Opinion: whatever the causes of the over-run, the knock-on effects will have an impact on not just the health sector but other sectors as well
By now, it is well known that the National Children’s Hospital project is going to cost significantly more than had been anticipated. Although there are a lot of figures in the public domain, some are not necessarily comparable.
The original figure of €450m was for a hospital on the Mater site, but this was not granted planning permission, so the site at St. James’s was chosen instead after a number of years had elapsed. In 2014, the HSE approved capital spending of €790m, which included construction of the hospital and two satellite urgent care centres. This figure also included equipment, educational facilities and commercial elements, such as retail and car parking. The figure of €650m that is sometimes quoted excluded the latter factors. An additional €10m was added to the cost in 2015 to cover shared services, bringing the total to €800m.
From RTÉ Radio 1's Today With Sean O'Rourke, Brainstorm contributor and UCC health economist Brian Turner and Labour Party leader Brendan Howlin on the the National Children's Hospital
In April 2017, the Department of Health approved the capital investment for the project, at which stage the cost estimate was €983m. At the time, the department put the cost increase of €183m down to a combination of increased construction inflation, longer than anticipated planning, procurement and approvals processes, and higher than expected market costs of tenders. Of this €983m estimate, €67m was non-Exchequer funder (philanthropy and commercial funding) for the commercially viable elements of the project such as retail and car park facilities. An additional €88m was approved at that stage for ICT capital expenditure.
The latest estimate of the cost of the project is €1.433bn. A figure of €1.7bn has been mentioned, although this includes non-construction costs being absorbed by the Children’s Hospital Group, totalling €293m. The construction cost (the €1.433bn figure) represents a significant increase of over 45 percent on the figure approved less than two years ago. A variety of reasons have been suggested for this, including design changes, construction cost inflation and VAT increases. A number of reports have been commissioned to investigate the causes of the over-run and possible ways of reducing the cost from the latest estimate.
From RTÉ Radio 1's Morning Ireland, Orla Hegarty, Architect and Assistant Professor at School of Architecture at UCD, on the National Children's Hospital costs over-run
But whatever the causes of the over-run, the knock-on effects of it will have an impact on not just the health sector but other sectors as well. €99m of cost savings have had to be found to pay for the over-run this year, with further adjustments likely between now and the time the hospital is completed.
While assurances have been given that projects will be delayed but not abandoned entirely, even delays will have an impact on infrastructural projects. Tender prices and construction costs are forecast to continue to rise in the coming years, partly reflecting pressure on the construction sector as a result of major developments in health, housing and other areas competing for scarce resources in a construction sector that contracted significantly during the recession. Therefore, these delayed capital projects are likely to cost more when they do proceed, which needs to be factored into future budgets.
From RTÉ News, Minister for Health Simon Harris apologises in the Dáil over response to question on cost of hospital
The over-run on the National Children’s Hospital also calls into question the sufficiency of the €10.9bn that has been earmarked for Health under the National Development Plan 2018-2027. This is the amount that has been estimated for a wide range of capital projects including new elective-only hospitals in Cork and Dublin, acute hospital developments in a number of existing hospitals and the construction of primary care centres across the country. It also includes developments under the National Maternity Strategy and National Cancer Strategy, replacement and refurbishment of community nursing units and long-term residential care units and mental health projects.
All of these projects are needed in the context of the roll-out of the reforms envisaged under the 10-year Sláintecare plan for the Irish health system and the need to cater for the health needs of a growing and ageing population. We are already seeing capacity constraints impacting on the delivery of care, so it is vital that this increase in capacity is delivered. Of course, capacity in terms of human resources will also be needed, but that is a discussion for another day.
From RTÉ Radio 1's This Week, Fine Gael Minister of State for European Affairs Helen McEntee and Fianna Fáil health spokesman Stephen Donnelly on cost overruns at the National Children's Hospital
In this context, the lessons from the National Children’s Hospital cost over-run need to be learned, as a failure to do so could jeopardise future capital developments in the health sector. These lessons include whether the two-stage tender process used in this case was the right strategy; whether the lowest cost bid is always the most economically advantageous bid (one of the main criteria for selecting bids for public tenders); getting the balance right between initial design and necessary amendments thereto; and the level of oversight of costs on an ongoing basis once projects have been commenced.
While this project will still go ahead, even at the higher cost, we simply cannot afford a repeat of the kind of cost over-run that has occurred on this occasion - especially if we are to deliver the capacity increases that the Irish health sector so badly needs over the coming decades.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ