Hyperinflation could add €51m to cost of children’s hospital, PAC hears

Hyperinflation in construction could add €51 million to the cost of the new national children’s hospital by next year, the Public Accounts Committee (PAC) has been told.

The head of the National Paediatric Hospital Development Board David Gunning said that inflation since 2019 has cost more than €20 million, and the estimated cost for 2022, which will be finalised next year, could be €30.4 million.

The State is liable for inflation above 4 per cent on the project, which has been mired by delays and cost over-runs. It was also confirmed at the PAC that the project will be over the budget the Government approved, and a higher sum will likely come before Cabinet again.

Mr Gunning said the board had modelled some inflation scenarios but said: “where will it end up, we don’t know.” He gave the figures on foot of questions from Fianna Fáil TD Paul McAuliffe. Mr Gunning said there are other “upward pressures” in equipping, legal costs and claim defences.

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“There are upward pressures. We are not going to put a number on it. They are moving in the wrong direction, there is no doubt about that.”

He confirmed that the project will be over its budget, which had been due to cost some €1.7 billion, including information and communication technology.

He said the Government had in December 2018 approved a €1.433 billion investment for the hospital’s design, build and equipping. He said this excluded items where no price certainty is possible due to factors such as inflation. He said delays, Covid and Brexit would add to costs.

“While it is not possible to provide a final estimated cost at this time for the completion of the project, the combination of all these factors mean that the final amount will be above that already approved by Government.”

He said inflation in particular was having a “major impact on costs”. Any delay had a cost implications on a project of this “scale and complexity”, he said. But “any speculation or discussion” on costs could compromise contractual arrangements and jeopardise the ability to negotiate.

Mr Gunning was also accused of failing to satisfactorily answer questions posed by the committee about the project despite multiple requests in recent weeks.

Accountability

At the opening of the hearing, chairwoman and Social Democrats co-leader Catherine Murphy raised what she described as an apparent disregard by certain bodies to the accountability of the Oireachtas. Directing her remarks to Mr Gunning, she said: “You’re accountable to the Oireachtas for the board’s expenditure, and this committee is charged by Dáil Éireann in examining that expenditure.”

She said updates requested weeks ago were not received on time and “even then, it was presented very poorly with parts of the information missing”.

“This level of engagement on your part is clearly unsatisfactory.” Mr Gunning said the group would strive to meet the requests in time.

Derek Tierney, assistant secretary at the Department of Health, told the committee that disruption to supply chains driven by Brexit, Covid-19 and now compounded by the war in Ukraine presents risks to the project timeline.

The hospital is not 70 per cent complete and has been “topped out” to the seventh level with glazing to the external facade being completed, the committee was told.

A new date of January 2024 has been set for the opening of the hospital, although the committee heard there are risks to this, and a number TDs questioned whether the hospital would actually end up opening in 2025 instead. The board said the aim was for a substantial completion date of January 2024.

The committee also heard claims from TDs that the overall cost of the project could eventually reach €2.5 billion. Sinn Féin TD Imelda Munster referenced claims submitted by the main contractor worth €585 million, which are being strongly challenged by the hospital’s board.

“None of these claims have added to the contract price at this stage,” Mr Gunning said. “There is no way that the claims will amount to €585 million, that is simply not going to happen.”