The new Children’s Hospital (NCH) project comprises the main hospital on a shared campus at St James’s, the Outpatient and Urgent Care Centre at Connolly Hospital, Blanchardstown, and the Outpatient and Emergency Care Centre at Tallaght University Hospital. Both of these satellite centres are successfully delivering a new model of ambulatory and urgent care for children and adolescents in the Greater Dublin Area.
In 2018, the Government approved a capital budget of €1.433bn for the NCH project. This included the capital costs for the main hospital at St James's Hospital campus, the two satellite centres, equipment for the three sites, and the construction of the carpark and retail spaces. The capital budget has not yet been depleted and to date, just over €1bn (73%) of the €1.433bn budget has been drawn down for works on the project across the three sites.
There are a number of items not included in this investment figure as there was no price certainty for them and nor can there be, for some, for the duration of the project. These include construction inflation in excess of the 4% threshold in the construction contract, the impact of Covid-19, statutory changes, any change in scope resulting in healthcare policy changes, and the Employment Order.
Tender inflation is based on external factors within the construction industry that are not in the control of the National Paediatric Hospital Development Board (NPHDB). The construction contract for the NCH, provides for a risk-sharing mechanism for construction inflation. As set out in the Contract, national construction inflation is calculated by the averaging of three published indices, with the contractor bearing the costs of the first 4% of construction inflation, and where tender inflation above 4% is recoverable from the NPHDB. This came into effect from August 2019.
The Government has identified the risk of construction inflation in this current economic environment is not tenable, viable or sustainable for the construction industry to achieve the goals outlined in the National Development Plan 2021 – 2030 and acted accordingly. In November 2021 and May 2022, Minister for Public Expenditure and Reform, Michael McGrath T.D., announced measures to address the impact that exceptional inflation in construction sector and energy is having on public works contracts.
In recognition that neither party is responsible for the global events that have given rise to inflation, the “Inflation Co-operation Framework” apportions the additional inflation costs between the parties, with, subject to budgetary constraints, the State bearing up to 70% of the additional inflationary related costs.
However, for a project as advanced as the new children’s hospital, the new Framework does not apply. The collaborative, risk-sharing approach contained in the construction contract for the NCH remains. Total inflation payments for 2019, 2020 and 2021 have been €21million. Construction inflation figures for 2022 will not be available until 2023 and any additional inflation costs for 2022 will fall due for payment in 2023. However, the compound effect of the unprecedented increase in construction inflation will be a driver of additional costs for the capital project.
Additional costs in relation to the integration and transfer of the services of the three children’s hospitals to the new sites brings the total programme cost to €1.73bn. This includes investment in ICT, a new Electronic Health Record system, and the Children's Hospital Integration Programme (the merging of three paediatric hospitals) including commissioning.
Brexit, the pandemic and recent geopolitical developments have severely impacted supply chains and NCH project is not immune to these external challenges. Every effort is being taken to mitigate the risks but these externalities beyond the control of the contractor and the NPHDB make speculation and more definitive forecasting unwise.
Definitive updates on costs cannot be provided due to the fact that we are talking about a live contract and speculation on any costs will be detrimental to the Development Board’s commercial engagements.
As the NPHDB has statutory responsibility for planning, designing, building and equipping the new children's hospital, I have referred your queries regarding the current contractual position and price variation clause for inflation to the NPHDB for direct reply.
