Grim reading in this children’s hospital tale, but key details left out

"Grim reading" is how Taoiseach Leo Varadkar has described the PwC report into the cost overrun at the national children's hospital, and this is certainly a tale without a happy end.

Grim familiarity is the term that could be used in relation to the findings of the report, which tells us pretty much what we already knew: most of the whopping €450 million overrun on the project since 2017 is down to an underestimate of the initial costs; there is little scope to save any money now; and it may cost a good deal more than the €1.73 billion currently estimated to build and equip the hospital.

No fear – at least in this story there are no real baddies. No names are mentioned. The finger of blame is weakly pointed at times, then wrenched away in a fog of mitigation. As for the loss of hundreds of millions of euro of public money ... it’s complicated.

Mildly rebuked

The executive of the National Paediatric Hospital Development Board, for example, is mildly rebuked for its inadequate oversight and challenging of the design team, for poor attendance at crucial meetings with contractors and for a lack of experience in healthcare projects. But much of these failings is attributed to the terms of reference and governance structures the board inherited, rather than any of its actions.

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Crucial parts of the story of the children’s hospital are missing from this review. Its scope did not include the initial decision to locate the hospital at St James’s Hospital, which was clearly based on flimsy calculations. Neither did it assess the project on value-for-money terms.

Comprehensive plans should be developed to mitigate the remaining risk identified, the report says

What the report does show is that virtually everyone involved in the project started looking for more money as time went on, and not just the building, electrical and structural contractors. The architects on the design team, for example, got a 59 per cent fee increase; the quantity surveyors’ fees went up 133 per cent.

A report investigating a €500 million overrun, itself costing more than €500,000 when VAT is included, has no aspiration to being the last word on this subject. Comprehensive plans should be developed to mitigate the remaining risk identified, it says.

Puzzling arrangements

Some puzzling arrangements are uncovered in the report. In 2016, the lowest construction bid (from Bam) still came in €61 million over budget. Rather than taking this as a warning the budget was too low, those behind the project introduced a €70 million “value engineering” target into their sums, which offset the overrun and presented the contract as being within the budget. Convenient, but ultimately only €20 million of this target was achieved.

Money has been wasted. Errors were made. The horse has bolted. Lessons have been learned – we hope

Members of the “board executive” were procured through a management services contract with Linesight, the quantity surveyors on the project. “We have not seen evidence to suggest that their objectivity was impaired; however, the arrangement could create the potential for a perceived conflict of interest to exist,” the report notes.

Meanwhile, Linesight was using different techniques to determine quantities from those used by the contractors, thus complicating the process of determining the estimated cost of the project.

‘Material errors’

The report says the definitive business case, on which the Government made its decision to invest in the hospital at a cost of €987 million in 2017, contained “material errors” and did not adhere to the Public Spending Code. Yet it does not spell out what these errors were, aside from saying the business case “overstated the maturity of the project and level of confidence in the forecasts, and understated the complexity and risks”.

So where are we now? Money has been wasted. Errors were made. The horse has bolted. Lessons have been learned – we hope. There is no guarantee costs will not rise further. The Government’s reputation for fiscal watchfulness is in tatters.

Up at St James’s, 400 workers are filling a giant hole with cement. The hospital building is about to rise before our eyes in the coming months. There is, really, no turning back. Sometime, around 2023 when the hospital opens its doors, this story might get its happy ending.