Friday 23 August 2019

Review of Children's Hospital cost overruns finds failings around planning

  • Quantity surveyors and contractors were using different techniques to determine quantities - report
  • 'Rapid escalation of costs in a late stage of the progress'
  • Cost of construction for hospital site has increased by €450m to €1.4bn
Simon Harris: The Health Minister wants ‘patients to see the benefits’. Photo: PA
Simon Harris: The Health Minister wants ‘patients to see the benefits’. Photo: PA

Kevin Doyle and Cormac McQuinn

A REVIEW of the cost overruns at the National Children’s Hospital has found quantity surveyors and the contractors were using different techniques to determine quantities.

Independent.ie understands the report says there was a "rapid escalation of costs in a late stage of the progress".

The report says the original cost estimate for the hospital was never adequate for a project of this type.

The cost of construction for the hospital at the St James’s site in Dublin has increased by €450m to €1.4bn.

The report, compiled by PWC, includes 11 recommendations which Health Minister Simon Harris and Finance Minister Paschal Donohoe must now implement.

Cabinet today set them a deadline of one month to come back with a plan for how to respond to the review.

Construction is ongoing at the new hospital site (Niall Carson/PA)
Construction is ongoing at the new hospital site (Niall Carson/PA)

One recommendation states that there needs to be a "challenging function" within Government. This means that there should be people within government who push back against assumptions when big projects are being agreed.

Sources say the report is very critical of the quantity surveyors who worked on the NCH.

At the same time it says "complex and unique programmes of work like NCH can never be de-risked".

The auditors concluded that there was no option but for the Government to proceed with the project despite the cost overruns.

They said a significant delay would have increased the likelihood that the hospital would not be built at all.

The report also says that "had the true cost of of the NCH project been known at an earlier stage in the process, the information could have led to a material impact on decisions relating to planning, budgeting and design".

The report also said that once it had emerged that costs had escalated "taking any alternative course of action, other than continuing, would have in all likelihood resulted in significant delay, increased costs and the possibility that the hospital would not be built."

The government published the PWC report this afternoon.

Taoiseach Leo Varadkar said: “The PWC report makes grim reading.

"The report finds the escalating costs of the new National Children’s Hospital related largely to an underestimation of the cost of building it in the first place, as well as the cost of delays, higher building standards and the knock-on effect of VAT. 

He added: "It does not recommend re-tendering as a feasible option and suggests there is little scope for savings."

The public Expenditure Minister Paschal Donohoe and Health Minister Simon Harris have been given a month to come back to government with an implementation plan for the recommendations contained in the report.

Mr Varadkar also said: “Our priority now must be to finish the job on time to meet the 2023 opening date, contain further cost increases and learn from the mistakes made in advance of other major projects like Metro and the National Broadband Plan.”

The PWC report contains 11 recommendations.

The recommendations relating to the NCH project are:

1. An overhaul of the NCH project's "control environment" to bring it up to the level of maturity and sophistication required for a project of the scale, complexity and importance;

2. Comprehensive plans should be developed to mitigate the residual risks identified;

3. A Project Assurance Strategy should be developed and implemented for the remainder of the NPH (National Paediatric Hospital) Project;

4. The commercial capability and capacity of the NPH Executive should be strengthened so that it is more self-sufficient and less reliant on external advisors;

5. The Executive of the NPH should be strengthened in the short term to support the planning and execution of the next phase;

6. Consideration should be given to opportunities for the closer working of the NHPDB (National Paediatric Hospital Development Board) and the CHI (Children's Health Ireland) Board including the potential for some shared appointments to promote integration and to address skills gaps;

7. The NHPDB should request confirmation of a number of key decisions in relation to the procurement/approach for medical, ICT and electronic health records to enable effective planning for the next phase of the programme;

8. The scope and responsibilities of the advisory firms that constitute the Design Team should be reviewed to reflect their future roles;

9.  view of the potential consequential programme risks, a scrutiny process that includes all levels of the governance structure should be put in place.

The recommendations relating to other capital infrastructure projects are:

10. The rules that govern public sector spending on major capital projects should be strengthened. The standards to which business cases must adhere should be more clearly defined and robustly enforced; and

11. A central assurance and challenge function should provide consistent challenge to and review of major projects through their lifecycles.

The PWC report makes a number of key findings.

It says that "significant failures occurred during the crucial planning and budgeting stages of the project."

The basis of the original budget is said to have been "flawed" and "risks were understated in the business case".

The report says there was a lack of sufficiently comprehensive or robust planning for the process to secure a Guaranteed Maximum Price (GMP) for construction of the hospital.

It says: "This created a situation in which the approved project could never be delivered within the financial parameters agreed."

In terms of the execution of the project it says that "once underway, the process by which the GMP was determined was poorly coordinated and controlled."

One issue identified is that the quantity surveyors used a number of different techniques to determine quantities, which were in some cases different to those used by the contractors.

This is said to have complicated the process of determining the GMP.

In relation to governance the report says that "the level of trust that the NPHDB placed on the NPH Executive and Design Team gave rise to insufficient scepticism and challenge."

It adds that: "The structures above the NPHDB became reactive, limited by their terms of reference."

A spokesperson for the board overseeing the Children's Hospital project said: "The NPHDB won’t be commenting on the PwC Report until it has had a chance to review it."

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