LEO: WE WERE ‘LOW-BALLED’ BY CONTRACTORS
Taoiseach hits out at companies in debate on hospital overspend
THE Government has fallen victim to building contractors ‘low-balling’ it by submitting artificially low bids for projects – only to increase them after they have secured the work, the Taoiseach has claimed.
During a Dáil debate on the controversial National Children’s Hospital – which has a ballooning budget heading towards €2billion – Leo Varadkar made the astonishing admission of the State’s inability to get value for money for taxpayers.
He also acknowledged that there were ‘one or two contractors’ who he hopes never win a State contract again.
His comments came in another bruising day for the Government in the fallout
from the massive overspend on the €1.7billion children’s hospital – whose initial cost was projected to be €650million.
Responding to angry questions in the Dáil about the overspend, the Taoiseach said the Government would change how it conducts such large-scale public infrastructure projects in future.
The Government would be particularly sceptical in future when it receives low bids for work, he told TDs. ‘We also will examine the issue of low-price tenders and whether we should look more at median price, because we have a real concern that some companies have been low-balling, coming in with very low tender prices to get the contract and then coming back with claims thereafter,’ he said.
‘We also particularly want to look at contractors’ past form and
‘We can learn from past mistakes’
public service references.
‘There are one or two contractors who, quite frankly, I would not like to see get a public contract again in this State,’ the Taoiseach declared, using unusually harsh and blunt language – but without naming names.
Last month, Fianna Fáil TD John Brassil, a civil engineer of 15 years’ experience with contractors, claimed to the Oireachtas Health Committee that the main contractor for the children’s hospital, BAM, had priced its tender 20% under its nearest competitor on the basis of ‘if we get in, there is no way they will get somebody else in, and we can get our money back in Phase 2’.
BAM bid €637million, which was a €131million lower than the second-placed bid. Mr Brassil said such a variation to the next-lowest bidder should have sounded alarm bells, adding: ‘Once they got in there, they were in a position, in my opinion, to gouge the next stage of the job.’
BAM was offered a right of reply to these allegations by the Irish Daily Mail both last month and yesterday but did not respond.
The Taoiseach told the Dáil yesterday that other areas of the State had improved their performance in terms of getting projects to come in on budget.
‘This is something we have got right in the past,’ he said.
‘The National Roads Authority ran over and ran late for years and years.
‘However, it got it right subsequently.
‘Transport Infrastructure Ireland is bringing all the road projects in on time and on budget at the moment.’
Local authorities were notorious for running late and running over on water projects in the past, he said, but Irish Water now delivered its projects on time and on budget. ‘We can learn from past mistakes and past successes,’ he insisted.
Mr Varadkar added that the Government would study whether it should factor in ‘optimism bias’ and ‘promoter bias’ into its decision-making in future. This is when desire to see a project come to fruition gives rise to optimism about the real cost, he said.
The Taoiseach also acknowledged that the two-phase tender process involved had not worked. The initial tender was to clear the site, build the foundation and estimate the costs of constructing the building. The Phase 2 tender was an estimate of the cost of constructing the building, which included detailed design specification.
The recently resigned chairman of the hospital’s development board, Tom Costello, has acknowledged that this approach was flawed as ‘the complexity of those services and the quantities involved were not fully recognised within the early-stage tender’.
Finance and Public Expenditure and Reform Minister Paschal Donohoe told a press conference that a number of reforms to the tendering process that were put in train as part of the Government’s Project Ireland 2040 infrastructure plan would be ‘speeded up’.
These include that the Government will no longer commit to major projects until there is clarity on the final costs.
Also, budgets for large projects will include a ‘significant premium for risks’ so that they will more adequately reflect the entire cost of the project over its life cycle.
Both Mr Donohoe and the Taoiseach indicated that it would be illegal to ban companies from bidding for future contracts.
BAM had bid €637million, a full €131million cheaper than the second-placed bid.
Mr Donohoe said: ‘I am not in a position to say at this point that any particular company will be banned for participating in the process. Companies have rights.
‘Consummate FG exercise in spin’
They have their own reputations as well.
‘But we will now look at how we can change our public procurement process to ensure that there are particular metrics in the tendering. If those metrics are breached, that will then be taken account of in the future.’
Green Party leader Eamon Ryan TD said: ‘Every expert I talk to about this issue says the Government’s fatal mistake was agreeing a contract on the basis of drawings that were little more than planning design drawings.
‘Anyone would know that a contract should be concluded on the basis of the most detailed drawings, including equipment and IT. The minister is learning the ropes – unfortunately he let go of the key rope.’
But Sinn Féin dismissed the Government’s proposed changes to procurement policy, which it called a ‘consummate Fine Gael exercise in spin’.
‘There is nothing new about these proposals. In fact, they are within EU procurement guidelines that his department and this Government has abysmally failed to implement,’ said Jonathan O’Brien.
He said he had asked the minister and officials at the Dáil Health Committee ‘if they had heard of abnormally low tenders, or considered disqualifying bids on that basis. I was met with silence.’
He added: ‘I was troubled by this response and raised the issue of EU procurement law which allows for disqualification based on abnormally low tenders.
‘Abnormally low tenders are warning signs for uninformed contractors underbidding for contracts with the likely consequence of cost escalations thereafter. The scandal of the National Children’s Hospital is one consequence of this complacence.’
Labour Party leader Brendan Howlin said there was no indication that the Attorney General had expressed confidence that the rules were followed in the case of the hospital. It was not clear if the procurement procedure complied with EU directives, he said. ‘The legal uncertainty this has created must be addressed,’ he added.