COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 23 Oct 2014

2012 Accounts of the National Paediatric Hospital Development Board

Mr. John Pollock(Project Director, National Paediatric Hospital Development Board) called and examined.

Chairman

I remind members, witnesses and those in the Visitors Gallery to please turn off their mobile telephones, as they interfere with sound quality in the transmission of the meeting. I advise witnesses that they are protected by absolute privilege in respect of the evidence they are to give this committee. If they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that where possible they should not criticise nor make charges against a Member of either House, a person outside the House or an official by name or in such a way as to make him or her identifiable. Members are reminded of the provision within Standing Order 163 that the committee should also refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government, or the merits of the objectives of such policies.

I welcome Mr. John Pollock, project director of the National Paediatric Hospital development board and Mr. Liam Woods of the HSE. I ask them to introduce their officials.

Mr. John Pollock

I am John Pollock. I am project director for the national paediatric hospital development board. On my left is Mr. Tom Costello, the chairman of the development board and Mr. Jim Farragher, the financial officer of the development board. I ask the delegates from the Department and the HSE to introduce themselves.

Ms Tracey Conroy

I am Tracey Conroy, assistant secretary in the acute hospitals policy division in the Department of Health

Ms. Fionnuala Duffy

I am Fionnuala Duffy, head of the acute hospitals policy division in the Department of Health.

Mr. Liam Woods

I am Liam Woods, national director of the HSE.

Mr. Barry O'Brien

I am Barry O'Brien from the Department of Public Expenditure and Reform.

Chairman

I ask the Comptroller and Auditor General to give us an introduction to the reports.

Mr. Seamus McCarthy

This morning the committee is considering the 2012 financial statements of the national paediatric hospital development board. The board was established in 2007 to oversee the development of a national hospital for children on a site at the Mater hospital. As members are aware, following the decision of An Bord Pleanála on the proposed development there, a Government decision was taken in November 2012 to discontinue the project at the Mater site and to relocate the development to a site at St. James's Hospital. The term of appointment of the original board members expired in December 2012. Interim appointees to the board served between January and July 2013. The current board members were appointed in August 2013.

Between 2007 and December 2012, the board incurred costs totalling just under €40 million. Funding for the board's expenses was provided by the Health Service Executive. The cumulative expenditure by year is shown on the screens before us in figure 1. The profile of expenditure is influenced by the rate at which the project advanced with most of the expenditure incurred in the years 2009 to 2011. The breakdown of total expenditure to the end of 2012 is shown in figure 2. Expenditure of €24.5 million was incurred on the business services team, which has responsibility for business and health care planning and overall programme management. Expenditure of just over €6 million was incurred on the integrated design team whose responsibilities relate mainly to development of architectural designs, engineering and quantity surveying activities. Cumulative expenditure on the project management team amounted to €3.2 million. This related to project planning and management, management of design quality and procurement management. A further €6.2 million was incurred in relation to administration costs including support staff salaries. I am sure the board representatives will be able to explain if I have got any of the assignments of responsibilities incorrect. It should be noted that the board has not incurred site acquisition costs either at the Mater site or at St. James's. I understand that the HSE and St. James's have incurred costs for site assembly.

Since the board exists solely to develop a major physical asset, all of the expenditure incurred was capitalised and recognised as a construction work in progress asset in the board's balance sheet. That persisted from its establishment. Accounting standards require that if circumstances or events indicate that the carrying value of an asset may not be recoverable an impairment review should be conducted. The carrying value of the asset at 31 December 2012 was impacted by the Government decision of November 2012 to change the location of the hospital. Given that the required impairment review had not been completed, the audit certificate on the 2012 financial statements drew attention to the uncertainty in relation to the value of the main asset included in the board's balance sheet at the year-end. Following its appointment in August 2013, the board commenced a review of asset values in relation to all costs incurred up to July 2013. The review took account of the extent to which the outputs produced could be used on the project at St. James's and was completed in August 2014. The resulting write-down of the asset will be reflected in the 2013 financial statements. The audit by office of the impairment exercise and its impact on the draft 2013 financial statements has been completed and our views on the matter have been communicated to the board.

I understand the board has now considered the impairment review and the audit comments and wrote to the Department of Health on 16 October detailing the process and its outcomes. I believe the Department is considering the matter in consultation with the HSE and with the Department of Public Expenditure and Reform. As soon as the board presents signed financial statements in relation to 2013, we will be in a position to close the audit and issue the audit opinion.

Chairman

I thank Mr. McCarthy and invite Mr. Pollock to make his opening statement.

Mr. John Pollock

We have been invited to attend the Committee of Public Accounts to assist the committee in its examination of the annual accounts of the national paediatric hospital development board for the year ended 31 December 2012. As set out in the accounts, a number of significant developments took place in 2012 which impacted the work of the development board and the Comptroller and Auditor General has referred to some of these. In particular, these were the refusal by An Bord Pleanála of the planning application for the children's hospital on the Mater site, which took place in February 2012, the subsequent decision by Government to locate the children's hospital at the St. James's site in November 2012, and the expiry of the term of appointment of the members of the national paediatric hospital development board in December 2012 and their replacement in January 2013 with a transitional board.

The total expenditure for the year 2012 was €3.36 million. This can be summarised under the following headings. The business services team received €1.47 million, the project management services team received €0.13 million, the integrated design team received €0.34 million and administration and other costs including payroll were €1.42 million, giving a total expenditure of €3.36 million. The board had 1.5 whole time equivalents at the end of 2012. Other than these, the day-to-day work of the board in 2012 was carried out through the business services, project management and integrated design teams rather than through additional, directly hired staff. The 2012 balance sheet includes asset values at €39.98 million in regard to the planning and development work for the children's hospital plan for the Mater hospital campus. This value relates to accumulated expenditure in the period 2007-12.

The current board of the national paediatric hospital development board chaired by Mr. Tom Costello was announced in August 2013 and commenced familiarising itself with the overall project details including the 2012 accounts. On page 14 of the 2012 accounts, note 3 identifies that arising from the refusal of planning on the Mater site and the Government decision to change the location to the St. James's Hospital site, the board is of the opinion that the assets of the development board are now impaired and that a detailed asset impairment review process is required. The development board initiated a process in 2014 to review and analyse the asset impairment. This work is nearing completion and is part of the 2013 accounts. A draft has been submitted to the Comptroller and Auditor General, as he has alluded to, for approval. On 16 October, the development board wrote to the Department of Health and the HSE setting out details of the process that was undergone for their consideration and sanction. A response is pending. This is in accordance with public financial procedures. We hope to have concluded the asset impairment process and to be in a position to finally sign off and submit the 2013 accounts to the Minister for Health within the next few weeks.

As requested by the Committee of Public Accounts, we set out in our briefing document details of expenditure since 2012 which can be summarised as the expenditure in the year ending 2013 was €1.7 million and the expenditure in the current year to August 2014 is €1.76 million. The current project status is that, as of August 2014, the design team for the new children's hospital at the St. James's Hospital campus led by BDP architects has been appointed. A separate design team will be appointed for the design of the two satellite centres in regard to emergency, urgent care and outpatient services. One of these is at Tallaght Hospital on the south side of Dublin and the other at Connolly Hospital on the north side. A planning application for the main children's hospital and both satellite centres is scheduled to be submitted to An Bord Pleanála in June 2015 and, subject to a positive decision, construction will commence in early 2016.

Chairman

I thank Mr. Pollock. Can we publish his statement?

Mr. John Pollock

Yes.

Deputy Paul J. Connaughton

I welcome the delegates. I imagine a lot of the questions I am going to ask refer to a period before the delegates' time but they will have familiarised themselves with the accounts in any event.

The issue I start with is the big one, which is the impairment of just shy of €40 million. The board has finished its report, which went to the Comptroller and Auditor General and has now gone back to the HSE. When can we expect to find out what exactly will be written off as impaired? What is the figure?

Mr. John Pollock

The process we went through involved an internal review within the development board at the executive. We did not do this externally. We reviewed all the assets that related to the Mater hospital site in respect of health planning, design, business cases, project execution plans and risks registered. We assessed the assets to see which could be retained for value. The process took a long number of months and we had an initial view in August 2012, which the Comptroller and Auditor General has spoken about, and separately the board decided it was not happy with the figures presented. The Office of the Comptroller and Auditor General came back to say it did not consider the figures as presented were correct and that some of the issues could be challenged further.

Deputy Paul J. Connaughton

What were those figures?

Mr. John Pollock

What we presented back then was that there could be something of the order of €10 million or €12 million of retained value. We have now carried out the more detailed analysis with the sign-off of the board and the Comptroller and Auditor General's office has provided its imprimatur. We are waiting for the sanction of the Department of Finance and the Department of Public Expenditure and Reform, but retained value will be of the order of €6 million to €6.5 million. There will be a write-off on the 2013 accounts, subject to sanction, of the order of €35 million.

Deputy Paul J. Connaughton

Does that mean €35 million has been spent which has been basically wasted and €6 million of that can be retained into the new project?

Mr. John Pollock

The Deputy is correct that €6 million of it can be retained into the new project.

Deputy Paul J. Connaughton

Does the Comptroller and Auditor General agree?

Mr. Seamus McCarthy

Yes. One point I make is that the expenditure incurred in 2013 will have to be added on. There was €40 million at the end of 2012 and the impairment relates to that. When one looks at the balance sheet, one will see a bigger figure of €6.2 million.

Deputy Paul J. Connaughton

Does the HSE see it that way also?

Mr. Liam Woods

We are now assessing that having received the material in the last week. There is nothing in the reports we have seen to suggest it is unreasonable.

Deputy Paul J. Connaughton

We can take it then that €34 million to €35 million will be written off in respect of the Mater hospital site.

Mr. John Pollock

In regard to our 2013 accounts, that is the most likely outcome.

Deputy Paul J. Connaughton

Of the €6 million that can be retained, how does it break down?

Mr. John Pollock

I would need to refer to my notes to say. One of the key pieces of work done on the Mater was the design brief. When one goes to design a hospital one must decide how many beds to put in, how many theatres, how large the out-patients department should be, how large the emergency department should be and how large the imaging department should be. The design brief on the Mater side cost approximately €4 million to €5 million to develop. It looked at the activity, operations and procedures taking place at the existing three hospitals - Tallaght Children's Hospital, Temple Street Children's Hospital and Crumlin hospital - and future-proofed the project for inflation growth between now and 2025. It projected the child population looking at current activity and modelling the number of operations to determine how many broken legs will be treated and heart surgeries undertaken. That whole activity was then converted into a design brief for the hospital setting out a need for 480 beds, 14 theatres, an out-patients department of a certain size and determining the size of the two satellite centres at Tallaght and Connolly and the level of clinical activity to take place at those hospitals.

Deputy Paul J. Connaughton

Mr. Pollock may correct me if I am wrong, but that money and work had more to do with the internal workings of how this hospital will work by bringing the other three campuses together.

Mr. John Pollock

It is both. Regarding the internal workings of how it is going to work, one must look at the manpower resourcing of the new hospital also. In looking at that when one merges three hospitals into one, one will look for efficiencies in terms of how the hospital is staffed and in terms of procurement of consumables, materials and drugs with greater buying power. One is looking at how the hospital will be run. However, one must also tell the design team how large a hospital it must design. We have told our design team the hospital will be approximately 65,000 sq. m of net clinical space. That is purely clinical space and when one grosses it all up for communications and circulation, one ends up with a gross hospital space of approximately 110,000 sq. m. We must provide this information to the design team in advance. It is design information we provide to the BDP team in terms of saying to it that is the hospital we want it to design. It is very similar to what was planned at the Mater in terms of scale and when one moves to a new site there will be some synergies in terms of what can be shared on the St. James's campus that will be different to what might have been shared at the Mater. One conducts a stress test to bring it up to current medical practice and to accommodate it at St. James's.

Deputy Paul J. Connaughton

The sum of €1.6 million is down under planning expenses. How is that figure broken down? This is part of the €40 million figure relating to the Mater site.

Mr. John Pollock

Is the Deputy referring to the 2012 accounts?

Deputy Paul J. Connaughton

Yes.

Mr. John Pollock

That is the cumulative figure. Of the €1.6 million, €600,000 related to 2012. An Bord Pleanála set out fees. When one attends the board for an adjudication, it decides at the end who pays the costs.

Mr. Jim Farragher

The initial Bord Pleanála planning application lodgment fee was €100,000 in 2011. The expenses of running the oral hearings totalled a further €132,000.

Mr. John Pollock

I was looking at the 2012 accounts. The previous sheet sets out that there was a €100,000 fee to An Bord Pleanála, a planning consultation fee of €4,500, and the board made a costs ruling at the end of €128,000. Legal counsel had to be procured for the oral hearing and three people were retained totalling €440,000. The O'Connell-Mahon, project business services team and project management team fees in respect of the Bord Pleanála hearing were €890,000. Communications consultants received €26,000 and there was some ICT support in respect of attending at the hearing to ensure we had the proper ICT facilities of just over €2,500. Those are the main headlines and the total was approximately €1.6 million.

Deputy Paul J. Connaughton

It is a great deal of money spent on a decision that did not go our way.

Mr. John Pollock

I agree that it is a huge sum of a money.

Deputy Paul J. Connaughton

There was a great deal of expertise involved. Is it not hard to believe that no one saw, given the size of the project, that this was not going to work?

Mr. John Pollock

I was not involved in the project in 2012 and I cannot comment as regards who was saying what at the time.

Deputy Paul J. Connaughton

If Mr. Pollock had been involved at the time, would he have gone ahead with it?

Mr. John Pollock

One looks at the project and it obviously went through a couple of changes. Many people were involved, including Dublin City Council, planners and a business services team. There was a great deal of intelligence around that. I went back to look at the decision of An Bord Pleanála.

One of the things that came out is that they were impressed with the quality of the design, which they thought was of a high quality. However, in terms of the impact on the skyline-----

Deputy Paul J. Connaughton

I do not have an issue with that. Even for somebody building a house, a small project, somebody would be able to advise whether the project would fly. No matter what the expertise, it is extraordinary that somebody never said to wait as there could be a problem. All this money was spent only to find it would not work.

Mr. John Pollock

I think we have to accept that An Bord Pleanála is a totally independent and statutory body.

Deputy Paul J. Connaughton

I understand that. There was a high level of expertise and a great deal of money has been spent there. From what the witnesses found out, did anybody at any stage say there could be a problem?

Mr. John Pollock

I cannot answer that question. I do not know. That was, as I say-----

Deputy Paul J. Connaughton

Are any of those people who were involved in that project still involved today?

Mr. John Pollock

On the current-----

Deputy Paul J. Connaughton

Yes.

Mr. John Pollock

O'Connell Mahon Architects are involved, they are subconsultant to BDP and the project now in St. James's Hospital.

Deputy Paul J. Connaughton

So the architects for the Mater sites that were turned down are now still involved with the project for St. James's Hospital.

Mr. John Pollock

They are involved. First, our contract is with BDP and O'Connell Mahon. They are supporting local consultants and are needed. In regard to the Mater site, O'Connell Mahon were not the lead architects, they were managed by a project management services team who, in turn, reported to a business services team. That was the way the project was procured. O'Connell Mahon were not the lead on it. They were managed by a project management services which, in turn, reported to a business services team. In terms of the communications, I do not know who made the decisions or what was said.

Deputy Paul J. Connaughton

Are there many people who are involved in all areas on the Mater site still involved in the St. James's site, across the whole project?

Mr. John Pollock

Is the Deputy asking about the executive?

Deputy Paul J. Connaughton

Yes.

Mr. John Pollock

I am entirely new to the project.

Deputy Paul J. Connaughton

I know the board is new, but people who are actually carrying out the work.

Mr. John Pollock

Our consultants.

Deputy Paul J. Connaughton

Yes.

Mr. John Pollock

O'Connell Mahon and BDP are new architects because the previous international architects NBBJ are not involved. Previously the quantity surveyors were AECOM but this time it is Bruce Shaw. In regard to the monitoring and evaluation, M&E, it is the international arm of our consultants and previously it was White Young Green. There are still structural engineers who would make the building stand up, O'Connor Sutton Cronin; there is commonality there. The planning consultants previously were RPS; this time it is GBA. With the exception of O'Connor Sutton Cronin and O'Connell Mahon architects it is a new team.

Deputy Joe Costello took the Chair.

Deputy Paul J. Connaughton

Of those who were involved on the Mater site, when the site changed to St. James's were they paid in full for the work they had done or was there an issue with contracts with the work they had carried out or were expected to carry out?

Mr. John Pollock

The way the contracts were procured in the Mater is that they were based on deliverables. There is a schedule of deliverables set out in their appointments. Once the contract was terminated, in terms of the development board we had to go through a process to terminate those contracts. We needed to get advice on terminating those contracts but they were paid as per the schedules. There were some robust debates but they were not paid any compensation or anything like that.

Deputy Paul J. Connaughton

Is there any ongoing legal action?

Mr. John Pollock

No. All those contracts have been closed off.

Deputy Paul J. Connaughton

Was one of the deliverables that we would get planning and that the project would go ahead?

Mr. John Pollock

It is not measured that way in terms of the deliverables. I would say that An Bord Pleanála is an independent statutory body so nobody can guarantee-----

Deputy Paul J. Connaughton

I understand that. I would imagine - I can be corrected on this - this is probably one of the largest projects the State will ever undertake and a service we all desperately need.

Mr. John Pollock

Correct.

Deputy Paul J. Connaughton

However I get the impression that some people who were paid to do a job that did not work out got paid in full. I would have thought one of the measures would have been that once one is finished one's job the project goes ahead with the Mater site.

Mr. John Pollock

They cannot guarantee planning permission.

Deputy Paul J. Connaughton

One would imagine with the level of expertise it would have known a problem could have arisen.

Mr. John Pollock

I do not know how the reporting system worked between O'Connell Mahon, the project management team and the business services team.

Deputy Paul J. Connaughton

Okay.

Mr. John Pollock

The business services team is not involved. We have taken much more direct controls now. One of the changes we have now implemented is that the executive is keeping its skill-sets within the development board. In the recruitment process we have gone through we are keeping many of those skills internally in terms of managing the design process.

Deputy Paul J. Connaughton

Does Mr. Pollock think there was there a shortage of skill-sets initially in this project? Was the level of expertise there?

Mr. John Pollock

I believe it was.

Deputy Paul J. Connaughton

Would Mr. Pollock have done anything differently if he was there at the start?

Mr. John Pollock

Hindsight 20-20. One can always ask if there are things on which one could improve and the answer is "Yes". If one cannot learn from what happened at the Mater site it would be a poor reflection. Yes, we have looked at it - I mean by that the development board. The development board has said it wants to retain those skill-sets now more internally and take more direct control of the project rather than outsourcing some of the skills.

Deputy Paul J. Connaughton

How much has been spent in total, from where we are today from the start, on the whole project?

Mr. John Pollock

The cumulative expenditure up to 2012, 2013 and 2014 is approximately €43 million.

Deputy Paul J. Connaughton

How much of that has been written off?

Mr. John Pollock

Some €35 million. Sorry, that is wrong. To the end of 2013 the amount was about €41.5 million.

Deputy Paul J. Connaughton

Yes.

Mr. John Pollock

Of that approximately €35 million will be written off.

Deputy Paul J. Connaughton

How much does Mr. Pollock expect the total project will cost by the time the building of the hospital starts to completion?

Mr. John Pollock

Our budget is for a €650 million project, which is funded from the HSE capital programme by €450 million and the sale of the national lottery, which has taken place, of €200 million. The budget we are working to is €650 million.

Deputy Paul J. Connaughton

Does Mr. Pollock believe it can be done at €650 million?

Mr. John Pollock

That is what our budget is currently telling us. We have stress tested that to take account of costs of developing on the Mater site and have factored in inflation and contingency. That is the figure we are working to.

Deputy Paul J. Connaughton

From a general public perspective the start of the project has not been the most auspicious.

Mr. John Pollock

It has not.

Deputy Paul J. Connaughton

Considering the amount of money that is being put into it, people would want to know that lessons have been learned from the mistakes and that losses of €35 million will not occur again. It is going ahead at St. James's now.

Mr. John Pollock

Correct.

Deputy Paul J. Connaughton

Should St. James's have been chosen from the outset?

Mr. John Pollock

I am the project director of the development board. I have been tasked to do a job. The site has been chosen. It is on St. James's and I have been told to get on with the job. In terms of a policy decision, I do not think that is for me to comment on.

Deputy Paul J. Connaughton

Is St. James's big enough for further works after the current project is carried out for a maternity hospital?

Mr. John Pollock

It is. That is an interesting point that the Deputy raises. When the Dolphin review was carried out it identified moderate risks on the site of St. James's Hospital. Again the development board, in conjunction with St. James's and the HSE and the Department, addressed them. Even though the site was much bigger than was proposed on the Mater site, and fundamentally the Mater failed because the site was too small in terms of development, which is why it was to be a 16-storey building, from what was originally proposed to the Dolphin group the site has been enlarged. What we have now is a 4.86 hectare site which is 12 acres. 12 acres in any terms in the inner city is a huge site. It is three times the size of the site we had at the Mater.

As part of the lessons learned, the development board has been stress-testing the site. Once I was appointed in August-September 2013 I said let us examine, as the Deputy has asked, whether we have enough land. The Dublin City Council development guidelines set a height of approximately of 28 metres. We can work within those guidelines so that we will not be in breach of the development guidelines, which are different from those that were on the Mater site. We can work within those guidelines and An Bord Pleanála will take cognisance of that. We certainly have enough space for it. We stress-tested the site so that if a decision is made to place a maternity hospital on the site that can be accommodated as well.

Deputy Paul J. Connaughton

This project has been going on for a number of years but the board has changed a substantial number of times. What is the main reason behind that?

Mr. John Pollock

I did not appoint the board.

Deputy Paul J. Connaughton

From Mr. Pollock's perspective?

Mr. John Pollock

I just look at-----

Deputy Paul J. Connaughton

From a public perspective and given this is a large project, we have had three boards in a number of years. What is going on?

Mr. John Pollock

Yes, maybe the Department will answer how it makes appointments to the board and how they are selected.

Ms Tracey Conroy

On that point we have a new build board in place which the Minister appointed in August 2013 and which is a competency based board with all of the competencies required to deliver a project of this kind.

It is important to emphasise that the Government had taken a decision after the refusal of the planning permission to look at the governance of the project.

We now have the national paediatric hospital development board with a focus on the build and construction to deliver the capital project. A children's hospital group board has been established on an administrative basis to look after the integration. That separation is important. It is one of the lessons we have from the past, to have clearer governance on the project. There is a very competency based board in this build board, with everything from planning to architecture-----

Deputy Paul J. Connaughton

The witness calls this a competency based board. What was the first board called?

Ms Tracey Conroy

It was also a competency based board. However, there is probably a clearer focus on the remit of the build board and a separation of responsibilities between the build board and the children's hospital group board. It is a massive capital project. It is the biggest health infrastructure project since the foundation of the State. There were lessons regarding clearer governance and management arrangements.

Deputy Paul J. Connaughton

It is a massive project. However, if one were to summarise the situation, it has lost a great deal of money so far and there have been three different boards. I am trying to ascertain how the people, whose money is going into it, can have confidence that this project will meet its deadlines, stay on budget and will not be subject to this loss again.

Mr. Tom Costello

The Deputy is correct. There is an obligation on our board and we accept that. There are people like me on the board. I worked in the construction industry and was managing director of Sisk Group for 13 years. The strength I bring to the board is the understanding of how one delivers major complex projects. I was involved in many of the multinational investments here with companies such as Johnson & Johnson and I was closely involved with the Aviva Stadium, Croke Park and so forth. As Tracey Conroy said, it is bringing an understanding of the design and construction of it and how one manages it in the private sector in terms of controlling costs and so forth.

I am supported by a board which has all the expertise involved in planning, project management, legal, procurement, engineering and architecture. The board is competency based in terms of the type of people who are put together on a team. Certainly, in the year I have been on the board, our immediate focus before we got involved in any substantial costs, and the main cost is the appointment of a design team, was that we do a due diligence on all the decision making surrounding the suitability of the St. James's site. I support what Mr. Pollock said. Even in terms of the size of the site, for example, we went so far as to carry out site investigations on the site to ensure there was nothing in respect of contamination, archaeology or rock. We have confidence about that and that has been proven, now that we have our design team on board, in the feedback it is giving us. The team is telling us there are no surprises. That is as I expected, because we spent a year just conducting due diligence on it.

The board and the executive are approaching it in a very professional way. For me and the board it is our project. There is a real sense of ownership.

Mr. Seamus McCarthy

In fairness to the board members, the first board served its term of five years. When the term ended it was around the same time that the decision was taken to move to another site. The board that was appointed thereafter was a caretaker or interim board and it kept the entity in operation, which we would expect. One cannot just abolish a board, wait for six months and then appoint another one. It was important that there was continuity. While one can characterise it as three boards in a short number of years, it is reasonably acceptable in the circumstances from a governance point of view.

Deputy Mary Lou McDonald

I welcome the witnesses. I see from Mr. Pollock's curriculum vitae that he received a first class honours degree from Cork. Congratulations on that achievement.

Mr. John Pollock

I thank the Deputy.

Deputy Mary Lou McDonald

I have looked at the synopses of the very impressive careers of the witnesses. As members of the board, how much of their time is taken up on this project? Are they full-time?

Mr. John Pollock

My role is as project director since January last. I left my previous employment in 2013 and took up this role last January. I do not sit on the board; I am the executive for the development board so this is a full-time role.

Deputy Mary Lou McDonald

What about Mr. Costello?

Mr. Tom Costello

I committed to the Department, due to the importance of getting the right structure in place last year and this year, that I would spend a day to two days a week on the project. There are many other members of the board who are giving a huge amount of their time and expertise to setting it up properly. There is a significant commitment from board members to the job. Certainly, I will continue to do that because it is really important that the expertise I have would support Mr. Pollock in his role.

Deputy Mary Lou McDonald

I appreciate that. Without going through each of the individuals, am I correct that, notwithstanding their commitment to the project, some are still working in their chosen lines of expertise?

Mr. Tom Costello

Absolutely.

Deputy Mary Lou McDonald

They would not be retirees.

Mr. Tom Costello

No, they are very active and understand the industry, which is very important.

Deputy Mary Lou McDonald

I appreciate that clarification. The lion's share of the €40 million is business services team costs at €24.5 million. That obviously runs from 2007 to 2012. Can one of the witnesses explain what business services team costs means?

Mr. John Pollock

The business services team was the first appointment made in 2008. It is a consortium of four companies. PM Group was one of the companies involved. It provided design expertise and took responsibility for doing the feasibility design up front, before the O'Connell Mahon Architects team was appointed later. PM Group was responsible for managing the budget. It was also responsible for managing the schedules, in terms of coming up with the schedule we were working to and what the budget is. It was €650 million in the case of the Mater hospital site.

There was the legal team and Beauchamps Solicitors, which are part of the PM Group legal team, providing legal advice and procurement advice as regards how the development board would procure the project management services team and the design team.

The next big inputs were around the health planning role, which was the health planners. That involved coming up with the design brief for the Mater hospital, looking at the resourcing plan for the current existing hospital, the future hospitals, the savings that would be made, what type of work practices would be put in place in the hospital and what model of care this hospital would work under as it was a different model of care from the model of care the three children's hospitals are currently working on. For example, to come up with the design brief that group attended 1,200 meetings with the user groups, such as the nurses, doctors, consultants, outpatient departments, emergency departments, theatres, ward sisters and so forth to understand exactly how they currently functioned. The 1,200 meetings was a huge volume of work.

The fourth member was BDO which was producing the business case. Having worked up the capital costs, one must show that there is a return to the State on its investment. This is linked to the workforce planning. How many people are in the hospital and what salaries will they be paid, currently and in the future? What is the head count in the hospital and will savings be generated in that regard? As I mentioned previously, there is buying the consumables, medicines, linen, the food, catering and everything that goes into the hospital, assessing where one is currently and where one can go in the future.

Deputy Mary Lou McDonald

That is very helpful. Mr. Pollock identified four clusters. How does the €24.5 million break down across those four?

Mr. John Pollock

All told, there was a team of about 40 people. Build, design and operate costs were approximately €5 million. The health planning role also cost about €5 million. The legal costs were between €1 million and €2 million and PM Group costs were €11 million or €12 million.

Deputy Mary Lou McDonald

All of this is now impaired.

Mr. John Pollock

No, there are two pieces around that. The health planning role is impaired to a degree but in terms of the retained value, we are talking about €6.2 million, much of which relates to the business case and the health planning in terms of the design brief.

Deputy Mary Lou McDonald

I am a little puzzled because the €40 million figure includes integrated design team costs of €6.1 million. As Mr. Pollock indicated to Deputy Connaughton, these costs related to connectivity and joining up, in a rational, efficient and quality manner, the services of three separate hospitals to create one service. I am concerned and do not fully understand how the level of impairment is as great as Mr. Pollock suggests. In terms of the business case for the hospital, according to Mr. Pollock, the build, design and operate costs were €5 million. While I understand that the hospital location has changed and the hospital will have a different appearance, I would not have expected the capacity of the hospital, as a national facility, to change to such an extent that the work would not carry forward. Does Mr. Pollock see where I am taking this line of logic?

Mr. John Pollock

I think I do.

Deputy Mary Lou McDonald

On workforce planning, the workforce remains the workforces, irrespective of whether one moves employees to a new site either on the Mater Hospital campus or in St. James's Hospital. I am puzzled by the level of impairment in some areas.

Mr. John Pollock

The design brief was done in 2011. Clinical activity and practice change as does the way in which a hospital is run, then versus now, and there are improvements, for example, in imaging scanners. One must update to accommodate current clinical practice and the clinical practice that will operate in the three children's hospitals. Our clients in this are the children's group board. Will they operate the hospital on the St. James's Hospital site in the same way as they would have operated on the Mater hospital site? Obviously, we cannot transcribe a building directly from the Mater hospital site to the St. James's Hospital site.

Deputy Mary Lou McDonald

No, I would not expect that.

Mr. John Pollock

That has an impact on how the wards are laid out, whether they will be located on one floor or four floors and so on.

Deputy Mary Lou McDonald

I accept that.

Mr. John Pollock

The layout has an impact in terms of the number of nurses one needs to manage and run the hospital. The workforce planning in the business case will have to be redone. There have been many changes in Temple Street hospital, Our Lady's Children's Hospital, Crumlin, and Tallaght hospital, as a result of the Haddington Road agreement and the loss of staff. All the relevant information will have to be gathered again from the hospitals and recast into the new design, which will have a different layout. Basically, not all the value is transferred. A new business case and new workforce planning need to be done.

Deputy Mary Lou McDonald

That is astonishing from a practical point of view. While I do not pretend to have expertise in the field, speaking as a layperson, the scale of impairment on a figure of €40 million is astonishing. I fully accept that this is a new plan for a new site and that time has moved on, albeit not to any great extent in the sense that I have not noticed any radical transformation in health services since 2011 in terms of equipment and so forth. I am not taken or convinced by that argument. It is astonishing that Mr. Pollock has informed us that €35 million of the €40 million is essentially null and void and impaired. I refer to moneys spent on work done on planning, workforce planning, business cases and so on. I accept the impairment in respect of legal costs as the board has entered a new arrangement on a new site. The figures are stunning. I presume we will be provided with more detail on this when the Health Service Executive and Department sign off on it. It is remarkable.

Mr. John Pollock

It is a huge sum of money.

Deputy Mary Lou McDonald

It is a huge write-off and I suggest that, given its scale, it merits a dedicated examination to ascertain why that is the case. I am troubled by this.

Mr. John Pollock

To validate the process, it was done by the executive and reviewed by our board. We then passed it to the Comptroller and Auditor General to interrogate the process.

Deputy Mary Lou McDonald

I am not questioning the process; Mr. Pollock has made that absolutely clear. However, in terms of PM Group, the legal teams, health policy designers, people in charge of the business case and so forth, these were essentially consultancy contracts. Is that the case?

Mr. John Pollock

Yes.

Deputy Mary Lou McDonald

Mr. Pollock will be aware of the legitimate public anxiety about expenditure on consultants. We need to return to this issue because I am taken aback by the scale of the impairment.

We will move on to the here and now. I have a couple of questions on the report the board forwarded to the committee and the current status of the project. The report states that following approval of the project brief, the design team was appointed and design development is now under way. We are informed that the international architects, BDP, have been appointed to design the new children's hospital and that, in addition to these architects, seven other disciplines on the design team have been or are being procured in separate processes. These include quantity surveying, mechanical and electrical engineering, civil and structural engineering, project supervision, the design process, planning, traffic consultancy and fire safety. We are informed that seven of the eight design teams are in place, the exception being the fire safety consultants, for which the procurement process has not been completed.

On BDP, the architects, what process applied to the appointment of this company and what was the scale of the contract for which it tendered?

Mr. John Pollock

The process was twofold. We first issued a suitability assessment questionnaire, SAQ, to ensure we got the best teams, both international and Irish, to bring forward to the official tendering stage. We received a huge response, as the Deputy will imagine. We then drew up a shortlist of six companies, most of which were consortiums in that they had an international architectural partner and a local architectural partner. One of the criteria was that the bidders needed to have experience of designing a children's hospital. We were not prepared to have somebody learning on the project, which meant the company had to demonstrate a track record on designing a children's hospital. We went through the suitability assessment questionnaire and drew up a short list of six.

Within the development board, there is probably greater oversight than is normal in that we set up technical evaluation panels for each individual discipline. The architects featured on one panel, while civil and structural engineering was another. There were eight different members of the design team. Each of these had a technical evaluation team, which would have had expertise to evaluate, whether in the area of architecture, engineering or urban planning. We had a financial evaluation panel which assessed the fees tendered for the project.

A steering group oversaw the entire process and all eight technical evaluation teams fed into that group to ensure consistency on how we dealt with the design teams. The steering group reported back to the development board for sign off.

Deputy Mary Lou McDonald

Was it the steering group that drew up the shortlist of those that qualified and was the list based on the suitability questionnaire?

Mr. John Pollock

It would have sanctioned the list. A technical evaluation team would have made the assessments and recommended the top six and forwarded that list to the steering committee. That committee could challenge the list and ask for more detail, and then the steering committee forwarded the list to the development board for final sign off.

Deputy Mary Lou McDonald

What was the value of the contract for BDP?

Mr. John Pollock

Approximately €14 million.

Deputy Mary Lou McDonald

BDP is an international outfit, is that correct?

Mr. John Pollock

It is. It has offices in Smithfield and around the world.

Deputy Mary Lou McDonald

So it has an Irish office. Who designed the suitability questionnaire and where did it come from?

Mr. John Pollock

We would have followed standard HSE procedures on procurement. As a development board, we were not going to go out and reinvent the wheel. The HSE would have had templates for procuring its projects, including for the maternity hospital in Holles Street or the forensics hospital in Portrane. We worked from those templates.

Deputy Mary Lou McDonald

From where were the personnel for the technical and financial evaluation panels drawn?

Mr. John Pollock

It was a mixture. Some of the assessment was internal. For instance, I was part of the assessment of the quantity surveyors. I did not sit on the civil structures assessment, because that could have been seen as a potential conflict of interest, because I had previously worked in that industry. Mr. Costello sat on a number of the panels and we had outsiders, from the HSE and the Department of Education and Skills. It was a combination of internal development board members, public servants, whether from the HSE or Department of Education and Skills, board members and one or two external people whom we considered had a particular expertise in an area.

Deputy Mary Lou McDonald

Who signed off on the composition of these panels? Was it the development board? I do not presume Mr. Pollock has the information with him here today, but can we have access to the names and qualifications of those who were on the technical and financial evaluation panels? Can Mr. Pollock provide us with that information?

Mr. John Pollock

Yes.

Deputy Mary Lou McDonald

What was the scale of the quantity surveying contract, what was it worth and who won it?

Mr. John Pollock

I do not have the figure with me, but Mr. Costello believes it was worth approximately €6 million.

Mr. Tom Costello

As far as I recall, the figure is somewhere in excess of €6 million.

Deputy Mary Lou McDonald

Does Mr. Costello know the identity of the successful bidder?

Mr. Tom Costello

It was the Bruce Shaw Partnership.

Deputy Mary Lou McDonald

What about the contract for mechanical and electrical engineering?

Mr. John Pollock

Arup engineering was awarded the mechanical engineering contract.

Deputy Mary Lou McDonald

Who are they? Is it an Arabic company?

Mr. John Pollock

No, it was originally a Danish company, but it is an international practice and has been in Ireland and Dublin for approximately 50 years.

Deputy Mary Lou McDonald

What was the mechanical and engineering contract worth?

Mr. Tom Costello

It was worth approximately €9 million. We can clarify those figures later.

Deputy Mary Lou McDonald

What about the contract for civil and structural engineering?

Mr. John Pollock

That was awarded to O'Connor Sutton Cronin and Associates Limited, which is based locally, in Smithfield in Dublin. It had an American partner, Thornton Tomasetti.

Deputy Mary Lou McDonald

How much was that contract worth?

Mr. Tom Costello

That was worth less than €4 million.

Deputy Mary Lou McDonald

Who got the contract for the project supervision design process?

Mr. John Pollock

That was awarded to Healy Kelly Turner & Townsend.

Deputy Mary Lou McDonald

What was it worth?

Mr. John Pollock

Approximately €500,000.

Deputy Mary Lou McDonald

Who got the planning contract?

Mr. John Pollock

That went to GVA.

Deputy Mary Lou McDonald

How much was that worth?

Mr. John Pollock

In the order of €400,000 or €350,000.

Deputy Mary Lou McDonald

Who was the contract for traffic consultancy awarded to?

Mr. John Pollock

That went to Arup engineering.

Deputy Mary Lou McDonald

What is it worth?

Mr. John Pollock

Again, off the top of my head it was worth approximately €500,000.

Mr. Tom Costello

It might have been slightly more.

Deputy Mary Lou McDonald

That is a lot of business the board has tendered for. The development board says it is assured there is no conflict of interest in terms of the decision making process, members of any of the panels or members of the board in respect of the award of the contracts.

Mr. John Pollock

We are. It is standard to ask at the evaluation whether there are conflicts of interest.

Deputy Mary Lou McDonald

Is the development board satisfied there have been no conflicts of interest?

Mr. John Pollock

We are.

Deputy Mary Lou McDonald

Have there been any complaints of conflicts of interest?

Mr. John Pollock

We have not received any complaints directly, but I am aware the media has raised some questions regarding material out there, but nobody has complained to us directly to say there were conflicts of interest.

Deputy Mary Lou McDonald

Which issues did the media raise?

Mr. John Pollock

The media raised an issue relating to the mechanical and engineering contract.

Deputy Mary Lou McDonald

Will Mr. Pollock explain to the committee the nature of that controversy?

Mr. John Pollock

The controversy concerned the awarding of the contract. Once one comes to awarding the contract, one nominates the preferred candidate - in that case, Arup was the preferred candidate - and one then enters a stand still period of 30 days, to allow people the opportunity to object and raise concerns. One sends out the marking to the unsuccessful candidates to show them how they scored in terms of the technical and financial evaluations and how they compared with the successful candidate. For example, out of an overall score of 100 a score is awarded. We made a mistake in that we gave the total score for one of the evaluation panels. Let us say, for example, it was a score of 70. However, when the bidder looked at the addition, a 45 had become a 54 in transcribing the letter. Therefore, the addition was not correct, but the bottom line was correct. Therefore, the bidder raised an issue regarding whether we were sure we had marked the teams correctly. We reviewed and confirmed the evaluation had been conducted correctly and the arithmetic stood.

Deputy Mary Lou McDonald

Is that complaint resolved to Mr. Pollock's satisfaction?

Mr. John Pollock

Yes. We have heard nothing more of it. However, in fairness to the design team that had spotted the error, we said we would restart the stand still period of 30 days, to give it the opportunity, if it wanted, to raise any objections to the contract, but it has not done so.

Deputy Mary Lou McDonald

As Ms Conroy said, this is the largest health infrastructure project in the history of the State. It is a large and important project involving vast sums of money and, I imagine, a substantial ongoing process of procurement, evaluation and awarding of contracts. That is so because of the skills and expertise required.

Mr. John Pollock

Correct.

Deputy Mary Lou McDonald

Perhaps Mr. Costello can answer my next question. Will he talk to us about ongoing oversight and evaluation of the issue of conflict of interest from the perspective of the board? I do not make this point to impugn anybody or suggest anything improper, but I am conscious that within different sectors of expertise, there can be quite a considerable crossover in terms of people's work experience, who they worked for, who they know and so on. The development board is not starting from a good place in respect of the value for money element and the €35 million which is down the tubes.

Apart from value for money there is the issue of fair play for contractors, putting in place proper procedures and oversight, and ensuring there are no conflicts of interest. Could Mr. Costello talk to us on that and provide reassurance to the committee on that score?

Mr. Tom Costello

We are very conscious of it because historically award of contracts was based on price alone, and that is very simple - tenders arrive in and the contract is given to the lowest tenderer. Over recent years, because of extremely low-cost tendering, there has been a move towards evaluation and awarding contracts based both on quality and cost. Nowadays with most public contracts it is not only about price. It is important that it would not be based on price only because low-cost and under-cost bidding has caused major problems on a number of projects because whether it is design teams or contractors they are not resourced to do the job and one ends up with mismanagement, which costs more at the end of the day. This balance of competence and cost is also a good international norm.

Then there is the issue addressed by Deputy McDonald, namely, the importance of selecting people who are competent in the first instance. The price is still a big part of the evaluation but there is a technical evaluation as well. The important thing is to ensure that people have the technical skills. Within the HSE there are guidelines on the selection of panels. We gave much thought to ensuring first that the people were competent. After that one relies on people to declare a conflict of interest. It is a small country, so inevitably people will at some stage have worked on a project together and may have been involved in joint ventures together. The important thing is - because there are guidelines set out as to what a conflict of interest means - we are satisfied that-----

Deputy Mary Lou McDonald

Mr. Costello is satisfied that the board has complied with that.

Mr. Tom Costello

We are satisfied that we followed due process. We have awarded a substantial amount of business in the design teams. As I said earlier, we made sure with issues around the site and so on that we covered the due diligence of that before we made this award, so quite a lot of time has gone into that.

Deputy Mary Lou McDonald

I appreciate that.

Mr. Tom Costello

It is also a good test of our systems that we have successfully awarded that. While there were some clarifications following our selection of the preferred bidder, there were no legal objections.

Deputy Mary Lou McDonald

In terms of those contracts that we went through - quantity surveying, mechanical engineering, civil and structural engineering, project supervision, and so on - in each of those cases was the most price-competitive bidder selected for the contract?

Mr. Tom Costello

No.

Mr. John Pollock

It is a combined-----

Deputy Mary Lou McDonald

I understand it is combined, I am just trying to get clarity. So the board did not necessarily go for the-----

Mr. Tom Costello

That is the system. It does not award-----

Deputy Mary Lou McDonald

I understand the system. I am just looking for a matter of fact-----

Mr. Tom Costello

We are happy enough to say. Perhaps Mr. Pollock would go through the detail of that.

Deputy Mary Lou McDonald

I am conscious that the Cathaoirleach will not be infinitely patient with me, although he is a constituency colleague and I could probably call in a favour. Just to zero in on the one that there was a wee bit of controversy about, the mechanical and electrical engineering one. What happened there? Was the most cost-competitive entity successful? Was Arup the most cost-----

Mr. John Pollock

No, we operated a twin envelope system. A technical evaluation was carried out and the firms were assessed by the standard HSE guidelines of an 80:20 ratio of quality to value to ensure we get the service we want. The technical evaluation committee met and scored it. Then the financial evaluation committee met and scored it and the marks were added.

Deputy Mary Lou McDonald

I appreciate that it is a blended thing and I think that is absolutely proper, but from a cost point of view, was there a large difference between Arup and the disappointed bidder?

Mr. John Pollock

It was in the order of 15%.

Deputy Mary Lou McDonald

That is fairly substantial, is it not?

Mr. John Pollock

It is.

Deputy Mary Lou McDonald

The other bidder must have fallen very short of the mark on technical ability, because 15% is substantial.

Mr. John Pollock

I was not part of that evaluation process but obviously, yes, the evaluation committee must have determined that.

Deputy Mary Lou McDonald

My last question is slightly left of field but it is important because we are discussing a project of this magnitude. Reference has been made to philanthropy, philanthropic funds and so on and I do not have the scope to ask about that, but the lion's share of this is public money. What are the board's plans in respect of social clauses? I introduced legislation last Friday on the issue of social clauses in public procurement contracts. As the witnesses are probably aware, this is something that has been done in Grangegorman, for example, and the Dublin docklands signed up to it, but it is very ad hoc and it is not yet based in statute.

It would be remiss of me not to ask what the plans are, given that this is a big project in the heart of the inner city and that, like many inner-city communities, the area has very serious issues in terms of long-term unemployment, significant training and apprenticeship needs and so on. Could the witnesses tell the committee what their plans are to leverage the best that the public euro can get in terms of constructing the hospital but also in accordance with EU law, because we are aware that there are constraints and that it must be done in a particular way but it is still entirely possible to do? I am asking the witnesses what they will do about that.

Mr. John Pollock

This is something we feel passionate about. We have begun engaging with the community and the regeneration groups in the area. We made a visit to the NHS hospital in Glasgow, where they seem to have been very successful in particular in delivering on the community gain. One of the people there, Mark McAllister, came over to meet with the community groups and ourselves - not just the development board but also the group board, which will be running this hospital. Yes, we absolutely must deliver on the community gain. To date we have been looking at the model that was delivered in Glasgow, which places emphasis on being proactive right from the off, in terms of engaging with social protection as regards who are the unemployed in the area, finding out their skillsets and getting their CVs. We have not done this yet, but the plan is to upgrade their CVs, to give them training so that when a contractor comes on board, one will be able to go to the contractor and tell them who is available in the area and what the skillsets are, whether they are carpentry or steel-fixing, so that they start to procure people. One makes the contractor's life easy, because we cannot compel the contractor to give jobs to locals, but we can make things easy for it.

We must start gathering a database of local suppliers - whether it is someone who supplies doorknobs, meals, or joinery - one creates that database. That seems to have been quite successful in Glasgow. We must set hard targets for the contractor. That is the lesson we learned in Glasgow. They must not be soft targets, they must be real metrics - "You will deliver X% of jobs". We cannot guarantee them locally but we can craft the documents in the right way and make it user-friendly for the contractor to promote this. We met with the contractor in Glasgow, Brookfield Multiplex, which explained to us how it engages in that process and yes, it did provide apprenticeships and locally-delivered training schemes. It must go further so that when the hospital opens, the kids in the area have an ambition that they want to be a manager, a doctor, a nurse in this hospital.

Deputy Mary Lou McDonald

I thank Mr. Pollock for his answer and I feel encouraged by that, provided that they are, as Mr. Pollock describes, hard targets and not plámás to keep the locals happy, because there will of course be a level of nuisance also associated with such a big-----

Mr. John Pollock

Yes, there would.

Mr. Tom Costello

Can I come in on that? We had some discussions with the Construction Industry Federation at an early stage. I suppose I am close to that side of the business because I have a background in contracting. I am really stunned by how few apprentices are going through the system at the moment. It is really awful. I was involved in a hospital project like this in Castlebar 25 years ago. At that time, there was an obligation to have a certain number of apprentices in every trade. I accept that the Deputy is right in what she is saying about EU procurement, etc. We have to come up with some system, not only to support the local population and its hospital but also to ensure there is a flow of apprentices coming through the system. I know I am going a little bit left here altogether. Many of the best people in the industry have left the country. It is expected that the level of activity in the construction industry will increase. We hope that will happen. If it does, there will be a shortage of skills. We are going to meet the Construction Industry Federation to see whether we can jointly come up with a solution which we would implement in the case of the children's hospital. Hopefully, that would be a benchmark for future projects.

Deputy Mary Lou McDonald

That is very positive. I did not raise the new EU procurement directive as a barrier. It is entirely doable. The thing is to know how to do it in the correct way. I ask the development board to give consideration to the unbundling of contracts to give SMEs and indigenous players an opportunity to procure. That is a broader issue. In light of the scale of this project, we need those who are at the helm to give a commitment that these matters will be at the fore as they do their business. I understand that Mr. Paul Quinn is on the board.

Mr. John Pollock

He is on the board.

Deputy Mary Lou McDonald

Obviously, he brings a level of expertise. I would find it very useful and instructive if the other members of the committee and I could be kept informed as a more conclusive position on this matter is arrived at.

Acting Chairman (Deputy Joe Costello)

I thank Deputy McDonald. I call Deputy Sean Fleming.

Deputy Sean Fleming

I thank the witnesses for coming here today. I have a few short questions. Much of the ground has been well covered already. I would like to have something clarified in my own mind. I know the development board was established by SI 246/2007. What is its legal standing? Is it a company limited by shares or by guarantee? I cannot get information on its legal standing by looking at its annual report. What is the board's legal standing as a company?

Mr. Jim Farragher

We are governed by statutory instrument. We can give the Deputy those details.

Deputy Sean Fleming

I want to simplify it for the public. We need to bear in mind that we are talking to the public here. I know the board was established under an establishment order, as set out in SI 246/2007. Can Mr. Farragher explain to the public what that means in plain English? People understand that a company has shares, is limited by guarantee or runs a community employment scheme. Is the board simply a committee of people? What is its legal status in terms of company law? Is the board a company under company law?

Mr. Jim Farragher

No, the board is not a company. It is under the statute of the Government in terms of its responsibilities, etc. It is similar to a company in terms of its responsibility to design, build and equip the hospital. That is the board's responsibility in terms of the articles-----

Deputy Sean Fleming

That is the operation, but-----

Mr. Liam Woods

Maybe if I can-----

Deputy Sean Fleming

I do not mind who answers the question.

Mr. Liam Woods

The development board is a body formed under the Health (Corporate Bodies) Act 1961. It has a separate legal foundation from the Companies Act 1963, to which the Deputy has referred. The statutory instrument is based on a triggering of powers that exist within the Health (Corporate Bodies) Act 1961.

Deputy Sean Fleming

Perhaps the Comptroller and Auditor General or someone else can explain that. Mr. Woods seems to know about it. How many other corporate bodies are out there? People would like to know what the shape of the vehicle we are talking about is. I do not think too many people would know what a corporate body established under the 1961 Act means. It is a technical answer. I wonder whether there is a layman's answer with regard to what the development board is. It is not a company. It does not come under the Companies Act 1963. What are the different requirements faced by a body established under the 1961 Act, compared to a body established under the 1963 Act? What are the significant differences?

Mr. Liam Woods

It is a body that has legal existence because of that legislation. Rather like a company formed under the 1963 Act, it has-----

Deputy Sean Fleming

I am moving on. Does it have limited liability like a company under the Companies Act?

Mr. Liam Woods

No, it is not a limited liability entity.

Deputy Sean Fleming

It does not have limited liability at all. If things go wrong, who does somebody sue at the end of the day? In the case of a company, there are shareholders or whatever. Who does somebody sue in the case of a body like this? Who is left carrying the can? We know it is the taxpayer, but does the board have any role before we get to the poor taxpayer? Do the members of the board have any liability in relation to the actions of the board? Does the board of directors have any liability?

Mr. Tom Costello

The best way to answer that is probably by reference to the way we are structured and the way we operate. I do not know whether the Deputy was present earlier when I mentioned-----

Deputy Sean Fleming

I have read the development board's documentation.

Mr. Tom Costello

-----that the remit of the board is to design, build and equip the hospital.

Deputy Sean Fleming

I understand the remit.

Mr. Tom Costello

That is very clear.

Deputy Sean Fleming

That is the board's job.

Mr. Tom Costello

Yes. We have been chosen as the right people for the job on the basis of the skill base we have as a board-----

Deputy Sean Fleming

No problem.

Mr. Tom Costello

-----in areas like project management, construction, engineering and architecture, etc.

Deputy Sean Fleming

Fine.

Mr. Tom Costello

We are using our skills as a board to ensure the project is set up in the same way that a project would be set up in the private sector. This involves having robust controls around budget, design and reporting. Obviously, all of our financial statements, etc., are audited by the Comptroller and Auditor General.

Deputy Sean Fleming

I understand the practicalities. I am more interested in the legal form. If a receiver or a liquidator comes in, he or she can chase a company director for reckless or fraudulent trading. There are liabilities attaching to being a director in a company. Can the members of the board make a hames of this without being chased? Do they have the same level of legal responsibility to the board as a director of a company would have to that company and its shareholders under the Companies Act? This has nothing to do with the job the members of the board are doing. We all know about that. I want to know who carries the can. If the directors of a limited company were reckless in their work, they could be chased for that by the Director of Corporate Enforcement. Does the Director of Corporate Enforcement have any remit if the members of the board do something wrong while they are running this organisation?

Mr. Tom Costello

The best way to answer that is to mention that as part of the way we are structured on an ongoing basis, there are checks and balances-----

Deputy Sean Fleming

I know all that.

Mr. Tom Costello

Yes.

Deputy Sean Fleming

I have given three or four exact examples. I suspect I am not getting an answer. Perhaps Mr. Woods will be able to help here. Is there a lacuna here? Are people being put on a board without having any legal liability? It is not a limited company. If it was, the Director of Corporate Enforcement could come after the members of the board if they did something wrong. The Garda Síochána or some other body could come after anyone who acted fraudulently. I am not suggesting that will happen. These things do happen in life. Are the members of the board exempt from all of this? Is there a cloak of exemption from all the responsibilities that apply to everyone else we see in here?

Mr. Liam Woods

If I could-----

Deputy Sean Fleming

Are the members of the board akin to civil servants, in the sense that regardless of what they do wrong, it will be the Minister who is responsible? Is that what we are talking about?

Mr. Liam Woods

First, the body itself enjoys the right to sue and be sued. It is a sueable entity. I say that in response to the Deputy's earlier point. The board exists as a body under the Health (Corporate Bodies) Act 1961, so it is bound by public regulations. The financial procedures of the State are relevant. The proper governance and ethics codes that apply across all State entities apply to the board. The internal control environment, which was noted in the Comptroller and Auditor General's accounts as being the duty of the directors, applies too.

All of that comes under the banner of good governance for any publicly funded entity. Compliance with the rules for semi-state bodies is also a factor, which includes things like compliance with tax codes. The point being made about reckless trading is coming from the Companies Acts, so it is not a requirement. However, there is an equivalent, reckless trading in a public environment. That is about managing your resource, as the Chairman was saying, within the available limits and being prudent in the deployment of the resource. The board is funded by the HSE based on a capital plan approved by the Minister and it is controlled in that way.

Deputy Sean Fleming

I am getting the impression - maybe this is the end of it - that essentially this is a committee established by a Minister, full stop.

Mr. Liam Woods

We have an executive team-----

Deputy Sean Fleming

It is like a committee. I am just trying to pin it down. It is like a committee and of course it will do its best and conform to-----

Acting Chairman (Deputy Joe Costello)

We are dealing with the accounts. This is quite a complex-----

Deputy Sean Fleming

Sorry, Chairman. I want to know the structure of the organisation I am dealing with.

Acting Chairman (Deputy Joe Costello)

I was going to suggest that they come back to us with the detail of the structure.

Deputy Sean Fleming

They should not be here if they cannot answer the question.

Acting Chairman (Deputy Joe Costello)

They are answering the question, but this is dragging on.

Deputy Sean Fleming

I must protest. This is the first time you and I have had to have this discussion. I listened to somebody talk for an hour. I have been talking for five minutes and you are telling me it is dragging on. I ask you not to go there. I would say the same to my own colleague if he was in the chair, if he stopped me after a few minutes. Perhaps some people do not understand the level-----

Acting Chairman (Deputy Joe Costello)

I am particularly interested in the reply because I have a question that relates specifically to-----

Deputy Sean Fleming

You can see the line I am opening up. I just want to know who is responsible for the members of the board. That is all I am asking. Who is legally responsible? Is it the Minister? I have no problem if I am told it is. However, I have not got that simple answer.

Mr. Liam Woods

Just to be helpful, the order creates the board and the board is, in the first instance, the accountable body for the delivery of the hospital and everything associated with that. The statutory instrument sets out further detail of how it executes and delivers that and also sets some control parameters in terms of the appointment of personnel.

Deputy Sean Fleming

The witnesses might send us a note, based on the statutory instrument.

Mr. Liam Woods

I can do that.

Deputy Sean Fleming

I ask the Comptroller and Auditor General separately - he does not have to answer it today - to give us a note on how many bodies within our remit and within his remit are bodies corporate under the 1961 legislation, so that we can know the nature of an organisation. Are there many of these?

Mr. Seamus McCarthy

A number of them were established under the 1961 order, but they are all health sector bodies because it is a specific health sector corporate bodies Act.

Deputy Sean Fleming

Does the Comptroller and Auditor General audit them all?

Mr. Seamus McCarthy

I cannot say that I do until I do some research on it. However, we certainly have others. There are analogous bodies that the Deputy could consider, such as the Customs House Docks Development Authority, although that is set up under a statute. With regard to the governance structure that Mr. Woods has explained, it would be similar, with similar provisions, a provision to sue and be sued, and so on. I would make a distinction with regard to a committee set up by a Minister, of which there are very many that operate without producing annual reports or financial statements. Certainly my understanding of it is that a body with a statutory basis would be quite different from a committee.

Deputy Sean Fleming

An informal committee.

There is the impairment issue with regard to €40 million of assets in the balance sheet at the end of 2012 in the accounts we are talking about. The board says in its report that it is looking at the impairment situation. The Comptroller and Auditor General referred to the uncertainty of that matter in his report. Does the board have an estimated figure at this stage?

Mr. John Pollock

We have. We think the impairment value is of the order of €35 million. That figure is yet to be officially sanctioned. The retained value is of the order of €6 million.

Deputy Sean Fleming

Will the Comptroller and Auditor General have to restate the 2012 accounts, or will he make the note-----

Mr. Seamus McCarthy

No, I do not think so.

Deputy Sean Fleming

When the Comptroller and Auditor General comes to do the 2013 accounts, an asset that was worth €40 million will now be worth €6 million. For comparative purposes, will the Comptroller and Auditor General have to restate the 2012 accounts?

Mr. Seamus McCarthy

No. I expect that the financial statements will show the working through of the impairment on the fixed assets.

Deputy Sean Fleming

Okay.

Mr. Seamus McCarthy

Therefore, it is obviously necessary to go into the notes to look at the detail of the impairment. However, the impairment is also put through the income and expenditure.

Deputy Sean Fleming

The accounts are completed on a going-concern basis. The Comptroller and Auditor General stated this. What guarantee did he have of the funding to guarantee the going concern?

Mr. Seamus McCarthy

That a Government decision had been made to continue with the project but at a different site. Since most of the board's funding has been provided from Government sources through the HSE, there was no reason to believe that might not continue into the future.

Deputy Sean Fleming

Let us assume it will continue. But is that a good enough way to produce accounts - on the assumption that the Estimate next year will cover it? Normally, one would look for a little more reassurance than that to ensure the money will be there next year.

Mr. Seamus McCarthy

There was also the issue that at the point the certificate was signed, it was already-----

Deputy Sean Fleming

After the year end-----

Mr. Seamus McCarthy

-----12 months after the year-end, so-----

Deputy Sean Fleming

You waited until February 2014. I spotted that. You were safe for-----

Mr. Seamus McCarthy

Not to cover myself. I would happily have signed the previous September, had the work been completed.

Deputy Sean Fleming

On the going-concern accounting basis, I can understand why the Comptroller and Auditor General thinks that, because the Minister for Public Expenditure and Reform has time and again spoken about ring-fencing a portion of the proceeds of the privatisation of the National Lottery licence for this project. We have heard it a hundred times. I ask Mr. O'Brien from the Department of Public Expenditure and Reform to tell us the structure of this ring-fenced fund and where it is, who manages it, how much is in it and how much has gone out of it. Is there a ring-fenced fund?

Mr. Barry O'Brien

There is €200 million allocated from that fund. That would be held in the central Exchequer. The issue around the timing of the funding is being considered by the Department of Health and the HSE over the next few years in line with their capital plan.

Deputy Sean Fleming

I am being told - which I would always have understood to be the case - that the funds from the proceeds of the national lottery have gone into the Central Fund of the Exchequer. I would have thought they could not be anywhere else. Therefore, this euphemism of ringfencing is more of a political thing. There is no ring-fenced area in the Cental Fund. Has the Comptroller and Auditor General seen one?

Mr. Seamus McCarthy

No.

Deputy Sean Fleming

There is no ring-fenced fund.

Mr. Seamus McCarthy

I think specifically the Central Fund is set up to be a fund - a single fund - for all revenues of the State.

Deputy Sean Fleming

The Comptroller and Auditor General will understand this. It goes to the heart of the going-concern accounting basis. We all hope the money from the sale of the lottery licence will be there when construction starts in 2016 and 2017. However, it is clear that there is no ring-fenced fund, although we have been told hundreds of times that there would be such a fund. I am not asking the Comptroller and Auditor General to comment on the Minister's comments, but he said it time and again. The Dáil record is littered with his references to the ring-fenced fund consisting of a portion of the proceeds of the national lottery sale to finance the national children's hospital. If that fund existed, I would be very happy with the use of the going-concern accounting basis, knowing there was a ring-fenced fund. However, essentially, there is no such thing as a ring-fenced fund in the Central Fund. That is what I am being told. It is all in the one fund. That is what we always understood it to be.

Mr. Seamus McCarthy

With regard to the going-concern accounting basis, the normal view taken is whether the entity can continue for another 12 months. Obviously, any long-term capital investment would be outside that scope. A further thing that my office would certainly take into consideration is that, in general, where the State has been supporting an entity, it normally will wind up the entity's affairs in an orderly fashion. It is not usual that the plug would be pulled-----

Deputy Sean Fleming

Walk away.

Mr. Seamus McCarthy

-----and the funding stopped from one day to the next. The State honours its liabilities.

Deputy Sean Fleming

The board is also responsible - it is in the note on page 2 - for safeguarding the assets of the National Paediatric Hospital Development Board. How do the members of the board feel about having inherited assets of €40 million and coming back to us with €35 million worth of them gone at the end of 2013? How does that represent safeguarding assets? We all know there is a write-down.

Mr. Pollock said in his opening statement that the board had a duty to safeguard assets, but the accounts indicate that €35 million of the assets being safeguarded are no longer assets. I know that is not the witnesses' fault, but the palaver in Mr. Pollock's opening statement does not sit well with writing off €35 million in assets.

Mr. John Pollock

While I have only been involved with the current development board, I investigated what the previous development board did after the Mater refusal. Immediately after the refusal of the Mater proposal and before the Dolphin group was established, it sought to see how else it might get planning permission on the Mater site. It re-engaged to investigate whether it could make the site larger and it asked the design team to consider the options. That was developed in some detail and there was engagement with An Bord Pleanála because, obviously, it would be the decider. I do not know where those discussions went, but the board sought to maximise what it already had and retain its value. Dolphin came on board and, ultimately, a Government decision was made to move the site.

Deputy Sean Fleming

Technically, the board is carrying the can. I do not mean it is financially carrying the can but that it was in situ when this came to pass. Given that it has an opportunity to safeguard the assets, corporate governance involves assessed risks. I am sure it is a fundamental element of the board's macro considerations in regard to its handling of the project. Mr. Pollock has already indicated that An Bord Pleanála is independent. There is a chance that it will refuse planning permission. I do not think anyone in this room can answer that question. The application will not be submitted until next summer, or some time in 2015. This committee's role is to assess the board on how it manages risks. I ask Mr. Pollock to outline the procedures in place if planning permission is not granted. It would be reckless not to consider that possibility. Everybody wants the children's hospital to be built, but it is a possibility. If the board has not considered that risk, it would not be doing its job. What plans are in place to cope with that risk and where does Mr. Pollock see the board going if it does not get permission? I am not asking about the construction of the children's hospital. The key job of the board's directors is to manage risk in the organisation that they lead. I know Mr. Pollock has examined this risk because he should not be here if he has not done so. It is fine if permission is granted, but what plans are in place for the possibility that permission is not granted? What is the risk assessment in terms of the value of the assets and where everything will be at that stage?

Mr. Tom Costello

We must also plan for success, but the Deputy is correct. The project is associated with hundreds of risks, and planning permission is one of them. The board was appointed just over one year ago, and before we committed to expenditure on the design team we went through a due diligence process to ensure the site was suitable and to fully understand the issues arising. A planning report that was carried out as part of the decision making process and the selection of the St. James's Hospital site highlighted all the issues and potential risks arising in the short-listed sites. A number of issues were raised in regard to the St. James's site. Prior to employing the design team we set out to interrogate and understand these issues.

The fundamental issue was, of course, the size of the site. The site that was offered initially was similar in size to the Mater site. In the deliberations that took place prior to the selection of St. James's Hospital, that site was significantly expanded. We carried out further due diligence in order to get a high degree of satisfaction or comfort that we were working within the planning guidelines. One of the major issues in this regard is the height of the building. The site would easily accommodate a building under the 28 m limit, with capacity for future expansion. In order to be satisfied in that regard, we insisted on St. James's providing a large site. The site that is now being provided is three times the size of the Mater site, at 12 acres.

Our first concern is to plan for success and to address the issues identified as part of the planning report. We have the benefit of two planners on our board, one of whom was previously a member of An Bord Pleanála. This means we have good internal advice on planning. We are building a degree of confidence in this regard. At the end of the day An Bord Pleanála will make the decision, but we are making sure all the potential issues are addressed as we proceed.

If we are unfortunate in not getting planning permission, Government policy as it stands is to build a children's hospital at St. James's. I envisage that the board would attempt to understand the issues arising. We are sure it will not be due to the site being too small and we will continue our efforts to deliver on Government policy by building a children's hospital at St. James's.

Deputy Sean Fleming

By the time the planning process is complete, which the board hopes will be at the end of December 2015, what investment will have been made other than the €40 million set out in the accounts up to the end of 2012? How much extra will be at play from the taxpayer's point of view by the time of the expected planning decision?

Mr. John Pollock

We have conducted that exercise exactly as the committee requested to compare where we were with where the Mater would be. We estimated that in terms of managing the executive, completing all the site surveys and due diligence, paying the design team and preparing the business case, the cost will be in the order of €32 million.

Deputy Sean Fleming

Is that in addition to the aforementioned €40 million?

Mr. John Pollock

I believe that is correct.

Deputy Sean Fleming

So we might be looking at an expenditure of €72 million on the project before we get planning approval, including the Mater site.

Mr. John Pollock

That is correct.

Deputy Sean Fleming

We are in the same range of spending as we were on the Mater site. We know that went wrong and we will not revisit that, but we are in the same range of funding and requirements before we get to the next planning decision. I know there are no certainties in this world, but most businesses take out some sort of insurance or indemnity against these types of risk. Has the board considered taking out insurance for the taxpayer in respect of that €32 million in case things go wrong, or has it built it into the tender or contract with the design team? I recognise that the latter is not responsible for getting planning permission, but if issues arise in the planning process which the board thinks are fixable or manageable, or which should have been foreseen by the various design teams and other people involved, does it have a comeback? Will they be paid the full amount even if they prepare a shoddy application or an application that does not stand up to the rigours of An Bord Pleanála? Is there a clawback mechanism from these people in terms of their professional indemnity, or does the board have an insurance policy to protect the taxpayer? The last €35 million is gone but we want to safeguard the next €32 million.

Mr. Tom Costello

It is not insurable because it is completely unpredictable.

Deputy Sean Fleming

Is there any comeback against the design teams? I realise they are not entering into a no-foal-no-fee arrangement. They are not going to work for nothing if planning does not work out. Nobody will do that, but there should be some element of comeback.

Mr. John Pollock

The model we are following is the public sector procurement model. We have not reinvented the contracts for appointing the design team.

Deputy Sean Fleming

So they are paid regardless?

Mr. John Pollock

They are paid based on delivery. It is the executive's job to hold them to account to make sure, as the Deputy said, it is not shoddy. That is the skillset we have on the executive, namely, to make sure they do their job to the best of their abilities, that it is a proper planning application and that it is not shoddy. At the end of the day, however, An Bord Pleanála is an independent statutory organisation.

Deputy Sean Fleming

Thank God. I know the board has changed and different people are working on the project compared to the Mater site, although some of them are still carrying on. While Mr. Pollock may not have the information here, can he send on to us, if possible, the list of those companies that will have been paid the most by the time we get to the planning process? In other words, some will have been paid for their work on the Mater, and although it went down, some of those people are still involved. Let us take a worst case scenario, although none of us want it, and let us say the children of Ireland have no new children's hospital in the foreseeable future, if the planning goes down. Who or what company will have been the greatest financial beneficiary?

Mr. John Pollock

Of our current design team, it is the architects. BDP has the biggest contract-----

Deputy Sean Fleming

What is the value of its contract?

Mr. John Pollock

It is of the order of €14 million.

Deputy Sean Fleming

What did it get for the Mater?

Mr. John Pollock

It was not on the Mater.

Deputy Sean Fleming

Is there anyone who worked on both and would have a combined-----

Mr. John Pollock

There is O'Connell Mahon, who are BDP's Irish partner. It is working with BDP and it worked with NBBJ on the Mater projects.

Deputy Sean Fleming

How much did it get from the Mater project?

Mr. John Pollock

I am not sure as our contract was with NBBJ. However, I am guessing it would be of the order of €1.5 million or €2 million - something like that.

Deputy Sean Fleming

There is a company that will get €14 million, win, lose or draw. That is BDP.

Mr. John Pollock

No, that is its contract to see the job through to completion.

Deputy Sean Fleming

I am only talking about the planning.

Mr. John Pollock

Its fee would not be €14 million to get the planning.

Deputy Sean Fleming

That is all I am asking. When it is into the construction, it will earn its money at that stage.

Mr. John Pollock

It might be €5 million to get it to planning.

Deputy Sean Fleming

When does the board expect to sign off the next set of accounts, given they are 22 months old already?

Mr. John Pollock

We have completed and submitted the draft, and the Comptroller and Auditor General has reviewed them. With regard to the write-off and following public financial procedures, we are waiting for sanction from-----

Deputy Sean Fleming

From the Minister.

Mr. John Pollock

In a matter of weeks, I would hope.

Mr. Seamus McCarthy

It is ten months since the 2013 financial statements. Those for 2012 have been signed off.

Deputy Sean Fleming

It is 22 months since the year end.

Mr. Seamus McCarthy

No, that is for 2013 and we are in October 2014.

Deputy Sean Fleming

The Comptroller and Auditor General is doing the accounts for 2013 now and we will have them shortly. Is that correct?

Mr. Seamus McCarthy

Yes.

Acting Chairman (Deputy Joe Costello)

I would like to ask some questions. I will follow Deputy Fleming's train of thought as it was very valuable towards the end in regard to the impairment expenditure and the current procurement contracts. At this point in time, we are effectively talking about €40 million that was spent on the previous process in regard to the national paediatric hospital on the Mater site and in the region of €30 million to €32 million in regard to the current tenders that have been acquired, so it is a considerable amount of public money. Deputy Fleming asked whether there is a liability whereby the board can be sued, on the one hand, and, on the other, whether there is any insurance mechanism in place.

I was very closely involved with the original project around the Mater hospital, which is in my own constituency. Effectively, this project came to the current location at St. James's Hospital not because of a decision of the Government, but because of what I believe to be reckless planning by the previous board. It was very clear from the An Bord Pleanála inspector's report that the planning application, which was for 16 storeys high, was, first, in breach of the statutory local area plan for the Phibsborough area, and, second, in breach of the Dublin City Council development plan for the period up to 2017. On those two statutory considerations, there was a reckless breach in the planning application that was put forward, with the result that it was pointed out to An Bord Pleanála by local residents and others that this planning application could not be granted because it was invalid in the manner in which it was presented.

An Bord Pleanála's decision states that the proposal failed to:

...comply with the specific objectives for this site as set out in the Phibsboro/Mountjoy Local Area Plan. ... The proposal would contravene Policy SC18 of the Dublin City Development Plan 11-17...

It found it was incongruous and grossly out of kilter with either the city development plan or with the local area plan.

How in God's name could so much design work and planning work be done, with almost €40 million being spent, and then this totally inadequate presentation be made? Of course the inspector rejected it. Within a few weeks of the rejection by An Bord Pleanála's inspector, the board presented another plan to make the hospital nine storeys high but, already at this point, the Minister of the day was fed up with what was going on and he made the decision that we should go to an alternative site entirely. This is despite the fact there had been an independent review that had decided that the optimum site was, in fact, the Mater site. That does not tie in with what Mr. Costello or Mr. Pollock said, namely, that the Mater site failed because the site was too small. The Mater site did not fail because the site was too small. There had been two independent reviews that had determined the Mater site was adequate but, for some reason, there was a presentation to An Bord Pleanála for 16 storeys, which could not even allow a helicopter to land, although that was necessary for a children's hospital. This is what was presented to An Bord Pleanála and then, within a few weeks, it had been cut down to nine storeys because other areas within the confines of the Mater hospital were being utilised in a new planning application that was all of a sudden put forward.

There are serious questions with regard to the use of public money in a situation of that nature, where a planning application is so out of kilter with the statutory guidelines already in place. I have serious questions. The previous board consisted of a number of developers, some of whom are now in NAMA, whereas the current, entirely new board seems to be much more representative. Where does responsibility lie if the current board's planning application receives anything like the response from the inspector of An Bord Pleanála that the previous application received? It cost the State almost €40 million, most of it impaired at this time. We now have another €32 million of taxpayers' money being spent and, as Deputy Fleming pointed out earlier, what guarantee do we have that this is going to be successful? Who takes oversight of a board's planning application?

I do not know if the witnesses have read the planning application that was put forward for the Mater hospital. Part of the reason there has been so much impairment is due to the design work that was done.

It was obviously not in the real world and it is, therefore, impaired. This is the real reason so much is impaired and cannot be brought forward to this project. Serious questions must be addressed and I seek opinions on the issues I raised.

Mr. Tom Costello

It is impossible for us to comment on the Mater hospital application as we have the same information as the Acting Chairman, that is, the decision by An Bord Pleanála.

Acting Chairman (Deputy Joe Costello)

The witnesses can certainly comment on why there was so much impairment relating to the design and planning work that was done. This accrued from work that was done previously on a stand-alone hospital on the Mater hospital site. The stand-alone hospital was to replace Temple Street and the work was carried out prior to the decision on the national paediatric hospital. There were, therefore, two sets of designs, plans and so on and most of this is now impaired. Surely if a significant amount of consultancy work was done by competent people on what was to be a top-class development of excellence, it should not now be impaired. Surely there should be some transferability.

Mr. Tom Costello

We are not familiar with the sequence of events and the discussions between the design team and Dublin City Council.

Acting Chairman (Deputy Joe Costello)

There was an integrated design team. What was its purpose but to bring people together?

Mr. Tom Costello

Initially, before the strategic infrastructure development, SID, legislation, there was a standard application and all discussions on the size of the building were with Dublin City Council. When the time came for the submission of an application, however, it was done under SID legislation to An Bord Pleanála. Mr. John Pollock, will go through cost details but, from the point of view of the board, we aim to ensure that what happened at the Mater hospital will not happen on the St. James's Hospital site. As I mentioned to Deputy Fleming, there are two planners on the board and a planning adviser is on the design team. What we are doing has been informed by the decision on the Mater hospital but it is also informed by the local area plan and the Dublin City Council development plan for the St. James's Hospital area. We are working strictly to the rules, limits and guidelines set down in the plan.

Acting Chairman (Deputy Joe Costello)

I am not aware that there is a local area plan for the St. James's Hospital area. There is one for the Phibsboro area so the witnesses cannot work to guidelines that do not exist.

Mr. Tom Costello

I stand corrected. I am referring to the Dublin City Council plan.

Acting Chairman (Deputy Joe Costello)

Mr. Costello is referring to the Dublin city plan. How will lessons be learned? How can the witnesses be sure that what they are doing will not result in the same situation that occurred at the Mater hospital? Can the witnesses break down the reasons for the impairment that occurred and the waste of taxpayers' money? These are the statements from 2012 and I think we must seek greater clarity on how the decision was made to put forward a planning application that anyone could have seen had no chance of success - there were too many question marks. The report says that formal processes were established to identify and evaluate risks associated with the planning. Did the previous board do this? There are planning expenses of €1.5 million and this is separate to the figures given for the four bodies - the business service, the integrated design team and so on. It states on page 14 that, arising from the Government decision to change the location of the new children's hospital to the St. James's Hospital site, the board is of the opinion that there are certain elements of the business project management services and design works procured to date that are unlikely to retain their full value as assets for the future hospital. It also says the board will complete a process to review the matter. This is the process I want to see.

The witnesses have said such issues are unlikely but have not detailed the reasons for this and I believe serious questions must be answered on why there has been total impairment. Why is it not possible to carry the value of these assets into the work that is currently being done? I request a detailed account from the witnesses based on the history of the project. If they do not read the relevant documents, get the background information on the decisions that have been made and see why An Bord Pleanála categorically refused the planning application after years of work and high expenditure, they will not understand how the impairment of assets occurred.

The accompanying letter from the Comptroller and Auditor General states that on 31 December 2012 the financial statements included assets valued at €40 million. This is with regard to planning and development costs for the national paediatric hospital. The letter goes on to state that, arising from the Government's decision to change the location of the hospital, it is likely that these assets are now impaired. I contend that is not correct - the impairment arises not from the Government's decision, but from a reckless planning application. The Government had no choice but to make its decision and this should be clarified.

Mr. Seamus McCarthy

I was drawing attention to a change in circumstances that prompted and necessitated the review.

Acting Chairman (Deputy Joe Costello)

The Comptroller and Auditor General goes on to say there is uncertainty as to the value of the assets.

Mr. Seamus McCarthy

Yes, I point out that there was a process to go through.

Acting Chairman (Deputy Joe Costello)

There was a process to go through.

Mr. Seamus McCarthy

The point made by the Acting Chairman is a good one. If expenditure is nugatory, delivers nothing or fails it will trigger an impairment review, though perhaps not on the same scale due to the change of location. It is a reasonable point.

Acting Chairman (Deputy Joe Costello)

As I said, it appears developers were on the previous board but numerous representatives of the semi-State sector are on the current board. There are no developers, per se, on the current board but there are engineers, architects and so on. There is a representative on the board for Trinity College and Our Lady's Children's Hospital, Crumlin, but nobody carries a brief for the other main children's hospital, Temple Street, and the same goes for the Mater hospital and the Rotunda Hospital - all three were to be united on a single campus. Would it not be appropriate to co-opt a person onto the board who was part of the previous work on the initial decision on the location of the national paediatric hospital? Perhaps the witnesses are not responsible for this. Is it not the case that all paediatric institutions in the State, including those in Crumlin, Tallaght and Temple Street, should be represented on the board to ensure a full view of what is appropriate?

Ms Tracey Conroy

It is important to say that the children's hospital group board is responsible for integrating the three existing services into one service and the chairs of the three existing children's hospitals are represented on that board.

In addition, the faculty of paediatrics of the Royal College of Physicians of Ireland has a representative on the National Paediatric Hospital development board.

Acting Chairman (Deputy Joe Costello)

Who is that nominee?

Ms Tracey Conroy

It is Professor Hilary Hoey.

Acting Chairman (Deputy Joe Costello)

Is that nominee not dealing in a professional capacity with Trinity, the Adelaide, the Meath Hospital and Our Lady's Hospital in Crumlin? In other words, that particular person represents certain elements of paediatric institutions.

Ms Tracey Conroy

She is the nominee of the faculty. That is her position on the board.

Acting Chairman (Deputy Joe Costello)

Yes, but that does not answer my point. Should there not be a broader representation that would also represent the other main children's hospital where the original site was supposed to be located?

Ms Tracey Conroy

The chairs of the three children's hospitals are on the children's hospital group board which has responsibility for the integration of services. There is a close working relationship between the children's hospital group board and the National Paediatric Hospital development board. The children's hospital group board is the client for the project and there is an ongoing relationship in that regard. A good way of illustrating it is that before the design brief was approved by the HSE with the Minister's consent, and which the Minister brought to Government in July this year, the children's hospital group board signed off as a client on that design brief before it then went to the National Paediatric Hospital development board for sign off before submission to the HSE.

Acting Chairman (Deputy Joe Costello)

I am aware that a huge amount of work went into trying to bring the optimum requirement that was stated in the McKinsey report - namely, three hospitals on one site. The Rotunda, Mater and Temple Street hospitals were involved in that. I do not see any direct organic relationship between Ms Conroy's board and any of the previous work that was done, either in terms of work or personnel. I suggest that Ms Conroy should bring back to her board the idea that it might be appropriate, even if she has somebody who represents everybody more than adequately, to have such information, wisdom and expertise. There was a period of time when a huge amount of work was done that might be useful to the deliberations of her own board in future.

Mr. Tom Costello

Just to give the Acting Chairman some comfort, Mr. Pollock mentioned earlier that the retained asset from the Mater captures a lot of what he talked about - all the expertise that went into the tri-location at the time. Therefore, that is actually captured.

As Ms Conroy said, it is just the way we work. The children's hospital board, in essence, is defining for us the brief for the hospitals. Temple Street, through its CEO, is represented on that board. All that corporate knowledge the Acting Chairman talked about is being captured and passed on to us as the brief for the hospital. Our remit is to design, build and equip based on that brief.

Acting Chairman (Deputy Joe Costello)

I accept everything you say, but I would still ask you to bring my suggestion back to the board.

I have one or two other brief points. What is going to happen to Temple Street and Crumlin hospitals now that they will not be satellite centres? I take it from the opening statement that the satellite centres will be Tallaght and Connolly hospitals.

Mr. John Pollock

I do not think it is for the development board to comment on what uses Temple Street or Crumlin will be put to.

Acting Chairman (Deputy Joe Costello)

You must plan and, surely, the National Paediatric Hospital will want to know what Temple Street hospital is going to be.

Mr. John Pollock

I am sorry, Acting Chairman, but our role as the development board is to build the hospital. Therefore we have no role in terms of what happens to the-----

Acting Chairman (Deputy Joe Costello)

When you are procuring contracts, you want to know what you will be designing or building for. There could still be some specialist work going on at Temple Street or will those hospitals close down? Surely this is basic information for your board.

Ms Tracey Conroy

I would like to come in on that, Acting Chairman. While this hospital is being built, the parallel work stream is being managed by the children's hospital group board around the integration of existing services. The intention is that by the time the hospital is built and ready to take services, the three hospitals will have come together as a virtual hospital ready for all of those services, which are currently delivered across those three sites, to be transferred into the national children's hospital. It is not envisaged that paediatric services will remain on those sites.

Acting Chairman (Deputy Joe Costello)

What does that mean in layman's language? Will they be closed?

Ms Tracey Conroy

It is not envisaged that paediatric services will be provided on those sites. The services currently provided there will be provided on the site of the national children's hospital in St. James's Hospital.

Acting Chairman (Deputy Joe Costello)

Could I again get clarification on that? We have the two main providers of services at the present time: Temple Street and Crumlin, which apparently are going to go out of existence. We do not get any reference to it other than that other satellite centres will be developed. That has to inform your planning and development, so can we get a clear statement? Is that the way Temple Street and Crumlin see it? There are loads of volunteers around the country collecting money for both those hospitals who think and believe that they will remain on, at least in a local capacity, to provide a service in their communities. Can we get clarification on all of that? That would definitely inform a lot of the planning that you are going into.

Ms Tracey Conroy

Those three children's hospitals are fully behind the project, fully supportive of it and have been vocal in that regard.

Acting Chairman (Deputy Joe Costello)

Will Ms Conroy send us some clarification as to what exactly the situation is, please?

Ms Tracey Conroy

I will certainly do that.

Acting Chairman (Deputy Joe Costello)

You are now operating in rent-free premises in Sir Patrick Dun's Hospital, but the old board did not. How did this decision come about? The old board paid for premises for the duration. I think it was a five-year period, was it not? Do we have figures on the expense incurred by the old board for the offices it rented? Why and how was the decision made to avoid any rental for the present project?

Mr. John Pollock

We certainly have those figures, although I do not have them with me today, concerning historically how much the previous board spent on renting accommodation in Parnell Square. My understanding is that once the Mater decision was made - and obviously there was a question mark over the project - the business services team contracts were terminated, so we needed much more modest accommodation. The HSE had accommodation in Sir Patrick Dun's, so a decision was made to retrench to rent-free accommodation there. I can give the committee what was spent previously.

Acting Chairman (Deputy Joe Costello)

Would Mr. Pollock get us the figure for the rent paid previously for 2-3 Parnell Street?

Mr. John Pollock

Yes, I will.

Acting Chairman (Deputy Joe Costello)

My last point arises from a remark by Deputy Fleming about ring-fencing funding for the hospital. Is Mr. Pollock aware that no funding, per se, was ring-fenced for the hospital prior to the present Government deciding that the proceeds of the sale of the national lottery - which I understand are in the region of €400 million - were to be ring-fenced? At least, part of it was to be ring-fenced for the paediatric hospital.

Mr. John Pollock

Is the Acting Chairman asking if I was personally aware of that?

Acting Chairman (Deputy Joe Costello)

I understand there were a couple of elements to it. One element is philanthropic in that you have to raise a certain amount of money. I would like to know the amount of money that is expected to be raised. Second, can we confirm that the national lottery sale fund is now ring-fenced for it? Is Mr. Pollock satisfied that the funding is adequate from both those sources?

Mr. John Pollock

The €650 million which has been allocated covers the cost of the core children's hospital and the two satellite centres. It does not include the cost of research and education work which, it was always envisaged, would be funded through philanthropic funding. We will apply for planning both for the children's hospital and the research and education facility. Until the research and education funding comes on board philanthropically, we will not proceed with the construction of that. However, one still needs an element of research and education within the main children's hospital which will be built with a separate stand-alone block. It is dependent on the philanthropic funding to come through. That would have a much shorter period for construction so it could lag the children's hospital by two years and still be there at the same time. It is the remit of the group board to start the philanthropic process.

That means one starts to assemble a philanthropic committee and then commences to fundraise.

Acting Chairman (Deputy Joe Costello)

Has it started yet?

Mr. John Pollock

That is their role. They have started on identifying a potential champion for it.

Acting Chairman (Deputy Joe Costello)

Was any money raised on a philanthropic basis under the previous board given that the process was going on for years?

Mr. John Pollock

Not that I am personally aware.

Acting Chairman (Deputy Joe Costello)

Is there any further comment from the Department on the funding?

Ms Tracey Conway

Philanthropic funding is something the Children's Hospital Group board is concentrating on now. There was a strong view on the part of the board that the best approach would be to ensure the HSE approved the design brief in advance of moving to philanthropic funding so that there was certainty around the project.

Acting Chairman (Deputy Joe Costello)

The only thing forthcoming from the old board is impairment and no philanthropic or other funding.

Deputy John McGuinness resumed the Chair.

Chairman

That brings us to the end of the hearing in regard to this morning's business with the National Paediatric Hospital development board. I thank the witnesses for attending and the information they have provided.

The witnesses withdrew.

Chairman

I return to the opening part of our meeting. I ask the clerk to the committee or the Comptroller and Auditor General if they can determine from the accounts of the Department of the Environment, Community and Local Government the amount of money allocated to Irish Water and Poolbeg by the Department. If there were two allocations and with what is going through the Estimates, does that have a bearing on our investigations? If they are in the accounts, surely it is a matter for us to examine. Could we get the Estimates for this year and the transcript from the environment committee to establish the facts on the two allocations?

Mr. Seamus McCarthy

We will certainly assist the clerk to put a note together for the committee.

Deputy Sean Fleming

I have glanced through the Book of Estimates for 2015 published on budget day by the Minister for Public Expenditure and Reform. The environment Vote includes a figure of €71 million to be allocated to Irish Water. It is there in black and white. There is an ongoing process of direct funding from voted expenditure to Irish Water.

Chairman

Can we make that clear?

Deputy Sean Fleming

It is listed in the Estimates published last week.

Mr. Seamus McCarthy

My recollection from when the Secretary General attended is that there is a continuing function in relation to water quality and that payments will be made in that connection.

Deputy Sean Fleming

The figure is €71 million but it is not broken down.

Mr. Seamus McCarthy

I do not know if that is what the €71 million is for. It seems a lot.

Chairman

Can we examine those figures? If those two issues are funded directly by the Department of the Environment, Community and Local Government, they will be in the accounts and, therefore, we can examine those accounts.

Mr. Seamus McCarthy

Expenditure in regard to Irish Water is a 2014 issue, but the committee may recall that in the report we published in September, there was a reference to commitments being handed over and not recognised in the environment Vote. The commitments were transferred on 1 January.

Deputy Sean Fleming

They were "novated" or some such fancy word applied.

Mr. Seamus McCarthy

They moved. The point we were making was that they should properly have been recognised on the Vote or at least in the notes to the Vote in compliance with the guidelines for the preparation of appropriation accounts.

Chairman

It is also in Chapter 7 of the Comptroller and Auditor General's report entitled "Matters arising from audit of Vote 25 Environment, Community and Local Government in relation to Water Services". I ask that we get the information, circulate it to members to advise them, send a copy to the legal advisors in the House and establish a right to look at the accounts I have mentioned. Rather than to go off for a week and be worried about it, I note that it is not unlawful to talk to people.

Deputy Sean Fleming

Correct.

Chairman

I thank the members for attending.

The committee adjourned at 1.25 p.m. until 10 a.m. on Thursday, 6 November 2014.