Monday 15 July 2019

Paul McNeive: 'Children's Hospital cost overrun can be explained'

The right moves

Paul McNeive
Paul McNeive

Paul McNeive

There has been much comment about the cost overruns at the National Children's Hospital project, where the budget appears to have soared from €650m in 2012, to €1.7bn today. It's been disappointing to hear the blame levelled at the quantity surveying profession, in some quarters.

Having researched the issue, which is complex, it's clear that there is little relationship between what was costed in 2012 and the hospital to be built now. In other words, we're not comparing apples with apples.

Various reasons were suggested for the cost escalation, such as construction cost inflation and VAT, but inflation at, say, 8 pc per annum accounts for only a small fraction of the increase. The introduction of VAT is confusing in that VAT was always payable, so why would VAT be included in one costing and not in others? In any event, VAT is not the issue, as VAT is money being paid from one arm of government to another.

So how did these cost increases occur? Quantity Surveyors, by instinct and by training, are precise and not given to making wild guesses. At the heart of this problem, it seems to me, is that it was unclear, certainly to the public, what the various cost estimates were for. What size was the building now? What does this cost estimate include?

Mechanical and electrical fit-out (M and E) seems to be the biggest issue here. M and E can easily add 50 pc to the cost of an office building, so it doesn't surprise me that it could double or treble the cost of a hospital complex. And that's without even considering the cost of the specialist equipment required in a hospital.

After the project at the Mater Hospital was refused planning permission in 2012 (then costed at €650m) the National Paediatric Hospital Development Board (NPHDB) was established to develop the hospital at St James's Hospital. The scheme was re-designed and a two-stage procurement process chosen. A cost of €983m was approved by the Government in 2017 (to include M and E).

How then did the cost get from that to the projected final cost of €1.433bn? It appears to be a combination of factors: some changes to the brief, the addition of sprinklers post-Grenfell Tower, extra costs arising from delay, completion of more detailed design, and an underestimation of the M and E cost. Other than inflation, building costs don't change all that much and estimating them is a science. The nature of the project has changed more than the building costs.

Many commentators are now using a cost of €1.7bn for the project, but NPHDB tell me that provides for an extra €300m or so, required by Children's Hospital Ireland to integrate the existing hospitals at Temple Street, Crumlin and Tallaght - which is a good example of how costings for the project can been misinterpreted.

A huge frustration is that these massive projects should be built during recessions, when building costs are low, money is cheap, and the construction sector needs the business. Instead, they are built during peaks in the market, when labour is short and prices are high.

Brexit Supply Chain Questions

Whether we get a hard or soft Brexit, issues that will affect the construction industry are now sharply in focus, particularly the supply chain for building materials and components.

Chartered building surveyor Krystyna Rawicz told me that clients, both on existing projects, and for new buildings, are becoming concerned about the reliability of the supply of items such as cladding, facades, doors and windows, whether they are being sourced in the UK, or likely to be transported through the UK.

She told me that multinational clients, in particular, are very concerned with de-risking projects, and will generally opt for the least risky solution. Brexit is probably already hitting British industry in that designers are increasingly opting for non-UK manufactured building materials.

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