Monday 17 June 2019

Colm McCarthy: 'Let full truth come out in hospital costs blame game'

There is no useful sense in which Simon Harris bears any responsibility for the overspend in this saga, writes Colm McCarthy

THE DANCE OF POLITICS: Minister for Children Katherine Zappone greets Minister for Health Simon Harris at a Fine Gael policy launch, as five-year-old Tadgh Litton and some younger children look on. Photo: Damien Eagers
THE DANCE OF POLITICS: Minister for Children Katherine Zappone greets Minister for Health Simon Harris at a Fine Gael policy launch, as five-year-old Tadgh Litton and some younger children look on. Photo: Damien Eagers
Colm McCarthy

Colm McCarthy

There has been a confusion of political accountability with executive responsibility in the children’s hospital saga.

Simon Harris is accountable to Dail Eireann as minister for health, and deputies are entitled to query whether ministers discharge this obligation properly. But there is no useful sense in which

Mr Harris bears any operational responsibility for the debacle. Project management is not what ministers do.

He should however ensure that it all comes out: who chose the site, who designed the hospital, who agreed the form of contract, who oversaw the project? Who, most importantly, signed off on the €650m estimate presented to the Government in 2015 and on which political commitment was secured?

It is now clear that this figure will prove to be an underestimate by as much as €1bn — enough to build most of the M20 motorway from Limerick to Cork. Was this misdirection of politicians a conscious strategy by the project champions, or just a mistake? Was the Government remiss in going ahead based on a flaky cost estimate?

The consultants PwC have been furnished by the minister with terms of reference for their report which will inhibit them in addressing these questions.

It would have been far better to have appointed a judge to lead a sworn inquiry, a formula which has proved its value in the clerical child abuse and Garda whistleblower examples.

Identifying those responsible delivers the important by-product of exonerating those who were not. There is no reason why this cannot be done in addition to the PwC inquiry.

The speed as well as the scale of the NCH cost over-run makes this an exceptional failure of public administration. If all available lessons are not learned, further failures are guaranteed.

Speaking to RTE News last Friday, Tanaiste Simon Coveney said: “Nobody is happy, least of all Simon Harris, in relation to how the initial cost estimate differs from what we now know will be the true cost.”

Anyone who knows the true cost enjoys the gift of prophecy denied to the officials who have been appearing at Oireachtas committees, none of whom was willing to name a firm figure.

Their reluctance to name a figure is understandable — cost uncertainty is unavoidable with large once-off projects. An engineer friend attended the bankers’ inquest 30 years ago on the Channel Tunnel project, which cost double the (allegedly fixed-price) amount originally contracted. The shareholders got wiped out and the bemused bankers took large haircuts on their loans.

My friend asked an experienced contractor in attendance whether his firm had ever bid a fixed price for a tunnelling assignment.

“We will offer a fixed price for the bid documents, but not for the tunnel,” was the response.

Once-off projects, as distinct from repeat projects like schools, entail a large element of construction risk. You cannot do a site investigation for a tunnel without digging a tunnel. Nobody could be expected to undertake a tunnelling project on anything other than a cost-plus contract.

The degree of construction risk varies considerably, even for projects within the same sector. For example, gas-fired power stations share standard designs and costs are not normally site-dependent. They usually come in close to budget.

But nuclear stations, as well as being far larger, vary in design and often go over budget, sometimes disastrously. There are recent examples in Finland and France.

Political decision-makers cannot expect fixed prices for some of the schemes they undertake. The number of construction firms around the world willing to bid a fixed price for large once-off projects, in the absence of irrevocable commitment to a firm design and certainty about site conditions, is equal to zero.   

If governments cannot expect firm cost estimates at the point of decision, what is the best that can be achieved? The key requirement is that sketchy or incomplete initial estimates should not be tabled at all as a basis for decision. There needs to be a process in place, a certification to Cabinet by someone other than the promoting minister, that the initial estimate is based on a full design and includes all ancillary components, so that it cannot be improved upon.

For any project, the best possible estimate will encounter construction reality and the out-turn may differ greatly from the initial figure. But there should be under-shoots as well as over-shoots if everyone is being candid and political decisions will, on average, be based on the best available information.

In Ireland, and in many other countries, there is a sorry record of large, persistent under-estimation of costs. 

Since the errors are almost always in the same direction, the conclusion is inescapable that project promoters are engaged in the deliberate deception of decision makers.

The game is straightforward and has been documented since the Pyramids of Egypt: produce an initial cost estimate at the very lowest end of plausibility, get the government to commit publicly (the announcement will be welcomed by the envious Opposition) and reveal the actual costs gradually when it is politically impossible to reverse engines. An added wrinkle is to produce an intermediate and higher cost estimate to cod journalists and disguise the extent of the ultimate over-shoot.

The initial estimate, the one on which the political go-ahead was secured, is the only one that matters. The Oireachtas Health and Public Accounts Committees should dig deeper into the 2015 cost estimate and the decision to proceed, from which there was no turning back.

The monthly minutes of one of the many oversight bodies, the Children’s Hospital Programme and Project Steering Group, have been released and the timelines of the cost escalation have occupied the members of the Oireachtas committees — who knew what and when. But the minutes also reveal a curious response to the financing of the funding gap as it emerged — reliance on philanthropy, not hitherto regarded as a routine financing option for the public capital programme.

By October 20, 2017, it was clear that the allocated funds would be insufficient, and the minutes record that four options were considered: ‘descoping’ the project — Google Translate thinks this means “building a smaller hospital” in English; “reallocating capital from the wider HSE Capital Plan” which means doing less somewhere else in the health sector; “engaging with the Department of Public Expenditure for additional funding” which means doing less somewhere else entirely; and “mitigating deficit through philanthropic funding” with a target figure of €20m.

Given the scale of the cost overrun, €20m is neither here nor there. The Health Department overspent its agreed budget by €700m in 2018, that is, they went through €20m in unbudgeted overshoots every 10 days.

The minutes record, repeatedly month after month, that the appointment of a Director of Philanthropy was imminent and a ‘business case’ (I suffer an untreatable allergy to the relentless management-speak) was submitted. But 15 months later no appointment has been made.

There is a history of philanthropic donations to hospitals in Ireland: long may it continue. But it is remarkable to find senior officials counting modest donations from unidentified donors in the financing plan for such a mega-project.

What next — a flag-day to build motorways?

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