Oireachtas Joint and Select Committees

Thursday, 7 March 2019

Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach

National Children's Hospital: Discussion with Department of Public Expenditure and Reform

2:30 pm

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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No. 9 is the engagement on the role of the Department of Public Expenditure and Reform in the delivery of the national children's hospital. I welcome the Secretary General of the Department, Mr. Watt, and his officials. I invite him to make his opening statement. If he wishes, he can cut it down.

Mr. Robert Watt:

I will give the abridged version. It is all great, Chairman-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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As usual.

Mr. Robert Watt:

-----but I will try to focus on the best bits.

I thank the committee for the invitation to discuss the role of the Department of Public Expenditure and Reform in respect of the national paediatric hospital. The committee will be aware that my Department is not the sponsoring agency or sanctioning authority for this project. In addition, I am not the Accounting Officer for it. I have submitted a detailed document to the committee addressing the matters raised in the letter of invitation. I do not propose to go through that in detail but I will take the opportunity to set out my Department's role in respect of capital projects in general, my Department's role in respect of the national paediatric hospital and the role of the Office of Government Procurement, OGP, in the issues being discussed today.

The Department of Public Expenditure and Reform's responsibility in overseeing the effective implementation of the national development plan, NDP, in respect of capital projects is to set the overall five-year multi-annual capital expenditure ceilings for each ministerial Vote group and settle with each Department how these multi-annual ceilings are reflected and refined in the annual Estimates, which are voted annually by the Dáil. Decisions on how and where these allocations are invested is a matter in the first instance for the relevant Minister and Department, in line with the conditions of the delegated sanction, that is, the formal approval to spend Vote moneys, which they receive via the relevant Vote section in my Department. We monitor actual spend against monthly expenditure profiles based on information submitted by Departments to the Department of Public Expenditure and Reform's relevant Vote section, to keep track of aggregate spend by each Department compared with planned profile spend. The Department does not approve expenditure at the individual project level. Of course, for projects costing more than €100 million, the Government is the sanctioning authority and we brief the Minister for Finance and give our views to the Minister in the context of debates at Government. We maintain the national frameworks within which Departments operate to ensure appropriate accounting for, and value for money in, public expenditure, such as the public financial procedures and the public spending code.

The NDP and Project Ireland 2040 do not change the long established arrangements for oversight, monitoring and management of voted Exchequer resources. Exchequer funding continues to be managed through the normal systems for control of voted funds. Departments and agencies are still responsible for delivering their projects within their budget allocations.

Two features of capital expenditure are monitored each month: aggregate capital and carryover spend in the year to date, and compared to profile and spend in the previous year; and Departments which are significantly ahead of or behind profile in actual spend and the reasons for the variation.

Departments must provide an explanation for variances. Where necessary, my Department liaises with Departments, through Vote sections, to ensure that significant variances in actual spend are addressed and overall expenditure stays on track over the course of the year.

End-of-year monitoring for December reviews the annual position, including comparing the percentage of the Revised Estimates Volume, REV, capital allocation spent compared to the previous ten years. Any capital unspent by each Department is identified, along with the amount of carryover into the following year. This important change, which was introduced a number of years ago, ensures that we do not have the practice of unnecessary spending at year end, that is, Departments trying to spend capital in a hurry towards the end of the year. Instead, Departments are allowed to carry over amounts into the next year, which is a sensible approach from a budget management perspective. The focus is on budgetary aggregates rather than performance on individual projects, which is the responsibility of individual Departments and Accounting Officers.

My Department has responsibility for the public spending code, which is the set of rules, procedures and guidance that ensure value for money in current and capital public expenditure. It sets out the rules and guidance on the oversight and management of spending at each stage of the capital project life cycle, including by setting out the responsibilities that lie with different capital expenditure project roles; setting out appraisal requirements where differing levels of public expenditure will be incurred; and setting out approval requirements at different project stages.

The main roles in the context of responsibility for capital expenditure projects are the sponsoring agency and the sanctioning authority. The Department or agency proposing and implementing a project is the sponsoring agency. It is responsible for appraisal, planning, implementation, management and post-project review. It is responsible for developing a project proposal, which is then submitted to the sanctioning authority for decision on approval at each designated stage, or gate, in the project life cycle.

The Department or body funding the project and responsible for project approval is the sanctioning authority. The sanctioning authority must be satisfied that the sponsoring agency has the appropriate systems to ensure the project is delivered in line with the approval it has been given. The sanctioning authority is responsible for approval in principle at the key designated stages in the project cycle, namely, following appraisal, approval to proceed to tender and approval to accept a tender if the project has significantly changed due to, for example, an increase in costs.

As the committee will be aware, for projects costing more than €100 million, the Government is the sanctioning authority. The day-to-day oversight functions in those instances are the responsibility of the relevant Department funding the project. The Department of Public Expenditure and Reform is not the sanctioning authority for the majority of capital projects. It is only the sanctioning authority for the capital projects funded by its Vote group, which account for less than 3% of overall voted capital expenditure.

To support Departments as they work to achieve value for money in capital infrastructure investment, a suite of key reforms have been introduced to support the efficient implementation of Project Ireland 2040. The Land Development Agency, LDA, has been set up by the Department of Housing, Planning and Local Government to ensure the optimal use of State land. Four new funds have been set up focused on urban and rural development, climate action and disruptive technology to prioritise funding to the best projects. These are managed by the relevant line Departments. The objective was to ensure an element of competitive tendering within the system to try to bring forward the best projects as early as possible for funding.

A construction sector group has been established to ensure ongoing dialogue between the Government and the construction sector. A past criticism was that while the construction sector was delivering projects on behalf of the State, we did not have proper channels of communication. We now have a group that meets to discuss the procurement, capacity and skills issues that impact upon the sector's ability to deliver on behalf of the Government and the taxpayer.

A Project Ireland 2040 board has been put in place and meets regularly to overview the overall implementation of the plan. The investment projects and programmes office, IPPO, has been established in my Department to co-ordinate reporting on Project Ireland and drive reforms, including strengthened business case and project appraisal. A capital projects tracker is published on my Department's website to inform citizens of the variety of projects being rolled out in their areas and to give a greater overview to the construction and infrastructure sectors. The tracker is currently being updated. A capability and capacity review of public sector bodies is being commenced by my Department to ensure that the State's delivery practices are to the highest standard. There has always been a concern that capacity varies across elements of the public sector. We understand and appreciate that and will undertake a review to ensure that all bodies charged with implementing the plan have the necessary expertise and skills.

As part of the ongoing reform of Ireland's capital management systems, the OGP is conducting a review of construction procurement strategy and my Department is reviewing the public spending code. The purpose of these reviews is to strengthen the existing guidance to better align with the realities of project delivery, with a particular focus on improved financial appraisal, cost estimation and management.

In line with the public spending code provisions, the Government is the sanctioning authority for the national paediatric hospital and the day-to-day oversight functions of the sanctioning authority are the responsibility of the Department of Health. My Department's role in that project involves setting out the overall five-year capital envelope ceilings for the health Vote and settling on the annual basis for these multi-annual ceilings to be reflected and refined in the annual Estimates submitted to the Dáil for its approval. Decisions on which projects to invest in is the responsibility of the Minister for Health and his Department in line with the "delegated sanction" for overall capital expenditure. The Department of Public Expenditure and Reform's role also involves monitoring actual spend against monthly profiles based on information submitted to its Vote section so as to keep track of aggregate spend by each Department compared to planned spend. We maintain the national frameworks within which Departments operate to ensure appropriate accounting for, and value for money in, public expenditure, such as the public financial procedures and the public spending code. Responsibility for compliance with the national frameworks is a matter for the relevant Accounting Officer, who is the Secretary General of the Department of Health in respect of the project in question.

The committee will be aware that the OGP is a division of my Department. The OGP leads on the implementation of the Government's procurement reform programme. It provides procurement solutions, advice, guidance and systems for public bodies, promoting good practice and proactive engagement with our sourcing partners in the health, education, defence and local government sectors through the procurement executive. It also has responsibility for developing and setting out the overarching policy framework for public procurement. This framework enables a more strategic, consistent and co-ordinated approach to public procurement across the public sector by setting out the procedures to be followed by public bodies.

Public works procurement is covered by the capital works management framework, CWMF. This consists of a suite of best practice guidance, standard contracts and generic template documents. It is mandatory for use on all projects delivered under the Exchequer-funded element of the public capital programme. The CWMF is maintained by the construction policy unit of the OGP in consultation with the Government contracts committee for construction, GCCC. Mr. David O'Brien, who is present, is the chair of that committee. The OGP has no direct involvement in works procurement, with the exception of the framework for rapid-build social housing. Capital works are procured directly by the many public bodies tasked with delivery of the public capital programme.

Regarding the paediatric hospital, the responsibility for the day-to-day oversight rests with the Department of Health. The role of the GCCC in this instance was to consider a request for a derogation by the National Paediatric Hospital Development Board from the use of the standard forms of contract. A request for a derogation may be used for complex or large projects that have specific requirements that do not naturally fit with the standard "lump sum" contracts. Since 2011, there have been 12 derogations from the lump sum contract. Not all of them has gone through the two-stage process used in respect of the children's hospital, as there are other forms. It is unusual, but not unique, that derogations are sought and given. The derogation acknowledges that the particular circumstances warrant a different approach. It does not approve the approach or strategy and the responsibility for the public procurement process rests with the contracting authority.

Reform is part and parcel and a key element of Project Ireland, but we also have to learn from experiences, both positive and negative. There is no doubt that the experience of delivering capital works in recent years highlights the need to step up the pace of reform still further. The delivery of large, complex, multi-year capital projects in a construction market that is impacted by a shortened economic cycle brings many challenges in terms of tender price volatility, skills shortages, etc. This is why the Minister for Public Expenditure and Reform recently set out a further suite of reforms. We need more certainty on project costs. The Government will no longer commit to major bespoke projects until there is clarity on tendered costs. It will approve major projects to be evaluated and designed, but there will be no final commitment until after the tendering process is complete. It is not possible to know the price of a capital project with a high level of certainty until there is a full design specification, any necessary planning has been achieved and the project has been competitively tendered. In future, the Government will not commit to projects until the design and price are clear. This could delay projects, leading to commentary and angst about delays, but it will ensure greater cost certainty. There is a trade-off between speed of delivery and cost certainty in respect of large, complex projects, in particular.

We need more realistic costs and a better understanding of costs in capital projects. In future, the budgets of large bespoke projects will include a significant premium for risks so that cost estimates are more realistic. As risk is managed through the project cycle, the risk premium should reduce.

For example, a product on a brownfield site with a high degree of complexity which has not been fully designed would have a higher risk premium incorporated into its budget. As the risk is managed, the premium should reduce. The risk premium of a standard project such as a school, primary care centre or road, where we have lots of experience of building similar projects, is commensurately lower than that of a larger once-off bespoke project. The revised capital works management framework will require Departments and their agencies to improve the quality of information on projects as they are implemented. This will improve decisions on projects and allow projects to use digital technologies such as building information modelling to improve the efficiency of their delivery. As part of the reviews of our capital management systems, my Department will conduct a full assessment of how cost estimation for projects could be improved. This will include exploring the potential for external peer review of cost estimates for projects over a certain size.

Moreover, we need to strengthen our capital management systems. As I mentioned, we are reviewing our management system. The Office of Government Procurement is conducting a review of construction strategy and we are reviewing the public spending code. The purpose of these reviews is to examine how capital projects are currently selected, designed and delivered and to strengthen these processes, taking into account lessons from the range of projects that have been completed. The reviews will result in a range of changes. I would like to flag two of these at this stage. One change will be earlier identification of projects. At present, Departments are typically presented with projects which are fully formed or for which the delivery method and project roles and responsibilities have been set. We believe that Departments should engage at an earlier stage to have more input into roles and responsibilities, delivery method, identification of risks and costs. That process should take place earlier in the life cycle, particularly with larger projects. Second, several high-profile projects have highlighted issues with the performance of advisory firms. We propose to link payments to advisory firms to clear performance standards. We will bring in performance standards linked to payments in future contracts with those firms.

I hope I have set out our Department's role in relation to the children's hospital. I hope my briefing is helpful to the committee. I am very happy to engage with any questions members may have.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank Mr. Watt. I ask members to stick to the agreed ten minutes.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I welcome Mr. Watt and his officials. At this stage, has Mr. Watt got to the bottom of what went wrong in the children's hospital project? There is a confirmed overrun of €450 million and there may be a lot more yet to come. People want to know what went wrong. Can Mr. Watt give a clear answer?

Mr. Robert Watt:

What went wrong in this project is pretty clear from the discussions that have taken place in other Oireachtas committees and the public debate about this. We adopted a two-stage process which involved significant preliminary expenditure, spending €200 million on preliminary works. There was a commitment to finalise the design and move to phase two of the project. There was a view at the time of the signing of phase 1 of the contract that there was certainty about the approximate bill of quantities. That did not turn out to be the case. The estimates of how certain we were about the Bill of quantities were not correct. The Bill of quantities increased very significantly compared with what was included in the project. The reasons for the cost increase from the Government decision in spring 2017 to where we are now are set out very clearly. Most of the increase relates to remeasurement of the bill of quantities. There was some design scope creep. Some value engineering savings were not delivered and other matters played a part. The Mazars report and other discussions have very clearly set out the reasons for the increase in prospective costs. We are working through what that means for future procurement. That is what I have been trying to outline today. One lesson is not to commit to projects until we have absolute certainty about costs and to ensure that we have detailed designs which form the basis for any cost.

Mr. Robert Watt:

Is Mr. Watt saying that the biggest problem was the fact that this was a two-stage process? Alternatively, was it the fact that the design brief and the detailed specification were not nailed down before the project was sanctioned?

Mr. Robert Watt:

It is not the case that a two-stage process in itself can lead to this type of difficulty. However, the way in which this two-stage process was implemented and rolled out in effect led to the difficulties. A contract was signed with an outline design and we were led to believe that there was certainty around the approximate bill of quantities. We were told there might be some variation, but we were given a view during the preliminary works and when the first contract was signed that there was reasonable certainty about the Bill of quantities. That did not turn out to be the case. This is critical to the expenditure to which we are committed. We committed to significant expenditure before we knew the final cost. We thought we knew the final cost but that was not true. That should not happen in the future. We should not commit until we have a very detailed design which has been competitively tendered and we know exactly how much it will cost.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Is Mr. Watt saying in essence that the Government signed off on a figure of €983 million in April 2017 and that figure did not have a solid foundation? In other words, it was based on quicksand. It was a very rough estimate because the detailed design was not done.

Mr. Robert Watt:

There was no detailed design. There was an outline design and we were given estimates of the certainty around the bill of quantities which turned out not to be correct. That is a matter into which the PwC report will look in more detail.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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The issue is that the outline design did not transpire to be close to the final design and the bill of quantities was wildly inaccurate.

Mr. Robert Watt:

The bill of quantities based on the design was inaccurate. There was a reasonable level of design but it was not the final design. The nature of the contract meant that further design work was going to be done. However, the estimate of the bill of quantities was fundamentally wrong.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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That was the main issue.

Mr. Robert Watt:

Yes. Mr. O'Brien will confirm that this was the case. It is set out in the Mazars report and other information has been given to other committees by the relevant Accounting Officers.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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What is Mr. Watt's sense of what the final bill will be?

Mr. Robert Watt:

I operate on the basis of what we have been told by the sanctioning authorities. I have nothing further to add to what they said.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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That figure amounts to €1.433 billion for construction. Several issues have been identified that lead to a potential for that to rise further. One of these is construction inflation. The contractor must be compensated for any inflation above 4%, as per the average of three published tender price indices, which may occur after July 2019. Has the Department worked out what that could potentially be? The Office of Public Works, OPW, appeared before the committee a few weeks ago. Its representatives said that in delivering their projects they find that construction inflation is in double digits. They mentioned 11% or 12%. What is the extra cost of every 1% above 4%?

Mr. Robert Watt:

That is speculation on future inflation. We do not know what it will be. The contract is very clear on what it says. The Deputy is right in his interpretation of the contract. That is absolutely certain. I am not sure what percentage of the €900 million or the €1 billion is related to inflation. However, I am sure that the Department of Heath can provide us with the figures on the associated costs.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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On the question of what monetary sum each 1% increase means-----

Mr. Robert Watt:

That rule may not apply to the entire €1.4 billion, but to elements of it.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Another risk the board has identified is the industry-wide sectoral employment order introduced in 2017. Has that not been fully priced into the contract?

Mr. Robert Watt:

Yes, it should be.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I have a reply to a parliamentary question which says that the board has also identified the industry-wide sectoral employment order introduced in 2017 as a potential risk.

Mr. Robert Watt:

We do not allow contractors to recoup increases in wages arising from changes in employment arrangements in any contracts. That does not just apply to this project. It happens across other projects as well. That is a longstanding dispute between ourselves and our friends in the Construction Industry Federation, CIF, over the pricing of contracts.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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When did Mr. Watt and his Department find out about the cost overrun?

Mr. Robert Watt:

We received the document on 19 November last year.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Was that the first that Mr. Watt, as head of the Department of Public Expenditure and Reform, heard of this very significant emerging increase in costs?

Mr. Robert Watt:

I think the Minister has confirmed that he was told at a meeting-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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He said it was on 9 November.

Mr. Robert Watt:

It was a Friday. I was not in attendance at the meeting but the Minister spoke to me about it that weekend or on Monday. I knew there was an issue. We then sought-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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To be clear, is Mr. Watt saying that the Department knew from November?

Mr. Robert Watt:

I think the Minister has confirmed that he was told there was an issue at a meeting on 9 November. The Minister called me about it and I said I would speak with officials the following week. Discussions were taking place. We decided that we needed a detailed report and we got a report on 19 November. Our colleagues sat down on 23 November and we gave a detailed submission to the Minister a few days later setting out the chapter and verse of our exact position.

Why would the Department not have been told earlier? There is a report from 27 August, which went to the Department of Health, confirming at that stage there was an overrun of €191 million and that BAM had served notice of an extra charge of approximately €200 million. It was being disputed but €191 million was confirmed at that point in late August 2018. Why would that information not make its way to the Department of Public Expenditure and Reform?

Mr. Robert Watt:

As I understand it, that was not the end of the matter, as we now know.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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It ended up being higher.

Mr. Robert Watt:

The Department of Health has dealt with this already. It was working through the costings and getting to the bottom of this matter. When it was raised with us in November, and specifically the significant issue that had arisen, we sought a detailed a report and it was presented to us. We met officials from the Department and then we presented a detailed analysis to the Minister, which is on the record. The timeline has been well discussed already.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Yes. What I am not hearing from Mr. Watt is that there was any failing here. The report from late August indicates the current construction budget is estimated to be "€191 million over the value notified to Government in April 2017". That is from the HSE and the Department of Health; it is their estimate of the overrun. There were details of the extra €200 million in cost claims from BAM at that point. Is there nothing wrong with that not being conveyed to the Minister for Public Expenditure and Reform and his Department?

Mr. Robert Watt:

I am not suggesting for one moment there were not failings in the management of this project. I have not said that in my statement at all. Of course, nobody is happy with a situation where-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Mr. Watt has not said there were failings either.

Mr. Robert Watt:

I said there were lessons to be learned from what happened with this and other projects. Clearly, it is not satisfactory that the Government was told in spring 2017 that a project would cost X but it transpired that it would cost significantly more. It is obviously unsatisfactory and nobody is happy with it. All I say to the Deputy is based on the information I received when we were notified of this. Neither I nor anybody on this committee would work on another basis when being told of a serious problem or issue where the Minister was notified and he told us. We asked for a report as that is what we must do. It does not have to be a long report. It can be a page saying the position is "X", and on foot of the report, colleagues in the relevant section of our Department met officials from the Department of Health and we put in a detailed submission to the Minister, Deputy Donohoe.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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People in the real world do not understand that. Cost issues were emerging from late 2017 and concerns were being expressed. It was confirmed in August 2018 that this was €191 million over budget and BAM was seeking an extra €200 million. The Department of Public Expenditure and Reform was not told about that until November, which is extraordinary. Does Mr. Watt agree?

Mr. Robert Watt:

No. I have set out that colleagues in the Department of Health were trying to establish the position and they brought that to the Minister. We sought a detailed report and had a conversation then.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I have a question on the multi-annual capital expenditure ceilings. On 18 December 2018, the Government approved the final contract of €1.433 billion, with Revised Estimates being issued the following day. As far as I can see, the Estimates issued on budget day in October 2018 and again on 19 December did not take account of the increased costs of delivering the national children's hospital. Why was that?

Mr. Robert Watt:

The summary Estimates were prepared on budget night and there are always changes. In the past number of years, those changes tended to be of a technical nature and not of a significant policy nature. In the past, there used to be significant policy changes adding hundreds of millions of euro to the summary REV, the abridged REV and the final revised REV. We now have technical adjustments and this year they consisted of €40 million or €50 million. Mr. Feeney can compare them but it was a small amount in the overall scheme.

We realised then that for the children's hospital to proceed and for the Government to make a decision, it needed to allocate more money for the hospital in the allocation for the Department for 2019. We were anxious to publish the REV but, as the Deputy will be aware, there are many moving parts in this and it is a very detailed document. We were anxious to publish it but the timeframe did not allow us to get the Government decision not only with respect to the children's hospital but also what the implications would be for other Votes. The Minister and the Government took a view that there had to be a reallocation not just for one Vote but for other Votes.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Is it not the case that if the full information had been available on budget day, the Estimates published on that day would have been different? If the Department of Public Expenditure and Reform had the information that the Department of Health and HSE had at that point, the Estimates would have been different.

Mr. Robert Watt:

If we have absolutely full information that to deliver something, whether it is child benefit, tax changes or anything else for that matter, of course in my experience we do not prepare Estimates that are fraudulent. There is one case in the State over the past 40 years where a fraudulent Estimate was delivered to the Dáil but I will not bore the committee with the history of that. It happened a long time ago. I do not recall that happening in the recent past. The Deputy responded to the budget on the day and we and the Department of Finance set out clearly the cost of every single change incorporated into the Estimates. On this occasion, we would have preferred to have ensured the impact of the decision relating to the hospital and allocation for other spending profiles could have been incorporated into the Estimates. We did not allow it because of the timeframe. There was a discussion as to whether the REV should have been delayed but the decision was taken to publish it because the Government had made a final decision that had an impact on each element of the REV.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I welcome the witnesses to the committee. It is important to say the committee wrote to Mr. Watt three times in February asking him to attend. We welcome his attendance but we also asked specifically for Mr. Paul Quinn to come before the committee. Will Mr. Watt inform the committee why he is not here and why he has not accompanied some of the other officials, given that he was the only other person we asked to appear before us?

Mr. Robert Watt:

I thank the Deputy and it is good to see him. I have had the opportunity to appear before many committees in this role for a number of years. It has always been my understanding that such matters are up to the accounting official or accountable official or person; I am not the Accounting Officer here today of course but I am the accountable person and the lead person of the Department. I take responsibility for the Department and actions with the Department. In taking that responsibility I am here with my colleagues trying to answer all the questions put by the committee. If we cannot do so, we can come back to them in a written procedure. It is my decision as to who comes before the committee. The key issue of procurement in this matter related to the derogation from the standard form in the context of the contracts committee. Mr. Feeney is the chairman of the contracts committee and he is here to answer any detailed questions that members have in that respect. I understand Mr. Quinn will appear before an Oireachtas committee in his capacity as a member of the national children's hospital board.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I appreciate that. Does Mr. Watt believe the Oireachtas committee has the right to question a senior official within the Department of Public Expenditure and Reform if it makes such a request?

Mr. Robert Watt:

People have a right to set out what issues they would like to discuss. The letter in question was addressed to me. I have sent detailed notes and a submission to the Chairman responding to each of the questions put. I will answer to any clarifications to those required today. It is up to the official responsible, the accountable person, to lead and be here to represent the Department, as well as explaining our role in the matter. The official referred to by the Deputy does not have any function in respect of this matter as an officer of this Department. He has a role with respect to his membership of the board and not as an officer of the Department. I know that sort of Jesuitical distinction is not necessarily uppermost in people's minds in a debate but the reality is Mr. Quinn does not have a role with respect to his discharging of functions in the Department with this matter. Mr. Feeney and other colleagues have such role, as I do. It was my judgment call and I am here. I spent four hours before the Committee of Public Accounts this morning answering questions. I have sent a detailed note to the committee and set out issues in a presentation. I am here to answer questions.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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We appreciate that Mr. Watt is here but it was our collective judgment call as elected members of an Oireachtas committee dealing with finance that Mr. Paul Quinn, the chief procurement officer in the Department of Public Expenditure and Reform, the line Department of this committee, should appear before us. That is why on three separate occasions we asked that he present before us. Mr. Watt has decided that our judgment is not correct and that Mr. Paul Quinn should not attend. Is that it?

Mr. Robert Watt:

It is not appropriate for me to get into an argument with the Deputy about this. It is not my role.

There are many issues in regard to Dáil procedures and operations over the last eight weeks that I am very unhappy with and, frankly, very disappointed with but I am not here to complain about that. I have received over 30 pieces of correspondence from four committees. I have been criticised unfairly, on many occasions by many Deputies, for non-attendance at committees, which is untrue. My colleague, Mr. Paul Quinn, who is an excellent official who discharges his functions diligently on behalf of the State, has been unfairly criticised. I am not going to make a big fuss about it or get into an argument about it. I am here to talk about the issues for which I am responsible. I am happy to answer questions that are relevant to the discharge of my functions as best as I can. If there are issues that I cannot deal with today, in the normal course of events, I will correspond with the Chairman, if that is what members wish.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Given the current cost of the national children's hospital, does Mr. Watt believe it is value for money?

Mr. Robert Watt:

There are two aspects to value for money. There is the cost element and the value we put on the new hospital. We currently have three children's hospitals. Nobody is satisfied with the condition of these facilities. I was in Temple Street hospital a few weeks ago. Members are aware from their own personal experiences or the experiences of their constituents that the current facilities we have for paediatric care in this country are not adequate and that is why everybody supports the construction of the new children's hospital. There is a value on the new facility but nobody in this room, in my Department or anywhere else knows what that value is. The cost of providing it is higher than we thought would be the case or would have hoped and a judgment call had to be made. The Government made the judgment call in December to proceed with the new children's hospital even though the costs, as outlined to Deputy Michael McGrath, are greater than was anticipated. The Government decided that even with that cost, the benefit and importance of this facility are such that it would proceed with it on behalf of the taxpayer.

In regard to what represents value for money, nobody can put a value on facilities. On the question of whether I am convinced that everybody here will be happy to have this new facility, I think they will be.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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We all want a national children's hospital. We all want the best facilities, particularly for our children. I have had reasons to attend Temple Street and Crumlin hospitals and I am aware of the condition of those facilities. I do not accept that it is not possible to put a value on the new facility. It is one of the central role's of the Department of Public Expenditure and Reform to do that. Mr. Watt is the Secretary General of that Department. Value for money is a key role of his Department. Mr. Watt said that nobody can put a value on the facility. It is core element of the Department of Public Expenditure and Reform.

Mr. Robert Watt:

I think that when this hospital is built, despite how expensive it is to build, people will conclude over time that it was money well spent and it has provided a world class facility for our citizens.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The board adopted the fast-track two-stage tender procurement model. Did the Department of Public Expenditure and Reform have a role in authorising or signing off on that model?

Mr. Robert Watt:

A derogation was sought at the Government contracts committee for construction, GCCC, of which Mr. David O'Brien is the chairman. In the normal course of events, projects are tendered on a lump sum basis, in respect of which a standard contract form is used. In respect of the national children's hospital the board appeared before the contracts committee over a number of years and debated the merits and feasibility of the existing approach versus the other approaches. Following those debates, a derogation was sought from the lump sum contract and the board then proceeded on the two-stage basis. A derogation was sought. It is not for the contracts to approve that derogation or for my Department to approve it. The board sought a derogation and it was awarded. It is the responsibility of the sanctioning authority to satisfy itself that the procurement approach and strategy is the appropriate one to adopt.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Does that committee have to consider it if an approach is the appropriate type of approach before it approves such derogations?

Mr. Robert Watt:

It does not approve it, but it would seek a derogation from the existing form.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It approved the derogation.

Mr. Robert Watt:

Yes.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The committee would have to be satisfied that a particular approach is the best course of action.

Mr. Robert Watt:

Yes.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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This falls within the remit of the Department of Public Expenditure and Reform.

Mr. Robert Watt:

This falls within the remit of the Government contracts committee for construction.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Does that come under the remit of the Department of Public Expenditure and Reform?

Mr. Robert Watt:

It is a body within the Department, chaired, as I said, by Mr. David O'Brien. It is a consultative forum of the main sanctioning authorities. The procuring officers of the sanctioning authorities across the public service meet and discuss how contracts are evolving in relationship with the sector. It is a forum for debates of this nature. If a sanctioning authority wants a derogation from the standard form it has to get it from the Government contracts committee. As I mentioned, there have been 12 derogations since 2011, not all of which have been through a two-stage process. In some cases, other contract forms have been used.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Is it only public servants on the forum?

Mr. Robert Watt:

Yes.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Would Mr. Watt accept that the approval of that derogation is one of the reasons we are seeing such massive overruns in the national children's hospital?

Mr. Robert Watt:

There are two issues here. It is not entirely clear what the counterfactual would have been if we had adopted a lump sum contract. It is not clear that the hospital would have been cheaper. It might have taken us longer to get to the price and it would not have been described as an overrun versus the position set out at phase 1. The counterfactual is not clear. That is an important issue. Nobody can say, and we are not convinced, that a different approach would have necessarily yielded a different result. A different approach would have ensured the project did not evolve as it has done, with elements of the final cost being characterised as an overrun. In terms of the implementation of the two-stage process, on this occasion, in my view, there were mistakes with it. There are two issues. First, to commit to significant spending on preliminary works and say that the Government could at a future date opt out when it gets to the maximum price is not credible.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Is that not what the two-stage project is about?

Mr. Robert Watt:

In this instance it was but it does not have to be.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Is it not what the body under the remit of the Department sanctioned?

Mr. Robert Watt:

The two elements are the significant spending incurred on the preliminary works and the guarantees given in regard to the approximately bill of quantities. The number used in this regard was 95% but that does not turn out to be the case. The fact that bill of quantities was wrong meant that when the final tender price came out it was significantly above what the Government was told the price would be. The fact we had committed significant spending on preliminary works made it very difficult at that stage for the Government to call a halt. The cost of re-tendering and so on would have perhaps led to a situation where the alternatives would have been more expensive than continuing with the two-stage process. I do not think per sethe two-stage process in all cases is the wrong approach but there are lessons to be learned, as I tried to set out in my opening remarks, in terms of committing to significant spend on preliminary works while saying that the Government has an option to opt out. I am not sure that is credible, to be honest. It is only credible if, of course, the guaranteed final price is in line with the price that was set but the bill of quantities was obviously mis-specified.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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When the Government contracts committee for construction met it was aware that that was the model that was being followed, that there would have been significant public moneys spent on the preliminary works and that at a later stage, there would be a second piece of work, which, in theory, the Government could opt out of but, in practice, the developer had the Government over a barrel.

Mr. Robert Watt:

Its understanding was that the bill of quantities was not an approximate bill of quantities, that it was 95% specified. There would have been a risk of more spending but not of the scale that we have seen. It committed to preliminary works on the basis of a final tender price - the guaranteed maximum price - which was close to the price set out in the memo in spring 2017.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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What due diligence does the committee undertake in terms of the bill of quantities because the bill of quantities was not just a bit out?

Mr. Robert Watt:

That is the responsibility of the sponsoring agency and the sanctioning authority for the of the national children's hospital. They gave assurances to the contracts committee in regard to the bill of quantities. That was part of the input which led them to seek a derogation on this occasion.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I would like to return to some of the questions asked earlier. The Secretary General at the Department of Health and the Minister for Health were made aware in late August that there was a €191 million overrun and a potential additional €200 overrun. As Secretary General of the Department of Public Expenditure and Reform, does Mr. Watt believe that that information should have been relayed to him at that point given the work the Department would be undertaking?

Mr. Robert Watt:

I am not involved in the National Paediatric Hospital Development Board and I am not the Secretary General responsible for this project, as the Deputy will know, but my understanding is that number was a number that was put on the table by BAM and that number then fell from €191 million to €50 million.

The August information, if it is right to describe that data point as information, did not turn out to be the case. There were other factors-----

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Mr. Watt might be getting the numbers mixed up. The figure of €191 million had crystallised at that point in time.

Mr. Robert Watt:

It was the other €200 million-----

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It was another €200 million. I will outline the point in case Mr. Watt did not understand. At the time the Minister for Health and the Secretary General of the Department were aware that there was a crystallisation of the figure of €191 million and potentially something above it, but that information was not relayed to the Department of Public Expenditure and Reform.

Mr. Robert Watt:

On the point about the potential for the figure to increase, that issue was in dispute. That dispute was settled and the number came down quite dramatically.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The other number did not. The figure of €191 million stayed the same. Should that information have been relayed to the Department?

Mr. Robert Watt:

This issue has been discussed and the Ministers have given their views here. I have nothing further to add to what they said.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The problem is that whatever has happened with the national children's hospital has happened. If possible, we must find a way to drive down costs, while delivering the project in a timely manner. Mr. Watt is the Secretary General of the Department of Public Expenditure and Reform. I want to have confidence that he believes that in the course of developing a budget for 2019, if a Secretary General knows that there is a potential overspend of €191 million on another project, he should be aware of it.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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The Deputy should be mindful of the time.

Mr. Robert Watt:

That is a matter for the Department of Health. When it got to the bottom of the matter and communicated it to us is a matter for it.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Does Mr. Watt think it was appropriate for that Department not to tell him at that point in time of the-----

Mr. Robert Watt:

That matter has been discussed. There is nothing I can say that will-----

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Actually, this is the first time Mr. Watt has been before the committee to discuss this issue-----

Mr. Robert Watt:

This committee.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I am not on the other committee and do not know if it asked him this question.

Mr. Robert Watt:

Yes, it did.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Did Mr. Watt give it an answer?

Mr. Robert Watt:

I gave an answer, the same one I have given to the Deputy.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It appears from the opening statement that this has nothing to do with the Department of Public Expenditure and Reform, even though-----

Mr. Robert Watt:

I did not say that.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I am just laying out the case. The sanctioning body was the Government and the appropriate Department was the Department of Health. We see from the minutes that have been released that the Department of Health was seeking to meet officials of the Department of Public Expenditure and Reform for a number of weeks to discuss the issue, but that meeting did not take place. It took place at a later stage after the Minister had been alerted to the overruns. Correspondence from Barry O'Brien to Tracey Conroy in the Department of Health basically states the Department received nothing from the Department of Health that considered the total cost and where the overall cost of the project stood. It asks questions about other non-construction costs amounting to €300 million, whether that figure will increase and if it is now a project that will cost over €2 billion, which would make it the most expensive hospital in the world. It appears from the content and tone of the email that the Department of Public Expenditure and Reform was put out by the fact that it had not been informed of this increase. It acknowledges that there were some discussions on it at budget time, but there was no detail. Is it the case that if a Department is developing a major project, whether it be a rail line, road or sewage treatment plant, and aware of a major overrun, that it is okay not to bring that information to the attention of the Department of Public Expenditure and Reform?

Mr. Robert Watt:

It did bring it to our attention.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It brought it to the Department's attention three months later, after the budget had been passed.

Mr. Robert Watt:

It brought it to our attention a few weeks after the budget had been passed, after a period in which it was trying to establish the facts.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Mr. Watt thinks it is completely appropriate. Let me be plain. If the Secretary General of the Department of Public Expenditure and Reform is telling this committee that it is okay for a Department to be aware of an overrun of hundreds of millions of euro-----

Mr. Robert Watt:

A prospective overrun.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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No, an overrun of €191 million.

Mr. Robert Watt:

It is a prospective overrun on a project, not an actual overrun.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It is an overrun that was crystallised and would materialise if the project continued and the Government approved it.

Mr. Robert Watt:

If the Government approved it subsequently.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It did not inform the Department of Public Expenditure and Reform which was preparing Estimates to be brought before the Houses of the Oireachtas.

Mr. Robert Watt:

The Department was getting to the bottom of the cost issue. That is clear from the correspondence, minutes and so forth that the Deputy has seen and which have been quoted. When the Department was in a position to talk to us, it was brought to the attention of the Minister and we sought a detailed report. Four days after that report was presented we sat down with the Department's officials and a few days later the Minister received a very detailed report from our team with our assessment of the options we needed to pursue. That is the timeline.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I welcome Mr. Watt and his staff. On the budgetary process, is it correct that capital expenditure proposals are included as tables and information in the budget documentation?

Mr. Robert Watt:

Capital allocations for projects that have been approved, are proceeding and on which Departments will spend money such as school and road projects and so forth are set out on budget day.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Does Mr. Watt accept that people have confidence that this is the likely spending profile of Ireland owing to it being included in the budget documentation? It also gives an indication to the markets of the likely borrowing profile. In turn, it affects how cheaply or expensively the country can borrow, depending on whether the estimates appear to be reasonable or unreasonable. Am I correct in saying that?

Mr. Robert Watt:

Yes. The capital profiles are set out and a key component of the budget. This year there will be a capital spend of €7.5 billion to €8 billion by the Exchequer. It is included within the overall expenditure of the State of almost €70 billion and general government expenditure of almost €80 billion. Clearly, i is a key element of the accounts of the State for a given year and has an impact on the underlying surplus-deficit balance position. Of course, it has implications for how people look at the credit worthiness of the State.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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When parliamentarians, including the members of this committee, business people and so forth receive the budget documentation, they do not expect it to be exactly correct because it is a forecast. People understand that, but the scale of the change in the case of the national children's hospital to what had previously been predicted just a short period after the budget was announced has genuinely stunned and worried them. Does Mr. Watt agree that it has put a big question mark over the competence of the Government and the public service to produce reliable information on cost profiles?

Mr. Robert Watt:

Obviously, there are issues for us about how large-scale projects are managed and how we determine the cost of projects. When we say something is going to cost X, what is the basis for it? My view which I have set out in the note is that a cost indicated for something only has meaning when the specifications for the project are set out in full detail and the project has been tendered for competitively in the marketplace. Many estimates before it are general in nature, particularly when it comes to once-off projects.

When it comes to the overall management of budgets, I am happy to defend the management of the public finances in the past few years. When I was appointed to this role, the fiscal deficit was 15%, the banking system was bust, our international reputation was in tatters and we could not raise money on the financial markets. The rate of unemployment is now 5%; we have a balanced budget; the yields on ten-year money are 100 basis points and so forth. I am happy, therefore, to defend the role of the Department and my colleagues in the Department of Finance in managing the public finances.

To respond on this issue, the figure is €100 million for 2019. In the context of this project, clearly the overruns are very significant, at 40%, 50% and 60%, depending on which element of the budget one is discussing. The figure of €100 million has to be seen in the context of a capital budget for 2019 that is being increased by €1.5 billion and an overall capital budget of €8 billion.

If I use words like "not material", people out there will spin it as if I said that it is not significant. It is significant but in the overall scheme of things, in the context of the size of the Irish State, it is a manageable amount of money.

I would make a general point about the capital plan of which Deputies are aware, although it may not have received enough publicity. The capital plan, by its nature, is an iterative plan. There is a figure of €116 billion set out there and a whole variety of projects will be funded within that. How these projects are funded and the timeframe for projects, as the Deputy will know, changes. One school will be ready before another one, there will be delays with one school so another school is prioritised and so on. The same applies with primary care centres, roads projects and so on. It is an iterative process involving many different actors and it will evolve over time. Hopefully, if the economy continues to grow and prosper, we will have the resources to deliver all of the commitments set out in the plan.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Would Mr. Watt accept that his statement would be shocking to a lot of people? His assertion that this is a manageable amount and, therefore, it does not matter too much-----

Mr. Robert Watt:

I did not say that-----

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Can I just ask the question?

Mr. Robert Watt:

I want to clarify that I did not say that.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Hold on. Can I ask a question please?

Mr. Robert Watt:

I did not say that.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Does the Department have a weekly management meeting? Does Mr. Watt and his civil servants sit down with the Minister and Ministers of State and go through all of the pertinent financial and other issues related to the Department? This is such a significant project in the Irish context and is so important to the country. It is also such an expensive project, even at the old price, especially when one considers that the site was donated and we did not even have to buy the land. In that context, how frequently did the Department discuss the project, in general terms, at its management meetings? How frequently did the Department discuss the overall capital plan in the run-up to the budget? Was there a discussion of the quality of that plan and the figures contained therein, particularly for very large projects like the children's hospital?

Mr. Robert Watt:

We meet once a week as a management board for about an hour. At those meetings each member of the management team sets out the issues for the week and we run through legislation, what is happening in the Dáil and so forth. We have a management forum every third or fourth week where we discuss things in more detail, including policy issues that colleagues want to bring to the table. The Minister sits in on the meetings. Once every four or five weeks, he will come along, discuss his priorities and check with colleagues about how we are getting on with those.

In the run-up to the publication of Project Ireland 2040, discussions on the capital plan with the Minister, the Taoiseach and the Government and colleagues in other Departments would have been on the agenda pretty much every week, in the formulation of the plan because it was a key part of what we were doing. In the run-up to the budget, every Monday morning we would have been discussing progress on the budget in respect of current spending and overall capital spending. The main focus tends to be on the larger budgets so most of the conversation would be related to social welfare packages and current spending on health, including medical cards and so on. There would also be issues relating to education and justice but most of the time, as the Deputy knows from her own time in government, focus is on the larger spending Departments. In the run-up to the last budget there was not a significant discussion on capital spending because it is, in effect, locked down in the main because we have a multi-annual approach to such spending. We have five-year plans and we have a ten-year plan-----

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Yes, but in this case it was not locked down because it was wrong.

Mr. Robert Watt:

It was locked down in relation to the 2019 allocation at the time that we were setting out the budget. Of course, there were discussions about capital allocations but the adjustment to the capital envelope for 2019 compared with what would have been in previous documentation in respect of the allocation for the year was not significant. There was more money put in for housing, over €100 million, because there were various issues relating to serviced sites and so on that were included as part of the negotiations. There were other issues too but I do not think that the capital allocation was very different from what we expected it to be some months before the budget discussions took place.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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Mr. Watt is saying that it was discussed every week.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Can I ask-----

Mr. Robert Watt:

Capital was discussed but when it comes to discussions on the budget, particularly in the September and October period, given that most capital decisions are bedded down and taken, most of the conversation relates to other matters.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Given the scale of this particular project, there would appear to be relatively few contractors in Ireland who could bid for it. It seems to me that the contractors are able to call the shots on variations, although Mr. Watt has said that they will have to prove their case. Is there an effective cartel in operation among a chosen group of contractors? The Taoiseach was in Lisbon last week and I did some research on hospital projects in Portugal. A hospital is being built there at the moment comprising 875 rooms, so it is much bigger than our children's hospital. It is expected to come in at €330 million or, to round it off, less than €400 million. Did Mr. Watt and his Department or the Department of Health have a look at comparative costings of hospitals in different parts of the world? When this project was originally mooted, I did that. I visited children's hospitals when I went to the USA for St. Patrick's Day. The Irish national children's hospital is stunningly expensive and Mr. Watt has not explained why that is so. He made reference to the fact that it is being built on a brownfield site. Let us say that a brownfield site adds 10% or 15% to the cost. I am prepared to accept that but I ask Mr. Watt to explain to us, on behalf of taxpayers, how we got it so incredibly wrong. Is there a cartel in operation? It seems that contractors are pitching at particular prices but those prices are only a first guesstimate and they get inflated afterwards. How does that happen in Ireland when similar projects in other countries are coming in at a much lower cost? I know that wage costs in other countries may not be exactly the same but even in places like California, hospital projects are cheaper than they are here.

Mr. Watt is aware of the section 38 and 39 institutions that rely on the State for capital funding. I am talking specifically about hospice developments around the country. A voluntary project to build a hospice for one or even two counties will involve a huge amount of voluntary fundraising. Mr. Watt will know about the project in Blanchardstown which has been ongoing for years. At the end, the State comes in and tops up the funding to finish off the development and allow the hospice to open. Mr. Watt just said that €100 million is manageable but what is going to happen this year to the section 38 and 39 organisations that are due to receive capital funding? A sum of €100 million is a lot in the context of their projects. Can Mr. Watt say that no hospice in the country will be delayed for funding reasons? Where will the €100 million come from? We have heard from the Taoiseach and a range of Ministers that it will be €3 million off this and €3 million off that in a range of Departments. The Department of Health is offering up some of the budgetary reductions so what is going to happen to the section 38 and 39 allocations?

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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The Deputy's time is up.

Mr. Robert Watt:

I thank the Deputy. I know more about Blanchardstown than I want to know, to be honest. I hear a lot of talk about Blanchardstown and other matters in Dublin West, as it turns out, funnily enough. I am familiar with the issues relating to the section 38 and 39 organisations. There is a broader question there relating to their status and how their capital is funded because they have to do more fundraising and they do not benefit from Exchequer funding for projects in the same way as other bodies in the health system.

They do not benefit from the same Exchequer funding for projects as other bodies classified differently within the health system, but that is a wider policy question which I am not mandated to discuss.

On the small number of contractors, there is an issue with the depth of contractors in Ireland, particularly for larger projects. It is definitely the case and we have debated and discussed whether we can get more international players involved and more people considering these projects. Part of what we have tried to do with Project Ireland 2040 is set out a pipeline of projects and try to attract home some of the consulting and construction teams which left for the Middle East, Australia or Canada during the crash, which is something we have debated. Nevertheless, I agree with the Deputy that there is an issue, although I would not describe it as a cartel, given that such behaviour would be a legal offence. I am not covered by privilege at the committee and, therefore, I will not comment in that regard. It is certainly the case that a small number of contractors bid for these projects, which would have implications for the competitive nature of any competition. It is not fair in any way to suggest I am belittling the additional costs associated with this project. I am not and we have been very serious about it since we realised there was an issue. The sum of €100 million, however, needs to be considered in the overall context. We should not give the impression to taxpayers and citizens that no projects are delivered on time or on budget.

In fact, as members will know better than I, the vast majority of projects such as primary schools, secondary schools, primary care centres, motorways and other roads are delivered through lump sum tender contracts where the price comes below, at or slightly above where we tendered. It is not fair, therefore, to characterise the case of the national children's hospital as a fair representation of the generality of product delivery in the State. Rather, it is fair to learn lessons from the project, particularly the circumstances of dealing with large bespoke projects, and the merits of different options. Our focus is on trying to ensure that the public spending code is reinforced, that procurement policy is reinforced and that we do all we can to ensure that we get value for money for future projects. While it is not meant as an excuse, there has been some debate or chat that Dermot Bannon's kitchen extension would not be dealt with in this way but that comparison is utterly facile and is of no relevance to the discussion whatsoever.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Who made that comparison?

Mr. Robert Watt:

I am not saying the Deputy did. Other people made the comparison.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Do they work in Mr. Watt's Department? If so, they must not know much about building.

Mr. Robert Watt:

There is an ongoing debate. The hospital is three times larger than Tallaght Hospital. To give a sense of the scale, the preliminary works involve moving the Drimnagh sewer, which is a significant part of our sewerage system. Much of what we are doing we are doing well and has been delivered on time and on budget, although we need to learn lessons from what happened.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I thank Mr. Watt for appearing before the committee and presenting his opening statement. I have a copy of a letter sent from Mr. Watt's Department to the Department of Health, dated 20 November, in which it is stated that, as the Department of Health would be aware, the Department of Public Expenditure and Reform had voiced serious concerns about the governance of the children's hospital project and was assured that the arrangements in place were sufficiently robust. What serious concerns did Mr. Watt have, and if he had serious concerns, what measures did he put in place to ensure that those concerns could be allayed?

Mr. Robert Watt:

Between 2012 and spring 2017, we had extensive discussions with the Department of Health and the HSE about the project, its optionality, the costs involved and, critically, the governance structure. The emails and correspondence, or at least the timeline for those discussions, have been set out in the public domain. We raised issues with the governance because of its complexity and we wanted to ensure that whoever was given responsibility for managing the project, that is, the sponsoring agency, had the necessary expertise. That led to the decision to establish the children's board, which comprised people with significant experience, mostly in the private sector where people had experience dealing with large projects. Tom Costello, for example, who chaired the board, had worked for Sisk for 30 years in Ireland and elsewhere, while other people on the board had a whole variety of relevant qualifications. We had discussions about governance because we were concerned about it and wanted to ensure there was clarity as to which body was the sponsoring entity and which body was the sanctioning authority that would manage the oversight on a daily basis on behalf of the Government. They were our concerns and we raised them consistently.

I am not allowed to discuss Government memos because they are covered by other procedures but, as the Minister for Health and the Secretary General at the Department of Health have set out, the Government memo of 2017 outlined the governance structure. At that point, we were satisfied that the governance structure could deliver the project. Long before my time, the Department had consistently raised issues with the cost of the project, which has been running for 20 or 30 years. In 2012, there was the issue with the Mater hospital site and there was the decision where the planning permission was refused. We went back to the drawing board and the then Minister for Health, Senator Reilly, came forward with a review of the different options. It was decided that the hospital would be co-located with St. James's Hospital and then it was off and running. We had significant problems with the cost of the project and how we could manage it given its scale. We made those concerns known to the Department and they were consistently set out in observations on memos during that period.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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The Department still lacked a mechanism whereby overruns would be identified and reported to Mr. Watt, as Secretary General of the Department of Public Expenditure and Reform.

Mr. Robert Watt:

The procedure for spending is to relate the actual spending to the profile, following which the senior levels of the Department would be alerted to any variance. The hospital was a different case because it related to prospective spending as opposed to actual spending. In reply to earlier questions, I set out the two-stage process, how it was managed and how we arrived at this situation.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Was Mr. Watt satisfied that the two-stage process was the right choice, and did he stand over the decision?

Mr. Robert Watt:

As I stated earlier, the GCCC had a debate with the National Paediatric Hospital Development Board over a long period of 18 months or two years where they discussed the merits of the approach. A derogation to move away from the lump sum contract was sought and granted. If the alternative to the two-stage process was a lump sum contract, it is not clear, although I accept that no members would claim otherwise, that we would have delivered the hospital faster or more cheaply in a better way that would have satisfied the concerns that people have. I do not think it would have happened that we would be in a position to set out the detailed design required to have a competitive competition for a lump sum contract. I do not think we would have attracted contractors who would have taken on board that risk, given the inevitable uncertainty of the two-stage process.

The issue is the way the two-stage process was managed. While I do not think the decision to have a two-stage process was the wrong one, it is clear that there are issues with how it was managed and lessons will be learned for the future. Other projects that are significant for the State are being developed where there will be considerable challenges such as finalising a design and deciding when the design will be put to market.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Has the two-stage process been used for any other projects in the State?

Mr. Robert Watt:

Yes, the Dunkettle interchange is also subject to a two-stage process.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Has that been successfully delivered?

Mr. Robert Watt:

I do not have the details but Mr. O'Brien might comment.

Mr. David O'Brien:

The Dunkettle interchange is a two-stage contract with early contractor involvement but it is slightly different in that the works being undertaken are purely investigative and the contractor is engaged solely for its management and construction expertise to feed into the design and de-risking of the project. It is not exactly the same as the approach to the children's hospital. It is working to a guaranteed maximum price for the project but works are not currently being undertaken.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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When the Department uses a process and methodology such as that which results in such a shocking overrun, surely it must suggest that it is the wrong model to use.

Mr. Robert Watt:

Nobody is going to say the project has worked out according to plan.

That is clearly not the case; this has not worked out. The Government was given a view as to how much it would cost in spring 2017 and it is now €400 million more than the Government was told. Clearly that is not a tenable position.

I am not being in any way evasive here because we are having a debate and I do not know the answer to this. I do not think any of us should believe an alternative lump-sum contract or some version of that would necessarily have built this project cheaper. Maybe it would have done, but I am not-----

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Does Mr. Watt think it might have been dearer then?

Mr. Robert Watt:

I just do not know.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Does he think it might have been more expensive than the most expensive hospital in the world?

Mr. Robert Watt:

I think it is the second most expensive hospital in the world.

Mr. Robert Watt:

That is what I am told anyway. We cannot say with certainty that the counterfactual is necessarily better.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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What is the most expensive hospital in the world?

Mr. Robert Watt:

Stockholm. I thank Mr. O'Brien.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Were we using that as a measure of its success - that there is one more expensive?

Mr. Robert Watt:

Of course, we are not. However, I think-----

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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How many beds does the one in Stockholm have? Is it the same number of beds?

Mr. Robert Watt:

I do not know.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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The Secretary General cannot then. If it has twice as many beds, yes. He cannot-----

Mr. Robert Watt:

The point I am making is that I do not think we can say that the two-stage process,per se, has led to this. The implementation of this particular two-stage process, of course, has led to these difficulties. As far as I can see there are two problems which I mentioned to Deputy Pearse Doherty: committing to significant preliminary works which, in effect, tie the Government into completing a project on that site without us knowing the final tender; and that the approximate bill of quantities was not in any way consistent ultimately with what we were told it would be in spring 2017.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Who is responsible for that? Mr. Watt will say the contractor again. There are a couple of issues for people looking at this. Obviously there is the governance about which he had serious concerns, not just general governance observations or whatever but serious concerns. A number of people in the Department of Public Expenditure and Reform are dedicated solely to monitoring the health budget and what is spent on health. However, nobody in the Department of Public Expenditure and Reform knew what was happening even going back to 20 October 2017 where the €40 million overrun was identified. In that instance €40 million is a lot of money. How many people in the Department of Public Expenditure and Reform monitor health spending?

Mr. Robert Watt:

We have many; not enough it would seem given our record. There was a significant debate which I have set out. I am in danger of repeating myself here. Significant issues were raised repeatedly with the Department of Health in the run-up to the decision in 2017. It was our understanding that we had a final tender price which was going to be close to the final bill here and that turned out not to be the case. I have set out why I think that is. Mr. O'Brien, who is the expert, will confirm this. We had to learn lessons from it and it has implications for how we manage projects. I have not spent the past eight weeks or longer since this issue came up among the other challenges we face finding out who did what, when and how. I have been working with the Minister, as I was asked to do, to set out what this means for the delivery of this facility, and what it means for the capital allocations for next year and this year, and then-----

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Is Mr. Watt satisfied now that-----

Mr. Robert Watt:

----- see what it means for the public spending code and procurement. I have not come into this committee with my hands down by my side saying, "There's nothing to see here. There are no lessons." I have not said that. I have set out in a long contribution the issues I think this raises for public policy. They are not in any way trivial issues. If we do things differently in the future, it means it will take us longer to do projects because we will need to spend an awful lot more time and money in getting detailed designs and we will not go through a process where we have this two-stage approach. It raises fundamental issues for us in terms of how we manage projects which people here will be grappling with in the future no doubt.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Surely a thing like having the design right so that it can match up to the bill of quantities it is just so basic. Mr. Watt stated: "The Government will no longer commit to major bespoke projects until there is clarity on tendered costs." How can one tender for something when one does not know the design?

Mr. Robert Watt:

Clearly with a lump-sum contract a very detailed design is set out and contractors will price it based on the detailed design. What can happen is that there is an adversarial relationship and there is a lot of discussion about price variation where the contractor will say, "Oh, you said you wanted windows like that or that number of windows. In actual fact we needed X number of windows. Therefore we're going to argue that it wasn't us; it was the design." There are endless discussions about the extent to which even the detailed design matches up with the ultimate requirements of the client, what is being delivered by the contractor.

What we are saying clearly is it does not relate to building a school or a primary care centre because they are projects we repeat time and time again and we know what we are doing. When it comes to projects that are unique, the learning from us here - we are here to advise the Minister and the Government - is that we need to spend much more time on the detailed design before we can commit that design to tender. That will increase cost certainty, we believe, but it will come at a cost because it will take an awful lot more time and money to develop the detailed design particularly for once-off projects.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Then at least one knows what one is doing. It is impossible for people to understand why a design could not have been done for a project of this size. We meet departmental officials all the time now. There is a cost to this. There is a cost in cutbacks and things that people do not have now because of the mistakes that were made. Having listened to Mr. Watt, I am not convinced that the communication mechanisms are in place within the Department of Public Expenditure and Reform and the other Departments to ensure that overruns and governance issues are not reported to the Department which will have a major impact on its budget planning. Based on what I have heard today, I am not convinced that there has been sufficient learning. I am concerned that there is a normalising of what happened.

Mr. Robert Watt:

I will not get into an argument here because after Manchester United won last night, I am in good form. I am not normalising this at all. I do not know why the Senator and her colleagues put words in our mouth. I am not normalising it.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I was just giving my perspective.

Mr. Robert Watt:

I am trying to contextualise the reality of what we are dealing with. I am not normalising it. I am not suggesting this is normal; it is not normal. We hope this is not repeated in other projects. I am trying to give context for the challenge that the Department of Health and the relevant authorities-----

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I ask the Secretary General to give a "Yes" or "No" answer to this. Should he have been notified earlier?

Mr. Robert Watt:

I have answered that question before and I have nothing further to add.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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He should have been.

Mr. Robert Watt:

I have answered the question before.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I have been asked to take a break. We will break for ten minutes.

Sitting suspended at 4.09 p.m. and resumed at 4.18 p.m.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will resume in public session.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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There are two questions here. The first concerns the overrun and its extent, and the distinction to be made there. The second relates to the delay in the Government finding out about it, compared with the position of the board. In that respect, the position of Paul Quinn, the chief procurement officer, is important given that he was on the development board. First, to return to the question of why he is not here now and why he was not at the meeting of the Committee of Public Accounts earlier, Mr. Watt said, and I agree that this is a description of the situation legally, that it was his decision. Mr. Watt made the decision that he would not come. I accept that. However, can he explain why he made that decision and why he did not think, given that Mr. Quinn was on the board and the chief procurement officer, that Mr. Quinn could bring important information to light or at least was worthy of important questioning by Members of the Oireachtas in view of his unique position of being on the board? Why make the decision not to have him here today?

Mr. Robert Watt:

As I said many times today, both in this committee and in the earlier committee meeting, Paul Quinn discharged his duties as a member of the board in ensuring that information was brought, that the chairman understood the position and that information was then brought to the attention of the Minister for Health. That was Paul Quinn's fiducial duty and he carried out that duty. Regarding his role on the children's hospital board, he is there not as a member of the Department but in a personal capacity. I know that is a little Jesuitical but it is important for the purpose of this discussion. Ultimately, David O'Brien is the chair of the Government construction contracts committee, and that is the key committee that was involved in this decision relating to the derogation.

Mr. O'Brien is the chair of the Government's construction contracts committee. That is the key committee involved in the decision in respect of the derogation. It was my view that Mr. O'Brien should be here to answer questions. I understand that there is another invitation for each member of the National Paediatric Hospital Development Board. Mr. Quinn will go along to committee in that capacity, as is appropriate, when that invitation is received.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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In terms of the role Mr. Quinn played on the board, as far as I can see from the briefing note, Mr. Watt agrees that Circular 12/2010 in respect of the code of obligations for civil servants on State bodies applied to him. It has sometimes been said that he was on the board in a personal capacity as a way of getting out of the obligations of that circular. Mr. Watt seems to accept that those obligations applied to him.

Mr. Robert Watt:

The circular and the code of practice are very clear. There is no contradiction between the two. They are complementary. I addressed this issue in my submission and I addressed it this morning at the Committee of Public Accounts. I am 100% sure that Mr. Quinn discharged his duties and acted appropriately. He has done a brilliant job for the State over the last six years as head of the procurement office. He has established an office and driven very significant reform. In light of his previous role as Chairman of the Committee of Public Accounts, the Chairman will be aware of the significant problems we have had - and still have although they are not as great as they were - in respect of unprofessional procurement practices in how we do our business. Mr. Quinn has been very much engaged in the professionalisation of that function. He has done an excellent job. I am happy that he discharged his functions in respect of this matter. I have no problem with him. I will not get into an argument about the ins and outs of all this. I do not believe it is appropriate that officials are named as they have been. They are now named in the Dáil Chamber. That should not happen but it now happens repeatedly without any sanction and without anybody saying that they are not happy about remarks being made about civil servants when they cannot defend themselves. I am not happy about that. I made a decision about Mr. Quinn's attendance today. He discharged his functions in the circumstances. I have no problem whatsoever with that.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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I want to get into that. To be clear, I did not name-----

Mr. Robert Watt:

I did not say the Deputy did.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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He is named in the briefing document. A key bullet point says that the chief procurement officer was satisfied that matters were being addressed by the board and were being reported through the governance arrangements established by the HSE and the Department of Health. I would like to unpack that a little. That comes from Mr. Watt and I presume he stands over it. It says that issues were being reported. Why then was there a delay?

Mr. Robert Watt:

As I understand it, the issues were reported consistently.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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We know from minutes of a meeting in August that the board was aware, and arguably had been aware before then, that there were big issues in terms of cost. Why were they not reported at that stage? Does that not mean that they were not being reported through the governance arrangements?

Mr. Robert Watt:

They were being reported. They were being reported to the relevant Minister, the Minister for Health.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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At what time?

Mr. Robert Watt:

Information was brought to the Minister for Health in August and September. I believe that is what the minutes said. The issues were debated by the board and the chairperson undertook to bring these matters to the attention of the relevant Minister on its behalf. That was done.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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Does Mr. Watt believe that all relevant information from the board about the very substantial rise in costs or the potential for such a rise were reported to the Minister relatively early after being discovered?

Mr. Robert Watt:

I am not privy to the ins and outs of all the issues the board was debating because I am not a member of the board. I have not had the opportunity to read through all the minutes of the board meetings and all the paper generated. It seems from everything that I have read and heard, however, that the key issues of concerns were brought to the Minister by the chairperson of the board and that the Minister then sought action from his officials. His officials then dealt with it and eventually it got to us.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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Mr. Watt says in the briefing note that Mr. Quinn would have advised the Minister for Health if he felt that serious matters were not being addressed and not being communicated through the governance structures. Is the reason he did not that all the key information he had was transmitted very quickly to the Minister?

Mr. Robert Watt:

The concern related to the cost overruns. Those concerns were brought to the Minister.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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Okay. That is useful. I thank Mr. Watt. He made an interesting point earlier. He spoke about a counterfactual situation in which we were not here. He said, fairly, that different variants were possible. One was that we did not have an overrun, but another is that the hospital would have been the same price without this process. If it ended up in the second position, which is that this is the cost to build this sort of children's hospital at this time and to these specifications, would that indicate a problem with the way in which BAM tendered? Would it be an example of the lowballing about which the Taoiseach was talking?

Mr. Robert Watt:

If we had a different approach which led to a different outcome, would that then suggest that, based on this two-stage process, BAM in some way came in-----

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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If it turns out that the real cost of building this hospital is this amount, which Mr. Watt has said may potentially be so, would that indicate a problem with the BAM tendering process?

Mr. Robert Watt:

I do not think so. I was not involved in the selection process and, as the Deputy knows, I am not involved with the sanctioning agency or authority, but I understand BAM's tender was lower than others. There is a variety of reasons for the escalation in costs. These relate to the bill of quantities, the design scope, and simulations of value engineering. Debate will take place about how fault is apportioned out between the different players, but it is not the case that this is all BAM's problem. That is clearly not the case. There might be issues there in respect of the value savings. I have not thought about it in those terms but I do not think it is as straightforward as that.

Issues around abnormally low tenders have been raised. That raises a whole variety of questions. If, for example, we were building a motorway and a tender came in that was €100 million lower than the second cheapest tender and it became apparent that, for some reason, the National Transport Authority had decided not to go with that lowest tender, the Committee of Public Accounts and everybody else would have the NTA in and would be saying that it was an absolute disgrace that the lowest tender was not picked. How does one construct a process which ensures that people do not come in low and then fight for increases? That is the issue. The way to stop that is to have the best quality information. As Mr. O'Brien pointed out to me repeatedly, the best information possible and very clear and detailed designs will ensure that, when it comes down to it, there will not be that level of dispute. If the design is specified one will of course have the normal adversarial discussions, because contractors try to maximise the benefit to themselves, but one will not have the type of issues that can lead to significant problems with delivery on budget.

I am getting there in a roundabout way but, on the issue of abnormally low tenders, one could debate - and we have had these debates - whether one should give top marks for bidding close to the median price. There is, however, then a danger that everybody will try to guess the median price and will cluster around it. One will then not have the type of competition one wants. There has been discussion on changing the weighting. It has been suggested that less weight should be given to price and more to non-price factors. However, if one is building a school, a school is a school. What are the factors that will enable one to determine the winning bid? All those tendering will say that they will build a school. The factor on which a decision is made is the price. Can a competition be constructed that ensures that non-price factors are significant? Can other criteria be introduced into the system?

There a big policy issue with respect to abnormally low tenders, but I do not have the solution. No solutions are immediately obvious or clear from our perspective.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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Let me pose a solution, which is to have a State construction company to take on these big projects. One therefore avoids this whole process, the dangers involved in it, the involvement of all these companies which seek to maximise profit, and the race to the bottom with respect to working conditions and so on that goes along with that.

Mr. Robert Watt:

Then one has a whole host of other issues. There would be no competition because there would be one supplier of labour, namely, the State employees, with all the issues related to that. The public good is funded by the taxpayer but the delivery of the public good is in a contestable market. That is the most efficient way of doing that in the construction market.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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It does not look very efficient now, does it?

Mr. Robert Watt:

We would like the market to be more competitive. We could have an ideological discussion about socialising the construction sector and what that would mean but that is a policy matter that is outside my remit. I do not think that it is a matter for this committee. There was a time in the past, which I have heard people talk about, where local authorities used to do the vast majority of work themselves and did not use contractors. I do not think that that was necessarily the most efficient way.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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I will finish by asking if Mr. Watt thinks it is appropriate that PwC which is doing the review considering that PwC is BAM's auditors, and has received some €4 million from BAM in the last number of years. Is there a conflict of interest there?

Mr. Robert Watt:

I was not involved in the decision about PwC. I do not know.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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I will take a slightly different perspective. We have concentrated a lot on the time between August 2018 and when it was approved in December. I want to go back before that as that is only a manifestation of the problems that arose well before then. I want to examine the sequence.

I first refer to the derogation. When did the application for the derogation come in, that there would be a different approach? This is a change from a detailed once-off tendering process to being a two-stage process where underground was detailed. Has underground come in on budget? How much did this cost? Overground was preliminary in design, and much of the detail in that was published in a press release published by the National Children's Hospital Development Board on its website on the same day it was approved by Cabinet. The board went into great detail. When did this come in? How was it approved? Was a specific type of alternative tendering process pursued? Who signed off on it? Was there any further follow-up in the application of that tendering process?

Mr. David O'Brien:

The process began very informally very shortly after planning permission for the Mater site was refused.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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When was that?

Mr. David O'Brien:

That was around 2012, but I cannot say for sure. It was very informal with the HSE at that point on how it would be managed. The site had not been selected then. Shortly after the board was appointed in August 2013 an informal approach was made on the suggestion of Mr. Paul Quinn, who was a member of the board, because of the default position of having to use the lump sum contracts, the procurement subcommittee of the paediatric hospital board contacted us and suggested that it would------

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Who was on that committee? Who was chairing it?

Mr. David O'Brien:

I cannot recall. I think the chair of the procurement subcommittee was Tim Bouchier-Hayes. Tom Costello was also involved and other members of the executive side, the team appointed to manage it on a day-to-day basis. That process began with an informal discussion.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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When was that, roughly?

Mr. David O'Brien:

That was in October 2013. We had a series of meetings or very informal workshops around what approach would be suitable for this. In terms of the GCCC, under the capital works management framework there is an early contractor involvement-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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What does GCCC stand for?

Mr. David O'Brien:

Government contracts committee for construction.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Who is the chair?

Mr. David O'Brien:

I am the chair.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Who is on that committee?

Mr. David O'Brien:

It is made up of officials from all the main capital spending bodies, not just Departments but also Transport Infrastructure Ireland, the Office of Public Works, the HSE and so on. They would generally be officials with a background in construction project delivery. It meets roughly every six weeks. It is an advisory forum for policy. The reason the GCCC gets involved is that under the circular that introduced the capital works management framework and the public works contract, the default position is a lump sum contract, in recognition of the fact that is not always a suitable approach-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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A lump sum contract is effectively a full fine-detail contract.

Mr. David O'Brien:

Exactly. For maximum effect, one has to have well-defined, scoped projects, yes. Some years after those contracts were deduced an early contractor forum was developed. It has never been-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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That is October 2013.

Mr. David O'Brien:

Yes.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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This project did not go for tender until April 2016, which was two and a half years later. Why? I am trying-----

Mr. David O'Brien:

I will explain. The process was at a very preliminary stage then. They were working through how this would be delivered. One must consider the context. September 2013 was the first time that we saw any growth in activity in the construction sector since May 2007 when the financial crisis hit. We had a very fragile construction sector at that time. The board had very real concerns about how a project of this scale would be delivered. Did anyone have the capacity to deliver it? As such, various approaches were looked at.

In May 2014, they issued us a note with preliminary faults.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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That is from the chairman of the board.

Mr. David O'Brien:

Yes. They had not appointed a design team at that stage. They made it very clear that this was very preliminary and would be subject to the design team input. A year later, in May 2015, there was a formal presentation with a draft proposal for the procurement strategy which was essentially that two-stage process.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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That was from the procurement sub-committee of the development board.

Mr. David O'Brien:

It was the board, yes.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Was it the main board?

Mr. David O'Brien:

Tom Costello attended and a number of others.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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They made a proposal to the committee. What is its name?

Mr. David O'Brien:

The contracts committee.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Is that under the Department of Public Expenditure and Reform?

Mr. David O'Brien:

It is under Office of Government Procurement, which is a body under the aegis of the Department.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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It made a presentation to the Department saying that it wanted a two-stage process.

Mr. David O'Brien:

That is correct, yes.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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That was where underground was detailed and overground was preliminary, in order to get the underground under way as quickly as possible.

Mr. David O'Brien:

Yes. The speed or programme for delivery and the opening of the hospital was obviously paramount for all sorts of reasons.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Was the design team in place then?

Mr. David O'Brien:

I will check my notes. I think the design team's appointment was in September 2014, when the architects were appointed.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Okay. Will Mr. O'Brien outline what happened at his board meeting in May 2015?

Mr. David O'Brien:

The preliminary proposals for the procurement strategy were presented. I would add that the committee was agreed that a lump sum contract was not appropriate for several reasons.

Mr. David O'Brien:

First and foremost, because of the scale and complexity of the project, the programme, as the Secretary General said-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Was the primary factor getting the project under way as quickly as possible?

Mr. David O'Brien:

Not entirely. That would not be a fair assertion. The concept around an early contractor involvement forum is to get the expertise in construction management of the contractor in.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Is it not fair to say that there would be more of a risk of an overrun in a two-stage process with a preliminary design rather than going with a lump-sum detailed design on both underground and overground? Is the risk is higher?

Mr. David O'Brien:

That is correct. If one is dealing with a contract of around €20 million, that is fine. However, we are talking about a project of this scale and complexity.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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That would heighten the risk again.

Mr. David O'Brien:

Precisely.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Therefore, the question I am asking is, why was the two-stage process chosen? We were still a year off when it went to tender.

Mr. David O'Brien:

Yes, but for those very reasons they knew that to get the project out and construction started-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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When we come down to it, to get the project under way, that was the paramount decision making criterion as distinct from the cost. Once they went away from the lump sum, they were heightening the risk of an overrun because there was preliminary and design. Is that a fair assertion?

Mr. David O'Brien:

It is not entirely fair. The intention was always that the design would be reasonably well advanced. It is not true to say we are talking about a preliminary design that went to market.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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When I read the national children's hospital press statement from 15 December, it states the design was preliminary.

Mr. David O'Brien:

Sorry, what was the date?

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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The press statement put out on the date the Government signed off on the children's hospital at Cabinet in December - I think it is 15 December - went through why there were delays and spoke about phase A and phase B. Phase A was underground and there was detailed design, whereas phase B was preliminary in nature. If one reads further correspondence, it would appear that, in the contract that was signed with BAM, they had put a date of June 2018 to come up with the final guaranteed price.

Mr. David O'Brien:

Yes.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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That was completely overshot. I want to go in chronological order. The committee signed off. I am still not certain why it gave the go-ahead for a two-stage process. I wish to be fair.

Mr. David O'Brien:

I thought it was fairly clear.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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I feel Mr. O'Brien is fudging it a bit. I would like to understand. The children's hospital is much-needed and there was a huge public demand at every level that it would get under way. Did that take precedence over everything else in terms of there being no further delay in getting the project under way?

Mr. David O'Brien:

Like I said, my core point is that that was one of the reasons, absolutely, but the other reasons were to get the benefit. Again, given the scale and complexity of this project, had one gone with a fixed price lump sum approach, it is questionable whether one would have had a contract or tender on that basis because of the risk being taken on for a project of that size.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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BAM accepted the contract. It took phase A and phase B.

Mr. David O'Brien:

That is my point. Had the process been a lump sum fixed price, the market interest would have been considerably less because of the risk being taken on board with a lump sum contract.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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When the contract was being put out to tender in April 2016, the contract was for phase A and phase B, underground and overground. One could have had two separate contractors appointed for both. Am I correct?

Mr. David O'Brien:

That was discussed at an early point, yes.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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When the tender went out, was it based on one contractor taking on both phase A and phase B?

Mr. David O'Brien:

Subject to agreement of the guaranteed maximum price, yes.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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When the tender document went out, did it facilitate two separate contractors being appointed?

Mr. David O'Brien:

No, only in the event that there was a failure to agree the guaranteed maximum price.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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What I am really saying is that I find that contradictory. In one breath Mr. O'Brien is saying that if one put out a lump sum final detail plan, one would have had fewer competitors involved, given the scale of the project. Yet, he is also saying that when the committee tendered the project, it made it conditional that only one contractor could be appointed to do both contracts.

Mr. David O'Brien:

No. The successful tenderer would have gone forward to construct the-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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No, that is not what I am asking. Did the tender document look for one contractor to be appointed to both phase A and phase B?

Mr. David O'Brien:

That was the outcome of the tender, yes, but-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Under the terms of the contract-----

Mr. David O'Brien:

Under the terms of the contract, the contractor who was awarded, having gone through the competition, and there was a pre-qualification-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Would the tender document have allowed two different contractors to be appointed for phase A and phase B?

Mr. David O'Brien:

No.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Therefore, would that not be a point that needs to be addressed? There was a weakness within that particular process because it meant whoever got appointed for phase A and phase B was getting detailed underground but preliminary design overground. That created a weakness in the procurement process.

Mr. Robert Watt:

That is not wrong. What could have happened last November-December is the Government could have said, "We do not now like the guaranteed price and what we are going to do is re-tender this phase two completely after the preliminary works are done and we have this detailed design."

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Why was it not facilitated within the tender document that two separate contractors could be appointed for phase A and phase B?

Mr. Robert Watt:

Because the idea was that when the contractor would get on site and do the works, it would start working with the design team to bottom out the final design, and that would then get to the guaranteed maximum price. It was a process where they would come in, start the works, get the team together, get on site and then move towards the process of getting to the guaranteed maximum price.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Would it be fair to say there was an inherent weakness in that procedural process because it meant there was a contractor taking on a contract who, effectively, had to provide detailed pricings in respect of the underground but, for overground, it was very loose and preliminary?

Mr. Robert Watt:

This is the issue. The understanding for the stage two process was that the design at the tender stage would be a detailed design and that the approximate bill of quantities would be 95% certain - I think that was the expression. The issue was exactly as the Senator describes it and as we have spoken about today already, namely, a derogation was given on the basis that there would be more certainty about the nature of the final design than was the case. That is the reality of it.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Did the contracts committee or the Department have any role in terms of approving the tender document?

Mr. Robert Watt:

No.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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The opening statement at page 8 refers to:

Monitoring actual spend against monthly profiles based on information submitted by the Department to DPER's Vote section so as to keep track of aggregate spend by each Department compared to planned spend. DPER does not monitor expenditure at the individual project level.

Am I correct that the Department's reporting structure would not have picked this up because the €191 million was a definite increase in cost that probably had not been incurred yet, and the €200 million was increases in scale, as argued by BAM, the contractors? Effectively, the Department was just looking at profile versus spending and, given the design of its monitoring process, it would not have picked that up. Am I correct in that?

Mr. Robert Watt:

Yes, absolutely. In effect, the way we manage is on actual spend against profile. What was profile for the Department of Health was the cost of phase one, so the prospective spending would be an issue for future years, when that final number was known.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Is that not a weakness in the monitoring process?

Mr. Robert Watt:

There is an issue which we have to look at. Normally, we agree a price, that price is the price, and that is it. If a school is going to cost €15 million or €20 million, the Department has to manage that within its envelope. This is different because of the scale and because we had this, if not unique, then different type of process, and it may have implications for how we look at this in the future, absolutely. We have not bottomed that out yet and we have not-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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The national children's hospital and BAM were supposed to have agreed, under the tender document, a guaranteed maximum price by June 2018. That did not happen until six months later, so it was to be ten months and it overran to nearly 16 months. The overrun was of the order of 33% of the cost, or €191 million, exclusive of VAT. As I am assuming VAT is at 13.5%, the gross overrun is well over €200 million at about €217 million.

Is it not fair to say that the monitoring system in the Department should have facilitated picking up that level of overspend of nearly one third-----

Mr. Robert Watt:

Prospective overspend.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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-----of which €191 million is definite overspend? In summary, is it not fair to say that, first, the tendering process that was established, which was a two-stage process rather than an overall lump sum process, contributed to the weakness in the overspend that allowed a preliminary design and, second, the reporting procedures within the Department should have picked that up because if it had looked at not just what was spent to date but changes and increases in spending, that overspend would have been picked up much earlier and we would not be where we are today?

Mr. Robert Watt:

The picking up of that overspend is an issue for the sanctioning authority to establish and not for me to-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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No, but the Department of Public Expenditure and Reform would lay down the guidelines on how the spending is reviewed. Surely the lesson to be learned is that from now on, the reporting structures from the Departments to the Department of Public Expenditure and Reform should not only deal with profile versus what was spent but profile versus now changed profile, in order that it would be picked up earlier.

Mr. Robert Watt:

In the normal course of events this issue does not arise because a decision has been taken in regard to a contract, and that is then profiled for the years ahead. A decision was taken in regard to a contract but obviously the final bill was very different from what was envisaged. That is a-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Finally, should this have been a lump sum contract?

Mr. Robert Watt:

Certainly, from my understanding of it and from the advice I have received the implementation of the two-stage process are the lessons we have to learn. I said earlier that I am not absolutely convinced a lump sum contract would have led to a better outcome but who knows? That is an unknowable at this stage but I am absolutely convinced that the two-stage process could have been managed differently and better. That is stating the obvious.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank Mr. Watt. Deputy Cowen.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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We are all in our own way trying to establish accountability and maybe even culpability, ultimately to the taxpayer. For example, the Taoiseach has said that he takes responsibility on behalf of Government for this overrun but as magnanimous as that is, it cannot be allowed to stop there, notwithstanding the PwC report that is ongoing.

The Senator beside me has touched on it and I want to concentrate on this area. Who is responsible for the €450 million overspend? It has a knock-on effect, that is, as prescribed but not necessarily teased out, the €100 million this year but there are multiples of €100 million for the next number of years, which will force the same Taoiseach and others to row back on commitments they have been making for the past year or two since they announced the Project 2040 capital development plan. They have been slow to do that but they were very quick to tell different constituencies how they would benefit. I am told we will get more details on that in the spring economic statement. The people on the contracts committee are the ones who granted a derogation from the way this is normally done. They did that based on information and a recommendation by the board or a sub-committee of the board. That allowed the Government to sanction it because it was happy that the contracts committee was involved. I would like to see a written list of the members of the contracts committee. Who are they? Who appointed them? What responsibility and expertise do they have because it further appears that when that application was made to them, they took the word of the board and the information that was available to it? The committee never questioned, scrutinised or analysed the bill of quantities or the expertise behind that document. I would have thought it may be standard practice in the private sector for an independent assessment of that but maybe these guys are so expert in their own fields they did not need that. That is why I want to see who they are or what they are because it would appear they took what was presented to them hook, line and sinker. That gave the Government an out and everybody then proceeded accordingly. Mr. Watt said earlier that the contracts committee is responsible to the Department of Public Expenditure and Reform. Am I correct?

Mr. Robert Watt:

It is a consultative forum chaired by Mr. O'Brien. It is housed in our Department but it is made up of people from across-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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Who appoints people to the contracts committee?

Mr. Robert Watt:

Sanctioning authorities. Let us say the National Transport Authority or the HSE make a recommendation-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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They make a recommendation on who they believe is adequately qualified to be on it.

Mr. Robert Watt:

The procurement person, the person responsible for the main roads projects, Luas projects or whatever it might be, yes.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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They then play a role in Government contracts.

Mr. Robert Watt:

It is a consultative forum where they discuss the evolution of the capital management works framework.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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If, following the process that is not only going on here but in PwC also, and I am being hypothetical, which perhaps I should not be, they said they were not happy that the contracts committee adequately scrutinised or analysed the proposal before them, which may have set alarm bells ringing, how then are they held to account?

Mr. Robert Watt:

The first thing to say is that the sponsoring agency and the sanctioning authority are responsible for the procurement strategy.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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That is the Government.

Mr. Robert Watt:

The sponsoring agency, that is, the National Paediatric Hospital Development Board sought a derogation from the contracts committee. They are ultimately responsible for advising on the best way in which to build this hospital, whichever price-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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Why is a contracts committee needed at all if-----

Mr. Robert Watt:

The contracts committee is there to oversee the overall management of the capital management works framework. It evolves. There are various templates for how we manage works. That evolves over time and this group of people - public servants in different sectors - come with their perspective on how we got on last year-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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They agreed the derogation so it is their responsibility.

Mr. Robert Watt:

No. The responsibility for the approach still rests with the National Paediatric Hospital Development Board but the contracts committee gave a derogation. They permitted them-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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They permitted them, so they would not have been able to proceed in that role without that derogation.

Mr. Robert Watt:

Yes, but my understanding, and the minutes are available, is that there were detailed discussions about that. It was not as if it was nodded through. There were detailed discussions about-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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Were people with independent expertise asked to comment and inform?

Mr. Robert Watt:

As the Deputy knows, the board is made up of independent experts. They were appointed by the Government with significant expertise, including the then chairperson, Tom Costello, who I think has 30 years experience in this sector, and other people on the National Paediatric Hospital Development Board who have expertise-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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I do not doubt that they were put on it with the best will and intention.

Mr. Robert Watt:

The people who represent the public service on Mr. O'Brien's committee have expertise. Mr. O'Brien has an architectural background. Others have involvement in engineering backgrounds and so on. These are the people who, in effect, are building our roads, Luas systems, schools and so on. These are the people who are responsible those projects.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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We would not have had a two-stage process, which has led to an overrun, without a derogation being given to the board by the contracts committee.

Mr. Robert Watt:

We would not have had a two-stage process if the board had not asked for that and argued that was the best way to deliver this hospital.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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The ultimate responsibility for granting it to them was given by the contracts committee.

Mr. Robert Watt:

Yes, that is clear.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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Who is the contracts committee answerable to? As Kissinger said about Europe, "Who do I call?". Who do we call when we want to check the work of the contracts committee?

Mr. Robert Watt:

The contracts committee is part of my Department. It is chaired by Mr. O'Brien and I am responsible ultimately for the capital works management framework. We are responsible, as I said in my statement, for the public spending procurement framework which guides how we procure, build and manage these projects.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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That derogation was granted and the board was allowed to go down this road, which led ultimately to the overrun. Mr. Watt said he sits on another committee that meets on a weekly basis to discuss capital spending across all Departments. I imagine it engages in extra scrutiny around the time of the Estimates. However, the information was not relayed to Mr. Watt to bring forward an Estimate. Of course, it was not fraudulent, but it had to be amended because of it. That amendment could have taken place before now. That is neither here nor there but the bottom line is that there is a contracts committee which is ultimately responsible for allowing the board to go down this path. That falls under Mr. Watt's Department.

Mr. Robert Watt:

The ultimate responsibility for the procurement strategy rests with the national children's hospital and the day-to-day sanctioning authority was the Department of Health. I do not say that in a way which dumps on them. I am not suggesting for a moment that we are not involved because we are. I have set out our responsibilities and the lessons we can learn from this position. Certainly, my conclusion from this is that it is very hard at this remove, with the benefit of hindsight, to say that was the wrong approach. Clearly, the implementation of that approach did not deliver what we all expected.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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I argue that the experts on the contracts committee accepted what was presented to them in relation to the bill of quantities which ultimately proved to be the author of the overrun thereafter. The Mazars report has indicated that.

Mr. Robert Watt:

The children's hospital board gave assurances to the contracts committee in respect ultimately of the bill of quantities-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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It did and more power to it.

Mr. Robert Watt:

-----which were not correct.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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If I am on the board, however, and that commitment is given to me and I accept that, fair enough, but perhaps the person beside me might insist on an independent assessment rather than to depend on my acceptance of the recommendation. As I said to Mr. Watt at the beginning, I would have thought my role was to establish as far as I can who is accountable, who is culpable and how this can be rectified into the future. How can we be certain it will not happen again? The Taoiseach can say he takes responsibility and run off but it is not as simple as that. From what I have heard here today, especially, I am convinced the contracts committee was asked for a derogation and granted it and, therefore, has some responsibility and culpability. As a member of the Committee on Budgetary Oversight, I would like to see who is on this committee. That is all. Mr. Watt has given me minutes and I can check it against that.

Mr. Robert Watt:

We can provide that.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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In future, there should perhaps be more independent assessment sought by those committees rather than to rely on the expertise that is there. With all due respect to the expertise that is there, it was sold a pup.

Mr. Robert Watt:

These are issues the members can put to the members of the national children's board when they come before the committee. These are questions for them.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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I can put it to them but everyone is trying to evade responsibility as far as I can see.

Mr. Robert Watt:

No.

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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That might sound a bit too severe. We are all trying to get to the bottom of this because we have a responsibility to the taxpayer. I do because it is the taxpayers who will put me here or not. A derogation was sought. If it had not been, we would not have had a contract akin to the one we have.

Mr. Robert Watt:

If it had not been sought, or had been sought and had been granted, we do not know where we would be because we might have proceeded-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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We know where we are. We are at a €450 million overspend at least.

Mr. Robert Watt:

It is implicit in the Deputy's question that an alternative approach would have given-----

Photo of Barry CowenBarry Cowen (Offaly, Fianna Fail)
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I cannot talk about hypotheticals, I can only deal with what happened. I have to analyse, on behalf of the taxpayer, what happened and why and I have to ensure it does not happen again.

Mr. Robert Watt:

I accept that. That is what we are trying to get to the bottom of also. We are all in a comfortable position, ex post, at one level because we were not having to make decisions at the time. The Deputy knows that someone has to make a decision at the time.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Can I work through a couple of questions to clarify this for myself?

Mr. Robert Watt:

Yes.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Was the contract for the national children's hospital an open contract, a restricted contract or a negotiated contract? How does the Department describe the contract?

Mr. Robert Watt:

"Open contract" is the description of it.

Mr. David O'Brien:

There was a tender and the tender was run-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is it described as open, restricted or negotiated?

Mr. David O'Brien:

The tender was run under the restricted procedure. The basement works were a fixed-price or lump-sum contract. The superstructure works, phase 2, were a remeasurable contract to arrive at a guaranteed maximum price.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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As such, the tender was restricted.

Mr. David O'Brien:

The restricted procedure was used. It was advertised as normal, a short list of contractors was drawn up and they were invited to tender.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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To go back to the contracts committee, who is the chair and secretary of it?

Mr. David O'Brien:

I am the chair.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Who is the secretary?

Mr. David O'Brien:

The secretary is a colleague in the OGP. The secretariat is provided by the OGP.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Can Mr. O'Brien name the secretary?

Mr. David O'Brien:

Is it important to do so? We can provide a list. It is an official in the OGP.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I just want to know the detail. I am just asking. It is an official in the OGP. Did the chairman, Mr. O'Brien, and this official in the OGP report to the person over the OGP? Who is over the OGP?

Mr. David O'Brien:

The chief procurement officer, Mr. Paul Quinn.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am sorry for naming him, but I was not the first one to do so.

Mr. Robert Watt:

It does not matter now. The cat is out of the bag.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Quinn is over the Office of Government Procurement. Mr. O'Brien chairs a committee for the contracts under the OGP. The secretary of the committee is an official from the OGP. Is that correct? Was Mr. Watt aware the derogation was being sought from the Government's contracts committee on behalf of the hospital?

Mr. Robert Watt:

At the time it was sought, I was not aware of it.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Might there have been a conflict of interest between the board of the national children's hospital and, in particular, the head of the OGP? The board was asking for a derogation from the contracts committee chaired by Mr. O'Brien which includes an official from the OGP. Is that not a conflict of interest in that one player is on the board of the children's hospital while the others are on a committee which answered to Mr. Quinn, as the chief procurement officer? Is that not odd?

Mr. David O'Brien:

I cannot comment on, or do not see where the conflict of interest arises.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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One has the children's hospital board-----

Mr. David O'Brien:

I see where the Chairman is coming from.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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-----a member of which is the chief procurement officer. That board made an application for a derogation to the committee chaired by Mr. O'Brien and under the OGP which is in turn under the remit of Mr. Quinn. The secretary of the committee is a member of staff of the OGP. That is a conflict of interest. Can Mr. O'Brien outline the other members? Are they all from within the OGP or are they from elsewhere? He need not give the names.

Mr. Robert Watt:

I am reading from the 2015 list and while the names of some bodies may have changed, I am sure they are represented now in their different incarnations. The members were from the National Roads Authority, the Department of Education and Skills, the Department of the Environment, Community and Local Government, the National Development Finance Agency, the OPW, the HSE, the Department of Agriculture, Food and the Marine, the Department of Defence, and the Rail Procurement Agency, which is now the TII.

They are the main bodies that are involved.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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To address my point-----

Mr. Robert Watt:

Yes. The contracts committee and the national children's board are all on the same team. They are trying to deliver the hospital in the best possible way for the country. It is not as if there is a conflict.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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There is no tension or dynamic there.

Mr. Robert Watt:

We talk about an application for a derogation. Having read through the minutes, my sense is that there was a dialogue or a conversation. The experts who have experience were trying to use their expertise to help the national children's board. When the board came with an outline proposal, there was a debate, a conversation or a dialogue. We should not have given the impression that it was a formal application. It was a debate or consultation. It went on over 18 months. It was a rolling conversation. It eventually led to the collective view that this option was the best option. I accept what Deputy Cowen said earlier. I would not want to characterise it as a conflict because it is not. They are all trying to do the same job.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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They are all in-house.

Mr. Robert Watt:

The children's hospital people are mostly outsiders. Nearly all of them are outsiders.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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No.

Mr. Robert Watt:

The people here are public servants, yes.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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The people from the fast-track committee and the OGP are all in-house officials.

Mr. Robert Watt:

They are officials working with the Government, yes.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes.

Mr. Robert Watt:

Yes.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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The head of those officials - from the OGP - is represented on the board of the national children's hospital.

Mr. Robert Watt:

No.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that not correct?

Mr. Robert Watt:

Most of the officials here-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is it not absolutely correct-----

Mr. Robert Watt:

I do not want to-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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-----that-----

Mr. Robert Watt:

It is late in the day now to be falling out with each other. Obviously, Mr. O'Brien works in the OGP with Mr. Quinn. I will not read out the names of the other bodies. The Chairman knows them. They work for other Departments and agencies.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I will move on from there.

Mr. Robert Watt:

The Chairman is right in the sense that the contracts committee is part of the overall structure, which is overseen by Mr. Quinn.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does Mr. Watt know whether the derogation for the process adopted by the hospital was asked for after the tender process was completed?

Mr. David O'Brien:

The application was well before the tender.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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It was well before the tender.

Mr. David O'Brien:

Absolutely, yes.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes. I will go on to the public procurement rules and all the rest of it. Is there any question that underbidders or overbidders, or whatever they were, took issue with the process?

Mr. Robert Watt:

The Chairman and I have debated this point in the past. Every procurement process of any scale that we undertake in Ireland leads to the threat of legal action or to actual legal action. This is a very litigious area which is covered by EU directives transposed into Irish law. There are armies of solicitors working for the main contractors. This is a very contested space in terms of how the awarding of the contracts is managed and in terms of the delivery of the contracts and how they are operationalised. The Chairman is aware of the situation we had in Grangegorman. He has previously quizzed me on that situation, which led to a three-year delay in that contract. There are many other cases. Unfortunately, there are difficulties.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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There is a derogation in circumstances in which the figures change. There was a change, not in the tender process but in the circumstances of all of this. The other bidders - if there were other bidders - would surely have had to be asked. It changed, and the Department stuck with the one contract and the one tender. Even though there had been a change, it did not revert back to any of the other players. Has the children's hospital board left itself open for legal action?

Mr. David O'Brien:

All of that was set out in the contract as advertised and in the procurement process. From the outset, the intention to undertake the guaranteed maximum price process was subject to change. That was clear to the tenderers that were taking on the process. From that perspective, everybody would have been aware of the potential. The process is designed to bring people in to work through the issues with the project to arrive at the guaranteed maximum price. Contract modification is covered by a particular article of the procurement directives, which sets out the circumstances in which that can be done. That would have met that. It was-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Where did the 2017 price of €983 million come from?

Mr. David O'Brien:

We cannot comment on that. I mean that is a-----

Mr. Robert Watt:

That came from the outcome of the tendering process that was concluded in 2017.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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When the Minister was here before, he said that it had grown to €1.4 billion and that there was another €300 million in terms of contingency. That would bring it to €1.7 billion. Are the figures relative to contingency likely to change?

Mr. Robert Watt:

The contract that was signed was for €983 million. That is now €400 million or €450 million more. Then there are additional elements on that, outside the contract or outside the construction element, which brings us up to the €1.7 billion that has been mentioned.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is what the contingency figure represents.

Mr. Robert Watt:

So that is the-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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In the context of construction or-----

Mr. Robert Watt:

That €1.7 billion includes all the different elements - the construction and non-construction elements - of the project.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Thereafter, there will be a cost for equipment, IT, kitting the place out-----

Mr. Robert Watt:

There are elements that are included in the overall contract. The €1.7 billion includes non-construction elements, including IT and so on. I do not have the list in front of me.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are the officials aware of whether the €300 million includes kit-out? That is the question I am asking.

Mr. David O'Brien:

We do not have the figures in front of us here, but my understanding is that the €300 million is for equipment and other aspects to equip the hospital.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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It will be built, equipped and ready to go at €1.7 billion. Is that correct?

Mr. David O'Brien:

That is my understanding, but you would need to confirm that with the Department.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I need to confirm it.

Mr. David O'Brien:

I cannot confirm those figures here.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Should you not confirm it?

Mr. Robert Watt:

They are the figures.

Mr. David O'Brien:

We cannot confirm it.

Mr. Robert Watt:

As the Chairman has articulated, €1.7 billion is the figure.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I want to go back to the beginning of the meeting to clarify something. We did our best to have the meeting and be constructive about it. Just to be helpful, we invited members of two other committees - the budgetary committee and the health committee - because of the number of invitations Mr. Watt had received. We notified the other committee members. In our correspondence to Mr. Watt, we asked that Mr. Quinn would attend. We did so because of the fact that his Department works with this committee. Mr. Watt, or somebody, chose not to have Mr. Quinn here.

Mr. Robert Watt:

I chose, yes.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will then invite Mr. Quinn separately. Is that an option?

Mr. Robert Watt:

It is up to this committee to be satisfied as to whether we have come here and outlined to it the role of our Department in relation to this matter. Whatever about differences Deputies have about where we are now, I think we have tried to set out our roles and responsibilities fairly and as best we can. It is my job to represent the Department and take responsibility for the Department. I hope we have done that today at this committee and at the Committee of Public Accounts. I think Mr. Quinn has said that if the committee invites the children's board, he will be happy to come along in the context of his role as a member of the national children's board. I think that is fair enough.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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The role of the Comptroller and Auditor General comes within the remit of the Department of Public Expenditure and Reform as well. Is that correct?

Mr. Robert Watt:

Yes, the Comptroller and Auditor General would be-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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The reports-----

Mr. Robert Watt:

The minutes of the Comptroller and Auditor General and so on-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Could the Comptroller and Auditor General have been asked to do the report instead of PwC? Did the Department ever consider that, because of the fact that he is-----

Mr. Robert Watt:

The HSE-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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He did some reports on this anyway.

Mr. Robert Watt:

Yes.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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He did a value for money report.

Mr. Robert Watt:

The HSE decided to commission PwC to review this issue.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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There was no consultation with Mr. Watt on that.

Mr. Robert Watt:

The HSE decided that.

Photo of Bobby AylwardBobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Was it not the Government?

Mr. Robert Watt:

I do not recall exactly. I understand it was the HSE, or perhaps the Government asked the HSE to do that. I am not sure. The Minister for Health may have asked the HSE to do that.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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This problem was beginning to grow and emerge as a serious issue. In the context of the Department of Public Expenditure and Reform, and the Office of the Comptroller and Auditor General, would Mr. Watt not have thought of stating to the Comptroller and Auditor General or the Minister that it would have been a good idea to get an independent assessment in place to report directly back? I am referring to the Comptroller and Auditor General.

Mr. Robert Watt:

I do not know if that would be appropriate for the Comptroller and Auditor General. I will have to look at the mandate and see if that would be appropriate. The Office of the Comptroller and Auditor General does reviews but they tend to be reviews after spending has been incurred as opposed to any issue with a project that is midway or whatever.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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All this had occurred.

Mr. Robert Watt:

The preliminary expenditures had occurred. A case could be made. The HSE, on the instruction of the Minister, I cannot recall which Minister, commissioned the report from PwC. It is doing its work. There are, of course, other options for doing that. Nobody wanted to-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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To get to the end of this, it started off with the national children's hospital as a project. The Government wanted to achieve it. The National Development Finance Agency, NDFA, had a role in respect of advice up to 2014. That is according to Mr. Watt's own note. I am reading from that. At one stage, therefore, the NDFA was involved. The Government, that is the Cabinet, made the decision. The Department of Health was involved because that is the overseeing Department in respect of the expenditure. The HSE was involved because it-----

Mr. Robert Watt:

It is a health facility.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes. The HSE ended up deciding to have PwC involved. Mr. Watt's Department has the contracts committee. Advice was given by the OGP directly to the national children's hospital board and the Department had someone on that board. In spite of all that Government involvement, from political aspects to the various structures I have mentioned, it has been possible, collectively, to make a right cock-up of the cost of the national children's hospital. Even in accounting for that, and I appreciate Mr. Watt's role in this, it has spread to many different agencies.

For one reason or another, each agency is able to wash its hands and state that it is not its responsibility but that of another agency. Looking back over the history of expenditure in the State, there was some good expenditure. I also agree with Mr. Watt that there was also much over-expenditure. The State has learned very little. In private industry, people would be running a mile from a project if the price was not secured, if the money was not secured and if the professionals were not in place. We seem to have had layers of professionals in place on this project.

Mr. Robert Watt:

From private industry.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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No.

Mr. Robert Watt:

Yes, the national children's hospital board.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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This involves the contract details and the Department of Public Expenditure and Reform, the Department of Health and the HSE. How did all those bodies come together and arrive at a situation where not only can we not get a handle on how much this is going to cost us when it is finished, but we cannot even get a handle on the efficiency of the spending or the bad spending that took place.

Mr. Robert Watt:

As I have said repeatedly throughout the day, there is a variety of issues. There are clear issues that we have learned from. My sense of the governance structure is clear enough. The national children's hospital board was established to deliver this hospital and it is full of people with significant expertise. The authority was the Department of Health. There was a role for the contracts committee but that was very clear in respect of the roles of the board of the national children's hospital and the Department of Health. A variety of issues are being aired about how this project has been managed. We need to ensure that does not happen again. I do not wish to be discordant or disagree with the Chair, but it is not true to state this does not happen in the private sector. It happens all the time in the private sector. We do not hear about it and somebody involved does not spend nine hours in one day in front of Dáil committees talking about it.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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No, because that person would be sacked.

Mr. Robert Watt:

No, it does not work like that.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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It works like that.

Mr. Robert Watt:

I am afraid it does not. There are cost overruns and construction problems all the time in the private sector in constructing anything and everything. There is a system in place. Anyway, it is now about figuring out what went wrong and how to fix it.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Mr. Watt spoke about what, where, when and how. We are duty bound, as a committee, to ask the questions.

Mr. Robert Watt:

That is fine.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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When this is distilled down, the project is 50% over budget. That is €450 million.

Mr. Robert Watt:

It is significant. Absolutely. I know that.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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That is taxpayers' money. It is a project that needs to happen. I have one or two questions for Mr. O'Brien. Regarding the overrun of €450 million, phase A is underground and phase B is overground. Has the underground project come in on budget? I am referring to the lump sum element of the project.

Mr. David O'Brien:

We will come back to the Senator on that point. We do not have those figures.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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My final question concerns when the project came to the contracts committee in May 2015 and the board of the national children's hospital made a formal proposal. Was an indicative cost given for phase B, the overground phase?

Mr. David O'Brien:

No, only the budget figure was discussed at that time.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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What was the budget figure at that time?

Mr. David O'Brien:

At that time, pre-tender, I think it was €650 million. That is off the top of my head.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Was that based on a professional assessment? Had the board got professional quantity surveyors to come up with that price?

Mr. David O'Brien:

They were all part of the team, as far as I am aware.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Did the contracts committee get any opportunity to do any independent verification of those figures?

Mr. David O'Brien:

No, that is not our role. As the Secretary General outlined, sanction and oversight are matters for the sanctioning authority and the sponsoring agency. We are purely an advisory group, set up under the circular that introduced the public works contract, to establish in the circumstances whether a different approach to the standard lump sum contract-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Who would that recommendation have been given to?

Mr. David O'Brien:

The board of the national children's hospital, which was set up to deliver the project.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Did the authorisation come from the contracts committee? Who did it come from?

Mr. David O'Brien:

Simply, the authorisation was that the national children's hospital board did not have to use the standard public works contract. It was then up to the board to develop its own strategy. We advised and discussed. As the Secretary General outlined, there was extensive discussion on the matter. On the basis of the circumstances of the project, there was agreement, in principle, among the committee. It was not me making the decisions, there was much expertise around the table. That then is the basis of the derogation. We were satisfied a lump sum approach was not suitable in the circumstances.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I want to finish on Mr. Watt's two notes. He referred to the role of the Office of Government Procurement, OGP, and that of the chief procurement officer, CPO. Mr. Watt states that the CPO was satisfied that matters were being addressed by the board and reported through the governance arrangements established by the HSE and the Department of Health. He goes on to state that the CPO would have advised the Minister for Health if he felt that serious matters were not being addressed and were not being communicated to the Department of Health through the governance structures.

I take from this that the chief procurement officer was satisfied that the chairman of the children's hospital board was reporting to the Minister.

Mr. Robert Watt:

Yes.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is what I take from that. I would like to know what was he reporting to the Minister. He was satisfied that the process was working, which means he was satisfied that the then-chairman was reporting to the Minister.

Mr. Robert Watt:

Yes.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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How do I find out what he was reporting to the Minister?

Mr. Robert Watt:

I think the Minister has said he received reports from the chairman in terms of the cost issues that were arising. I think the minutes-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Within the Department of Health would there have been records of phone calls or private meetings?

Mr. Robert Watt:

I am sure there are and I think the Minister may have had a meeting. I do not know but the Minister or officials had a meeting.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Adding to the list I read to the witness earlier, it states in Mr. Watt's note that the board was established by ministerial order, which is fine, and it was there to plan, design, build, furnish and equip the national hospital in accordance with a brief approved by the HSE with the prior consent of the Minister. The note also mentions the National Development Finance Agency, NDFA, which assisted with a review of the financial robustness of the design team, architects, quantity surveyors and engineers. It is indicated the NDFA has had no involvement with the project since 2016, when the NDFA's formal engagement as adviser to the HSE ended. It is extraordinary that another agency did all of this. We cannot forget the fact that the Comptroller and Auditor General also did a value for money audits and the charge on it was €38,000. In spite of all that, this has happened. It must be said over and over again. We have not got to the end of this by a long shot. If Mr. Watt was concerned about officials and civil servants not doing their job, or indeed the Minister not doing his job, would he feel obliged to say it?

Mr. Robert Watt:

Is the Chairman asking if I felt somebody was not advising the Minister-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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No. If Mr. Watt felt there was something wrong here in the context of how that board performed or officials in his Department, the Department of Health or anybody else involved, or indeed the Minister, would he take action? Would he put the information before this committee, the Committee of Public Accounts or the health committee? Would he do so without covering up anything?

Mr. Robert Watt:

The position is that there is a member of a board, concerns are raised and those concerns should be relayed from the chairman of the board to the relevant Minister. If one feels the chairman is not doing this, one would be obligated under the code to bring those concerns directly to the Minister oneself if the matter is sufficiently serious. It is what the code indicates.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Watt is engaging with us here and giving us the background. He has served a long time as a senior civil servant, the "most senior civil servant" in the country, to quote today's news.

Mr. Robert Watt:

Do not believe everything you read in the news.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Watt is a strong enough character to put before any committee anything he might see that he believes would have been wrong. That is the question I am asking. I do not disbelieve him but we engage with civil servants.

Mr. Robert Watt:

We have a culture in our Department of robust engagement and people are encouraged to speak up and bring concerns to management or the Minister. That is absolutely the culture we try to develop.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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That brings our meeting to an end. I thank Mr. Watt.

Mr. Robert Watt:

Thank you.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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He spent all day at this. I also thank his officials. We have ended the meeting without a row.

Mr. Robert Watt:

It is a first.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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It stands to both of us that we are maturing as we go along in our exchanges.

Mr. Robert Watt:

Thank you.

The joint committee adjourned at 5.35 p.m. until 2 p.m. on Tuesday, 12 March 2019.