I thank the Chairman and committee members for inviting us here this morning. I am joined from the National Paediatric Hospital Development Board by Mr. Tom Costello, chairman, Dr. Emma Curtis, medical director, and Mr. Jim Farragher, finance officer.
The National Paediatric Hospital Development Board was appointed in August 2013 to design, build and equip a new children’s hospital. A planning application was lodged in August 2015 and An Bord Pleanála granted planning permission in April 2016 for the new children’s hospital, the paediatric outpatients and urgent care centres at Connolly Hospital and Tallaght Hospital and related developments, including the children’s research and innovation centre and a 53-bed family accommodation unit adjacent to the new children’s hospital. This was a significant milestone for the project.
There were many other significant milestones during 2017, principal of which were as follows. In April 2017, the definitive business case, including the full project cost, was approved by Government for €983 million. In May 2017, a foundation stone was cast for the new children’s hospital. In October 2017, the first sod was turned for the 5,000 sq. m. new paediatric outpatient and urgent care centre on the grounds of Connolly Hospital. This new facility will be operational in 2019 and will be followed in 2020 by a second facility at Tallaght Hospital. In October 2017, the development board, in association with Enterprise Ireland, organised a meet-the-buyer event for the new children’s hospital in the Royal Hospital Kilmainham for the more than 200 construction suppliers who attended the event.
The expenditure to date at 31 December 2017 was €67.2 million, and the detail is listed in the documentation supplied to committee members. The 2017 accounts have been audited and approved by the Comptroller and Auditor General. As requested by the committee, the draft unaudited expenditure to 31 December 2018 has been provided and is summarised in the documentation provided to the committee. It totals €129.1 million.
The scope of the project was defined in the HSE approved outline design brief. This set out the requirements needed to deliver a modern children’s hospital that will care for our sick children for future generations. The board put in place a plan, approved by stakeholders, to appoint a design team, obtain planning permission, clear the 12 acre site at the St. James's Hospital campus, and procure and appoint contractors in a two stage procurement process. A procurement subgroup, comprising the development board, the HSE and members of the Government construction contracts committee, agreed over a number of months that the most appropriate approach was a two stage procurement process to ensure competitive tendering and cost and programme certainty ahead of any decision to proceed with the main contract works, namely, the Phase B above ground works. This stage was reached in November 2018.
The costings for the project were developed at three distinct stages in the design process. These were in February 2014 prior to any design work; in February 2017, based on receipt of tenders for the Phase A works full design and Phase B partially developed design of mid-2016, when we tendered the project; and November 2018, based on fully completed and co-ordinated design. The February 2014 figure of circa €800 million was an early stage cost estimate prior to the appointment of a design team in August 2014, and used floor areas from the outline design brief and 2013 construction rates. It is estimated these rates will have virtually doubled by 2022 when the children's hospital will be completed, following a decade of construction tender inflation. The February 2017 figure was €983 million, which was the approved business case. The project was tendered on a two stage basis. The bill of quantities for the first stage was based on a partially developed design. The second stage included involvement of contractors with designers in finalising the design and confirming the actual quantity of materials. This included a targeted schedule of €66 million value for money savings. The November 2018 figure of €1.433 billion is the cost to completion in 2022 based on a completed and fully developed design. All risks on quantities, programme, omissions, co-ordination and ground conditions are now transferred to contractors.
Construction costs for the children’s hospital are now €890 million, an increase of €320 million over the approved 2017 business case. Seven key construction cost drivers have contributed to the increase of €320 million in construction costs, and are included in the documentation provided to the committee. The 2017 approved business case construction cost was €570 million, which included targeted value engineering savings of €66 million. The first cost driver was a reduction in the delivery of the €66 million targeted value engineering savings. A total of €20 million in savings was delivered but the overall cost was increased by €46 million. Statutory issues, specifically changes in fire regulations following the Grenfell Tower fire and the requirement of An Bord Pleanála to add additional sprinklers to the building, contributed to an additional €27 million in costs. The user engagement process had not fully completed and completing the process added a further €21 million. At this stage, the cumulative costs from the approved business case had increased from €570 million to €664 million.
The next cost driver was the finalisation of the detail design, including specification, detailing and itemising quantities of all materials in each of the 6,000 rooms. This added €94 million. Omissions in tender documents amounted to €20 million. There was also the impact of an additional nine month construction programme to complete the project in 2022 and, separately, additional costs for preliminaries due to the increase in scope. Additional claims from the contractors to reflect changes in scope amounted to €22 million. All of these factors amount to €320 million, bringing the adjusted construction sum to €890 million.
As well as the increase in construction cost of €320 million, there are additional costs of €130 million, as set out in the documentation provided to the committee. These include costs of €16 million for equipping the urgent care centres and the main children's hospital. It also includes costs of €53 million for other construction contracts, including for the outpatient centres, decanting and aspergillus, development board costs, design team fees and specialist consultants. There is also an increase in the risk provision on the main children's hospital of €11 million and VAT of €50 million. These items total €130 million. The final project cost is now €1.433 billion, €450 million higher than the figure of €983 million approved by the Government in 2017.
An international benchmarking report, completed by AECOM in October 2018, concludes that the average construction cost per square metre for international hospital projects similar in scale to the national children's hospital is €5,951 per square metre, with a recorded high of €8,000 per square metre. The average of €5,951 is more than twice the estimated cost of construction in 2013. Based on the award of the Phase B works, the construction cost of delivering the national children's hospital is €890 million, equating to a cost of €6,500 per square metre for the main hospital. The equivalent figure for the two outpatient and urgent care centres at Connolly Hospital and Tallaght Hospital is circa €5,200 per square metre.
Cost per bed is not an appropriate metric. It is akin to describing house prices on cost per bedroom and that is why we adopt cost per square metre.
Once we became aware of significant additional costs emerging and presented to the board, we set in place a review of alternative options. Contractually, we did not have to proceed with the phase B main contract works with BAM and we had the option to complete the phase A basement, stop all works and retender the phase B above ground works. This option, and others, were considered and carefully evaluated. The eventual outcome was a recommendation by the board, which was accepted by the HSE, the Department of Health and the Government, to proceed with the contract as it offered the best solution commercially and ensured the completion of the children’s hospital in the shortest possible timeframe.
Finally, the timeline to deliver the new children's hospital from the appointment of the board in August 2013 to project completion in 2022 is nearly ten years. It will deliver a fit-for-purpose children’s hospital fulfilling all the requirements of the design brief. The final cost is in line with international benchmark costs for hospitals of a similar scale and complexity. We are deeply disappointed that costs have increased so significantly and acknowledge the challenges these pose. We are also mindful of the Government's concerns to ensure the project is indeed delivered now within the agreed time and within the revised budget.
Our focus now is on ensuring all parties work safely and collaboratively to deliver a hospital of outstanding quality and a project that we will all be proud of which transforms the delivery of paediatric services and provides unsurpassed care for the nation's sick children for generations to come. We welcome the independent review of the cost escalation. Any issues identified will be dealt with speedily and comprehensively in the interests of successful completion of the project and the effective management of public funds. I thank members for their attention. My colleagues and I will be pleased to deal with questions.