable margin. No hospital in Ireland would have sprinklers throughout the hospital. Equally, when the condition came back to put the system on the remaining four floors - by far the biggest area in the building - we said we would appeal the condition to An Bord Pleanála. The independent inspector was appointed and he adjudicated that we were already in excess of the building regulations and that sprinklers were not a requirement. It was brought to the board of An Bord Pleanála, which adjudicated by a four to three majority that the additional sprinklers would be a prudent measure. We had to accept that decision but we had already exceeded the building regulations. There was the issue of having to put sprinklers into the building and we also saw the tragic loss of life at Grenfell in London, which also had an impact on building standards, specifically insulation and non-combustible materials.
Kate O'Connell (Dublin Bay South, Fine Gael)
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Was there originally a combustible material included?
Kate O'Connell (Dublin Bay South, Fine Gael)
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What was the impact of Grenfell? What was included before that was changed after the Grenfell fire?
Kate O'Connell (Dublin Bay South, Fine Gael)
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That was at the time, which was before the Grenfell fire.
Seán Fleming (Laois, Fianna Fail)
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The Deputy's time is up and I want to bring in the final contributor.
Kate O'Connell (Dublin Bay South, Fine Gael)
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That is no problem.
Mr. John Pollock:
The issue of the sprinklers and the impact of the Grenfell fire added €27 million. We had to engage about the 6,000 rooms in the building, so we had detailed user engagement around 120 rooms that were typically representative. One must go through those 6,000 rooms to identify information and communications technology points, for example. That means we must go through every piece of equipment going into those rooms, including every electrical socket.
Kate O'Connell (Dublin Bay South, Fine Gael)
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That is the job of a quantity surveyor.
Seán Fleming (Laois, Fianna Fail)
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That is basic.
Mr. John Pollock:
The point is there would be variations in the 6,000 rooms. The Deputy questioned whether we were changing wash-hand basins, but that was not the case.
We would have had provisional sums for pendants in the operating theatres and sanitary wear, for example. They all need to be signed off on from the point of view of infection control. When we tendered for them, the figures were higher than the provisional sums included in the budget. That would have contributed to the €20 million in increased costs in respect of user engagement.
Kate O'Connell (Dublin Bay South, Fine Gael)
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After the break when we are doing up the other chart, it would be handy if we could get a figure for the fees paid to all of the companies listed in the column. How much were the experts and consultants brought to stop from this happening paid?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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The more questions we ask the more frustrated we become. I make the observation that I find it hard to believe we have witnesses who have been project managers for this scheme from day one and when we ask them a question, they have to go back to using a pen and paper to make up numbers. That is unbelievable for professionals in front of the committee. They knew that they were going to be asked about the spending of taxpayers' money and how it was spent and they are there with pens and paper making up numbers as they go along. The witnesses have been before the Joint Committee on Health and are now with us and they are still doing it today.
Mr. Tom Costello:
I have to answer that question. The information is being presented in a number of ways and questions are being asked in different ways. It is a complex job and the figures are very complex. I appreciate that it is difficult to understand. The Department and Mr. Pollock have presented the figures in a certain way. In fairness, members are looking for them to be analysed in a different way. I understand the Deputy's frustration, but-----
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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The witnesses are professionals and should be on top of their jobs. I am businessman and a farmer. I know that it is a big project and that I am simplifying it, but the witnesses are not on top of the figures after all of the questions that have been asked of them. They still have to go back and frustrate us-----
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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All the ordinary taxpayer - the ordinary Joe and Mary and lay people - sees is a figure that started off at €640 million and went up to €900 million, €1.4 billion and €1.7 billion. Even today no one can give a guarantee that it will not go up to €2 billion. No one said it would not go up to €2 billion when the question was asked twice by my colleagues. That is frustrating. How can any ordinary person accept it as bona fide when such numbers are still coming at us and that a guarantee is still not being given that it will stop at €2 billion?
Seán Fleming (Laois, Fianna Fail)
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As there are quite a few votes to be taken, we will resume at 2.30 p.m.
Seán Fleming (Laois, Fianna Fail)
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We will conclude on that point and come back at 2.30 p.m.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Can I get an answer to my question from someone before I go?
Mr. Jim Breslin:
On our board, as I said, we have reached the stage where we have a guaranteed maximum price. We were given a brief almost six years ago and went through a very structured process for months. We procured a design team and analysed the best way to procure the contractors. We were mindful of the fact that, at the end of the day, before we committed to a major spend just one month ago, there should be cost and programme certainty. We have got to that stage. I appreciate that the current figure is much higher than we had expected it to be, but we have got to the stage we set out to reach, that there would be cost and programme certainty.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Just one minute ago Mr. Pollock mentioned that the issue of sprinklers had come up as the project was moving along. Where is the professionalism if the board only learned about this as the project moved along? Would they not have been part of the original plan before the board ever sat down to build the hospital? Would it not have looked at what was involved and what the costs would be, instead of telling us that it only learned about it as the project moved along and in going to An Bord Pleanála? The issue of VAT is simple. I know that costs increase that and the board could not have predicted all of it before it started, but this is frustrating to say the least.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I know that the figure has gone up.
Mr. Jim Breslin:
VAT is included from the start. Members pressed me to give something I could not give. I cannot give a definitive guarantee because there is an exclusion from the contract which states that if the Minister for Finance increases the rate of VAT, the contractors will be entitled to receive more money. I cannot give a guarantee in that regard, as I do not make the decisions on whether VAT rates should stay the same or go up or down. Instead, we make a sensitivity analysis of the impact it would have if the rates were to change.
Seán Fleming (Laois, Fianna Fail)
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I have two questions. I know that the witnesses say they have been asked different questions in different ways. They have attended three meetings of the Joint Committee on Health and are here today. I would have thought, given that the cost of the project from the Department of Health's point of view is €1.7 billion, of which €1.4 billion is within the Department, with the other €300 million within the other group, that the opening statement made at the first committee meeting the witnesses attended would have included a breakdown, rather than going back over the history of the project. The figure of €1.7 billion should have been announced at the time and the board should have explained how it was made up and answered questions about it. I would have thought that would be the most basic piece of information to give the committee and we want to receive it by 2.30 p.m. I am quite sure somebody could just press a button and get a breakdown of the figure of €1.433 billion.
Seán Fleming (Laois, Fianna Fail)
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I got the message from the witnesses that the board had fought tooth and nail to provide a full sprinkler system in the hospital. They are children and vulnerable. I know about the rooms, wards and floors where the inpatients were located, but there are four other floors through which the children could have to move to get out. The board appealed the decision to An Bord Pleanála which quoted the inspector's decision which backed the board's position, but in one appeal there was only a majority decision. It sounds as if the board did everything in its power to have a full sprinkler system provided in the hospital. That is the message I got from it. An Bord Pleanála told it to provide it, but it is an extra cost. Did the board fight it all the way to An Bord Pleanála on financial grounds or because it was thought the sprinklers were a silly idea?
Seán Fleming (Laois, Fianna Fail)
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What building regulations are being used, given that this is a once-off project and that nothing like it has ever been undertaken before? I can understand there are building regulations for offices, hospitals and other buildings, but there is no paediatric hospital in the country to which to compare it. The building regulations about which Mr. Pollock is talking cannot have been written on the presumption that this type of hospital would be built on the St. James's Hospital site.
Mr. John Pollock:
The building regulations here very often follow a similar regulatory pattern to those in the United Kingdom. In hospitals in the United Kingdom the practice is that sprinklers are not provided in hospitals. Therefore, we had discussions with Dublin City Council's fire department and agreed that we would put in sprinklers in the most vulnerable inpatient wards and that we would have sprinklers on three floors. We included additional escape stairs. Therefore, we went beyond what was included in the regulations. We did not just accept them and say we would do no more.
Seán Fleming (Laois, Fianna Fail)
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I know that Mr. Pollock said there was an extra cost. What was it?
Seán Fleming (Laois, Fianna Fail)
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Did the board go to An Bord Pleanála because it did not want to incur the extra cost or because it thought the sprinklers were not needed? We understand they were not required under the building regulations, but obviously An Bord Pleanála felt it would be a proper sustainable development for the next 100 years. These requirements are now in place, but the witnesses keep telling us that it is for the next century. Therefore, they could not have believed the regulations would have been static. That is what I would call future proofing.
Seán Fleming (Laois, Fianna Fail)
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I have made the point. At 2.30 p.m. we hope to have the document in which the sum of €1.7 billion will be broken down. I do not know how long the afternoon session will take as some members will not be coming back. When we come back, we will have a good estimate of how long it will take.
Seán Fleming (Laois, Fianna Fail)
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We are dealing with the National Paediatric Hospital Development Board and the costs relating to the new children's hospital in Dublin. We are joined by officials from the Department of Health. Before the suspension, we asked for a breakdown of the €1.7 billion expected cost, as of today, of completing the project. That is the cost as of today and it will be another issue if further costs arise later. As of today, the cost is €1.7 billion. I will read for the record now the breakdown of those costs. The first item is €14.5 million in decanting costs in relation to the site. The second item is aspergillus, which is about infection control in the hospital during the course of construction. That is €5.8 million. The cost of the main contractor, BAM, is €550 million. The Jones Group gets €177 million. Mercury, another contractor, gets €157 million. There is an extra contractor providing lifts. Those four items add up to €890 million and represent the main construction costs. The outpatient and urgent care centres in Tallaght and Connolly hospitals add up to €53.4 million. That comes to €963.7 million and VAT is €130.1 million. That gives gross construction costs on the project of €1,093,800,000.
Non-construction costs are as follows. Equipping the hospital with MRI machines, furniture, scanners, etc., comes to €87.9 million. Planning and development fees and development levies payable to various local authorities come to €13.6 million. The design team fees are €71.3 million. There is a contingency of €51.3 million. The cost of running the National Paediatric Hospital Development Board Company during the project and its legal and professional fees come to €66.04 million. These costs add up to €290.1 million. The gross total, including VAT of €49 million, is €339.1 million. Added to construction costs of €1,093,800,000, that gives the building cost of €1.433 billion.
We then move to other costs outside of that which are being handled by Children's Health Ireland. There is a figure of €18 million for the children's research and innovation centre. Information and communication technology in relation to computers is €97 million. The children's hospital integration programme is €86 million. That involves the integration of the children's hospitals in Crumlin, Temple Street and Tallaght hospitals. Electronic healthcare records will cost €52 million for the entire project and there is a write-off already paid of approximately €40 million in relation to the Mater Hospital site, which was the original first option but which has not proceeded. Those costs come to €293 million, giving a grand total as of today of €1.7 billion.
We will endeavour to circulate that list as a matter of urgency. That was for the record so that people watching can get a breakdown of the figures for now. Can we agree to note and publish those figures? Agreed. Before the break, Deputy Aylward had commenced. He has a ten minute slot. We will then move back to the other members in the sequence in which they spoke this morning.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I welcome everyone back after lunch. I hope we will be in better form after the break. The Mater campus write-off of €40 million seems like a lot of money. What did that €40 million entail?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I know that but why would it be €40 million? It seems like a lot of money and never a sod was turned.
Mr. John Pollock:
There would have been site surveys and investigations at the Mater, design team fees, healthcare planning to come up with the design brief, which we used to inform our design, the planning application to Dublin City Council and An Bord Pleanála and business costs. A business case was produced.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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It seems like an awful lot of money and more waste to spend €40 million before coming to another site eventually. That is political I suppose. It was political wrangling that did that. I start again on the external review which I believe is an independent review. It is sitting at the moment. Who set it up and what is its remit?
Mr. Dean Sullivan:
The HSE, as requested by the Department and agreed by Government, has commissioned the review. As Mr. Breslin said earlier, it is being undertaken by PricewaterhouseCoopers.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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They are professional people who will complete it.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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They will look at the costs to date and over the project as laid out. They will analyse the whole lot and come back. If they find anything wrong, are critical or make recommendations, what standing will that have with the witnesses as the project goes forward? If they say a lot of mistakes were made or identify a waste of money or resources, what power will they have in their recommendations? What will happen if they make a recommendation or criticism?
Mr. Dean Sullivan:
The review has been commissioned to provide an independent perspective on the reasons for the cost escalation with a view to providing assurances to those that matter all the way up through to Government that any changes required to structures, controls or processes within the development board will be made. Certainly, as Mr. Costello said today and as I can say on behalf of the HSE, those recommendations will be given careful consideration with a full expectation that they will be implemented. I am sure Mr. Breslin will say as much on behalf of the Department. We would not be doing it otherwise.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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How long will it take for the review to report back to us? When will we have the review?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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If there are changes to be made or recommendations, they will be taken on board and that will be carried then.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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At least we will know what is going on.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I refer to reports in the newspapers and elsewhere that this is the dearest paediatric hospital ever built globally. Is that true? Is this the dearest hospital ever built in the world? The world is a big place and we are a small dot on the globe.
Mr. John Pollock:
In August 2018, once the cost increases were starting to become apparent, we carried out a benchmarking exercise looking at other hospitals, including children's hospitals, around the world to see how we compared. In total, 14 hospitals were surveyed and the average cost of those per square metre was €5,951.
Our costs are €6,500 per square metre. The most expensive of the benchmarked hospitals was €8,000 per square metre.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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It is not the most expensive hospital ever built.
Mr. John Pollock:
Those are the figures. The other project that is sometimes referenced is the Royal Adelaide Hospital in Australia. It is about the same size as ours. It is 175,000 sq. m and was competed in 2017. Our project, if one includes the urgent care centres as well as the main children’s hospital is 170,000 sq. m. The Royal Adelaide Hospital project cost €1.55 billion and was completed all in costs in 2017. Ours is €1.43 billion to the end of 2022.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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We are coming within the average.
Another cost being reported in the newspapers is that per bed. It has been stated that, ultimately, we will only have so many beds, the equivalent of what we have now. A figure of €4 million per bed has been quoted. Ordinary people reading about that cost in the newspapers will not believe it. Will our guests comment on that matter?
Mr. Jim Breslin:
We discussed this at the health committee. An important context is to understand the nature of paediatric medicine which, above all else, seeks to avoid inappropriate admissions, to keep children at home or to deal with them on a day-case basis. The child-centred philosophy ensures that a child does not have to stay overnight if that is not necessary. At the heart of this model of paediatric care that goes into the design of this hospital, as well as its relationship with other paediatric units, is about minimising the number of children who have to go to the hospital and stay overnight.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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The point is about a quick daily turnover.
Mr. Jim Breslin:
The proposal is that there would be shared care between this hospital and the regional units. As evidence of the ambulatory nature of keeping people from being admitted, there would be two urgent care outpatient centres, one in Blanchardstown and another in Tallaght. The further facilities in the hospital, such as those relating to diagnostics and day cases, will see, for example, a 47% increase in outpatients in the hospital once constructed over the three children’s hospitals. There will be a 26% increase in day cases. The philosophy is to use the facilities not to have large numbers of children in beds if they do not need to be in them. Obviously, very sick children have to be admitted. We have a complement of beds for that. We have a significant increase of going up to 60 ICU beds. We have much more specialist intensive beds in the hospital. We have very much an ambulatory approach to the delivery of care.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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It is not fair then to make comparisons about costs per bed.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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What roles will the two ancillary facilities at Connolly and Tallaght hospitals play? Will they complement the new hospital? Will they be step-down facilities for St. James’s?
Dr. Emma Curtis:
There were a number of reasons it was decided to go with the two ambulatory and urgent care centres. First, were we to have closed the three Dublin children’s hospitals and have a single children’s hospital, we would have an emergency department with 134,000 attendances a year. Looking around the world, the largest hospital with annual attendances is Cincinnati children's hospital with 92,000 attendances a year. Attendances of 134,000 would have meant concentrating all of our emergency and urgent care attendances in one single department with an absolutely significant annual attendance. It would also mean that everybody would have to come to the same place. The reason for putting the urgent care centres in south-west and north-west Dublin is that these are populations with particularly high percentages of children and young people. We are bringing services to them. In the emergency department, 85% plus of children and young people who attend will be discharged home. Most people who attend urgent care and emergency centres are discharged. The urgent care centres are designed to see people with suitable conditions who have a local service. For example, they might have a sprained ankle but they are concerned that it is a break. They might have a fever, a rash or a tummy pain. They can be seen in a local centre to them and discharged home.
One of the philosophies behind avoiding admission is trying to deliver services close to people. As well as the urgent care centre which is supporting the emergency department in the main hospital, we will have outpatient services. There will be fracture clinics four days a week to support the urgent care centres.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Will staff be moved from St. James’s?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Will there be procedures and operations carried out in these two ancillary centres?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Will they all be performed in St. James’s?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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There is €10 billion earmarked for health capital projects over the next ten years. The Department will take €50 million out of the capital programme for the children’s hospital. What will the figure be next year and the year after as the project rolls out?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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We only know that €50 million will be taken out this year.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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How much will St. James's take out of that figure over the next number of years? Does anyone know that? Will it be €50 million next year and another €50 million every year until 2026?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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It will probably come out of the capital funding. Where else are we going to get it? My concern is, for example, that primary care centres in Kilkenny will not get funding. In June, the Minister promised a MRI facility for St. Luke’s General Hospital in Kilkenny and that it would be in the 2019 plan. The same concerns have been raised about the 24-7 cardiac unit in Waterford. Will all these smaller projects be affected? Will they be put on the back-burner and not see the light of day for six years because of the children’s hospital costs? Some of these have already applied for planning and are in the pipeline for grant aid.
Mr. Jim Breslin:
The overall capital resource compared to the past ten years is going from €4 billion to €10.9 billion. We will have significant discretionary moneys to move forward, not just on the children’s hospital but a range of other projects. As was explained before the break, the process of concluding that, particularly regarding the 2019 capital plan, is not yet concluded. Even if I have a great deal of certainty about a project but one that is not contractually committed to, I do not want to go into one by one statements on them because that could turn into a tour of Ireland of all of the projects. I have to respect the process which has not yet concluded. There are significant capital resources to move ahead, not just with the children’s hospital but a range of other health care infrastructure projects.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Will our guests accept that projects could, if not pulled altogether, be delayed by up to five years?
Mr. Jim Breslin:
I would not expect that length of delay or that projects might be pulled. Good projects which stand up to scrutiny and have a good rationale will still have an ability to move ahead. As we do in any year, we look at the cash flows and sometimes things move a little slower than originally planned. That means other projects can move ahead.
This will be continually reviewed as we go along.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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That is as good an answer as I am going to get from the witnesses today. We will have to see, when the programme is announced and the same next year. I am sure we are going to be disappointed and some of us will be knocking at the Minister's door to find out why various things are being taken out. I am sure that is going to happen down the line. I know that it not the responsibility of the witnesses but someone has to make decisions.
Seán Fleming (Laois, Fianna Fail)
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There is a mobile phone buzzing somewhere.
David Cullinane (Waterford, Sinn Fein)
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Or an alarm.
Seán Fleming (Laois, Fianna Fail)
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That is not near the top here. Is it affecting the recording?
David Cullinane (Waterford, Sinn Fein)
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Take the item out and destroy it.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Or throw it in a bucket somewhere.
Seán Fleming (Laois, Fianna Fail)
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Please leave the item with the usher seated outside because such technology can interfere with the recording here.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Like a good Deputy, they are always ready.
Seán Fleming (Laois, Fianna Fail)
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Deputy, we are going to have to move on.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I want to ask a few questions. Have I another minute?
Seán Fleming (Laois, Fianna Fail)
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One minute.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I have a few questions on consultancy costs mentioned in the Comptroller and Auditor General's report. The note states the consultancy costs are all outsourced; business as usual functions. What does that mean?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Yes, I read that in the Comptroller and Auditor General's report.
Seán Fleming (Laois, Fianna Fail)
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Is it the general financial statement, Deputy?
Seán Fleming (Laois, Fianna Fail)
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So from the annual findings?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Yes. The note is listed under the term "consultancy costs". The note states that consultancy costs are all outsourced; business as usual functions. Does anyone know what that means? I am sorry but I must have read a different paper.
Seán Fleming (Laois, Fianna Fail)
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What is the page number in the document?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I am referring to the bottom of page 5.
David Cullinane (Waterford, Sinn Fein)
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That is our briefing document.
Seán Fleming (Laois, Fianna Fail)
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Yes, that is our briefing document.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Yes, that is our briefing document.
David Cullinane (Waterford, Sinn Fein)
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The witnesses might not have that.
Seán Fleming (Laois, Fianna Fail)
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On what page?
Seán Fleming (Laois, Fianna Fail)
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Would Mr. Farragher say it is normal business?
Seán Fleming (Laois, Fianna Fail)
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That is what was meant by that. We picked up that phrase.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Are all consultancy costs or consultancies independently outsourced? I mean consultants.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Has the board its own project team?
Mr. John Pollock:
We have, yes. Obviously I am an employee of the development board, Jim is an employee of the development board and Dr. Curtis is an employee of the development board. So we have a team of staff and then we have some secondees from Children's Health Ireland to again help us with the design of the project. There is a significant number who are direct employees.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Are the consultancy costs mostly inhouse or mostly outsourced?
Mr. Seamus McCarthy:
It arises from additional requirements for disclosure from the Department of Public Expenditure and Reform code of practice for State bodies. So, if you like, that note is developing. In many organisations you will see information in that note around things like change management consultancies, special investigations and so on because it is something that the committee here has been interested in. I think the point that is being made here is that their business is commissioning consultancy work but it is a normal part of their business, as opposed to this kind of change management function that would arise on others.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Is that where the term "business as usual" comes in?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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In 2017, planning application costs cost €7.3 million and, in 2016, it only cost €2.97 million. Why was the cost so high in 2017 yet so low in 2016?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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In what year was the planning application lodged?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Yes.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Is that why the note states there is a payment plan in place to repay Dublin City Council? What does that mean?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Does the board still have to pay Dublin City Council?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Payment is ongoing. The board is paying Dublin City Council over a period.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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That is okay, Chairman.
Seán Fleming (Laois, Fianna Fail)
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Finally, I call Deputy Cullinane. Just to clarify an issue relating to the capital plan, and I am sure Deputies will want to know, what is the timescale? Is it the HSE capital plan for 2019?
Mr. Jim Breslin:
The HSE finalises the capital plan and submits it to the Minister. There is no statutory-----
Seán Fleming (Laois, Fianna Fail)
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What is the normal time of the year?
Seán Fleming (Laois, Fianna Fail)
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When will the Estimates for the Department and the HSE go to the Select Committee on Health?
Seán Fleming (Laois, Fianna Fail)
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Will the capital plan be done before that?
Seán Fleming (Laois, Fianna Fail)
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In other words, the health committee will obviously be discussing this issue when it discusses the Estimates.
Seán Fleming (Laois, Fianna Fail)
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I would expect that.
David Cullinane (Waterford, Sinn Fein)
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Yes.
Seán Fleming (Laois, Fianna Fail)
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I would hope so. Sorry, Deputy Cullinane.
David Cullinane (Waterford, Sinn Fein)
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I will follow on from that, a Chathaoirligh. I will not go back over the individual capital projects because Mr. Breslin has given the rationale why he does not want to do the tour of Ireland, as he described it. Obviously for some projects to be delivered on time, the design work will have to be done. Without getting into specific projects, can the hospital groups and local hospitals still press ahead with designs, plans and all of that work, subject to the overall funding for construction being approved or not?
Mr. Jim Breslin:
There are two elements to that. One is, often the design is contractually committed. Whereas the overall spending on the project might not be a contractual commitment, one would have entered into an arrangement with the design team. So in that situation one is continuing.
In any event, the design team costs or the design costs, as a percentage of the overall project, can be quite modest. In that situation one can allow projects to move ahead through that stage without a big impact on capital spending.
David Cullinane (Waterford, Sinn Fein)
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Again, given that the Department understood the sensitivity and importance of a number of these projects, has that or can that be communicated to hospital groups? I mean that while we are waiting to sign off on the capital funding for all of these projects, one can work ahead and press ahead with the design work and everything that can be done. Does Mr. Breslin understand what I am saying?
David Cullinane (Waterford, Sinn Fein)
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Obviously some issues are affordable.
Mr. Jim Breslin:
I think the HSE would take a case-by-case look at each of those and would be in a position for some to continue on in that situation.
David Cullinane (Waterford, Sinn Fein)
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I will revert to the overall cost. While I think we have arrived at this point with a clear view of what are the costs, it would have been better had we got the breakdown at the very start. I do not understand why it could not have been provided to us. I do not want to be unfair but maybe it was a tactic to not provide it to us so we would spend almost all of the morning trying to get figures, which really the Department would have had. It took us some time to get to a point where we now have the breakdown and can see the difference between the €1.433 billion and the €1.7 billion, as opposed to the €983 million and the €1.26 billion. Does Mr. Breslin appreciate that the figures would have been much more helpful to us earlier and we would have avoided wasting an awful lot of time, to be quite frank, in asking our questions to get to this point?
David Cullinane (Waterford, Sinn Fein)
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Yes.
David Cullinane (Waterford, Sinn Fein)
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Mr. Breslin will have dealt with this issue at the health committee, and possibly today. When did he personally become aware of the difference in the €983 million in the 2017 costs and the €1.433 billion in the capital bill subtotal? The difference is quite substantial and is at the heart of why people are annoyed about this issue. When he first become aware of the increase?
Mr. Jim Breslin:
When the guaranteed maximum price was concluded in November, that is when the €450 million increase was notified by the development board to the HSE and ourselves.
David Cullinane (Waterford, Sinn Fein)
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When was the first time that Mr. Breslin was notified?
David Cullinane (Waterford, Sinn Fein)
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Early November.
David Cullinane (Waterford, Sinn Fein)
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Just one second. I want to be clear. Was it early November?
David Cullinane (Waterford, Sinn Fein)
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When did the Minister know?
David Cullinane (Waterford, Sinn Fein)
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The same time the Minister-----
David Cullinane (Waterford, Sinn Fein)
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Yes.
David Cullinane (Waterford, Sinn Fein)
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So, in September the issue would have been flagged to Mr. Breslin that there may be a problem?
David Cullinane (Waterford, Sinn Fein)
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But in November Mr. Breslin had----
David Cullinane (Waterford, Sinn Fein)
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-----a very clear understanding and the figures. What was Mr. Breslin's reaction?
David Cullinane (Waterford, Sinn Fein)
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Mr. Breslin has said, "To say I was unhappy would be an understatement". Why was he unhappy?
David Cullinane (Waterford, Sinn Fein)
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Were I in Mr. Breslin's position and stating that "To say I was unhappy would be an understatement", I would be asking questions as to whether there were weaknesses or mistakes that led to the overspend. Was that what he was thinking?
Mr. Jim Breslin:
When we approved the €983 million budget in 2017, we said it was the maximum and the board would have to live within it, and that if there were additional costs to be met, the board would have to change the scope and find savings. When I saw the scale of this, I immediately appreciated that it would be impossible to deliver the project within the €983 million budget.
David Cullinane (Waterford, Sinn Fein)
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Who has overall responsibility for the project?
David Cullinane (Waterford, Sinn Fein)
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No. I mean the overall project to deliver the hospital - not just the build, but also putting in place doctors, nurses and supports. Who has overall responsibility for ensuring it is built, delivered and open?
David Cullinane (Waterford, Sinn Fein)
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At some point, Mr. McCarthy, as Comptroller and Auditor General, might examine this situation. If he does, who would he say had overall responsibility for the project?
David Cullinane (Waterford, Sinn Fein)
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I would say the same. In light of that and the overspend of €400 million or €500 million, surely the buck has to stop with the Department.
Mr. Jim Breslin:
Anything that happens within the health service must ultimately be accounted for by the Department and the Minister. I am accounting for it today as Accounting Officer. However, I must also reflect the fact that there is a statutory responsibility on the body that we created to construct the hospital. It is in that budget that the slippage of €450 million has taken place. By virtue of me being Accounting Officer and saying "I take responsibility", I do not absolve the statutory body we have put in place of responsibility either.
David Cullinane (Waterford, Sinn Fein)
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I have learned a great deal about process as a member of this committee. One lesson is that economic appraisals, comparisons and due diligence are important. At the very start of this process, the Department and the board would have had to consider the design, model, co-location and sites. Various options were available to the State at different times. Given that it will now cost €1.7 billion at a minimum, if Mr. Breslin had known five or ten years ago or at the time the decision on the site was being made that the project would cost €1.7 billion, would that have altered the decision-making process?
David Cullinane (Waterford, Sinn Fein)
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Leaving aside the site, what changes would Mr. Breslin have made had he known that the cost of building would have increased to €1.7 billion by 2019?
Mr. Jim Breslin:
The matter I am most interested in, and on which PwC will elucidate clearly and beneficially for all of us, is that relating to how the €983 million increased to €1.4 billion. In my estimation, a key explanatory factor for that was the gap between the preliminary design and the final design. I would like PwC to interrogate that to determine whether, even though it was a preliminary design and approximate, elements were missed that should have been caught then and how that was flagged. Should people have expected there to be a difference between stages A and B? As the difference emerged, what was the early warning system? It is in that area that the most beneficial examination will lie. PwC will be able to tell us about the learning to be achieved and any weakness in the project that has been identified.
David Cullinane (Waterford, Sinn Fein)
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I appreciate that response. I also appreciate that Mr. McCarthy cannot say much about the project because his job is to look back. He might examine this at some point, but that is a matter for him. If he does, would it be fair to say that he would examine what information was available to the Department and the group at any given time? I think that should be done now.
David Cullinane (Waterford, Sinn Fein)
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Including the economic appraisals of the various options.
David Cullinane (Waterford, Sinn Fein)
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The associated risk would have to be outlined as well.
David Cullinane (Waterford, Sinn Fein)
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Risk would be an important element. My impression is that Mr. McCarthy will examine this at some point, but that is a matter for him.
David Cullinane (Waterford, Sinn Fein)
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I am just wondering what it would emerge. In the here and now, though, and given that Mr. Breslin was upset, to put it mildly, when he found out that there was an overrun, what changes is he considering making? In light of the large overrun, is any change being considered?
David Cullinane (Waterford, Sinn Fein)
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Does the Department need PwC to tell it? Why does it always need some external body to tell it something?
Mr. Jim Breslin:
No. There will be an important learning from it. If the Deputy asked me now, I would say that learning would arise in the context of the estimation of the quantities. In the move from the first stage of the design to the second, there was such an increase in the quantities that I would like to understand how we can be more robust in their estimation. That is a professional and technical task-----
David Cullinane (Waterford, Sinn Fein)
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When PwC was appointed to examine this, was any consideration given to potential conflicts of interest between it and the company involved? Would that matter have been examined to ensure that there was none, particularly in view of the fact that Mr. Breslin wants an independent analysis?
David Cullinane (Waterford, Sinn Fein)
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It was explored with whom?
David Cullinane (Waterford, Sinn Fein)
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What does the term "explored" mean in this instance?
David Cullinane (Waterford, Sinn Fein)
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Mr. Sullivan was satisfied that there was no conflict of interest.
David Cullinane (Waterford, Sinn Fein)
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I thank our guests.
Seán Fleming (Laois, Fianna Fail)
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Next are Deputies Catherine Murphy and Connolly.
Catherine Murphy (Kildare North, Social Democrats)
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I will set out the context. Everyone wants the national children's hospital. There have been disputes, but none has been about whether there is a need for it. There was a complete understanding and acceptance that we would pay for it collectively through taxation, but people hate being taken for fools, and that is exactly how they feel. They expected the hospital to be delivered within a timeframe and within, or near enough to, budget, and that if it was not delivered within budget, there would be a rational explanation for whatever extras were being costed in, for example.
We have raised a number of issues. For instance, there was a two-phase tendering process. While I accept the point made about 2016 and costing, when it came to considering whether to retender for the second phase, which was an option, the committee was told before lunch that doing so could have added two years to the delivery time. We all understand that it needs to be delivered yesterday, so was that option really considered when the two-phased approach to delivering the hospital in a timely way was adopted? The option was there in theory, but it was not there in practice if it was going to add two years to the timeline. Actually, I would like to see where that figure comes from.
There were points of no return.
One was obviously the point of no return once the decision was made to go with the site. It then got driven to a point where we were told it was a point of no return. In the autumn we were at a point of no return in regard to the timeline for delivering it. Is that two-stage process really a two-stage process, when we are trying to deliver a project within time? It does not strike me that it is.
Mr. Jim Breslin:
There is a lot to unpick in that and it could be argued in different ways. One of the things the two-stage process does give is the ability to mobilise onto the site, decant and do the groundworks while still elucidating the final design brief for the above ground works. There is a time saving in that. It is also using one call to the market in terms of the tender process, and there is a time saving in that. Therefore, there are time savings in the two-stage process. The Deputy is asking the question with the hindsight we have, which is that, in this case, the two-stage process opened up such a gap between the estimates when stage A was conducted and when we now have the final costings that it placed the Government in a position that it had to consider other options because it was so significant. One of those option was retendering, which would have added to it. If the two-stage process had worked seamlessly and we had gone from the €893 million and stayed in or around that mark, then it would have saved time and it would have been on budget.
Catherine Murphy (Kildare North, Social Democrats)
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We heard earlier that, in fact, the estimation process was far from robust right from the word go.
Catherine Murphy (Kildare North, Social Democrats)
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The failure was much further back.
Catherine Murphy (Kildare North, Social Democrats)
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Nobody expects the Department of Health to have an expert section to deal with a project or a small number of projects that are to last for, say, 100 years. In terms of learning, it strikes me that once this is over, that expertise will be lost and there will be no institutional memory in terms of other projects, not necessarily in the health area but capital projects where we have a big national development plan. It is essential that not only does the PwC report show where the failings are with this, but also the institutional gaps that need to be identified for other capital projects.
Mr. Jim Breslin:
It is a very good point. The scale of the country is an issue. For example, in Canada there is a public sector construction body that constructs major mega-projects. In this case, Ireland has mega-projects that do not arrive every year. Somebody works on them over the course of their career but they only work on one. While it may not be a structural solution, it is a question of designing a solution that sees the learning from major projects moved from that project onto other projects, not just in health, because there are so few of them, but nationally.
Catherine Murphy (Kildare North, Social Democrats)
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The point is that the expertise is being bought in from the private sector. We possibly need to have a beefing up of the public sector side in this regard.
I will move on as time is tight. The witnesses talked about penalty clauses on the contracting side. Are there penalty clauses on the side of the contractor or contractors? If so, what are they and how many are there?
Catherine Murphy (Kildare North, Social Democrats)
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Can I have that in English, please?
Catherine Murphy (Kildare North, Social Democrats)
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Therefore, there is no value, given construction inflation, in dragging it out because there is a penalty to put an end to it.
Catherine Murphy (Kildare North, Social Democrats)
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Are there penalties on the contractor side with regard to other aspects?
Catherine Murphy (Kildare North, Social Democrats)
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I am not sure about a point I raised at the beginning of the meeting. Reference was made to some figure from €30 million to €40 million.
Catherine Murphy (Kildare North, Social Democrats)
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We got a list that showed €40 million. I would have said the €6 million was possibly a sum that would be deducted from the costs, if it is something that can be brought forward, rather than adding it to the cost. Why am I picking that up wrong?
Mr. Seamus McCarthy:
My understanding of the schedule presented is that, within the €1.7 billion, it is trying to capture the total costs that have been spent since the commencement of the project to construct the hospital. This money was spent and, therefore, it is proper to recognise that it was spent. The writing off is an accounting exercise where, in capitalising the value and bringing the value forward onto the balance sheet, one is discounting something that actually delivered no benefit, so one leaves that out of it. Then, the value of the assets that are put in place is brought onto the balance sheet. That is a summary.
Catherine Murphy (Kildare North, Social Democrats)
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In his opening statement, Mr. Pollock said: "The final cost is in line with international benchmark costs for hospitals of a similar scale and complexity." I do not want to take that as a given. I want to see what it was compared with. We are hearing it is going to be the second-most expensive hospital in the world. I want to know what it was benchmarked against. If the witnesses do not have that information now, will they come back to us with a note so we can see exactly what we are comparing, rather than just accepting that as a given?
There is something I have never understood, although it was described very well in regard to the urgent care centres. I do not dispute the value of those urgent care centres and the methodology and thinking behind them. I remember visiting Tallaght University Hospital just before it opened, and it is not a very old hospital. There was a very good, very well-thought-out section for children in that hospital. Why was there a need for an extra or new unit there when there was already a purpose-built and designed set of wards for children? Was it not large enough? What was the thinking?
Dr. Emma Curtis:
I understand the thinking behind it was that Tallaght University Hospital was designed with the children's hospital integrated into the adult hospital, and, therefore, to get to the children's emergency department, one has to go through the adult emergency department. In addition, the predicted activity for the emergency department in Tallaght was much less than it is in reality. When Tallaght opened, it would have been a quieter emergency department than it is now, given it sees some 32,000 to 33,000 children a year, which is virtually the same as the number seen in the emergency department in Crumlin. Therefore, the emergency department in Tallaght would not accommodate the way we want to deliver the service now or the way it will be delivered in the main hospital and in the Connolly urgent care centre.
The other piece is that part of the children's hospital in Tallaght is the beds, which, of course, are integrated into the main hospital. What we are delivering with the new build at Tallaght is an urgent care centre that is built and developed the way a modern urgent care centre should be, and similar to the quality and standard in Connolly and the main hospital, as well as an outpatient department that has the right kind of support.
For example, there will be a large orthopaedic service in the urgent care centre at Tallaght, with a physiotherapy and occupational therapy gym beside it for children who are recovering from injury fractures, but that is currently in the physiotherapy department of the adult hospital in Tallaght. It is a new project that brings the three children's hospitals together. Integrating the urgent care and outpatient centre at Tallaght into the adult hospital would have meant that it would not have joined up as part of Children's Health Ireland.
Catherine Connolly (Galway West, Independent)
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I will first ask some practical questions on the accounts. I wish to pick up on something Deputy Cullinane said about conflicts of interest. Is it correct that the HSE explored with PwC whether there was a conflict of interest, and it satisfied itself that there was no conflict?
Catherine Connolly (Galway West, Independent)
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Has PwC never acted for BAM?
Catherine Connolly (Galway West, Independent)
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Has PwC acted for BAM in the past?
Catherine Connolly (Galway West, Independent)
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It may be relevant.
Catherine Connolly (Galway West, Independent)
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I am particularly asking whether its paths crossed with BAM.
Catherine Connolly (Galway West, Independent)
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Is it not relevant information when tendering a consultancy contract?
Catherine Connolly (Galway West, Independent)
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I did not table that parliamentary question. It must have been tabled by another Deputy.
David Cullinane (Waterford, Sinn Fein)
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I did not ask the question either, but any involvement could give rise to a conflict of interest, although it may not. I would also be interested in the response.
Catherine Connolly (Galway West, Independent)
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I am interested in what measures are in place to ensure there is no conflict of interest. I do not want to discuss PwC at all and I do not care whether a conflict of interest is in its interest. I want to know what the HSE has in place to ensure there is no conflict of interest.
Catherine Connolly (Galway West, Independent)
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PwC has not acted for BAM or done work for it at any stage.
Mr. Dean Sullivan:
As I said, it would have to be teased out further whether in the depths of history there was some involvement at some point, given the nature of these types of firms and given that they have auditing rules and so on. It may have been involved at some point but I can check that. PwC is satisfied that there is no current conflict, insofar as there may be Chinese walls or similar arrangements, as there often are in this situation.
Catherine Connolly (Galway West, Independent)
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On the site, I began by listing the reports and I will not return to to the subject . Is it correct that the independent report of 2011 recommended a greenfield site if money was not the issue. Would the greenfield site have been preferable?
Mr. Jim Breslin:
I was not involved in 2011 but I recall that the proposition was not just to build a children's hospital in that situation but also a new adult hospital and a new maternity hospital on a greenfield site. It would have involved selecting one of the existing adult hospitals and decanting it to the greenfield. If this is a mega project, that would have been a mega-mega project.
Catherine Connolly (Galway West, Independent)
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I do not know about that because this has become a €2 billion project. Let us be reasonable for a moment. Money was the issue at that point but the experts were recommending a greenfield site with a trilocation.
Catherine Connolly (Galway West, Independent)
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For the St. James's site, was it going to be a trilocation or a bilocation? I cannot remember.
Catherine Connolly (Galway West, Independent)
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What happened to that?
Catherine Connolly (Galway West, Independent)
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At what stage is that plan?
Catherine Connolly (Galway West, Independent)
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Will BAM do that also?
Catherine Connolly (Galway West, Independent)
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I return to the accounts and I will focus on the nitty-gritty of one or two matters. I asked about the rent and I quoted the wrong figure, about which the Comptroller and Auditor General rightly corrected me. The report makes reference to an office fit-out. The prices are colossal. In 2016, the office fit-out was estimated at approximately €594,000. Is that correct?
Catherine Connolly (Galway West, Independent)
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In addition to the rent, there is a office fit-out, at more than €500,000, and then in 2017, there was another office fit-out estimated to cost €133,945. Will someone explain those figures?
Catherine Connolly (Galway West, Independent)
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Are the figures justified?
Mr. John Pollock:
All the figures were tendered. The building we took over was a shell and core building that had planning permission for a different use. It comprised only four walls and a ceiling. We had to fit it out as a normal office and, therefore, we tendered the works and appointed a contractor to carry out the works.
Catherine Connolly (Galway West, Independent)
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Outside of the committee, we will pick up the consequences of this on the ground, as some of my colleagues have outlined. There have been references to the new model of care, where fewer children will be going to hospital. The damning reality is that fewer children will be going to hospital in other places because there will not be hospitals and projects will be stopped. I consider that in this context and I always consider it in terms of rent. Various organisations have appeared before the committee on the issue. Rent and the fit-out of an office were estimated at more than €500,000 in one year and, the following year, another €100,000 was estimated. Was there an alternative where money could have been saved rather than spending more than €500,000 on the fit-out of an office?
Mr. Jim Breslin:
One great advantage of the location is that it has embedded the project in the community in which it will be based. Having the development board off site of the St. James's campus would have been a problem. As it is on the fringes of the St. James's site, it has been able to develop linkages with the community and involve it in the project.
Catherine Connolly (Galway West, Independent)
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I am not sure if that could justify the fit-out of an office costing €500,000.
Catherine Connolly (Galway West, Independent)
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At that cost?
Catherine Connolly (Galway West, Independent)
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Community gain. I will leave that matter.
There was another sentence I did not understand on page 19 of the report. It states, "Consultancy costs are all outsourced "Business-as-usual" functions." What does that mean?
Catherine Connolly (Galway West, Independent)
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I am sorry. I must have missed it. Did I arrive late?
Mr. Seamus McCarthy:
I do not remember, but I explained that, on the statement on internal control, it is a power requirement that there be a disclosure in respect of consultancies. The nature of the consultancies that it was interested in having disclosed, however, were change management-type consultancies or special investigation-type consultancies, where the consultancy expenditure that is outlined in the report is normal for the nature of the business it does. It contracts designers, project managers, cost consultants and so on.
Catherine Connolly (Galway West, Independent)
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I missed that explanation.
Catherine Connolly (Galway West, Independent)
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I had not seen it previously.
Catherine Connolly (Galway West, Independent)
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The final matter in the accounts I wish to examine is legal costs.
Mr. John Pollock:
This was in relation to the O'Reilly Avenue residents who bordered the campus. During the course of the construction works, when our contractors were replacing boundary walls, damage was caused to the residents' properties and we were brought to the High Court. These are the legal costs associated with that action.
Catherine Connolly (Galway West, Independent)
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What were the legal costs associated with the action?
Catherine Connolly (Galway West, Independent)
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Was the case settled or did it end up in court?
Catherine Connolly (Galway West, Independent)
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Is it still an outstanding legal case? Has it yet been settled?
Catherine Connolly (Galway West, Independent)
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I ask Mr. Pollock to listen to my question. Has it been settled or is it still open?
Catherine Connolly (Galway West, Independent)
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What is the €98,000 for?
Catherine Connolly (Galway West, Independent)
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But it has not yet been resolved.
Catherine Connolly (Galway West, Independent)
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Mr. Pollock does not need to tell me the details. I understand he cannot do so, but has the matter been resolved?
Catherine Connolly (Galway West, Independent)
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What is the anticipated cost of the case?
Catherine Connolly (Galway West, Independent)
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Was it for damage done?
Catherine Connolly (Galway West, Independent)
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Is it one case on behalf of a group of residents or is each resident taking a separate case?
Catherine Connolly (Galway West, Independent)
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Are there other cases?
Catherine Connolly (Galway West, Independent)
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I would like to turn to the issue of the board. How many re on it?
Catherine Connolly (Galway West, Independent)
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How many are female?
Catherine Connolly (Galway West, Independent)
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How many are doctors?
Seán Fleming (Laois, Fianna Fail)
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Perhaps one of the board members will identify the board to the committee and tell us why they are on it?
Seán Fleming (Laois, Fianna Fail)
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What is Mr. Costello's background?
Mr. Tom Costello:
My background is in construction. I have spent all of my career in it. Mr. Tom Bouchier-Hayes' background is in legal services. Mr. John Cole's background is in architecture. Previously he was head of Health Estates in Northern Ireland and brings a lot of experience. Mr. Brian Fitzgerald was previously CEO of St. James's Hospital.
Seán Fleming (Laois, Fianna Fail)
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Mr. John Martin was a planner in Dublin City Council.
Mr. Tom Costello:
Yes. They provided huge guidance in steering us through a successful planning application. Mr. Paul Quinn is head of procurement in the Department of Public Expenditure and Reform, while Ms Anne Butler is a retired civil engineer. She was a member of the Institution of Engineers of Ireland.
Catherine Connolly (Galway West, Independent)
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Is she retired from the board or as an engineer?
Catherine Connolly (Galway West, Independent)
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I am sorry, but is she on the board or not?
Kate O'Connell (Dublin Bay South, Fine Gael)
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What is her background?
Mr. Tom Costello:
She is a civil engineer and was and may currently be on the board of the Environmental Protection Agency. Ms Marguerite Sayers is a long-term employee of the ESB and until recently she head of EirGrid. Ms Hilary Hoey from the School of Paediatrics has been replaced by Professor Johnathan Hourihane. Mr. Liam Woods is from the HSE, while Mr. Lorcan Birthistle is the current CEO of St. James's Hospital.
Seán Fleming (Laois, Fianna Fail)
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I thank Mr. Costello and apologise for interrupting Deputy Connolly.
Catherine Connolly (Galway West, Independent)
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Is it a five-year term?
Catherine Connolly (Galway West, Independent)
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The current membership were all appointed in 2013 and then reappointed in 2018 by the Minister.
Catherine Connolly (Galway West, Independent)
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Were they reappointed before the escalation in costs was brought to the attention of the Department?
Catherine Connolly (Galway West, Independent)
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Therefore, the escalation in costs was brought to the attention of the Department following the appointment of the board members.
Catherine Connolly (Galway West, Independent)
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The escalation in costs was brought to the attention of the Department in August.
Mr. Jim Breslin:
It might be worth saying because the Minister said on Tuesday at the health committee that by virtue of the Children's Health Ireland legislation which has just been passed by the Oireachtas, he has powers to reconstitute the board. He noted when he was reappointing the board that in the context of the implementation of the legislation, he reserved the right to look at the composition of the board.
Catherine Connolly (Galway West, Independent)
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That is, in a sense, an impossible task. PricewaterhouseCoopers, an accounting firm, is examining the matter, at a cost of €450,000. The witnesses should be telling us what went wrong, what governance arrangements were in place, what has been learned and so on. What I have learned from Mr. Costello and Mr. Pollock is that the details of the tender were a bit on the lean side, that they should have been clearer about that and the checks and balances. That is all I have heard from them on this matter. I have read the transcript of the proceedings at the heath committee and know all of the questions that were asked. I have read the 2015 script in which the witnesses were alerted to this difficulty. I feel sorry for the Department, except that it is the oversight body. Am I correct that practically all of the board members are from the private sector?
Catherine Connolly (Galway West, Independent)
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With the exception of one or two, the board members are from the private sector.
Seán Fleming (Laois, Fianna Fail)
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There are two-----
Catherine Connolly (Galway West, Independent)
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The vast majority are from the private sector, which supposedly is very good, more efficient and cost effective and the public service is dreadful. That is the message form all of this. The public service decided that it was not able for this project, that it was too complex and should be given to the experts. It set up a board and set itself the job of monitoring the project under the public spending code, with which the board is supposed to comply . All of the details are set out. I do not have the time to question the witnesses about all of these issues. They should be telling us which parts of the public spending code they did not comply with, why they did not do so and what they have learned. Instead, they are telling us that this is a marvellous project and so on, which is a waste of our time because we already know that. We all want a new children's hospital, but we want to know how the overrun occurred? The Department has been left to pick up the pieces. As I said, this is the private sector working for the public sector. Do the witnesses disagree with anything I have said?
Mr. Tom Costello:
I am anxious to summarise as quickly as possible. At the outset, when we were asked to join the board in 2013, the scope of the project was defined through the work about which we talked in the case of the Mater hospital. In overall terms, we were to build a hospital 125,000 sq. m in size.
Catherine Connolly (Galway West, Independent)
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The board was to plan, design, construct and equip it.
Mr. Tom Costello:
Yes, but at that stage, the clinical requirement was more or less defined because of the work done in the case of the Mater hospital. In essence, we were asked to deliver a hospital that would be of the order of 125,000 sq. m in size; therefore, what we were to deliver was pretty much defined. We had to design it in detail but, in essence, at a high level, the clinical needs, bedrooms, etc. had all been defined. Our job was to put a plan in place.
Catherine Connolly (Galway West, Independent)
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Mr. Costello can explain all of that to the Chairman on his time, but will he please tell me the point he is leading to? What changed? The members of the board were appointed as experts. They have repeatedly told us and the Joint Committee on Health about their backgrounds and how they are the experts. They were employed and I gather their money went up during this period. The money for Mr. Costello or Mr. Pollock went up. Is that right?
Catherine Connolly (Galway West, Independent)
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That is very good. Prior to that Mr. Costello was taking money and being paid. Is that right?
Catherine Connolly (Galway West, Independent)
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The money increased at a certain point. Is that correct?
Catherine Connolly (Galway West, Independent)
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The board members were the experts. Here we are now. What I would expect from the experts is to go through the points by number - one, two, three and four. What I see is a load of reports. Mr. Farragher was the finance officer. The board had another private expert who came in. Was it someone from BDO Ireland? Is that person still with the board?
Catherine Connolly (Galway West, Independent)
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At what point did that person go? Was it after Mr. Farragher joined?
Catherine Connolly (Galway West, Independent)
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I will go back to a couple of practical questions. There is phase 1 and phase 2. The board signed a contract for phase 1. What was the date on that contract? When will it be completed? The board gave us a price this morning of €80 million or thereabouts. Can Mr. Pollock clarify the position on phase 1 or phase A for me?
Catherine Connolly (Galway West, Independent)
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Was that for phase A?
Catherine Connolly (Galway West, Independent)
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That is right.
Mr. John Pollock:
The document stated: "We are instructing you to proceed with the phase A works, which is €84 million plus VAT". That brings the figure to approximately €100 million. We had the option either to proceed with phase B or not to proceed with phase B. That is the point we reached at the end of last year. The question was would we or would we not award the second phase.
Catherine Connolly (Galway West, Independent)
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Phase A was to do certain works, mostly under the ground.
Catherine Connolly (Galway West, Independent)
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There was some preliminary design for phase B included as well. Is that right?
Catherine Connolly (Galway West, Independent)
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What was that? Is Mr. Pollock telling me there was no contract for that and it was simply part of an overall contract?
Catherine Connolly (Galway West, Independent)
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What was the sum for phase A?
Catherine Connolly (Galway West, Independent)
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That is the figure plus VAT. Is that correct?
Catherine Connolly (Galway West, Independent)
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There is a figure for the design for the second part – the preliminary design for phase B. What about that?
Catherine Connolly (Galway West, Independent)
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I have two final questions. Who on the board represents the public purse? Who on the board represents doctors and nurses for the layout of the rooms and theatres and so on? The first question is about the public purse.
Mr. Tom Costello:
We are guided by the public spending code. In essence, clear guidelines are set out in terms of how we manage the project as well as the rules around procurement and so on. It is very clear. Then, we are audited on an annual basis. That shows that we are working within the code in place.
I will go back to the past six months when this became obvious in the beginning. There has been huge and intense work from the board and the executive to interrogate every euro of this. We put in place a number of reviews. First of all, the aim was to check where we identified the additional spending, especially for mechanical and electrical spending. The idea was to ensure that what we had designed was fit for purpose and to ensure that we were not over-designed. That is relevant for one of the reports and we can talk about it in a while. We set out to ensure that we got competitive rates in 2016 and to ensure they were applied to the updated quantities and, at the end of the day, to ensure we were paying for what we are getting. At the end of the day, the quantities have increased, but right now we are paying for what we are getting and we have the benefit of the competitive rates we got in 2016.
Catherine Connolly (Galway West, Independent)
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Were there not omissions in the design in the first place? Has the board not quantified the cost of the omissions?
Catherine Connolly (Galway West, Independent)
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Is there any question of an indemnity being raised?
Mr. Tom Costello:
I want to explain one of these in order that people can understand it. The roof of the wards block is curved. There is a plant room in behind that. When the quantity surveyor was taking off the quantities - he is a mechanical and electrical surveyor - he understood there was a roof over that. In fact, it is an external plant. Given that fact, he did not include the aluminium cladding that is required to wrap duct work that is external. Given the scale of the job, that was nearly €4 million of an omission. We have gone through, line by line, every issue like that to understand how this happened. I am saying this so that the committee understands it. That was one particular example to give some understanding to it.
Catherine Connolly (Galway West, Independent)
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I asked about the doctors. Who represents the doctors and the medical profession?
Catherine Connolly (Galway West, Independent)
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I saw that.
Dr. Emma Curtis:
Professor Hilary Hoey is a paediatrician and Professor Jonathan Hourihane is professor of paediatrics in Cork. He is there now. Throughout the process, from the very beginning of the process, extraordinary demand has been placed on the clinicians and on non-clinical support staff in the three Dublin children hospitals in terms of getting them to engage with the project, the design, their needs and all of the room data sheets. Representatives from the three hospitals for children have sat in. They have been involved in every stage of the design.
Catherine Connolly (Galway West, Independent)
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Let us suppose someone says to me, as a politician, that the doctors have not been kept informed or consulted and that they are dissatisfied. Is that completely inaccurate?
Catherine Connolly (Galway West, Independent)
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It is not a question. People have come to me and said that is not correct and that doctors are being ignored. They maintain their views and wishes are not being taken on board. Is that totally wrong?
Dr. Emma Curtis:
No, first of all, everyone has been consulted. There have been groups and committees. We have worked with every specialty area. They have received drawings and plans. We have been back to talk to people. They have been into meetings. Clinicians were involved in terms of the detailed design. There has not always been agreement. Not everything that people asked for was granted. For example, a certain service may have wanted something in particular, but to have provided that would have compromised another service. The planning design of the hospital has to take into account how the whole hospital works. Something that might work for a particular service might in fact compromise future flexibility or adaptability. We have consulted closely with people. We have listened to people and met people, but there will be people who will be disappointed that things they wanted and asked for are not in the final design. That is all I can say about that, but there has been really extensive engagement.
Seán Fleming (Laois, Fianna Fail)
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At this stage I will call Deputy O'Brien.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I am keen to clarify the role of Mr. Paul Quinn. He was there on behalf of the Department of Public Expenditure and Reform. He sits on the board. Is that correct?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Is that not a conflict? He is a procurement specialist in the Department of Public Expenditure and Reform, which is the Department responsible for the public purse, and he is sitting on a board.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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He is there in a private capacity. Is that right?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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If something is discussed at a board meeting that could affect the public purse, he is unable to report back to the Department of Public Expenditure and Reform because he is not there in his capacity as a Department of Public Expenditure and Reform official or employee. Is that correct?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I will get to them but I am asking this question.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Three members were appointed to the board to represent the interests of the general public. Who were they? I ask the Chairman for extra time given that the answers are not coming promptly.
Seán Fleming (Laois, Fianna Fail)
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I will give the Deputy ten minutes.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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That is fine and I might not even take them all.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I am sure the chair of the board should be able to tell me who the three members appointed to represent the interests of the general public were.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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This is-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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You sat on a board with them for the past five years-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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The legislation states the membership of the board shall consist of 13 persons. The chairperson is appointed by the Minister, we know who that is, and 12 ordinary members are appointed by the Minister, three of whom are appointed to represent the interests of the general public and three others are appointed on the nomination of the chairperson and perhaps the chairperson will tell me who these three are.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Tim Bouchier Hayes.
Mr. Jim Breslin:
I think I have the answer subject to checking. Tom Costello, John Cole, Marguerite Sayers and Paul Quinn were appointed by the Minister. I take it that the three latter names are the public interest members. The chair nominated Karl Kent, John Martin and Tim Bouchier Hayes. The HSE nominated Lorcan Brithistle and Liam Woods. The Royal College of Physicians of Ireland nominated Professor Jonathan Hourihane and, before that, Professor Hilary Hoey. Tallaght Hospital nominated Brian Fitzgerald and the Children's University Hospital Temple Street nominated Anne Butler.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Mr. Paul Quinn was nominated by the Minister to protect the public interest.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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He is the procurement specialist in the Department of Public Expenditure and Reform.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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He is the head of the Office of Government Procurement.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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-----and he was put on the board to protect the public interest but if something arises at a board meeting he cannot report it back to the Department of Public Expenditure and Reform because it has to go through the formal reporting lines set out in legislation.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Okay, so he can.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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The reason I ask this is because we were told earlier the escalating costs were first brought to the attention of the board in June 2018. They were not brought to the attention of the Department of Health or the HSE until late August 2018. However, the head of procurement in the Department of Public Expenditure and Reform was sitting on the board aware of these escalating costs. He is on the board to protect the public interest but there was a two month delay from when the board first became aware of escalating costs to when the information was relayed to the Department of Health. Mr. Quinn is not here to answer but I have a presumption as to why the board made a decision to delay for two months before bringing the information to the knowledge of the Department and the HSE. The conspiracy theorist in me would ask whether it had anything to do with the reappointment of the board in July 2018. It became aware in June of escalating costs but it was not brought to anyone's attention until August and they were all reappointed in July. It is a fair question to ask.
Mr. Tom Costello:
It is absolutely a fair question. The Deputy has to understand the workings of the organisation in terms of a finance subcommittee and the board itself, the reporting structure upwards and being able to interrogate information before repeating it. The Deputy will appreciate that as soon as information is received from the professionals or the executive team we do not immediately rush off and state we have a problem. It is very important to remember that, at the same time, we were progressing with the contractors the definition of the determination of a guaranteed maximum price. The last thing in the world we wanted to do was to spread information that it was at a particular cost but we were not too sure where it was going and that it might go to a particular figure. There was a risk of that information becoming broadly known. It was a very sensitive time-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Does Mr. Costello mean becoming public knowledge?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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So-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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The reporting structure is also set out in legislation in terms of what information should be brought to the Minister. It speaks about relevant information being brought in an appropriate timely manner, and I will get to that in a couple of seconds.
In terms of the governance structure, a number of subcommittees were established by the executive board. There was the finance committee, the procurement subcommittee, the construction subcommittee and the finance subcommittee. I presume they had a very hands-on approach to procurement, financial controls and the management of the construction project. With regard to the reporting structure, if the executive board became aware in June 2018, is Mr. Costello stating that none of the subcommittees were aware prior to that? Was it the executive board that brought information to the attention of the subcommittees or did the subcommittees get the information first and bring it to the attention of the board?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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How many meetings did it have in 2018? I know there were 11 in 2017.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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It was a similar number. To pin this down, is Mr. Costello now saying the finance subcommittee was aware of the escalating costs before the executive board was aware of them?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Mr. Costello probably does not have it but I would like to know the date the finance subcommittee first discussed the escalating cost. Since 10 a.m. today we have gone from late August 2018 to June 2018 to a time before the executive board became aware in 2018. I would like to know when the escalating costs were first brought to the attention of either the subcommittee or the executive board. It is important. For me it is very relevant information that, I would argue, under the legislation should have been passed on to the Minister in a very timely and an appropriate manner but it was not. Will Mr. Breslin tell me when the Minister become aware of it?
The Department became aware of it at the end of August - not of the extent of it, but that there was an emerging issue. The Minister was advised at the same time.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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So it was late August.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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How did the finance sub-committee identify the escalating costs? Did somebody from the main contractors come to it and have a conversation? Was it done through meetings with it, letters or emails? How did the finance sub-committee become aware of it?
Mr. Tom Costello:
Each executive of the board presents to the finance sub-committee. The contractor is miles away from this. There is no contact with the board. The executive team reports and, in turn, is advised by the design team. In this case, Linesight acts as the financial adviser and cost consultant and reports to Mr. Pollock and his team.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Who is on the executive team?
Mr. John Pollock:
Obviously, as the project director, I am part of the executive team. The design team would issue monthly reports to us regarding how the second phase GMP process was going. We then report to the finance sub-committee meetings. As Mr. Costello said, the board meetings are convened and the chair of the finance sub-committee would report-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Mr. Pollock knew about the escalating costs before the executive board knew about them.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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We are talking about the significant escalation of costs.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I am leaving that aside. That is in the halfpenny place compared to what we are dealing with now. When would Mr. Pollock have first become aware of the significant escalation of costs - the difference between the 2017 and 2018 figures - or that there was an issue relating to it?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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So it was on budget up to June.
Mr. John Pollock:
Without getting too technical, we have maybe 150 procurement packages that are signed off. The design team reports to say that it has now determined the final price for the doors and ceilings so trending is coming through. The trending coming through for the first six months of the year was basically there or thereabouts. It was in June when a further €40 million was identified. That is above the €60 million about which we spoke back in-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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So around €40 million was identified, which triggered alarm bells.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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When did it come in?
Mr. John Pollock:
I would have to check the dates. It was July and we brought the figure of €200 million to the board in August. We briefed the HSE and the Department.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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That is grand. Mr. Pollock became aware in June when the design team told him about an additional €40 million. It told him that the first six months were okay and all the procurement contracts were on schedule and coming in on price but that there was one with €40 million over and above. Mr. Pollock brought that to the attention of the executive board in-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Following that, it was brought to the attention of the finance sub-committee by the executive board.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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The finance sub-committee would have looked at it then.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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So it went from €40 million to €200 million between June and the end of August.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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When did it go from €200 million up to what it is today?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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In November.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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It had gone up to €450 million.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Were these just the construction costs or were they the project costs in total?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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That was November. A number of reports were produced. Was the internal audit report by Mazars the one that identified the final escalating cost of the €450 million because that was completed in November 2018?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Is that report public?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I would appreciate it if the report could be made available. Obviously, Mazars looked at the GMP process. It reported in November 2018. We know the figure escalated from August 2018 to November 2018, which is four months, at a rate of €100 million per month.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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And it was €450 million in November.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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So it was €100 million per month. That report would definitely be of interest to me and the rest of the committee because I presume it outlines why it went from being on track in June to €450 million in November.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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They are addressed in the report.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Why is PwC producing a report if a report is already there that identifies why the project went from being on track with regard to price to €450 million within the space of four or five months? What is the difference between the two reports?
Mr. Jim Breslin:
The development board can talk to the Mazars report. One of the things we were faced with, which we spoke about earlier, was a time constraint for the making of the decision relating to the investment because of the contractual situation. We were told that the development board had commissioned the internal audit function - Mazars - to conduct an audit of the process. We confirmed to the development board that it was essential that this be concluded in time for the Government when it needed to make its decision. What we were seeking-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Which was when?
Mr. Jim Breslin:
The Government made its decision in December. What we were seeking was an assurance that everything was tied down in the process and that nothing had got into the process that should not have got in. The report from PwC will be a more in-depth exercise that examines what weaknesses within the process, if any, existed; how it happened; whether there was any means by which it could have been prevented; and whether there is any learning for the future. Both reports go over the same ground but one is quite distinct in its focus. One is trying to quality assure and confirm the outcome of the GMP process while the other is standing back and examining whether anything could have been done differently.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Could the Comptroller and Auditor General give his professional opinion regarding this? Would it be unusual for a project of this size to be on track one month and four months later, see an escalation of costs of €450 million?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I know the Comptroller and Auditor General has not examined it-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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If he was to examine it, I presume that one of the things he would look at would be the role of individuals, the board and its responsibilities given that it is a legislative responsibility and whether the process is robust enough.
Why were the processes not robust enough to identify it long before they did?
Mr. Seamus McCarthy:
That would certainly be the focus but I would not focus on whether individuals had some responsibility in that regard. My focus would be on functions, committees and whether those committees worked. The kind of things one would look for would be situations in which a committee was supposed to operate but did not operate or did not get some information it should have got and did not seek it. It could also be a case of determining, if an early mistake was made, the point at which the controls that were in place picked up on it. These are the kind of things one would look for. I expect that the work PwC has been commissioned to carry out, as reported here, will address some of those points.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I find it astonishing that we are on track one month and then, four months later, we are €450 million over and above what we predicted. It seems to have snowballed in a very short period of time. One would have to question the controls and processes which were put in place.
Kate O'Connell (Dublin Bay South, Fine Gael)
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Was the man from the Department of Public Expenditure and Reform, Mr. Quinn, on the finance sub-committee?
Kate O'Connell (Dublin Bay South, Fine Gael)
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Therefore, theoretically he knew before June. He was in that group that reported to the board.
Kate O'Connell (Dublin Bay South, Fine Gael)
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He knew before the whole board did, as Mr. Costello said earlier. I find it very disturbing that the head of procurement, who was on the board, knew about this. Although Mr. Breslin expects that communication would have been carried out through the normal governance structures, let us call a spade a spade, we know that is not how it works. He would have been talking to people. He works in the Department. He must have mentioned it. I do not buy the idea that information did not get out. I am serious concerned if the head of procurement knew about this and the Minister was not informed until August.
Kate O'Connell (Dublin Bay South, Fine Gael)
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I never said it did not. I just expressed my concern that the head of procurement in the Department of Public Expenditure and Reform knew about this and neither the Minister or Mr. Breslin, who is in charge of writing the cheques, did. It is really concerning. He was also chair of the finance sub-committee that reported. I am going backward to where I intended to go. Mr. Breslin is the Accounting Officer. He said that he does not absolve himself and that he takes responsibility. This is the fourth or fifth time I have been at committee proceedings on this issue with Mr. Breslin. He never says anything which there is nothing behind. I understand that he is the Accounting Officer but it seems very clear that he does not think the board was fit for purpose. Looking at its make-up and the way in which members were supposed to be appointed, it seems highly unusual that it would not include a specialist nurse who works in intensive care or, perhaps, somebody who had worked in Crumlin and seen the horrific conditions there or somebody who had worked in one of the other high-tech hospitals across the world about which we have spoken. I understand the Minister appointed the board, but its make-up seems to have been a recipe for disaster. I am very suspicious in respect of the gap between the escalation in costs becoming known and the board being reappointed in July.
Mr. Jim Breslin:
I hear what the Deputy is saying. Obviously in formulating a board one has to come to a decision as to what the necessary competencies are. The framing of this board, which goes back to 2013, was based on the skills required to deliver the biggest construction project to be undertaken in the public sector, in light of the experience of the Mater site which did not get through the planning process. As Dr. Curtis has explained, detailed engagement processes were put in place with the client, the children's hospital group, but the expertise identified for the board were those required to deliver a major construction project - to get it through the planning process properly and to get it designed, procured and so on.
Kate O'Connell (Dublin Bay South, Fine Gael)
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The project got through the planning process.
Kate O'Connell (Dublin Bay South, Fine Gael)
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The design seems to have been done incorrectly. The fees went up by 63%, so it did not really work out. As for the procurement, it seems very obvious that there were issues. To move on to something else, what size is the €500,000 office in square metres?
Kate O'Connell (Dublin Bay South, Fine Gael)
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It cost €500,000. Is there somebody who can do sums? The upper end of what one pays to fit out a corporate office is approximately €2,000 per metre square. Does this cost exceed that? Can anybody do the sums for me?
Kate O'Connell (Dublin Bay South, Fine Gael)
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The fit-out is relatively good value.
Kate O'Connell (Dublin Bay South, Fine Gael)
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I am just pointing that out because I do not want to have a go at the witnesses all the time, just when absolutely necessary.
Kate O'Connell (Dublin Bay South, Fine Gael)
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On BAM and this guaranteed maximum price to finish this project and produce a hospital, do we know BAM's turnover, margin, and profitability? The reason I am asking for these is because I am concerned about liquidity. I am concerned about what will happen if something goes wrong. I am getting concerned about these mechanical and electrical subcontractors. Who is going to fall on this? We have been guaranteed that the price will not go up unless we bring in a different VAT measure or change the scope, or if inflation in construction exceeds 4%, but if BAM goes bust with this project half-way out of the ground where will we go then? From looking at it, there are little indicators that things may not all be right.
Kate O'Connell (Dublin Bay South, Fine Gael)
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How is happiness gauged in accountancy terms? What has Mr. Costello done to make himself happy about this?
Kate O'Connell (Dublin Bay South, Fine Gael)
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When were they done?
Kate O'Connell (Dublin Bay South, Fine Gael)
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That was a long time ago.
Kate O'Connell (Dublin Bay South, Fine Gael)
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What is an eye?
Kate O'Connell (Dublin Bay South, Fine Gael)
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How often?
Kate O'Connell (Dublin Bay South, Fine Gael)
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When did Mr. Costello last look at the accounts?
Kate O'Connell (Dublin Bay South, Fine Gael)
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A lot can change in a year.
Kate O'Connell (Dublin Bay South, Fine Gael)
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There are no signals.
Kate O'Connell (Dublin Bay South, Fine Gael)
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I must have imagined them when I looked at the figures.
Kate O'Connell (Dublin Bay South, Fine Gael)
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Are the mechanisms being used to test robustness the same mechanisms used in respect of the two companies that went bust during the project?
Kate O'Connell (Dublin Bay South, Fine Gael)
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Was the same technique applied? Yes or no?
Kate O'Connell (Dublin Bay South, Fine Gael)
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It is a very simple question. Was the same technique that is being used now applied to test the robustness of the two companies that went bust? Yes or no? It is very simple. Was the process changed?
Kate O'Connell (Dublin Bay South, Fine Gael)
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I will make it a little bit clearer. Perhaps Mr. Costello does not understand. He says that he is testing to ensure that none of the companies is going to go bust so that we are not left with a half a hospital out of the ground. I asked when he last tested that and he told me that it was a year ago. I would argue that liquidity can change very quickly. We just need to look back to ten years ago in this country to see that. Mr. Costello obviously used certain ways to test the robustness of the companies. Two of them went into liquidation early on in the project. Are the same mechanisms being used to test the liquidity of the company that is now in charge? I do not think that is a difficult question.
Kate O'Connell (Dublin Bay South, Fine Gael)
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I have still not got the answer but I am willing to sit here until 9 o'clock tonight, so go for it. Are you using the same mechanism?
Kate O'Connell (Dublin Bay South, Fine Gael)
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Are the same external people using the same mechanism now as there were then?
Kate O'Connell (Dublin Bay South, Fine Gael)
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Part of your job is to deliver the project. If they go bust the hospital will not be finished.
Kate O'Connell (Dublin Bay South, Fine Gael)
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I am not overly comfortable about the situation but we will leave it at that. The Government contracts committee approved the change of contract type to a two-stage contract. Do we have minutes from that meeting? I understand there was a derogation for this process to be allowed. The two-stage process has led to an escalation of prices in other jurisdictions. When the Government contracts committee allowed this process to happen, did it ask any questions about this novel way of dong things or about the risks associated with it?
Kate O'Connell (Dublin Bay South, Fine Gael)
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That is what happened.
Mr. John Pollock:
We formed a working group in 2014 which had membership from the Government construction contract committees. We worked through the two-stage procurement process and had meetings with the Government contracts committee, GCC, which are minuted. We also had presentations to the overall committee.
Kate O'Connell (Dublin Bay South, Fine Gael)
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Does Mr. Pollock remember if they asked if this type of tendering process had increased costs in other jurisdictions? It seems like an obvious question to ask. Would it not be obvious to ask what the pitfalls were and why we had not always done things in this way?
Kate O'Connell (Dublin Bay South, Fine Gael)
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Unique to Ireland?
Kate O'Connell (Dublin Bay South, Fine Gael)
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I accept that the two-stage process was a good idea but it seems, from other jurisdictions and ours, to be fraught with escalating prices. I was wondering if a question was asked about the pitfalls of the two-stage process.
Kate O'Connell (Dublin Bay South, Fine Gael)
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Are we back to Mr. Quinn again?
Kate O'Connell (Dublin Bay South, Fine Gael)
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Can the committee get an answer to the question?
Kate O'Connell (Dublin Bay South, Fine Gael)
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Can I have the answer from them?
Kate O'Connell (Dublin Bay South, Fine Gael)
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A long time ago the health committee spoke about equipment. The word "equip" comes up in the list of costs, with a figure of €87.9 million. Is that to buy or lease equipment? Who decides that? A lot of corporations, even in retail and certainly in the HSE, do not own their equipment because the price of having the manpower, or womanpower, to service the equipment is an issue. They lease the photocopier or the MRI scanner and the contractor services it. Is that the model or are we buying stuff? I spent time on the health committee some years ago and I understood that the lease option was preferred from the point of view of long-term costs. With a lease a company gets a new product when the first is out of date. Is there another surprise coming down the tracks in relation to this?
Kate O'Connell (Dublin Bay South, Fine Gael)
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If it has not been decided, why is there a figure of €87.9 million?
Kate O'Connell (Dublin Bay South, Fine Gael)
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Is the NHS doing that? Do the Dutch or the Swedes do that? My understanding is that there is normally a lease and maintenance arrangement.
Kate O'Connell (Dublin Bay South, Fine Gael)
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I remember discussing this with Professor Hardiman.
Kate O'Connell (Dublin Bay South, Fine Gael)
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It has decided that the better thing to do is buy the stuff.
Mr. Jim Breslin:
The money is provided on the capital side if we do it conventionally. It would be novel in the Irish public sector to use a managed equipment service. My appetite for taking a novel approach and doing something for the first time is starting to dissipate in the case of this project.
Kate O'Connell (Dublin Bay South, Fine Gael)
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My appetite for doing things differently from the rest of the world is also weakening.
Kate O'Connell (Dublin Bay South, Fine Gael)
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The health committee discussed at length how we pay and replenish equipment, as well as staff costs and other things. We all know what will happen.
The costs of the project went up by 46% but the contingency went up by only 31%. Is there a reason for that or is it just to try to make things look cheaper? Is the contingency fit for purpose, given the size of this project?
Kate O'Connell (Dublin Bay South, Fine Gael)
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It is not as risky. Is that the point?
Kate O'Connell (Dublin Bay South, Fine Gael)
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I thank the witnesses for their time.
Seán Fleming (Laois, Fianna Fail)
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There is a PricewaterhouseCoopers review of the escalation of costs relating to the new children's hospital. Everybody has been fixated on the escalation of the costs but they are only part of the story. The overall costs are the bigger story. From the meetings of the health committee to today's meeting, bits have been added on. There are many excuses for why this happened but, as Chairman of the Committee of Public Accounts, I am more concerned about how we get from where we are today to the completion of the project. I think this might be looked at to some extent in the review to which I referred. I would prefer, however, if PricewaterhouseCoopers had been commissioned to examine the €1.7 billion, rather than what has happened in the past four years. How valid is the figure of €1.7 billion? The Department has said it cannot confirm that the figure will not go over €2 billion and I know that nobody can answer that. The real concern of most people, however, is how high this could go. I would be more concerned to get assurances about what happens between now and the hospital being handed over as this is more relevant. Mistakes were made and learned from, such as missing things in the preliminary design, but it is more important to know how reliable is the estimate of €1.7 billion. Can Mr. Breslin comment on that? The Department should have commissioned a report on that.
Mr. Jim Breslin:
We would be happy to reflect on that and we were going to do a separate exercise on sensitivity in parallel with the PricewaterhouseCoopers report.
Mr. Sullivan has engaged with PwC directly. I have no doubt that it will be looking at other projects and how this one stacks up against them. However, we can reflect on what we can get out of it and ask whether it covers the angles to which the Chairman is referring.
Seán Fleming (Laois, Fianna Fail)
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With regard to the terms of reference, there is a point that is relevant concerning the major residual risks and the robustness and completeness of the current arrangements. That is the most important thing and I ask that it be reconsidered. Telling us what happened three years ago is fine but it does not protect us for the future.
Seán Fleming (Laois, Fianna Fail)
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I am more interested in protecting the taxpayer from today on.
Seán Fleming (Laois, Fianna Fail)
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That is important but the bigger risk for the taxpayer as of today concerns whether the amount involved stops at the €1.7 billion for which we are now on the hook or rises further. I would like more information on future-proofing the rest of the delivery under the contract.
On the flow of information, it appears from what Deputy Jonathan O'Brien was saying that there were clear indications of what was occurring from June 2017. With such a critical project, one would almost expect that there should have been a hotline if there was going to be a problem. It was the biggest project in the Department of Health and the flow seemed to be very slow. There was a reference to a response to a parliamentary question that the Department prepared and the Minister put on the record. The Department was not over-budget but it knew there was a problem. Perhaps there was not complete candour. The Department knew well there was a problem but was not saying there was a problem, and its reason for not acknowledging it was that it did not know its extent. There should have been a better flow of communication.
Mr. Jim Breslin:
PwC will definitely look at the development board's processes under bullet point 2. I refer to establishing what was known, when it was known and by whom and to the reporting of relevant information from the project team to the relevant oversight and governance bodies. That goes to the heart of what Deputy Jonathan O'Brien was asking about. Which entity knew? Was it the design team? Was it Linesight? Was it the executives within the development board? Was it a committee of the board? Was it the board? How was it escalated?
Seán Fleming (Laois, Fianna Fail)
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I have a simple question. How many employees are there in the board?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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What we do know is that it was over-budget by €200 million by late August. The reply to the parliamentary question in September did not indicate that.
Seán Fleming (Laois, Fianna Fail)
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It just stated that there was a budget. The Department almost indicated that because it did not know the extent of the problem overall, it decided not to mention it until it could give a figure. There should have been some indication that there was a potential problem, however. It would have been relevant given that the Oireachtas was discussing the budget on 14 October or 15 October and the Estimates for the coming year.
Seán Fleming (Laois, Fianna Fail)
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Mr. Breslin gets the point. I asked a question earlier in respect of which I need a figure. Mr. Breslin kind of skimmed over it. I want to know what will be the annual operating budget for the hospital when it is in full swing.
Seán Fleming (Laois, Fianna Fail)
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How does that tally with the cost of running Temple Street in Crumlin-----
Seán Fleming (Laois, Fianna Fail)
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Not that there is an issue. The last thing people want is these spanking new facilities not up and running. That has been the history of extensions to hospitals over the years. For the public record, what will be the cost of running the operation per year by comparison with that of running the existing children's hospital? What will the increase be? Given that everything is to be combined on one campus, and given all the new technology, equipment, heating systems and insulation, some are saying to me there should be a reduction in cost.
Mr. Jim Breslin:
There will be some savings to be made but we know from access problems, waiting lists for paediatric care and so on that the capacity is going to be increased. I have mentioned some of the increases in capacity for day patients and outpatients. In total, there will be an increased budget. It will not all happen in 2022 when we open because are going to scale up, with new centres in Blanchardstown and Tallaght. Also, within the constituent hospitals, we will see a gradual move towards that higher figure. I would be happy to supply the Chairman with the current budgets of the three constituent hospitals and also the development budget for this year that we put aside for the Connolly satellite.
Seán Fleming (Laois, Fianna Fail)
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It is only a matter of providing a headline figure because other committees, systems and processes can interrogate this. I refer to headline figures, a bit like the €1.7 billion, just to give us an understanding. To my knowledge, the NDFA has a role in advising on all major capital infrastructure projects. We were involved with it regarding the Mater Hospital site. It seems to have disappeared. Why did the delegates not continue to engage it? What role could it possibly have played? It is meant to have a role. What happened? Why did it disappear off the pitch?
Mr. Tom Costello:
The NDFA was involved in the financial analysis of the robustness of the tenders for the design team. On capital projects like this, there is not a financial advisory role other than for specific cases. Where there is private finance, like there is with the PPP projects, obviously, the NDFA has a role in managing and being a financial adviser on an ongoing basis. In this case, there are specific issues on which we needed financial advice, such as the robustness of the tenderers, the design team and the contractors, and also in regard to preparing a business case.
Seán Fleming (Laois, Fianna Fail)
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If the NDFA has competence in that area, why was it not used to check the financial robustness of all the main contractors. Mr. Costello stated that there is some other method of doing it.
Seán Fleming (Laois, Fianna Fail)
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The obvious question, from having listened to Deputy O'Connell earlier, concerns whether there is a bond in place if something major happens.
Seán Fleming (Laois, Fianna Fail)
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What is the scale? What is the schedule of payments? Do they get any advance payments for work or is it for-----
Seán Fleming (Laois, Fianna Fail)
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In arrears.
Seán Fleming (Laois, Fianna Fail)
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If something happened to a major contractor with which there is direct involvement – there are a number of them – the cost of another contractor tendering and picking up the pieces would result in an additional cost. What kinds of performance bonds or completion bonds – there are different words for bonds – has the board in place?
Seán Fleming (Laois, Fianna Fail)
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In other words, if something happens the main contractor, the board has €40 million available to cover the costs of the project stopping, retendering and appointing a new contractor. Is that reasonable, from Mr. Costello's experience?
Seán Fleming (Laois, Fianna Fail)
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I understand that.
Seán Fleming (Laois, Fianna Fail)
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Mr. Costello can understand the concern, particularly in view of what occurred with schools building projects. Fortunately, there were no advance payments in those cases. Had there been, we would be in a dreadful position. Does Mr. Costello understand there is heightened public concern regarding these issues?
Seán Fleming (Laois, Fianna Fail)
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Sammon is gone.
Mr. Tom Costello:
Yes. Irrespective of what challenges and issues we have – they are substantial – if one of our big contractors, particularly our main contractor, were to go out of business, we would have a much greater problem than the one we are trying to deal with here because at least we have not spent the money yet and have control of what we are doing.
Seán Fleming (Laois, Fianna Fail)
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There is a lot of talk about the preliminary design. Who produced that?
Seán Fleming (Laois, Fianna Fail)
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Mr. Costello might send us a note on that. The underestimation associated with the preliminary design seems to be a core issue. There is an argument not that costs escalated to the extent they did but that, to begin with, the figures given at an earlier stage were incorrect.
The comment has been made at the Committee of Public Accounts over the decades. There is often a tendency for public sector projects to go into the system with a low cost to get them approved and they eventually come to the point where they cannot be stopped and the costs escalate. We can think of many projects. It is almost the way the system works in a lot of cases. Does Mr. Breslin understand the criticism?
Seán Fleming (Laois, Fianna Fail)
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It looks a bit like that.
Seán Fleming (Laois, Fianna Fail)
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When was the main contract signed? Was it early 2017?
Seán Fleming (Laois, Fianna Fail)
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So they were on site in October 2017. When was the detailed design completed because it was at that stage, you started to see the issues. When was the detailed design?
Seán Fleming (Laois, Fianna Fail)
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Approximately a year.
Seán Fleming (Laois, Fianna Fail)
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To get on site a year early to show activity, we left ourselves wide open to having a contractor on site without a detailed design and now we are in the situation that when we do see the detailed design, the options are very limited. The witnesses can understand that scenario. It looks like that.
Seán Fleming (Laois, Fianna Fail)
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Not the completed. There was no completed-----
Seán Fleming (Laois, Fianna Fail)
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The total project.
Seán Fleming (Laois, Fianna Fail)
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Without the detailed design.
Seán Fleming (Laois, Fianna Fail)
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Did Mr. Costello revisit this? Was it the cheapest tender?
Seán Fleming (Laois, Fianna Fail)
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I think it was €120 million or €130 million below the others. In the public sector, there is another method of deciding which is the most economically advantageous price. It means if things go up like the PC sums or extra quantities come into play, a contractor might give the lowest price to do the basic work but when the extra items are factored in, it might not be the most economically advantageous. Now that the design is completed, if the Department was to rerun the tenders it got, based on the best economically advantageous contract, would the same contractor have got the contract? Does Mr. Costello understand my question?
Seán Fleming (Laois, Fianna Fail)
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Was that done?
Seán Fleming (Laois, Fianna Fail)
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The board has run the figures on that.
Seán Fleming (Laois, Fianna Fail)
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Mr. Costello understands the question.
Seán Fleming (Laois, Fianna Fail)
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It would have won on both counts.
Seán Fleming (Laois, Fianna Fail)
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It is probably no harm to clarify that.
Seán Fleming (Laois, Fianna Fail)
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With regard to the contract, I know there is one and the board went in with the first 10% with the detailed design, which is about 10% of the final price, and the other 90% is subject to detailed design. Who decided that was the best way to go? The board could have taken a bit longer and tied it down before it started. Did the board feel rushed to get on site? Who made the decision to allow the contractor on site before the detailed design in respect of the overwhelming majority of the contract was completed? It was an enormous risk and it proved costly.
Mr. Tom Costello:
It is not that we came up with a bespoke model for doing two-stage tendering. In NEC contracts in the UK and internationally, two-stage tendering contracts are very similar to what we have done here. When we talk about changes here and engaging with the Government contracts committee, it was with regard to changes to the standard procurement rules that were in place at the time for public sector projects. In terms of a model for doing large complex projects internationally, what we are doing here very much aligns with it. At the time, if we had gone with the traditional model of design build, we would not have got anyone to tender for the job. We engaged-----
Seán Fleming (Laois, Fianna Fail)
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Is Mr. Costello saying the State decided to take all the risk? There was no risk-sharing here.
Seán Fleming (Laois, Fianna Fail)
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I am nearly finished. I saw the financial report accounts. The European Investment Bank has provided €490 million to support the construction of a new children's hospital and the two paediatric outpatient and urgent care centres. What way does it work? Is the funding of this coming through borrowing? Who got that €490 million? What rate is it? Is it part of the NTMA's national debt management?
Seán Fleming (Laois, Fianna Fail)
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At what rate?
Seán Fleming (Laois, Fianna Fail)
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So it comes to the NTMA but it goes into the overall pool of the NTMA. Is the Department going back to it now for the other almost €1.5 billion at that rate?
Seán Fleming (Laois, Fianna Fail)
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Does the NTMA have a view on a State agency for Ireland coming out and saying it has a project that will cost a number of million and would like to borrow €490 million through the European Investment Bank at that long-term rate for the major investment? It has been hearing in recent days that it is actually €1.4 billion or €1.7 billion depending on what one looks at. The next time Department representatives go out there will it believe any of the figures?
Seán Fleming (Laois, Fianna Fail)
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Have we damaged our reputation?
Mr. Jim Breslin:
Independently of the project, the State has entered into a commitment to repay it. The second thing is the EIB obviously wants to see its projects come to fruition so the State has come in and said it will finish this out. Those two things are in our favour. I agree with the Chairman that-----
Seán Fleming (Laois, Fianna Fail)
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If a business went to a bank to fund 60% of a project and then came back to the bank two years later and said the project had almost doubled in cost, it would not get a good reception.
Seán Fleming (Laois, Fianna Fail)
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I know but it has State backing. That will not happen. We are nearly finished. There is one other item. The phrase was used earlier before the last break when we were talking about a water sprinkler. It is in the last notes of the accounts. The note refers to events after the year end and it talks about the Bord Pleanála decision. It states, "A life-safety sprinkler system complying with BS EN 12845 shall be installed throughout the building." Is that a Bord Pleanála condition?
Seán Fleming (Laois, Fianna Fail)
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What is a life-safety-----
Seán Fleming (Laois, Fianna Fail)
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So it is not just water.
Seán Fleming (Laois, Fianna Fail)
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Is the BS EN 12845 the standard being operated?
Seán Fleming (Laois, Fianna Fail)
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It is more extensive.
Seán Fleming (Laois, Fianna Fail)
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My final question to Mr. Breslin is about his serious concerns about what has happened. He cannot be happy. Is it too early to ask if he is happy to recommend that the board continues? The children's hospital has to continue.
Seán Fleming (Laois, Fianna Fail)
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The project is sacrosanct. Nobody can say anything other than that.
Seán Fleming (Laois, Fianna Fail)
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Mr. Breslin can understand that is why I am actually more concerned about the PwC report about where we are from today to completion. What has happened is tragic. We cannot change the past but we can, to some extent, control what will happen from now on.
The most important thing is there has to be some absolute assurance in place for the future costs. We have completed our extensive work. We started at the beginning looking for basic information. We thought that was where we were starting. The witnesses have appeared before the Joint Committee on Health. Perhaps it was looking at the escalation of costs but we were looking at the status of the project and the issue of completion. I did not get to follow the detailed conversation. If some of it has been unnecessarily repetitive, I apologise to the witnesses but everyone has a slightly different perspective. I hope it will bring a bit of clarity.
Our main concern at the Committee of Public Accounts is that this major project has gone financially off the rails. The Government is talking about light rail and broadband plans, which are all in the billions. If this is the level of governance in the system for capital projects we will be back here despite being told it was a once-off, unique project that could not happen anywhere else. They could be saying the same about the broadband plan in a few more years. I worry about the management of capital projects. This may not be the only one we need to be worried about.
Seán Fleming (Laois, Fianna Fail)
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Obviously they did not transfer to the Department of Health. That is another concern.
Seán Fleming (Laois, Fianna Fail)
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The witnesses will learn their lesson but none of them will ever be doing a national children's hospital again. It is supposed to be here for a century. The Department of Communications, Climate Action and Environment, the Department of Transport, Tourism and Sport or some other Government Department will be doing other projects with equivalent expenditure. That is why I get concerned. Where is the whole-of-Government learning? It is no good the Department learning if the guy doing the next project with another Department-----
Mr. Jim Breslin:
It is important from the perspective of learning in the Department of Health has that we put in place something that will be there after we are gone. It is really important. I also agree with the point made about it being across Government. Attention is being paid across Government to the delivery of capital projects. We are very much informed by the work the Comptroller and Auditor General has done. This has particular features. Many capital projects within the public sector, as was said earlier, are delivered on time and on budget. We need to learn from all projects where risks were not managed and apply the learning across the public sector.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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It is important lessons are learned but it is unfortunate they were very costly lessons for the taxpayer.
Seán Fleming (Laois, Fianna Fail)
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I appreciate there are members of the public present in the Public Gallery but it is an Oireachtas committee and only members of the Oireachtas may speak.
Seán Fleming (Laois, Fianna Fail)
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We are happy to speak to members of the public separately but we will conclude the meeting now. I thank those present in the Public Gallery for watching, learning and feeding back into the Committee of Public Accounts. If they feel we have something to contribute to the process or if they want to come back through the Committee of Public Accounts with an observation, we would be happy to address it down the road.
I thank all our witnesses from the national paediatric hospital development board, the Department of Health and the HSE and the Comptroller and Auditor General and his staff for their attendance. This is the witnesses' fourth appearance at an Oireachtas committee in a fortnight. I thank them for their forbearance. I am sure they are quite exhausted from coming into the committee rooms but it is such a big project, it was inevitable this was going to happen. That is all I will say.
Our next meeting will be on Thursday, 7 February 2019 when we will deal with the Appropriation Accounts 2017, Vote 1 - President's Establishment and Vote 2 - Department of the Taoiseach. The following session will deal with Vote 3 - Office of the Attorney General, Vote 5 - Office of the Director of Public Prosecutions and Vote 6 - Office of the Chief State Solicitor.