Sunday 18 August 2019

'Significant' risk that children's hospital cost will soar yet again

Work in progress: An aerial shot of the new children’s hospital project
Work in progress: An aerial shot of the new children’s hospital project
Cormac McQuinn

Cormac McQuinn

There are still "significant" risks of further cost increases to the National Children's Hospital (NCH), a major report on the overrun at the controversial project has warned.

There were renewed fears that the full costs of the hospital could rise above the previously estimated €1.73bn in the wake of the publication of the review by consultancy firm PwC. There has been intense scrutiny of the NCH project since it emerged late last year that construction costs spiralled by €450m to more than €1.4bn. A further €300m is to be spent once the cost of IT equipment and other items are included.

Now PwC's report warns that if ongoing risks are not effectively managed it could lead to a further cost escalation.

The dangers include how elements of the NCH design have yet to be finalised and costed.

The report also points to terms of the contract with the hospital's builders that allow them to recover costs relating to construction price inflation above 4pc. PwC noted that an increase in construction inflation to 10pc would result in an additional cost of around €97m.

A no-deal Brexit is listed as an "uncontrollable risk" as the project is based on the delivery of construction materials and equipment on a "just-in-time basis".

An estimated €50m worth of this is to be sourced from the UK and its delivery in accordance with the NCH's anticipated timeline and costs could be "significantly disrupted".

The report recommends that a comprehensive plan be developed to mitigate against the residual risks.

In terms of the history of the NCH project, the PwC review found "significant failures" occurred during the "crucial" planning and budgeting stages. There was said to be a lack of robust planning for the process of establishing a guaranteed maximum price (GMP).

Understanding of the risks associated with the procurement strategy was said to be "poor at all levels of the governance structure" and "red flags" indicating the inadequacy of the budget were missed.

One issue identified is that the quantity surveyors used a number of different techniques to determine quantities that in some cases differed to those used by the builders, complicating the process of determining the GMP. The report said there was a rapid escalation of the costs at a late stage in the project, but that any alternative course of action other than proceeding would likely have led to "significant delay" and "increased cost".

The report recommends strengthening the National Paediatric Hospital executive to support the planning and execution of the next phase of the project. It says the rules governing public sector spending on major capital projects should also be strengthened.

Taoiseach Leo Varadkar said the report makes for "grim reading". He said the priority now is to "finish the job on time" to meet the 2023 opening date, while containing further cost increases and learning from mistakes in advance of other major capital projects like the Metro.

Labour's Alan Kelly said the report vindicates predictions the costs could rise to up to €2bn and accused the Government of taking a "hands-off approach" to the project.

Fianna Fáil TD Stephen Donnelly also raised concern at the possibility of a further cost escalation, saying the report "repeatedly stressed" that it could go beyond the current €1.73bn estimate.

On the question of whether anyone would be held accountable for the cost overruns, Health Minister Simon Harris said he will be talking to the chairman of the NPHDB Fred Barry to discuss the report's findings. He said Government relies on experts carrying out their work to assess costs of such projects and it's clear "something went badly wrong".

Irish Independent

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