COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 16 Jun 2022

National Paediatric Hospital Development Board: Financial Statements 2020

Mr. David Gunning(Chief Officer, National Paediatric Hospital Development Board) called and examined.

Vice Chairman

I welcome everyone to the meeting. Apologies have been received from the Chair, Deputy Stanley, and from Deputies Alan Kelly, Jennifer Carroll MacNeill, James O'Connor and Colm Burke. Please note that in order to limit the risk of spreading Covid-19, the Service encourages all members, visitors and witnesses to continue to wear face masks when moving around the campus or when in close proximity to others, to be respectful of other people’s physical space and to adhere to any other public health advice.

Members of the committee attending remotely must continue to do so from within the precincts of Leinster House. This is due to the constitutional requirement that to participate in public hearings, members must be physically present within the confines of the place where Parliament has chosen to sit.

The Comptroller and Auditor General, Mr. Seamus McCarthy, is a permanent witness to the committee. He is accompanied by Mr. Mark Brady, deputy director of audit at the Office of the Comptroller and Auditor General.

This morning we will engage with officials from the National Paediatric Hospital Development Board, with representatives from the Department of Health and the Health Service Executive, HSE, to examine the board's 2020 financial statements. As per the committee's request, the board has provided some information on contractual provisions and claims in respect of the national paediatric hospital, which the committee may wish to examine during the engagement. We are joined in the committee room by the following officials from the board: Mr. David Gunning, chief officer; Mr. Phelim Devine, project director; Dr. Emma Curtis, medical director; and Mr. Jim Farragher, financial manager.

We are also joined by Mr. Derek Tierney, assistant secretary in the health infrastructure division at the Department of Health, and by Mr. Martin McKeith, assistant lead director of the children's hospital project and programme at the HSE.

As usual, I remind all those in attendance to ensure their mobile phones are on silent mode or switched off.

Before we start, I want to explain some limitations to parliamentary privilege and the practice of the Houses as regards reference witnesses may make to other persons in their evidence. As they are within the precincts of Leinster House, they are protected by absolute privilege in respect of the presentations they make to the committee. This means they have absolute defence against any defamation action for anything they say at the meeting. However, they are expected not to abuse that privilege and it is my duty, as Cathaoirleach, to ensure this privilege is not abused. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks and it is imperative that they comply with such directions.

Members are reminded of the provisions within Standing Order 218 that the committee shall 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. Members are also reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside of the House or an official either by name or in such a way that will make him or her identifiable.

Before we move to opening statements, I want to address a worrying trend that has been developing in terms of a lack of engagement and an apparent disregard by certain bodies of accountability to the Oireachtas. The vast majority of bodies engage in an open and professional way with the committee, and that is right and proper. This is not out of respect for any members of the committee but out of respect for the Oireachtas. Members of the Houses represent the taxpayer who foot the bill for public bodies' expenditure and the accountability of public bodies to the Oireachtas is a fundamental cornerstone of the democracy in which we live.

Mr. Gunning, you are accountable to the Oireachtas for the board's expenditure and this committee is charged by Dáil Éireann with examining that expenditure and reporting to the Dáil. In order to do so in an informed manner, we request information in advance of meetings. I understand the invitation to the board to attend this meeting issued on 11 May. We requested updates on previous recommendations of this committee to the board to be provided by last Friday, 10 June. To any reasonable person, I think this was a reasonable timeframe. Not only was the information not provided within the timeframe, despite the secretariat following up on a number of occasions, the board waited until 10 June to respond and to say that two of the requests were more appropriate to the Department rather than flagging this in May or liaising with the Department to provide the committee with the information. We are still awaiting the updates to the recommendations made by the committee relating to the board, which were requested on 11 May for this meeting.

The committee also requested other information on contractual provisions and claims on 30 May with a request for a response by 10 June. That information was not provided until late on 14 June and even then, it was presented very poorly, with parts of the information missing and no explanation provided to the committee for the missing information. We also did not receive Mr. Gunning's opening statement, which was requested at least 24 hours before this meeting, until 9 p.m last night. This level of engagement on your part is clearly unsatisfactory. Speaking on behalf of the committee, I trust that in the future, there will be a significant improvement.

I call on the Comptroller and Auditor General, Mr. Seamus McCarthy, to make his opening statement.

Mr. Seamus McCarthy

Go raibh maith agat, a Chathaoirligh. As members are aware, the National Paediatric Hospital Development Board is responsible for the planning, design, construction and fit-out of the new children's hospital at the St. James's Campus, together with the construction of two associate paediatric outpatient and urgent care centres, located at Tallaght and Connolly hospitals. A number of parallel projects, outside the remit of the board, will be required to transfer staff and services into the new facilities and to get them into operation. These are being progressed by Children's Health Ireland which will operate the services in the new facilities in the future. The overall budget approved by Government in December 2018 to get the hospital and both satellite centres up and running was €1.7 billion. The budget available to the board for the physical development and equipping of the hospital and the satellite centres amounts to €1.4 billion. The budget for the parallel Children's Health Ireland projects is €300 million. The board is funded by Oireachtas grants provided via the Health Service Executive. In 2020, the grant funding provided amounted to €161.2 million, matched to an equivalent expenditure.

Up to the end of 2020, the board had spent a total of €621 million on design, construction and administration costs. The costs associated with the development and equipping of the Blanchardstown unit, which became operational in 2019, amounted to just under €37 million. The Blanchardstown assets were transferred to the Health Service Executive and to Children's Health Ireland. The remaining cumulative expenditure - a net €584 million - is recognised as the value of the fixed assets in development in the board's statement of financial position.

The final outturn on the project will depend on a number of factors. As members are aware, one of the main issues is the finalisation of contractor claims for additional payment over the original contract value. Note 11 to the financial statements discloses that the board has been notified of many such claims by the main contractor, and additional information in that regard has been supplied in correspondence. Note 11 also outlines the structures in place for the resolution of claims, including determination by the employer's representative or a project board, through conciliation, or ultimately if required, in the courts. As such claims are settled between the board and the main contractor, their impact is reflected in payments and-or in the capital commitments outstanding at the year end, recorded in Note 8. This note indicates that, excluding lease commitments on the board's office accommodation, the value of the capital commitments outstanding at the end of 2020 stood at €764 million, and that was down €110 million on the level outstanding at the end of 2019.

Vice Chairman

Thank you. Mr. Gunning, as detailed in the letter of invitation, you have five minutes for your opening statement and I invite you to make it now.

Mr. David Gunning

Thank you. I note the comments the Vice Chairman made in her introductory remarks and I assure her we will strive to meet the timing requirements of the Committee of Public Accounts in future.

Deputy Paul McAuliffe

Can I ask Mr. Gunning to elaborate a little more on that? Were there reasons for the delay? I accept that sometimes issues arise but the Vice Chair made a fairly substantial statement-----

Mr. David Gunning

Absolutely. I will have to take it away and take note of it to consider how we can do better to fulfil these particular requirements. I have given a commitment that we will do that.

I will continue with the opening statement. I thank the committee for inviting the National Paediatric Hospital Development Board to assist it in its examination of our 2020 financial statements. I am the chief officer of the NPHDB and I am joined by Mr. Phelim Devine, Dr. Emma Curtis, our medical director, and Mr. Jim Farragher, our financial manager. The NPHDB was appointed by the Minister for Health in 2013 to design, build and equip the new children's hospital on a campus shared with St. James's Hospital, a paediatric outpatient and urgent care centre at Connolly and a paediatric outpatient and emergency care centre at Tallaght. Both outpatient centres have been handed over to Children's Health Ireland, CHI, and are fully operational.

The new children's hospital project represents a unique and unprecedented investment in children's and young people's health and well-being and will deliver on the vision of creating one of the finest children's hospital in the world. This much-needed investment will enable the delivery of expert care and treatment for all children and young people - who represent 25% of our population - from a bespoke, modern space. It will have world-class, state-of-the-art facilities where paediatricians, doctors, nurses, clinicians and all medical and support staff will deliver care leading to better health outcomes for all.

Progress on the construction of the new children's hospital has advanced significantly since we were last here with the committee almost 12 months ago. The facility is now 70% complete and is well established on the city's skyline. I thank the members of the committee who visited the site over the past year. The advanced progress means the layout the hospital is clear and visible to all those who walk through the various departments that are starting to reach completion. On behalf of the development board, I extend an invitation to each of the members to visit the hospital to see the progress first-hand.

The committee can see from the images that accompany this statement that the hospital is progressing, with the most advanced areas having intact floors, walls, ceilings and joinery such as nurse stations already installed. The intensive care unit, ICU, pendants that hold all medical equipment, along with bathroom fittings, are being installed, as are the sliding doors with the interstitial privacy lines. The fitting out of ceilings, walls and glazed screens within the concourse at all levels of the north and south entrances is well under way, including the cone structures that host the third-level seminar and library spaces, the 350-seat lecture theatre, cafés and an all-faith centre, as well as the performance steps.

As the committee can see from the images, the 22 operating theatres' ceilings, walls and floor fit-out is under way, with medical equipment already being installed. Other areas, such as the emergency department, imaging, critical care and therapy areas are progressing at pace. The clinical rooms and bedrooms with windows to the gardens with views to the Dublin mountains and Phoenix Park are all there to be viewed. It is not hard to imagine the voices of children and families as we navigate the corridors. As we move to complete the final 30%, we are moving quickly to the completion of finishes. It is expected that the first rooms will be completed in August this year and will be ready for system commissioning. The other 4,600 clinical rooms will follow in a planned sequence.

It is worth reminding the committee that at the heart of this infrastructure project is the policy commitment to co-locate the children’s hospital with an acute adult hospital and, in time, tri-location with a maternity hospital. Critical pieces of infrastructure linking these facilities are the shared logistics and service yard, the facilities management tunnel linking to the St. James’s adult hospital and the future maternity hospital and the shared helipad and ambulance canopy, which will optimise access for patients, staff and services.

The medical and clinical equipping of the hospital that also falls within our remit is advancing. Medical equipment, such as theatre and ICU pendants, autoclaves and storage and catering equipment are already being installed. The clinical decontamination unit, which cleans and sterilises the surgical equipment, has been procured, as have the automated guided vehicles that will traverse the segregated facility management lifts and corridors 24 hours a day to deliver and collect various medical materials and products vital to deliver hospital operations. Three MRI machines have been procured to accompany two that will transfer from the existing hospitals. The process to buy computed tomography, CT, scanners, biplane imaging for theatres, X-rays, fluoroscopy, dental chairs, etc., will be completed next month. Over the next 12 months, the board will execute multiple contracts with several specialist vendors for this equipment.

I will speak to the expenditure for 2020 and 2021. The 2020 accounts have been audited and approved by the Comptroller and Auditor General. I will not go through the expenditure because it has been covered by the Comptroller and Auditor General. In the interests of time, I will move to the final comments.

On the question of wider construction challenges, it is widely acknowledged that the global construction sector is facing challenges related to supply of market essentials due to widespread turbulence in the industry caused by Brexit, Covid-19 and the war in Ukraine. All of these have led to production disruption, Covid-related factory shutdowns, import delays and constraints and inventory depletion, resulting in increased global demand and shortages in the market. According to the SCSI/PwC 2022 Construction Market Monitor, the top three factors indicated by surveyors as affecting firms' activity levels were shortage of labour, shortage of materials and project viability. This is a global challenge not unique to the construction sector but one that is having - and will continue to have - potential impacts on this project while also bringing additional uncertainty. The contractor continues to work through these challenges.

With respect to the construction timeline, the National Paediatric Hospital Development Board and BAM remain fully aligned around reaching substantial completion of the hospital by the end of January 2024, with the hospital then being handed over to Children's Hospital Ireland for a period of commissioning. There are, however, a number of factors that put pressure on this forecasted timeframe so we continue to work with the contractor to understand what implications these external factors may have on the programme, and as a result the contractor's programme is under constant review and evaluation.

On the question of construction costs, in December 2018, the Government approved an investment of €1.433 billion for the design, build and equipping of the children's hospital project. This investment excludes items where no price certainty is possible due to factors such as construction inflation, statutory changes and other changes in project scope that may arise over the course of construction. In addition to these factors, programme delay, Covid-19 and Brexit will all bring additional cost to the project. It is not possible to provide a final estimated cost at this time for the completion of the project but the combination of all these factors means that the final amount will be above that already approved by the Government. In particular, the current period of high inflation is inevitably having a major impact on costs for a project of this scale, which remains the largest current infrastructure development in the State.

On a project of this scale and complexity, any delay has a cost implication. There is ongoing engagement taking place to determine the implication of all contributing factors to the costs. Any speculation or discussion on what these additional costs might be could potentially compromise the existing contractual arrangements with the contractor and jeopardise the development board's ability to negotiate on behalf of the State. The National Paediatric Hospital Development Board and stakeholders will continue to work together to ensure any additional funding that is required and requested is appropriate and justified. The development board will also continue to vigorously review any claims for additional moneys and only those that are deemed appropriate will be paid.

Claims and disputes are an inevitable part of construction projects of this scale. They arise for myriad reasons and given the large amounts of money involved, it is imperative that the development board evaluates each claim and robustly defends those that are not justified. The National Paediatric Hospital Development Board has a comprehensive process in place for the assessment of claims and has extensive project controls to help manage costs. While management of this is consuming by way of cost and time, the processes ultimately help to manage and defend costs so that the project can reach the best possible outcomes.

In 2021, a moratorium agreed between the National Paediatric Hospital Development Board and the main contractor was applied on disputes, including on conciliations and adjudications and High Court proceedings. This moratorium was designed to allow both parties to concentrate on delivering the project in the shortest possible timeframe and is ongoing. Information on claims and adjustment management and dispute management has been provided to the committee separately, as per the template requested by the committee.

Progress on the construction of the new children’s hospital has progressed significantly in the past 12 months. This progress is evident in the new structure and building that is emerging in Dublin 8 and the visible impact on the Dublin skyline. There is 70% of the construction work now complete. The progress that has been made on the new hospital is in addition to the successful completions of both CHI at Connolly and CHI at Tallaght, both of which are an important part of the overall national children's hospital project.

We continue to ensure our stakeholders are informed on progress and challenges. We remain engaged with the contractor, constantly assessing the potential implications of the wider construction sector challenges so that they can be mitigated where possible. The project has encountered delays, some of which are inevitable for major infrastructure developments of this scale and others unprecedented, as I outlined. However, all parties remain committed to delivering substantial completion of the new children's hospital within the shortest possible timeframe. I will end by repeating my invitation and that of the National Paediatric Hospital Development Board to all committee members to visit or revisit the hospital site and view first-hand the state-of-the-art facility that is emerging and will serve children and their families for generations to come.

Vice Chairman

I understand Mr. Tierney wishes to make an opening statement on behalf of the Department. He has five minutes and I will stick to that limit. I allowed Mr. Gunning to go beyond the fives minutes but I ask Mr. Tierney to stick to that limit.

Mr. Derek Tierney

I thank the committee for inviting the Department of Health to join the National Paediatric Hospital Development Board to assist the committee in its examination of the development board's 2020 financial statements. I also thank the committee for extending the invitation to the HSE and I welcome my colleague from the HSE, Mr. McKeith, assistant lead director for the children's hospital programme. The HSE plays a vital role in the national children's hospital, NCH, project and this is reaffirmed by the new roles of lead director and assistant lead director emanating from the recommendations of the 2019 PricewaterhouseCoopers, PwC, report, including new governance and oversight arrangements, as approved by the Government.

Under the ministerial order that established the development board in 2007, the board is charged with keeping all proper and usual accounts and all special accounts as the Minister may from time to time require, and to additionally submit an annual financial statement to the Comptroller and Auditor General for an audit report to be carried out in accordance with the Comptroller and Auditor General (Amendment) Act 1993. The board’s annual financial statements for 2020 were submitted to the Department on 6 December 2021, following the completion of the Comptroller and Auditor General’s audit. They were then laid before the Houses of the Oireachtas on 20 December 2021, pursuant to section 11 of the 1993 Act.

The board receives its capital funding for the project from the HSE, as the sanctioning body for the new children’s hospital programme. As set out in the 2020 financial statements, costs of €161.2 million were incurred by the board in 2020. Costs incurred by the board in the preceding year were €199.6 million. The board’s annual financial statements for 2021 will be submitted to the Minister following the completion of the Comptroller and Auditor General's audit and will be laid before the Houses of the Oireachtas following an internal review by the Department. The development board has advised the Department that future financial statements will include a note that details the additional costs paid to date that are not included in the approved budget of €1.4 billion as well as a note that indicates the overall claims received by the employer's representative and the current stage that they are at in the dispute management processes. This is on foot of recommendations from this committee's report, published on 8 March 2022, following the examination of the 2019 financial statements. The development board has also committed to attaching a monetary value to resolved claims to show any impact they may have on the overall cost and providing a quarterly report to the committee on both open and settled claims. This approach is also welcomed by the Department.

Regarding progress on the project, the new children’s hospital project remains the most significant capital investment programme undertaken in the healthcare system in Ireland. It will play a key role in strategic reform for paediatric services and is fully aligned with Sláintecare. It is already delivering in terms of the two satellite centres that are open and delivering the new model of ambulatory care for children in the greater Dublin area. The project and programme will deliver world-class facilities that will improve and prioritise medical outcomes for the nation's sickest children while bringing about transformational change to the delivery of healthcare for the children of Ireland for generations to come.

The construction project is only one part of three interrelated elements of the NCH programme for the delivery of a new paediatric model of care in Ireland, the others being the ICT and electronic health record infrastructure and the operational integration of the three existing children's hospitals. Despite unprecedented challenges and uncertainty that have not only delayed this project but also affected the wider construction industry, broader sectors and the general economy, it is important to acknowledge the great progress that has been made on the project. My colleagues from the board have provided information and images in this regard. As I noted earlier, the satellite centres, the paediatric outpatient and emergency care centre in Tallaght Hospital and the paediatric outpatient and urgent care centre at Connolly Hospital, are now successfully delivering the new model of ambulatory and urgent care for children and adolescents in the greater Dublin area. In the opening statement I provided to the committee last night I have given some operational and service details which I will not go into now.

In terms of project risks, in its latest programme the construction contractor is now forecasting a substantial completion date of end of January 2024. The development board is therefore focused on ensuring that everything possible is being done to ensure the construction project is completed as soon as possible. However, there remain risks beyond the control of the development board and the contractor to the timeline arising from the disruption to just-in-time supply chains arising from Brexit and the global Covid-19 pandemic over the last two years. More recently, the war in Ukraine has given and will continue to give rise to global economic uncertainty and supply chain disruption along with the effect on shortages of construction raw materials. It is right that the development board might have concerns about the risks to the construction works, especially in respect of the risks I have just mentioned. Furthermore, the wider construction industry is challenged by these same supply chain issues and price increases and the NCH project cannot alone be immune to these external risks. I also set out in my statement some of the mitigating actions taken to date by the development board and the contractor, as well as the impact of current high inflationary pressures on the contract and the impact that has on the budget.

The hardly predictable course of the pandemic, recent geopolitical events and the consequent uncertainty make speculation and precise definitive forecasting of time and costs, hypothetical or otherwise, at this time very challenging, may also prejudice enforcement of the existing live contract and very likely negatively impact or jeopardise the board in its ongoing confidential commercial engagement with the main contractor, including its responsibilities for ensuring timely completion of the construction works. The development board continues to monitor and respond to the risks to cost and timelines and to administer the contract as mandated by the Government. Nevertheless, reflecting on the positives, we now have paediatric outpatient and urgent care being delivered at Connolly Hospital, outpatient and emergency care being delivered at Tallaght Hospital and a site at St. James's Hospital that is visibly progressing towards construction completion. As mentioned by Mr. Gunning, if members of the committee have not yet had an opportunity to visit the site, I would be happy to facilitate a site visit through the development board and Children's Health Ireland, CHI. It is only when one sees the facility in person that one gets a full appreciation of the scale, vision and difference that this new hospital will make for the lives of children, their families and our healthcare professionals in the very near future.

Vice Chairman

Our lead speaker today is Deputy McAuliffe, who will have 15 minutes. All other members will have ten minutes. I will allow members to contribute in a second round if time permits. We will take a break at approximately 11 a.m.

Deputy Paul McAuliffe

I thank Mr. Tierney and Mr. Gunning for their opening statements, although I echo the comments of the Vice Chairman. Everyone in this room is very busy. Nobody is more or less busy than anybody else. In terms of programming the witnesses' preparation for these meetings, many of us finished late last night and there was a very tight window for the first time we got a chance to read some of the documents in advance of this morning. I ask Mr. Gunning not just to examine it but also to deliver on that promise. Without the information, we are asking questions in the dark and if we are doing that, we are not asking the right questions and, by the same token, we are not focusing on the matters that are important.

I will move on. Mr. Tierney and Mr. Gunning both spoke about the hugely positive elements of the project - the fantastic work that has taken place and also the benefits this will have. There is no doubt about that and I expect the health committee will be able to discuss that with the witnesses at length. Our only parameters are to evaluate the board as a project development board. There are only two factors that are important in managing a project development and they are whether it is on time and on budget. They are our two parameters. We know and trust that the project is going to be good and that all the benefits will be there, but our job is to evaluate whether it was on time and on budget. Otherwise we would be saying over time that every small emperor who built an obscenely expensive palace was a really great project manager, and we know that is not true. Nothing I will say takes away from the positivity of the project, but our role is to adjudicate the budgetary side so I will focus on that in terms of both the date and the cost.

Every family in the country is trying to grapple with inflation at present, and I expect the witnesses are no different. I will focus on the inflationary elements first. Do the witnesses have a financial assessment at this point of what the inflationary impact for the remainder of the project will cost in terms of additional claims?

Mr. David Gunning

I will answer that question. The contract provides that the NPHDB and the State is liable for inflation above 4%. Up to that point, it is on the contractor's dime, as it were. We have done an analysis and I can share with the committee the payments we have made under inflation in the period 2019, 2020 and 2021.

Deputy Paul McAuliffe

They are payments of €1.7 million and €1.5 million. Is that correct?

Mr. David Gunning

Yes, €1.7 million and €1.5 million. For 2021, the payment is €17.89 million, including VAT. The total inflation payments to date are approximately €21.16 million.

Deputy Paul McAuliffe

That is a figure I did not have. To clarify, Mr. Gunning is saying the 2021 figure is an additional cost of €17.89 million as a result of inflation.

Mr. David Gunning

Yes. The average tender price inflation that applied in 2021 - it is set out in the contract how we get there and I will not go into that - was 10.24%.

There is a mechanism in the contract where the inflation rates are compounded-----

Deputy Paul McAuliffe

Yes, I am familiar with it.

Mr. David Gunning

-----year on year, so the net-----

Deputy Paul McAuliffe

Has any estimate been done for 2022?

Mr. David Gunning

The contract provides this is calculated by July of the following year, so we will be estimating 2022 in July of next year. That will be based upon, primarily, what are the payments to the contractor. That is the first point. That gets multiplied by the percentage. I can give the Deputy a scenario we have put together in which we assume €200 million of payments to the contractor in 2022 and if we assume the forecast tender price inflation for 2022 is 10% then-----

Deputy Paul McAuliffe

And it may be more than that.

Mr. David Gunning

It has been 10.24% and that is the challenge in these kinds of situations-----

Deputy Paul McAuliffe

Yes.

Mr. David Gunning

-----but I am giving the Deputy a particular scenario.

Deputy Paul McAuliffe

I accept that, yes.

Mr. David Gunning

That amount, including VAT, that would be payable for 2022 would be €30.4 million, so it is €200 million with 10% inflation which compounds through and provides €30.4 million including-----

Deputy Paul McAuliffe

So €30.4 million in one projected scenario and I accept-----

Mr. David Gunning

Correct. In that one scenario.

Deputy Paul McAuliffe

I accept that. Then on payments to date, Mr. Gunning is saying those are €17.8 million.

Mr. David Gunning

They are €21.16 million.

Deputy Paul McAuliffe

I am sorry, €21.16 million. That then explains why the board has only reduced the capital commitments by €110 million.

Mr. David Gunning

In reality, our assumption, in filling the inflation element of that, was based on an 8% look-forward and it has obviously been much higher. That is the reality.

Deputy Paul McAuliffe

When you bring those two figures together, and as I said, I think it is echoed in the statements around the capital commitments where the board reduces it - not by the whole €165 million but only by €110 million. The inflationary impact of the project to date for 2019, 2020, 2021 and 2022 could be as high as €51 million.

Mr. David Gunning

Correct. That is an estimate. The €30 million is obviously the bigger number in all of these numbers, so where will it end up? We do not know.

Deputy Paul McAuliffe

The figures around this project are always eye-watering-----

Mr. David Gunning

Yes.

Deputy Paul McAuliffe

-----but that figure alone - there are capital projects that Mr. Tierney deals with that are €51 million all on their own.

Mr. David Gunning

Of course, yes.

Deputy Paul McAuliffe

That is the figure the board is expecting. The question then is how did we get to that point. The figure inserted into the contract was 4%. How did the board arrive at that figure?

Mr. David Gunning

I was not - I joined the board, the contract was in place with the contractor and they are the terms that were agreed. As for how this happened, I presume it was through a negotiation, Deputy McAuliffe. I am dealing with what exists and if it does exist, that is it. I think that was a reasonable assessment at the time that the risk would be taken up to that level-----

Deputy Paul McAuliffe

Was the contractor-----

Mr. David Gunning

-----by the contractor.

Deputy Paul McAuliffe

-----a source of information when the board was sourcing that figure or did the board independently source it?

Mr. David Gunning

I have no insight into that. I do not know. Mr. Devine was in post at the time and he may be able to add something to that.

Deputy Paul McAuliffe

The buck seems to have been passed to Mr. Devine, so why do I not ask him?

Mr. David Gunning

I am not passing the buck-----

Deputy Paul McAuliffe

All right.

Mr. David Gunning

-----but I simply was not there.

Mr. Phelim Devine

The project was originally tendered around August 2016. Prior to going out to tender, there was market engagement done with a lot of the contractors in the country and in the UK as well. We were trying to get UK contractors interested in bidding the job because there was only a limited amount of large contractors in Ireland that could do the job. Through that engagement and through our own analysis, we determined that 4% was about as much as a contractor could take a risk on. Remember that the job duration, even back then, was four and a half years of construction. As that is a big crystal ball, we felt 4% was an appropriate figure to put in the contract and then anything above 4% would be paid by the State. In terms of getting the right balance in the contract; to be fair to the contractor and to the State, that is how we structured it.

Deputy Paul McAuliffe

And it would be paid 100% by the State. There was no sharing of that risk above the 4%.

Mr. Phelim Devine

The sharing piece is the contractor pays 4% - that is 4% compounded as well - in terms of price he put in at tender and then anything over that would be paid by the State. That is the sharing mechanism.

Deputy Paul McAuliffe

I am conscious of this from my experience on the housing committee. Inflation is having an impact on a whole range of areas, so I accept it is a factor the board must deal with. My question is, could it have been predicted when the contract was set at 4% that the State would be 100% liable for everything above 4%? Was that a reasonable burden to put on the State?

Mr. Phelim Devine

The contract is very clear on that. So, it is-----

Deputy Paul McAuliffe

But the contract was set by the board.

Mr. Phelim Devine

Correct.

Deputy Paul McAuliffe

So my question to the board is whether that was a reasonable figure to pick and whether it was reasonable that the State would be liable for everything above that.

Mr. Phelim Devine

Yes, I think it was very reasonable because the contractor cannot predict four and a half years in the future. Mr. Gunning has talked about the scenarios that might have been in the accounts that we predicted and we have all seen where inflation has gone this year for all the various reasons like Covid, Brexit and the war in Ukraine. Nobody could have predicted we would have an average of 10.3% inflation for this year so it would have been an unfair burden on the contractor to take that risk in a job that is going to last four and a half year and that is-----

Deputy Paul McAuliffe

Given it was an unlikely event that it would go to such a high figure-----

Mr. Phelim Devine

Yes.

Mr. David Gunning

Correct.

Mr. Phelim Devine

Correct.

Deputy Paul McAuliffe

I accept that. All the more reason then that would not have resulted in significantly increased costs, had the board put something into that initial contract, because the contractor would have made the same calculation the board did that it was unlikely to be as high as 10%. There should have been some mechanism in the contract that protected the State from paying 100% of that figure above the 4%. There should have been a more reasonable split between the two.

Mr. David Gunning

I would say it is easy to make that comment now, right-----

Deputy Paul McAuliffe

Of course it is.

Mr. David Gunning

-----and we are dealing with the contract as it exists and that is what we have to deal with and they are the terms.

Deputy Paul McAuliffe

But Mr. Gunning, you are dealing with the contract as it is now, but you also set the contract.

Mr. David Gunning

The contract was negotiated by the parties involved-----

Deputy Paul McAuliffe

Which included the National Paediatric Hospital Development Board.

Mr. David Gunning

The development board and the contractor, absolutely, and it has been approved by various people and it has gone through all the processes, all the required processes.

Deputy Paul McAuliffe

The number we are looking at is €51 million. That could go higher.

Mr. David Gunning

Correct.

Mr. Phelim Devine

Correct.

Deputy Paul McAuliffe

I have done some very rudimentary calculations here. It could go as high as €100 million. This is a very significant risk to the overall cost of the project. It is not a small percentage we are talking about here.

Mr. David Gunning

Correct and if I bring up the PwC report that set out a whole table of scenarios it did contemplate these types of numbers and that was from April 2019, if the Deputy remembers.

Deputy Paul McAuliffe

I am familiar with it, yes. Turning to Mr. Tierney, the Minister, Deputy Michael McGrath published the inflation co-operation framework in early May to ensure the viability of projects. I think everybody would say the national children's hospital is beyond that point of viability. It is unlikely the contractor would walk away from the entire project at this time. The question is on how the conversation I just had with Mr. Gunning interacts with the announcement of the inflation co-operation framework in terms of the public expenditure element of this. How are we going to meet this €50 million to possibly €100 million?

Mr. Derek Tierney

Maybe if I step back a bit to the genesis of the contract and recalling my own notes, the procurement process for the NCH contract began in I think mid-June 2016 but there was a procurement sub-group established with members of the development board, HSE estates and the Government's contract committee, which is the central contract policymaker within the Department of Public Expenditure and Reform. They looked at leveraging lessons learnt in the context of the UK. At that time there were lessons learnt from guidance issued by the UK Cabinet Office through its Government construction strategy in May 2011. That identified collaborative working as the optimal arrangement for megaproject delivery. The construction of terminal 5 at Heathrow Airport was one of the key case studies as a prime example of collaborative working between the partners. It was determined at that time the standard capital works management framework and the procurement model would not be appropriate, so that included the Government's own construction committee within the Department of Public Expenditure and Reform. The procurement model adopted was based on a two-stage contracting arrangement that embraced the principle of collaboration through early contractor involvement and aligned with EU procurement requirements and also closely followed established construction contract forms.

Following deliberation and the presentation of the proposed option to the Government's construction contracts committee, the conclusion was a two-stage project on a collaborative form or model using the public works contract in a modified form which included an embedded risk-sharing mechanism. As the Deputy rightly points out, the Government has realised that the residual risk of inflation in this environment is not tenable, viable or sustainable for the construction industry. It has issued at least two policy responses for entities such as mine that are in tender and trying to entice a market to engage and for contracts that have already been set using a public works contract model where the contractor is taking all the risk on inflation and has introduced an embedded risk-sharing mechanism on a collaborative basis.

To answer the question directly, we will continue to engage through the Government construction contracts committee to ensure that in any future projects the right procurement strategy and the right model or form of contract is put in place. There is a broader discussion at the moment around a revision of the public works contract by the Office of Government Procurement, OGP. I cannot comment on that at this point.

Deputy Paul McAuliffe

I think I am out of time.

Vice Chairman

I think I am next on the list. I echo Deputy McAuliffe's point that none of us need to be convinced of the need or value of a new children's hospital. That is not our remit. We are the Committee of Public Accounts and that is our focus.

What was the original completion date in the tender documents?

Mr. David Gunning

The original completion date in the tender document was August 2022.

Vice Chairman

That is what the contractor signed.

Mr. David Gunning

It was 29 August 2022.

Vice Chairman

We would have looked for it to be complete this year.

Mr. David Gunning

An extension of time was granted because of Covid.

Vice Chairman

But the original contract was 2022. The slippage at the beginning around the milestones for completion was quite substantial in the first couple of years. Some of that related to inadequate staff being provided by the contractor on the site. Is that the case?

Mr. David Gunning

That is our view, yes. That is correct. I will clarify for the record that the actual contractual date has moved from August 2022 to 13 October 2022 because of the Covid shutdown. That is the actual date.

Vice Chairman

Does that take account of the time lag after the construction sector came back and the hospital came back? There was a time when building was back in action and the hospital site was not.

Mr. David Gunning

I will explain the way this works. The extension that has been awarded to the contractor is in respect of the Government-mandated shutdown only. It is 32 days. That is it.

Vice Chairman

At the back end of last year, we started to see inflation rise substantially. This year has been very different. A hospital that would have been completed in October of this year would be at significantly lower risk from inflation than one that will be substantially complete by January 2024.

A contract is a two-way thing. I have been constantly asking about counterclaims in relation to the non-completion in the timelines. Just as the State is required to keep its obligations, so too is the contractor. One of the Department's replies stated that staffing is not raised in terms of an employer claim but there is an assumption that the employer can carry out the contract within the timeframe it signed up to. Have any counterclaims been made around the completion date being substantially missed?

Mr. David Gunning

The contract makes provision for the application of liquidated and ascertained damages. Within the contract, that is the only remedy the employer has against the contractor. We are the employer. It is the application of those liquidated damages.

Vice Chairman

Will Mr. Gunning describe that to me in English? What would liquidated assets look like? When would that kick in? How would it manifest itself?

Mr. David Gunning

In general, in the industry the application of liquidated damages happens once we know the quantum of the delay: how much in delay has the project been from its 13 October 2022 date to its actual substantial completion date.

Vice Chairman

So this is unlikely to happen until the end.

Mr. David Gunning

We need to know the precise delay in order to levy the damages. That is why in practice these liquidated damages are usually assessed at the end of the contract, usually in the final account stages and when things are being concluded between the contractor and the employer.

Vice Chairman

Is inflation taken into account in terms of the over-run? Above the 4%, that would be a liability that might otherwise not have applied.

Mr. David Gunning

I will answer that in a general sense because I do not want to get into specific actions that the development board may or may not take in relation to particular actions that may be open to us. We are looking at a broad commercial strategy with the contractor. We are looking at everything we can do in order to minimise cost for the State. However, I do not want to comment on specific actions that we may or may not take.

Vice Chairman

Okay. I want to move on to a couple of other points. One of them relates to the Comptroller and Auditor General's opening statement. I would like Mr. Gunning to explain something to me. There is only one project now that Tallaght and Blanchardstown are complete. The Comptroller and Auditor General's statement noted:

The board is funded by Oireachtas grants provided via the Health Service Executive. In 2020, the grant funding provided amounted to €161.2 million, matched to an equivalent expenditure.

This relates to the capital side. The Comptroller and Auditor General's statement concluded:

This note indicates that, excluding lease commitments on the board's office accommodation, the value of the capital commitments outstanding at the end of 2020 stood at €764 million, and that was down €110 million on the level outstanding at the end of 2019.

If €161.2 million has been provided, how has it been reduced by just €110 million?

Mr. David Gunning

I will have to ask my finance manager to respond to that.

Mr. Jim Farragher

We have partly covered that already. It is basically the spending of the €161 million which you would expect it to come down by. There was inflation of €50 million-plus added to that. Plus there are some new contracts as well.

Vice Chairman

What new contracts?

Mr. Jim Farragher

Even as of today, we do not have all the contracts in place for the equipment and fit-out of the hospital. You are always adding some commitments until the last capital commitment is signed off on. At that time there was €80 million-plus for equipping the hospital that had not been committed but you are moving along. There were also some pieces of commitment in the general expenditure that would be added as well. There are new commitments being made, less what is spent, and then add on the inflation.

Vice Chairman

I wish to ask the Comptroller and Auditor General about this. I understood this was capital. These are not additional claims.

Mr. Jim Farragher

These are not claims at all. Everything in the project is-----

Mr. Seamus McCarthy

My understanding was that the bulk of the difference between the two relates to inflation. It is a projection of future inflation and there are no significant additional commitments. I think there is an element of commitment that remains to be made. It is a figure of about €90 million but I do not think that is factored in here. Obviously, we will look at this again in the context of 2021 and further consideration will be given to what the appropriate outstanding commitments figure is at the end of 2021.

That will be part of the audit.

Vice Chairman

I am hearing €90 million in addition to the €50 million. Am I right on that?

Mr. Jim Farragher

To be committed at that point. We are looking at a point in time at the end of 2020.

Mr. Seamus McCarthy

That €90 million was built into the original estimate. There was provision for €90 million. Obviously, it remains to be seen, when the contracts are placed, what the outturn for that will be. Again, that is likely to be affected by inflation, I imagine.

Mr. David Gunning

That is likely, and it will happen in the next 12 months. The vast majority of those contracts will be done.

Mr. Seamus McCarthy

Yes. That was always likely to be back-ended, so the sum is exposed to construction inflation or equipment inflation in the meantime.

Mr. David Gunning

Or market inflation generally, on MRIs and various other types of equipment required.

Vice Chairman

What percentage of the current claims relate to extension of time?

Mr. David Gunning

We have given the committee a table, to which I can refer-----

Vice Chairman

Yes, if you would.

Mr. David Gunning

-----if you would like me to do that, Vice Chairman. I am happy to walk through that table-----

Vice Chairman

Please do.

Mr. David Gunning

-----because I think it will address that question. If I look at the table-----

Vice Chairman

Could you do it quickly?

Mr. David Gunning

I will draw my attention to your question as soon as I can, Vice Chairman. The committee asked us to provide the information categorised in a particular way. The contract, unfortunately, does not mirror the form in which the committee has asked for the information. We have tried to provide the information in a way we think is legible and understandable. Most claims have an extension-of-time element. They also have a compensation element. I have set this out in the first table I have provided, where Members will see the total number of claims at 1,393. They will see there are eight extension-of-time claims. Those are extension-of-time claims only. There is no other dimension to what the contractor is claiming. There are eight with the employer's representative and four that are just notifications. Thirty claims in total relate purely to extension of time.

I can go through the other table in a bit more detail if you like, Vice Chairman. It relates to construction price inflation. It details three specific claims, and Members will see that one of them is currently with the employer's representative to be determined, one is with the project board and one sits in conciliation. Separately, in respect of scope changes and provisional sums, we have a total of 1,314 claims. The vast majority of claims are in that category, and Members will see how they are laid out. There are 179 pending a determination and 275 have just been notified. This is in real time and as of 31 May. There are 410 with the project board and 448 in conciliation. Two have been conciliated and have resulted in notices of dissatisfaction, which stays the conciliator's decision. That adds up to the total of 1,314. There are a number of other claims. Determination has been issued in respect of 39. Again, this is in real time, so they are within the 28-day period during which the contractor may or may not accept them. We do not know. That is as of right now. Then there are two claims in the category relating to the sectoral employment order. That involves the hiring of a fire consultant by the contractor. There are other employer's claims. There are six in total in that categorisation. We bring all that to 1,393 claims.

The other pages give detail on the amounts of money associated with the 1,393 claims and so on.

Mr. Seamus McCarthy

I think the question the Deputy was asking was what the value of the extension-of-time claims is.

Mr. David Gunning

It is on the top of the next-----

Mr. Seamus McCarthy

I think it works out at about 81% of the total value of the claims that have been lodged.

Mr. David Gunning

Yes. That is correct. This is where the money is. It is €499 million out of the €613 million total. It is on the next-----

Vice Chairman

If the hospital had been completed on time, we would not have attracted a lot of these claims.

Mr. David Gunning

Or you could say that the reason the claims exist is that the project is in delay.

Vice Chairman

That is the same thing, just phrased in a different way.

Mr. David Gunning

Who is liable for the delay is the question. Who is paying for it? Is it the national paediatric hospital, NPH, the State or the contractor? That is what has to be determined.

Vice Chairman

Eighty-one per cent is pretty substantial. It is the majority, is it not, by quite a distance? When Mr. Gunning talks about substantial completion by the end of January 2024, what does that look like? Is the fit-out done? Is it snagging? What is the expectation there?

Mr. David Gunning

Substantial completion is a contractual term. It is also referred to as practical completion. All the things you mention, Vice Chairman, are done. In essence, at that point we hand this over to Children's Health Ireland and it commences its operational commissioning phase at that point.

Vice Chairman

The board expects, and the objective is, that, all things going as planned, at the end of January 2024, the contractor will be off the site.

Mr. David Gunning

Yes, but please bear in mind the risks I think we have mentioned in respect of the current levels of uncertainty. I met senior executives from BAM last week and they are fully committed to achieving that date.

Vice Chairman

One of the things I have noticed over the years about capital projects, mainly roads, is that there is a good deal of expertise. We have not built a children's hospital to the extent of this one before. There would be a penalty for the loss of a lane for a day if a road is widened, for example. There would be penalties for the project not coming in on time and so on. What is Mr. Gunning talking about in respect of the liquidated; let me get the terminology-----

Mr. Seamus McCarthy

Liquidated and ascertained damages.

Vice Chairman

Yes. The contractor, presumably, would be fully aware that there is going to be a price to pay for not bringing the project in on time.

Mr. David Gunning

The contractor will have signed the contract, which sets that out.

Vice Chairman

The claims are being made. Some 81% are about extension of time. On the other side of that, not bringing the project in on time incurs a penalty. I find it quite difficult to get my head around that, that there is in the contract, rightly, a penalty for not bringing the project in on time but, at the same time, the value of 81% of the claims is to do with the extension of time. Those two things do not correlate - for me, anyway.

Mr. David Gunning

I am not sure I understand the question.

Vice Chairman

The value of 81% of the claims is to do with the extension of time. At the far end of it, there would be a reckoning for not delivering the hospital to the deadline of 13 October 2020. There are claims being made for the delay and, at the other end, there will be a reduction-----

Mr. David Gunning

Damages, or penalties, as people refer to them, but they are not really penalties.

Vice Chairman

Exactly. I find it difficult to get my head around those two things.

Mr. Seamus McCarthy

To try to be helpful, I think the idea is that if an extension-of-time claim is accepted, it pushes out the date when any reverse claim or counter-claim could be put in because of delay. It is really about moving the date at which the liquidated and ascertained damages could potentially commence. Is that a summation of it?

Mr. David Gunning

That is correct.

Vice Chairman

However, the extension is being moved only from August to October.

Mr. David Gunning

Correct. None of these claims have materialised, landed or been finalised.

Vice Chairman

Are there any time triggers other than the completion date?

Mr. David Gunning

The contract is really about the completion date.

Vice Chairman

The last time board members were before the committee, or the time before that, there was not a full complement of people on the board. Are all the positions on the board completely filled at this stage?

Mr. David Gunning

I will give a short answer to that. A competition is currently running to fill the last three open positions on the board. My understanding is that a shortlist is being compiled and the next stage of the process is very imminent.

Vice Chairman

Do we know what the particular vacant positions are?

Mr. David Gunning

The positions advertised by the Public Appointments Service concerned three specifics. One was around the commissioning, qualification and validation, CQV, area and the whole commissioning end of the business, which is what we will do next, and getting expertise on that. One position was about disputes management and one role was about stakeholder engagement. There was a more elegant title but it was essentially about stakeholder engagement and engaging with the public in relation to this.

Vice Chairman

Have those vacancies existed for some time?

Mr. David Gunning

Since the last time we appeared in front of the committee, at least.

Vice Chairman

Is there a lack of expertise on the board because of that?

Mr. David Gunning

We already have a number of CQV people. The intention was to fill the slots as soon as possible. We have only recently had the appointment of a new chair. Mr. Tierney may have a response on this, but one of the points was to allow the chair some time to assess what she felt she would need on the board and then proceed to fill the roles, which is a very sensible approach.

Vice Chairman

I am conscious other members want to come in. I may come back in for some of the questions.

Deputy Imelda Munster

On a point of clarification, do speakers have ten minutes or 21 minutes?

Vice Chairman

It is ten minutes.

Deputy Imelda Munster

Members of the board have given us a substantial completion date of January 2024. Does that include the nine-month activation period?

Mr. David Gunning

The answer is "No, it does not". The nine-month activation period, or whatever it proves to be, will follow directly after the substantial completion.

Deputy Imelda Munster

Given ongoing staffing issues and the nine-month activation period, it is likely it will be 2025 before the hospital is fully up and running.

Mr. David Gunning

This is a CHI responsibility and it is grappling with those particular issues. Our job is to get the hospital substantially complete and then support CHI, which we will do. I know there are lots of discussions going on around the various work streams, such as ICT, electronic health records, EHRs, and recruitment, and I am in the meetings where they happen, but I am not in a position to give the Deputy a timeline on what CHI's best estimate is on that.

Deputy Imelda Munster

Mr. Gunning will understand that people are anxious to have the hospital up and running. They are just looking for a date when it will be functionally fully up and running. It looks now that it could be 2025. The possibility cannot be ruled out that it could be 2025 before the hospital is actually open.

Mr. David Gunning

We are attempting to get the substantial completion done in order to enable it to open as soon as possible, which could be in 2024. Again, I cannot make that commitment on behalf of anybody.

Deputy Imelda Munster

If the board's substantial completion date is January 2024, which does not include the nine-month activation period and other ongoing issues mentioned earlier, it will more than likely be 2025 before people can use the facility.

Mr. David Gunning

I am just checking with Mr. Devine, the project director. It is not necessarily a nine-month activation period. It can be done in a shorter period.

Deputy Imelda Munster

We heard previously that something of this scale would take a nine-month activation period.

Mr. David Gunning

While that is correct, and again I am speaking on behalf of CHI and I hope I am speaking accurately - if I am not maybe Mr. Devine will come in - CHI has done some work on that whole period. My understanding is it sees a way to bring that down to possibly seven months or maybe even six months. Again-----

Deputy Imelda Munster

Mr. Gunning cannot categorically rule out that it could be 2025 before the hospital is functioning as a hospital and is open and running.

Mr. David Gunning

I cannot rule it out but it is not on my radar. That is not our responsibility.

Deputy Imelda Munster

I will move on. The witnesses gave us the construction inflation costs. The estimated inflation cost for 2022 is €30 million. If that happens, can we expect similar amounts for 2023 right through to 2025?

Mr. David Gunning

We sincerely hope the project will finish in January 2024. The next roll forward includes 2023. That would be end of that inflation situation. On the additional costs that go on past that, elements of the development board and elements of other parts will continue to operate and there will continue to be some costs there, but if substantial completion happens, the contract is practically finished. It is over, as is the-----

Deputy Imelda Munster

Does Mr. Gunning perceive the inflation cost for 2023 to be more than the projected cost of €30 million for 2022?

Mr. David Gunning

It is a guess. I will not guess but with the level of uncertainly we currently have, I simply cannot say. We know how it is worked out, we know the formula and we can run some scenarios, as we do, but I have not got one here in front of me to share with the Deputy. I have shared the 2022 figure. We could bring the 2023 figure next time we are here to talk to the committee and have that put together.

Deputy Imelda Munster

Fair enough. Is €1.7 billion still the latest estimated total cost the board is willing to provide to the committee?

Mr. David Gunning

The approved budget for the development board is €1.433 billion. We are indicating there is obviously pressure on that. Inflation was never within that approved amount. That is at €50 million anyway, and more. There is upward pressure on that particular issue. There are other upward pressures. If I look across the other cost categories, the provisional sums, the equipping, some of the legal costs, and litigation and claims defence costs will increase. There are upward pressures. As I said, we will not put a number on it but I can share with the Deputy that they are moving in the wrong direction. There is no doubt about that.

Deputy Imelda Munster

Does that figure include or exclude the €585 million in additional costs claimed by the contractor?

Mr. David Gunning

That is not included in that sum.

Deputy Imelda Munster

We have the €1.43 billion, the €585 million in existing claims, plus the inflation costs, which are €50 million at present but could rocket to €100 million or more. Is it fair to say the maximum cost could be as much as €2.4 billion or €2.5 billion?

Mr. David Gunning

I will first point out that the Deputy casually said that the claims number should just be added in. None of these claims have added to the contract price at this stage. None of them are a liability for the State. There is an entire process to go through and we are extremely conscious of our responsibility to defend those claims. I must point that out. I am not-----

Deputy Imelda Munster

I accept that, but if it transpires they are a cost-----

Mr. David Gunning

Yes, I hear the Deputy.

Deputy Imelda Munster

-----and that cost is €585 million, that is additional. That is an extra cost.

Mr. David Gunning

That is a very big if. I just simply want to say that I could not accept that we casually add in a €585 million number into this. I do not think that is reasonable.

Deputy Imelda Munster

Mr. Gunning cannot categorically rule it out either.

Mr. David Gunning

I have a team whose job it is defend robustly each and every one of those claims. My more general point is I am really not going to comment on numbers. I understand the Deputy's question and I do not really want to comment-----

Deputy Imelda Munster

If the worst came to the worst, and we hope it does not, that €585 million will be an additional cost.

There will be the €1.43 billion and if the worst comes to the worst, the claims will amount to €585 million. On top of that, there will be construction inflation and the additional costs associated with equipment, etc. as outlined earlier. There is a very real possibility that the maximum cost of building the hospital could be €2.5 billion.

Mr. David Gunning

There is no way that the claims will amount to €585 million. It is simply not going to happen. Other than that, I am not going to comment on what the cost might or could be. We are moving into speculation here and I do not want to do that. I hope the Deputy will understand.

Deputy Imelda Munster

But the cost is heading in that direction.

Mr. David Gunning

Our job is to mitigate, manage, try to counteract these upward pressures and to get the hospital delivered as soon as possible.

Deputy Imelda Munster

It is our job to protect the public purse and to monitor spending. Let us be honest, a dog's dinner has been made of the project thus far. There is a very real possibility that this hospital, which is on track to be the most expensive hospital in the world, might achieve that status and more by eventually costing in the region of €2.5 billion.

Mr. David Gunning

I have said what I wanted to say on the matter. I simply cannot support that assertion.

Deputy Imelda Munster

I hope that the next time Mr. Gunning appears before the committee he does not have to tell us that the cost has risen as I have predicted.

The brand new hospital will be state-of-the-art, which is great. Everyone is looking forward to its opening, and the facilities it will offer. The Sláintecare reforms envisage ending the practice of treating private patients in public hospitals. The hospital will be a brand spanking new public hospital. Will there be a proportion of hospital facilities, including wards, beds, resources and theatres, set aside for private healthcare?

Mr. David Gunning

I might ask my colleague, Dr. Curtis, to respond.

Deputy Imelda Munster

Fair enough.

Dr. Emma Curtis

When the hospital was designed, there were eight outpatient rooms assigned for private outpatient clinics. There are no private beds, theatres or diagnostic facilities. However, there was an existing contract. It was deemed that in order to honour that consultant contract, and the understanding that it provided an entitlement to run a private outpatient clinic, there should be a provision provided for that in the planning. The eight outpatient rooms are within the outpatient department. They are exactly the same in design as every other outpatient room in the hospital. If the decision of Sláintecare is that there will not be any private practice whatsoever within the hospital, the rooms will return to public usage, in that they are designed exactly the same. This was a contractual matter in the design. It is the only designed provision and it is entirely flexible in its design. There is nothing different about the rooms, so they can be returned to the public realm of the hospital. The decision was made based on the understanding of existing consultant contracts at the time of hospital design.

Deputy Imelda Munster

That is fine. So, there will not be an issue with returning-----

Vice Chairman

Deputy, your time is up.

Deputy Imelda Munster

If I could just finish on this point. Am I correct in saying that according to Dr. Curtis, there will not be an issue, contractual or otherwise, in returning the rooms to public use?

Dr. Emma Curtis

The designation of the rooms is an operational matter.

Deputy Imelda Munster

Does Dr. Curtis agree that the use of rooms for private practice flies in the face of the Sláintecare recommendations?

Dr. Emma Curtis

The provision was designed based on the contract in place at the time. It will be a management, operational and contractual issue when the hospital opens.

Deputy Imelda Munster

Is it the case that there is no legacy agreement that the hospital will have to abide by as a brand spanking new public hospital?

Dr. Emma Curtis

Contractual matters are not my area of expertise. I am a clinician. The provision was included because it was understood that it was part of the contractual requirements. While it is a new hospital, there is an existing staff who have contracts. They will move to the new hospital. Although it is outwith my area of expertise, I would imagine that contracts will either have to be renegotiated or respected as they are. I cannot comment on that issue. What I can say is that there is nothing in the design that separates the eight-room outpatient area from the rest of the hospital. Its designation is operational.

Deputy Imelda Munster

The fact that the rooms are identical in style or design is not the point. Dr. Curtis mentioned that it was part of the contractual requirements.

Vice Chairman

Deputy, we have to move on.

Deputy Imelda Munster

I will finish on this point. Dr. Curtis mentioned that the use of rooms for private outpatient clinics was part of the contractual requirements. Where did that requirement come from?

Dr. Emma Curtis

Again, this is not my area of expertise. At the time the hospital was being designed, my understanding is-----

Deputy Imelda Munster

Is there anybody present who could explain that?

Dr. Emma Curtis

-----that is was part of the consultant contract that this provision should be included.

Vice Chairman

We will move on. I call Deputy Murphy.

Deputy Verona Murphy

I wish to return to a few points made by Mr. Gunning. Am I correct in my understanding that as Mr. Gunning said, inflation is calculated retrospectively, in that we will not know the rate of inflation calculated for 2022 until 2023?

Mr. David Gunning

That is correct.

Deputy Verona Murphy

That is correct.

Mr. David Gunning

The way the contract is set up is that the inflation is calculated on the basis of three published indices from three sources. They are usually published in the first half of the year, and look backwards at the previous year. Two of the indices have been published for last year, but not the third.

Deputy Verona Murphy

I imagine that it is most advantageous to have the benefit of hindsight.

Mr. David Gunning

That is the way it is set out in the contract. Just to be clear, we are required to assess it by July.

Deputy Verona Murphy

Mr. Gunning has stated that it is set out in the contract. The contract was drawn up by the board, in conjunction with whom? I am really asking what expertise was involved.

Mr. David Gunning

Mr. Devine cannot speak to that. However, Mr. Tierney went through, in quite a bit of detail, the team that worked on it and how it was advanced already.

Deputy Verona Murphy

My time is limited. I put that question to Mr. Devine specifically.

Mr. Phelim Devine

I agree with what Mr. Tierney said. Many stakeholders were involved in the modifications to the standard public contract. That included the Government contracts committee, under the auspices of the Office of Government Procurement, the HSE and the National Paediatric Hospital Development Board.

Deputy Verona Murphy

Grand. Is it correct that 70% of the construction phase of the project is complete?

Mr. David Gunning

That is correct.

Deputy Verona Murphy

Is inflation being applied to the costs of materials, such as steel, concrete and glass, retrospectively? Is the rate of inflation being applied as it is next year or as it is now?

Mr. David Gunning

According to the contract, the inflation calculation applies to the payments to the contractor in the previous year.

Deputy Verona Murphy

The rate of inflation is around 8% currently. So, a rate of inflation of around 8% will be calculated, but not until next July. Is it correct that inflation will be calculated on the substantial materials that have probably been in situ for over two years?

Mr. Phelim Devine

No. I think what Mr. Gunning said was, taking the example of 2021-----

Deputy Verona Murphy

I ask Mr. Devine not to misunderstand. My question is as follows. As we have heard, 70% of the construction of the phase of the project is complete. The materials affected most by construction inflation are those such as steel, glass and concrete, which I presume have been in place in the majority of the 70% of the construction that has been completed for two years.

Mr. Phelim Devine

That is not correct. Some of the steel has only just been put in. A large part of the steel work went in in 2021 and some of it was only put in this year. Most of the glazing going around the hospital went in in 2021. Those costs are included in the inflationary figure. On the inflationary figure for 2021, it will not be published until the middle of 2022 because all the data for 2021 are needed.

Those data are assembled by the Society of Chartered Surveyors Ireland and we recognise the largest two surveyors in the country. It takes a number of months to put those data together to publish figures. We are bound by when SCSI publishes the figures and that is why it takes six months.

Deputy Verona Murphy

The contract stipulates that the contractor absorbs 4% and after it comes into the public realm. It was outlined earlier that the percentage is 10.24%. Is that percentage minus or plus 4% or does it include the 4%?

Mr. David Gunning

That was the tender price inflation and to get to the number, one must subtract 4% from that.

Deputy Verona Murphy

In that case, the inflation rate was 6.24%.

Mr. David Gunning

It is not that straightforward.

Deputy Verona Murphy

I would not have thought it was. If it was, we would not be here.

Mr. David Gunning

There is an appendix to the contract that sets out the calculations on how this is done because there is an element of compounding in this from year to year. It is not simple interest. Back to the school days, it is compound interest if the Deputy remembers those calculations.

Deputy Verona Murphy

I do. What was the figure for the inflation rate paid?

Mr. David Gunning

It was 7.39%.

Deputy Verona Murphy

Three board members have not been appointed. Do we need them? Assuming a construction completion date of January 2024, there are 14 months left. Have those three board members ever been in place? Did they resign or were they reappointed?

Mr. David Gunning

Before my time, there was a full complement of board members. Over time, people have resigned from the board and others have been appointed. Where we are now is we have these three vacancies. A decision was made to proceed with that by the board. This is a Minister's responsibility or privilege.

Deputy Verona Murphy

I appreciate that. What is the competency of the missing board members?

Mr. David Gunning

The competency that we are recruiting for is, as I mentioned, very roughly, commissioning, qualification and validation. This is the specific expertise of getting all of the systems. We have 38 systems in this hospital, at least.

Deputy Verona Murphy

Without that person being appointed, are we delaying the progress of the contract?

Mr. David Gunning

No, we are not.

Deputy Verona Murphy

None of the three appointees are creating a jeopardy that we may be sued for delay because we have not got them on the board.

Mr. David Gunning

I do not believe so. We want to add more expertise. We already have a CQV expert on the board but we need more. This is an-----

Deputy Verona Murphy

Ultimately, it is not causing a problem.

Mr. David Gunning

Boards function better with appropriate and mixed diverse skills.

Deputy Verona Murphy

Clearly not because when the contract was devised we significantly underestimated inflation. I know Mr. Gunning does not want to speculate and I do not blame him because this project could well end up costing €2.5 billion or €3 billion by the time we are finished. In everything I have seen and heard for two years at this committee I have not seen an actuarial skill that was correct in an estimate of anything. I cannot see that we could do with three more board members. I do not know what they will cost. Does Mr. Gunning have any clue?

Mr. David Gunning

The standard fee for board members is, I think, of the order of €12,000 per annum.

Deputy Verona Murphy

It probably does not matter whether we have them or not.

Earlier Mr. Gunning said there was no way in respect of the liquidated and ascertained damages. What would the allowable claim be from the board if one could make it against BAM? For instance, would it equate to BAM's claim against the board? I see Mr. Devine is shaking his head.

Mr. David Gunning

The Deputy is saying "if this" and "would that" so it is very-----

Deputy Verona Murphy

No, this is not a case of "if". If we had the completion date when it should be, Mr. Gunning would have a fair idea.

Mr. David Gunning

Yes, that is correct.

Deputy Verona Murphy

Does that fair idea equate to BAM's claim against the board?

Mr. David Gunning

No.

Deputy Verona Murphy

Is it anywhere near it?

Mr. David Gunning

No.

Deputy Verona Murphy

Give us a rough estimate.

Mr. David Gunning

No, I am not going to give an estimate.

Deputy Verona Murphy

I am sure that it is the case.

Mr. David Gunning

It is not.

Deputy Verona Murphy

Hold on a second now. Mr. Gunning has said it is not but he does not want to tell me what it is. Why?

Mr. David Gunning

I do not want to get into a discussion around a hypothetical because the dates-----.

Deputy Verona Murphy

It is not hypothetical because it can be fairly well established. Can it not, Mr. Gunning?

Mr. David Gunning

No, it cannot, on the basis-----

Deputy Verona Murphy

Mr. Gunning has just said it did not equate to BAM's claim so he must have an idea. Can he give me the figure?

Mr. David Gunning

I have run multiple scenarios on this.

Vice Chairman

The Deputy has two minutes.

Deputy Verona Murphy

This could take two hours.

Mr. David Gunning

We have run multiple scenarios on these particular issues.

Deputy Verona Murphy

Please give us one of them in the two minutes remaining.

Mr. David Gunning

I do not plan to share that information.

Deputy Verona Murphy

This is where we were at when the Vice Chair made her opening statement about witnesses not coming in and co-operating with this committee, which is tasked with ensuring value for money for the Exchequer. I have asked Mr. Gunning a very simple question. Nobody is going to hold him to it. We have ascertained what the value is - 81% - and I ask him to tell us what his estimation is. Nobody is going to hold him to it because "estimate" is the word. He said it does not equate, which means he is a aware of a figure.

Mr. David Gunning

Correct.

Deputy Verona Murphy

Can he share that figure with the committee?

Mr. David Gunning

No.

Deputy Verona Murphy

Why?

Mr. David Gunning

I am not in a position to share that.

Deputy Verona Murphy

Why is he not in a position?

Mr. David Gunning

I am not.

Deputy Verona Murphy

Mr. Gunning is here to answer these questions.

Mr. David Gunning

I am not in a position to share information with the committee that I feel jeopardises the relationship or opportunity to advance the commercial negotiations and discussions with the contractor.

Deputy Verona Murphy

Mr. Gunning is not interested in the public purse and is looking after BAM.

Mr. David Gunning

That is not what I said.

Deputy Verona Murphy

No, it is not what Mr. Gunning said but that is how it can be interpreted.

Mr. David Gunning

That is a very unfair characterisation.

Vice Chairman

Deputy, please.

Deputy Verona Murphy

I think that is how it can be interpreted. I asked a simple straightforward question. I asked for an estimated figure and whether the claim Mr. Gunning was trying to establish equates to what BAM is claiming from the board.

Vice Chairman

It is fine to ask questions but the Deputy must be careful not to make an assumption about motivation.

Deputy Verona Murphy

It is not so much motivation. However, if Mr. Gunning is aware and has established a figure, even if it is an estimate, he should share it with the committee.

Mr. David Gunning

I understand what the Deputy has said but I am not-----

Deputy Verona Murphy

Mr. Gunning is not prepared to do so.

Mr. David Gunning

I have given the Deputy our response. I have given the rationale for it and it aligns exactly with what we said the last time we were here, and what has been said at previous meetings around our-----

Deputy Verona Murphy

Mr. Gunning said in his opening statement he would do his best to take the Vice Chair's comments on board. We now know how far that is going to extend.

Mr. David Gunning

Please.

Deputy Verona Murphy

Mr. Gunning, there is no point. My two minutes are up but I have one quick question. I know I can come back in later.

Vice Chairman

Very quickly.

Deputy Verona Murphy

Where are we with the €300 million figure in relation to CHI?

Mr. David Gunning

I cannot comment on that. That is a CHI matter.

Deputy Verona Murphy

We do not know of any of the money been used. Perhaps Mr. Tierney can respond.

Mr. Derek Tierney

The €300 million is over and above the €1.433 billion for the construction contract. That €300 million comprises two elements. The first is the capital outlay for the electronic health records system. We will go to Government shortly looking for sanction to progress that. We have concluded market engagement. We know where that is going to land. The remaining element of the €300 million is for the mobilisation of the three services. At this point, that budget remains intact.

Deputy Verona Murphy

Does Mr. Tierney expect the €300 million to do what it was set out to do and no more?

Mr. Derek Tierney

The Deputy is asking me to predict the future and I am not going to do so.

Deputy Verona Murphy

That is not what I am asking Mr. Tierney. Will the €300 million do the job it was expected to do or do we need €500 million based on the rate of inflation and delays?

Mr. Derek Tierney

As I have confirmed, that €300 million budget remains intact.

Deputy Verona Murphy

I find it amazing that a €300 million figure remains static in this time of increased costs of living and rising inflation.

Mr. Derek Tierney

Currently, that is the budget allocation. As I have said, we will go to Government looking for sanction to award a contract to deploy the electronic health record. The remaining element is for mobilisation of services.

Deputy Verona Murphy

Fair play because if that is the case, it will be extraordinary.

Vice Chairman

Before we take a short break, I wish to advise that I have another commitment so I will be absent for the remainder of this morning's session. In accordance with Standing Order 104(4), is there any objection to me nominating Deputy Matt Carthy to take the Chair in my absence?

Deputy Verona Murphy

I have no problem with that, Vice Chair.

Vice Chairman

That is agreed. I propose we take a short break.

Sitting suspended at 11.09 a.m. and resumed at 11.23 a.m.

Deputy Matt Carthy took the Chair.

Acting Chairman (Deputy Matt Carthy)

I offer apologies on behalf of our Chairman and Vice Chair. A great deal is happening in the building today, so a number of members are unavoidably absent. I understand that they will attempt to make it to the meeting later.

I will ask a couple of questions before other members contribute. Does the Department consider that the overall contract arrangements for the children's hospital were deficient?

Mr. Derek Tierney

We set out the appendix to the contract, which was determined to be fit for this project. It was a combination of discussions between three entities - the board, the HSE and the Government's construction committee within the Department of Public Expenditure and Reform. The current form of the contract was determined to be the most suitable at the time. It is the contract that is on the table and the one that the board has to administer on behalf of the State. I do not have an opinion on its merits either way, other than to say that it is the contract with which we are living.

Acting Chairman (Deputy Matt Carthy)

As the Committee of Public Accounts, an amount of our work involves taking a retrospective view in respect of best practice, value for money and efficiencies in contractual arrangements in various sectors. Is Mr. Tierney saying that the Department of Health engaged in a contract, the outworking of which will reach billions of euro in public expenditure, but the Department does not have an opinion in retrospect on whether that contract was the best manner in which to deliver this project?

Mr. Derek Tierney

If there is any particular aspect, but in the context of inflation, which is the subject of this morning’s discussion, and the embedded mechanism within the contract, the Government has recognised the current climate, the residual risk around inflation and the high level of inflation being experienced by the construction sector. The Government has implemented two policy responses to counter that risk and entice the market to engage in bringing capacity to bear on the national development plan. The Government has recognised the risk around the level of inflation, which we are trying to live with and that we are administering a contract within, and it has derived policy responses in that regard.

On the broader question, the Office of Government Procurement is conducting a review of the model form of contract in conjunction with the Government construction contracts committee, GCCC. It will determine the model form of contract going forward. We obviously feel-----

Acting Chairman (Deputy Matt Carthy)

Does that office engage with the Department?

Mr. Derek Tierney

It is engaging through the Project Ireland 2040 delivery board and-----

Acting Chairman (Deputy Matt Carthy)

Does it come to various Departments, including Mr. Tierney’s?

Mr. Derek Tierney

It is engaging-----

Acting Chairman (Deputy Matt Carthy)

The office comes to the Department of Health, tells it that it is reviewing the entire basis on which major infrastructural projects take place, points out that this Department has been engaged in the largest infrastructural contract and asks what its opinion is, but the Department says that it has none.

Mr. Derek Tierney

We do.

Acting Chairman (Deputy Matt Carthy)

What is it? That is what I am asking for.

Mr. Derek Tierney

We and the HSE will engage in the context of health infrastructure. Other capital spending Departments and agencies are engaging in a process.

Acting Chairman (Deputy Matt Carthy)

No. I asked what the Department’s position was in retrospect on the contract to which it tied the Irish people.

Mr. Derek Tierney

I am not looking in hindsight. We have fed in our observations on the current inflation climate and the Government has implemented two policy responses.

Acting Chairman (Deputy Matt Carthy)

Will Mr. Tierney remind us of the original contractual value of the children’s hospital?

Mr. Derek Tierney

The contract or the budget?

Acting Chairman (Deputy Matt Carthy)

The budget that was allocated.

Mr. Derek Tierney

The construction contract was €1.433 billion and I believe the GNP contract value was just over €910 million.

Acting Chairman (Deputy Matt Carthy)

Will Mr. Tierney distinguish between those two figures for me, please?

Mr. Derek Tierney

The overall budget for the construction element of the project was €1.433 billion, of which the GNP contract value towards the contractor was approximately €910 million, although I stand to be corrected on that last.

Acting Chairman (Deputy Matt Carthy)

At our meeting this time last year, I believe the estimated figure was in the region of €1.7 billion.

Mr. Derek Tierney

That is the total programme. Over and above the construction costs, a further €300 million or thereabouts has been allocated for the deployment of an electronic health records system, which is a digital model of care delivery, to support the delivery of care and an allowance for mobilising the transition of the three services that are coming together under an integration programme.

Acting Chairman (Deputy Matt Carthy)

Mr. Tierney will recall from that meeting that there was general acceptance that the budget was going to be exceeded.

Mr. Derek Tierney

I can only tell the Acting Chairman now that-----

Acting Chairman (Deputy Matt Carthy)

If BAM was successful in a single one of its claims, that budget would be exceeded.

Mr. Derek Tierney

This morning, we discussed the impact of inflation, which is outwith the €1.433 billion-----

Acting Chairman (Deputy Matt Carthy)

I am speaking about where matters stood when we met this time last year. I will come to the issues that have arisen over the past 12 months later. Prior to inflation exceeding 4%, the budget had already been exceeded. Is that not fair to say?

Mr. Derek Tierney

That is incorrect. The budget has not been breached. The €1.433 billion is still intact and 70% of it has been drawn down for the construction works. The current sanction is still in place. If and when, due to upward pressures, the budget needs to increase, we will return to the Government.

Acting Chairman (Deputy Matt Carthy)

How many claims has BAM made?

Mr. Derek Tierney

The figure cited this morning is approximately 1,500. BAM’s assessment-----

Acting Chairman (Deputy Matt Carthy)

How many of those claims were lodged prior to April 2021?

Mr. Derek Tierney

I do not have that timeline, but that information has been provided to the committee.

Acting Chairman (Deputy Matt Carthy)

Does Mr. Gunning have that number for us?

Mr. David Gunning

No. We have total numbers and have presented them in the format that the committee asked for, but it does not break them down in that way. I do not have the number with me.

Acting Chairman (Deputy Matt Carthy)

It is fair to say that over half of the claims were made prior to this time last year.

Mr. David Gunning

I would not make that-----

Acting Chairman (Deputy Matt Carthy)

Does the Comptroller and Auditor General have those figures to hand?

Mr. Seamus McCarthy

I do not. Obviously there was a hiatus period for the submission of claims, so I am not sure how many would have been-----

Mr. David Gunning

Claims continued to come in, even during the moratorium.

Mr. Seamus McCarthy

They just were not processed.

Mr. David Gunning

They were not moving to the disputes. They were processed and they were determined by the employer's representative but they have not moved to disputes.

Mr. Seamus McCarthy

That is what the suspension was.

Mr. David Gunning

Only the disputed elements, which is the project board. Conciliations and the High Court were all suspended. The Acting Chairman has not asked me a question but would he mind if I contributed something?

Acting Chairman (Deputy Matt Carthy)

Please do.

Mr. David Gunning

The number of €585 million has been thrown around. There is an employer's representative in this job who analyses all claims and determines them. She has analysed 1,009 claims to date and this is her assessment. The claimed value by the contractor on those 1,009 determinations is €451 million. The amount awarded by the employer's representative over and above the GNP is €5.9 million on those 1,009 claims. There is, therefore, a claimed value of €451 million and the amount awarded was €5.9 million. That is why I said earlier that I cannot get behind this idea that there will be €585 million of claims paid to the contractor. That simply will not happen. Those are the data that have been assessed by the employer's representative, which is an independent assessor of the contractor's claims. The contractor then has the choice of whether to accept the assessment and then move it through the process that I have described a number of times. I just wanted to introduce that element to the discussion.

Acting Chairman (Deputy Matt Carthy)

What Mr. Tierney has stated is that all the problems we are facing arise from the inflation rate.

Mr. Derek Tierney

No. What the Acting Chairman is asking me to do is predict the future on where this contract will out-turn. I cannot do that; there are too many variables and factors.

Acting Chairman (Deputy Matt Carthy)

I asked Mr. Tierney to do the exact opposite of predicting the future. I asked him to give us an assessment of the contract that was originally signed and he said he would not do so. Then when we ask for a projection into the future Mr. Tierney is saying he will not give one.

Mr. Derek Tierney

The Acting Chairman asked me if there were any merits to the contract that we would feed into a discussion with the Office of Government Procurement around the current discussion on contracts. We have fed into that and Government has responded with two policy responses on countering the risk of inflation. There is a broader review under way around the public works contract being conducted by the Office of Government Procurement and that has yet to be determined.

Acting Chairman (Deputy Matt Carthy)

The question I essentially asked was if the Department thinks this was a good contract.

Mr. Derek Tierney

In hindsight, we have a contract that we have to administer. Those are the cards we have to play.

Acting Chairman (Deputy Matt Carthy)

I have asked that question in about three different ways and Mr. Tierney has not answered it. The reason I ask is that we are in a new situation, one that was not envisaged last year when this committee and the general public were exercised by the potential cost overrun of this. We now have building inflation that by all accounts will exceed 4%, possibly by a substantial amount. I listened to the earlier exchange and I want to get an understanding of the premise on which that inflation figure will be calculated. As I understand it, three metrics are used. Maybe Mr. Gunning can elaborate on how they are decided and how they will be attributed to the costs that will be awarded to BAM in respect of inflation.

Mr. David Gunning

I will answer that question. There are a number of indices published. One can pick up consultant reports that give all sorts of forecasts but the contract specifies three specific ones. The first is the Linesight construction inflation report, the second is the AECOM construction industry report and the third is the Society for Chartered Surveyors of Ireland inflation report. Those reports are retrospective and look back at the previous year. An average of those three is used to determine the number that is applied to the contract. Let us say the number was 10%. In that case, we would take away the 4%, which is at the contractor's risk, and that number goes into that compounding formula that goes from year to year to calculate the interest. That is the practical way it was worked out. We have to assess that by the end of June of any particular year and make the relevant payment to the contractor for the previous year in the July payment. That is the practical way it all works.

Acting Chairman (Deputy Matt Carthy)

I want to try to simplify all of this. Does the contractor have to provide receipts for the material that has inflated in price?

Mr. David Gunning

The percentage applies to the full amount of payments to the contractor during the previous year.

Acting Chairman (Deputy Matt Carthy)

There are two elements to inflation, namely, wage costs and material costs. I presume both of those are incorporated into the compound scenario Mr. Gunning described.

Mr. David Gunning

Correct.

Acting Chairman (Deputy Matt Carthy)

On materials, it is possible that the material that was bought in 2020 might only be used in 2022 but the State will still be paying an additional amount. Is that correct? I see Mr. Devine shaking his head.

Mr. David Gunning

We answered this question earlier when we said that quite a bit of steel went in during 2021 and that the windows went in during 2021 so a lot of cost was incurred in 2021. To answer the question, we are applying the contract as it is written.

Acting Chairman (Deputy Matt Carthy)

That is the point I am coming to.

Mr. David Gunning

The Acting Chairman can draw the conclusions but our job is to apply the contract.

Acting Chairman (Deputy Matt Carthy)

Does Mr. Gunning accept my point that the contractor will potentially receive 6% for additional costs year on year without having to provide evidence that its costs have increased by 10%, which would be the inference in the contract?

Mr. David Gunning

The aggregated indices pick up the movements, be they labour or materials. It is a mix of various items. That is how it works in the contract and that is what we apply.

Acting Chairman (Deputy Matt Carthy)

Many of us would be dealing with smaller contracts at a local level and there has been quite an amount of discussion on social housing units and things like that. The Department of Public Expenditure and Reform has made a provision whereby inflated costs will be borne between the developer and the awarding body to the tune of 70:30, where the developer takes 70% of the increased costs and the awarding body takes 30%. With a 10% inflation rate, that is much more burdensome on the developer than the contract we are discussing. Even within that context, there is a large bureaucratic process which the said developers have to go through to prove that they have incurred those costs. We are talking about a project of hundreds of millions and possibly billions of euro, which does not have those checks and balances. I will go back to my original question. Does the Department of Health think this was a good basis on which to sign off on a contract?

Mr. Derek Tierney

My interpretation of that question is that the Acting Chairman is asking me to comment on Government policy at the time when the contract was led and I will not do that. I have been clear about that.

Acting Chairman (Deputy Matt Carthy)

I will allow others in. I call Deputy Verona Murphy.

Deputy Verona Murphy

Is there anyone else ahead of me?

Acting Chairman (Deputy Matt Carthy)

I do not see anybody.

Deputy Verona Murphy

When Mr. Tierney says he will not speculate does he mean he will not speculate on the fact that Government signed off on that? The Acting Chairman is asking if, in hindsight, those contracts were value for money. In hindsight, we are retrospectively applying inflation. When were these contracts negotiated? What year was it?

Mr. Derek Tierney

The process started in June 2016 but I would have to come back with a note on the specifics.

Deputy Verona Murphy

At that time we were in the throes of Brexit and what it might mean. I appreciate what Mr. Gunning is saying - that we have indices and three reports, and that we basically take an average and apply that figure. That is how we drew up the contracts but it does not look good now. Does it? Mr. Devine has his hand up.

Mr. Phelim Devine

It is important for people to realise that those three published indices are basically assessing every single tender that has happened nationally.

The Linesight, AECOM and the Society of Chartered Surveyors Ireland indices are picking up every single tender in the country. That is all the data coming through in that year in terms of what the impact on tender returns were.

Deputy Verona Murphy

For all the contracts negotiated, is a 4% hit built in for each contractor, or is it higher or lower? If the indices are applied, is there a variation in what the contractor takes a hit on?

Mr. Phelim Devine

The three indices simply say-----

Deputy Verona Murphy

I know what they say. However, Mr. Devine is saying------

Mr. Phelim Devine

-----compared to the previous year what the inflation is.

Deputy Verona Murphy

-----that they apply to all contracts. However, is the rate that the contractor-----

Mr. Phelim Devine

The three indices base their information on tender returns nationally right across all industry, whether it be a school, hospital or shopping centre.

Deputy Verona Murphy

In those other contracts, is the inflation rate set at 4% for the contract?

Mr. Phelim Devine

No. The mechanism we have in our contract is a bespoke mechanism.

Deputy Verona Murphy

So, the 4% is particular only to the children's hospital-----

Mr. Phelim Devine

It is particular to the children's hospital contract.

Deputy Verona Murphy

-----but the indexation applies to everything.

Mr. Phelim Devine

The mechanism that is in our contract is specific and bespoke to the children's hospital contract.

Deputy Verona Murphy

The mechanism.

Mr. Phelim Devine

The which?

Deputy Verona Murphy

The inflationary-----

Mr. Phelim Devine

The inflationary calculation that is done and the mechanism are bespoke to our contract.

Deputy Verona Murphy

That is why I am saying it does not look very good now.

Mr. Phelim Devine

It is there and I would say that-----

Deputy Verona Murphy

I know it is.

Mr. Phelim Devine

If Mr. Tierney-----

Deputy Verona Murphy

Mr. Devine has commented and drawn it on himself by making the statement. If I heard it correctly - Mr. Devine can correct me - Mr. Tierney said that the only template was Heathrow and it did not fit. Is that correct?

Mr. Derek Tierney

No. I said that the input to deriving a form of contract on a collaborative basis was based on lessons learned from a UK Government office publication at that time. Heathrow was one case that used a collaborative form of contract in NEC form.

Deputy Verona Murphy

What lessons were learned?

Mr. Derek Tierney

For a mega-project of this scale, the recommendation was a form of contract that allowed a collaborative basis.

Deputy Verona Murphy

Imagine what they are going to learn from us.

Mr. Derek Tierney

At the moment the public works contract does not allow any collaboration. It is fixed-price lump sum. The Government announced a change to the terms of that contract through a voluntary framework that both the client and contract can enter into in terms of risk equalisation and inflation.

Deputy Verona Murphy

I am not sure whether it fits, but huge lessons will be learned here. I appreciate it is not easy for witnesses to sit there. However, we have a responsibility to the public and there is no point in hoodwinking them. There will be an exponential increase in the final cost of this hospital. We should be aware of it and not minimise it. We did not see it coming in 2016 when the contracts were negotiated. Deputy Carthy mentioned 6%. We will go way above 6% as all the witnesses know. There is no point in sitting here trying to admonish me for asking the questions. We need to know this and factor it in. We need to learn the lessons and ensure value for money in future. I do not ask questions to put the witnesses on the spot, but they are the ones tasked with providing this hospital. I am not being smart in any way but that is what we are here for. If I recollect, we started at approximately €1.433 billion and we are now at over €1.7 billion. Mr. Gunning is shaking his head. He can correct me.

Mr. David Gunning

We have spent just a little over €1 billion so far. The €1.433 billion remains intact.

Deputy Verona Murphy

Sorry, that is okay.

Mr. David Gunning

The €1.7 billion involves the additional €300 million for CHI, which was part of the original approval. As we have already said-----

Deputy Verona Murphy

It is fair to say-----

Mr. David Gunning

-----inflation is driving that up, of course, and there will be other costs.

Deputy Verona Murphy

It is pertinent now that when the Government decides not to curb inflation in any shape or form - there is no money tree and there is little it can do - the costs of these projects grow exponentially. The very same applies to them. The contract is indexed, end of story. We will be way over and above that. I cannot say whose fault it is, but many lessons need to be learned. Our national children's hospital will be looked at throughout the world as the template for how not to do things.

Acting Chairman (Deputy Matt Carthy)

As no other Deputies are indicating, I wish to make some comments. Deputy Verona Murphy indicated that huge lessons will be learned. No lessons are being learned whatsoever. The attitude and approach by everybody who is involved to this committee and in turn to Irish taxpayers is nothing short of scandalous. I say that with a heavy heart. The Department of Health, the HSE and hospital board are accountable to the Oireachtas, but nothing in the engagements we get suggests any recognition of the importance of that. They have refused to provide documents to this committee. The people who are overseeing a substantial infrastructure project, in this case a children's hospital, are unable to say well over halfway through the project what they think the final cost will be, and have refused even to provide an estimate. The delay in providing documentation to the committee, including opening statements, presents me with considerable concerns.

This committee will need to deliberate on how we approach this issue further. Our rationale - the reason we hold these meetings and engage with the witnesses in both written form and through public hearings - is to try to elicit information. That is clearly in the public interest and fits entirely into the remit and statutory and constitutional obligations the committee has. We have not been in a position to do our work because of the refusal of the Department of Health, the HSE and the hospital board to be frank and forthright during our deliberations. It is important for me to put that on the record.

In the absence of anybody else indicating-----

Deputy Verona Murphy

I might ask another question because I know that some of our members have been delayed. Where do we stand with legal costs to defend all the claims for 2022? The last figure we got was for 2020 which was €2.3 million. I presume we have prepared counterclaims etc. in the interim. What is the expected cost for litigation up to 2022?

Mr. David Gunning

I think we will be able to provide that to the Deputy. I do not have it to hand here. We will certainly provide that to her.

Deputy Verona Murphy

I presume it is well in excess of the €2.3 million.

Mr. David Gunning

It will depend. For 2022 and as we look forward-----

Deputy Verona Murphy

It will be 2021 and 2022. Perhaps the Comptroller and Auditor General can clarify. Do we have a figure for 2021?

Mr. Seamus McCarthy

No. Obviously, there will be a figure in the 2021 financial statements, but they are not complete. The audit has not been completed.

Deputy Verona Murphy

I ask Mr. Gunning not to come back and say they are not settled and cannot be ascertained. However, there would be some form-----

Mr. David Gunning

On the actual legal costs, we have that number and can provide it to the Deputy.

Deputy Verona Murphy

Projection-wise.

Mr. David Gunning

I will make sure we do that.

Deputy Verona Murphy

Will that be for 2021 and 2022?

Mr. David Gunning

I will give it to her for 2021 - 2022 is in flight.

Deputy Verona Murphy

We are in the middle of it. While it is conjecture, I have a question about when it comes to settling. There are four claims in the High Court. Is that not correct?

Mr. David Gunning

Yes.

Deputy Verona Murphy

At the last report there were four.

Mr. David Gunning

There are two now.

Deputy Verona Murphy

At the last stage there were four. Are two settled?

Mr. David Gunning

Yes.

Deputy Verona Murphy

To whose advantage? That is not a trick question.

Mr. David Gunning

I know. I am just racking my brain here. Can I pause and let the Deputy go on to her next question?

Deputy Verona Murphy

Mr. Devine might know the answer.

Mr. David Gunning

Mr. Devine might have the answer.

Mr. Phelim Devine

I am sorry, I do not have that. We know what the final account figure is for the satellite centres in Connolly and Tallaght and the adult services works, but I do not have the breakdown of exactly how those two claims were settled.

Deputy Verona Murphy

When were they settled?

Mr. Phelim Devine

They were settled as part of the final account settlement, around the end of December last year.

Deputy Verona Murphy

Who settled them? Who was involved in the settlement?

Mr. Phelim Devine

It was our commercial team directly with BAM, with the assistance of the employer's representative and the quantity surveyor on those projects.

Deputy Verona Murphy

If I am correct, three of the claims were from BAM and one was from the board.

Mr. David Gunning

These last two were final account issues. It is doing the wrap-up. We provided an attachment of what the final result was for the satellites, both Connolly and Tallaght. That was provided as an attachment to our opening statement.

Deputy Verona Murphy

Is that what we received this morning?

Mr. David Gunning

Members received it last night.

Deputy Verona Murphy

I only received it this morning.

Mr. David Gunning

It is set out in the attachment. This was a settlement. They went to court and then settled outside of court.

Deputy Verona Murphy

We have not been provided with the figures.

Mr. Phelim Devine

I can provide the figures now. There were three projects as part of that procurement. There was the outpatient and urgent care centre at Connolly, the outpatient and emergency care centre at Tallaght, and we also provided a new crèche, administration and changing facilities for Tallaght University Hospital. The outturn cost of the whole project, including design team fees and aspergillus prevention, was €82.1 million, including VAT, as compared with the budget of €76.4 million, including VAT. The latter figure is included in the €1.433 billion, so the extra over-cost of €5.7 million, including VAT, is coming from our contingency within the €1.433 billion Government approval. The reason it went over budget was associated with additional investment in the Tallaght University Hospital campus in terms of infrastructure such as new transformers, generators and chillers. There were a lot of new items. There were unmapped services. I refer to transfers. We procured all the security and nurse call systems for those two centres as part of the children's hospital to make sure that we had full alignment for staff and for use of operation, so that got transferred from the national children's hospital back into the satellite centres. We also had a certain amount of inflation. We had costs associated with prolongation, that is, delay costs.

Deputy Verona Murphy

Mr. Devine stated there was a certain amount of inflation. What does that mean? Does it relate to VAT?

Mr. Phelim Devine

As a result of the duration of the contract, there was a certain amount of inflation that applied to-----

Deputy Verona Murphy

The final cost.

Mr. Phelim Devine

-----the final cost.

Deputy Verona Murphy

I presume it was approximately 10%.

Mr. Phelim Devine

No, it was-----

Deputy Verona Murphy

It was less. We do not have that detail.

Mr. Phelim Devine

The extra overhead in total was €5.7 million.

Deputy Verona Murphy

I ask Mr. Devine to provide that detail to the committee, along with detail on what it cost. Did that go through the dispute management process initially and then end up in the High Court?

Mr. Phelim Devine

There were only those two claims. Two of the employer's representative determinations got referred through the system, through conciliation, into the High Court. That was all wrapped up as part of the final count.

Deputy Verona Murphy

Have any further claims been instituted since?

Mr. David Gunning

Is the Deputy asking in the context of the High Court?

Deputy Verona Murphy

Yes.

Mr. David Gunning

There are two other cases in the High Court.

Deputy Verona Murphy

There were four originally. Two of them are gone.

Mr. David Gunning

Yes, and the other two are adjourned.

Deputy Verona Murphy

There are no further claims.

Mr. Phelim Devine

Not at the moment.

Mr. David Gunning

The whole disputes process since last year has been on hold with the contractor, in agreement with the contract.

Deputy Verona Murphy

I thought that ended in December.

Mr. David Gunning

It has been continuing-----

Deputy Verona Murphy

There is a further extension. Until when does that run?

Mr. David Gunning

It continues-----

Deputy Verona Murphy

Indefinitely.

Mr. David Gunning

-----indefinitely until we agree to discontinue it.

Deputy Verona Murphy

Okay. I thank the witnesses. I may come back in at a later stage.

Deputy Neasa Hourigan

My apologies for coming so late to the meeting. I feel like I spend all my time apologising. I am trying to cover so many committees that I get caught out sometimes. On that basis, I apologise if I ask our guests questions that they have been asked.

I refer to commissioning. At what stage is the main building in terms of commissioning and fit-out?

Mr. Phelim Devine

In terms of fit-out, we are fitting out every part to the main building. As regards the level of that fit-out-----

Deputy Neasa Hourigan

Mr. Devine stated that it is being fitted out. That is in process right now.

Mr. Phelim Devine

It is in process right now.

Deputy Neasa Hourigan

When did it begin?

Mr. Phelim Devine

The fit-out started in the south fingers, which are all the fingers out to the South Circular Road, probably last year. Those are the most advanced------

Deputy Neasa Hourigan

Was that in quarter 2 of last year?

Mr. Phelim Devine

It was in the middle of last year.

Deputy Neasa Hourigan

It may have been quarter 3.

Mr. Phelim Devine

It may have been quarter 3, yes. They are probably the most advanced. We have basically all the walls, ceiling, floors and joinery in place. In our opening statement, we set out that the first rooms in the south fingers, opposite the South Circular Road, will start to reach building complete stage. In effect, we will be locking the door. Everything will be finished in the room. That allows us to then get on with the system commissioning. In those-----

Deputy Neasa Hourigan

Will that be finished this month or next month?

Mr. Phelim Devine

The first rooms will be finished in August.

Deputy Neasa Hourigan

Okay.

Mr. Phelim Devine

In August, the first rooms will start to come on stream. There will then be a whole sequence from August up to March to May of next year in which all the other 4,600 rooms will reach what we call "building complete" status. Basically, they are complete when one walks into them. In terms of the commissioning of the hospital, we are responsible for the technical commissioning of the hospital. That relates to all the building systems. That has started in the south fingers. We are flushing out water systems, domestic water. We are checking pipework and risers. That started approximately two months ago.

Deputy Neasa Hourigan

How long does Mr. Devine expect that to take?

Mr. Phelim Devine

That will run all the way up to two months prior to substantial completion.

Deputy Neasa Hourigan

When is substantial completion expected?

Mr. Phelim Devine

The end of January 2024.

Deputy Neasa Hourigan

Does that include medical gas systems and so on?

Mr. Phelim Devine

Yes. It includes all the medical gas systems, nurse call and mechanical and electrical services.

Deputy Neasa Hourigan

When is fit-out of medical equipment expected to take place?

Mr. Phelim Devine

Some of the medical equipment has been fitted out. Anything that is in any way connected to the building is being fitted out as part of the BAM contract. We have just procured all our automated guided vehicles. That fit-out will start soon. I refer to the clinical decontamination unit. We have just finished procuring the MRIs. That will not go in until next year because they go in as late as possible for safety reasons. We will have all the main medical equipment such as X-ray and fluoroscopy equipment procured by next month. We will have finished all the procurements and they will probably mostly be fitted out in 2023. All the loose equipment, which we refer to it as groups 3 and 4, such as furniture, physical monitors and so on will be fitted out after substantial completion, within the operation commissioning phase that is the responsibility of CHI.

Deputy Neasa Hourigan

To be clear, the procurement process for the medical equipment side of things is not finished.

Mr. Phelim Devine

That is correct.

Deputy Neasa Hourigan

Is that because the board is trying to leave it until a certain point so that it can get the newest version of things?

Mr. Phelim Devine

That is correct. We have set out a programme to meet the BAM programme in January 2024 and then the operational commissioning phase after that. We set the programme for that reason. We are procuring things we know will not change or innovate now and getting ready. As regards things that we know probably will innovate, we are working closely with CHI and its clinicians. We are trying to leave that as late as possible so that we get the best product.

Deputy Neasa Hourigan

There is a logic in that. Is the rate of inflation on that kind of medical equipment different from building construction inflation, let us say?

Mr. Phelim Devine

It is different. The cost of medical equipment is starting to inflate.

Deputy Neasa Hourigan

Will Mr. Devine put a number on that?

Mr. Phelim Devine

I do not have a number for that. We have done an estimate but we will not know until we start seeing returns. It is probably more akin to the normal consumer price index, CPI, rate of inflation, rather than tender inflation, which is different from CPI.

Deputy Neasa Hourigan

Who is involved in that procurement process? I suspect it is different from the construction process.

Mr. Phelim Devine

We have an internal team made up of our people and people from CHI. We do it jointly with CHI.

Deputy Neasa Hourigan

As regards building commissioning, is that a third-party process or is it being undertaken by BAM and the board?

Mr. Phelim Devine

The full building commissioning is led by BAM and its specialist subcontractors, Mercury Engineering and Jones Engineering, and they especially focus on the mechanical and engineering commissioning. That is overseen by our design team on our behalf. We have our own expertise and executive team who have commissioned large hospitals at this scale three or four times. We have our own commissioning team working with the design team to make sure that BAM and its subcontractors commission it to the highest quality.

Deputy Neasa Hourigan

Did the board consider third-party commissioning in the process?

Mr. Phelim Devine

We considered it. We built our own internal team, however, as we thought that would be stronger. There is a certain amount of third-party commissioning. There are a couple of specialist areas in which we have specialist laboratories.

Deputy Neasa Hourigan

I do not consider a subcontractor to be a third party.

Mr. Phelim Devine

The contract is set up in such a way that the contractor is responsible for commissioning the hospital. That is normal in the context of every hospital. We have brought in our own internal expertise, however, with the design team, who also have commissioned designed large hospitals. They will sign it off. That is the way the contract mechanism is.

We have our own external eyes that serve to prod, review and check to ensure it is successful.

Deputy Neasa Hourigan

What will the hospital run on?

Mr. Phelim Devine

We have a combined heat and power, CHP, engine. It is a 2 MW engine. Generally, we are permanently connected to the grid.

Deputy Neasa Hourigan

Okay. Has a contract been signed with an energy provider?

Mr. Phelim Devine

No, it was bought. It is already in place and installed.

Deputy Neasa Hourigan

The hospital will not be signing an energy contract.

Mr. Phelim Devine

No, not for CHP.

Deputy Neasa Hourigan

What about energy in the hospital?

Mr. Phelim Devine

We will eventually enter a contract with one of the energy providers.

Deputy Neasa Hourigan

That has not been done yet.

Mr. Phelim Devine

No. That will be a matter for Children's Hospital Ireland.

Deputy Neasa Hourigan

Okay.

Deputy Verona Murphy

Mr. Tierney mentioned a figure of €300,000. Does that contract have the 4% inflation rate built in and all of that? Is it the same?

Mr. Derek Tierney

It is €300 million.

Deputy Verona Murphy

Apologies. It is €300 million.

Mr. Derek Tierney

It is on the €1.433 billion. As I stated, an allocation of that is to deploy an electronic health records system, which is how information will be managed within the hospital environment. The other element will be for mobilisation of staff and integration of the three existing services.

Deputy Verona Murphy

I am sorry but I cannot hear Mr. Tierney. I have bad hearing.

Mr. Derek Tierney

I need to check but as I understand it, the model contract that will be used for the electronic health records will be the standard public works contract, as amended, in the context of inflation.

Deputy Verona Murphy

Okay.

Mr. Derek Tierney

I will verify that.

Deputy Verona Murphy

Does that mean, in the context of inflation, it applies in the same way as it does to the initial contract?

Mr. Derek Tierney

No. As I said earlier, the Government has implemented two policy responses around inflation, and as the chair pointed out, that is on a 70:30 share split.

Deputy Verona Murphy

Right. Effectively, that €300 million figure has gone up. Mr. Tierney also said earlier it is the same but clearly it will not go as far.

Mr. Derek Tierney

The €300 million budget has not been breached. We do not even have a contract yet for the electronic records management.

Deputy Verona Murphy

I know but at the same time, there was a point at which that was an estimate. Clearly, somebody has said that the €300 million will no longer fit the estimate. Does Mr. Tierney assume we will get the same services for the €300 million, which was initially estimated, I assume, at least two or three years ago?

Mr. Derek Tierney

As I have said, the current budget allocation is €300 million and it has not been breached.

Deputy Verona Murphy

Mr. Tierney has set out what the €300 million is for.

Mr. Derek Tierney

Correct.

Deputy Verona Murphy

It has not been breached because the contracts have not been put into effect.

Mr. Derek Tierney

Within that budget there is a risk provision.

Deputy Verona Murphy

How much is that?

Mr. Derek Tierney

I would have to come back with that.

Deputy Verona Murphy

Does Mr. Tierney even know the percentage?

Mr. Derek Tierney

I would have to revert with it.

Deputy Verona Murphy

Please do. Even with the best plan in the world, it is what we try to plan for. My question was about the impact of inflation on the €300 million. That is as far as I can go. I asked before about providing a breakdown of the litigation costs so that could be sent to us along with the provision in the contract of €300 million.

Acting Chairman (Deputy Matt Carthy)

Deputy Hourigan has no further questions and I have made my own closing remarks already. I thank our witnesses for joining us today, along with staff of the board, the Department and the HSE for the work involved in preparing for the meeting. I thank the Comptroller and Auditor General and his staff for attending and assisting the committee today. Is it agreed that the clerk to the committee will seek any follow-up information and carry out any agreed actions arising from the meeting? Agreed. Is it agreed we note and publish the opening statements and briefing provided for today's meeting? Agreed. We will resume in private session after lunch and I understand the Vice Chairman will return to deal with some housekeeping matters before moving into public session to consider correspondence and other business of the committee.

The witnesses withdrew.

Sitting suspended at 12.05 p.m. and resumed in private session at 1.30 p.m.