Minister tells TD Brid Smith why children’s hospital now set to cost more than €2 billion was not a fixed-price contract

‘The Government Contracts Committee accepted the scale of the project was such as to warrant a deviation from the standard form of Government contract.’

Sligo News File.

Responding to a parliamentary question from TD Brid Smith who wanted to know why the development of the Dublin children’s hospital issue was not a fixed price contract, the following is what Harris, the Minister for Health, had to say:

Harris, Health Minister

The size, complexity and specialist nature of the new children’s hospital project informed the decision by the National Paediatric Hospital Development Board (NPHDB) to adopt a two-stage procurement process comprised of:

Procurement Stage 1: A full tender and contract for Phase A (below ground including basement works) on the basis of a detailed design with the tendering of Phase B (the main above ground works) on a Preliminary 1st stage design with an approximate and re-measurable bill of quantities reflecting the Preliminary 1st stage design; and

Procurement Stage 2: While the basement Phase A works were under construction, the 2nd stage detailed design for the above ground Phase B works was completed with a full bill of quantities priced at the 1st stage Preliminary design tendered rates. The contract becomes in effect a lump sum contract.

Procurement strategy

The procurement strategy was developed and finalised from 2014 to 2016. The Government Contracts Committee, the cross-government consultative committee for construction procurement matters, accepted that given the project’s scale, complexity and its programme, the circumstances were such as to warrant a deviation from the standard form of Government contract and agreed a derogation from its use.

Reasons for adopting the two-stage process include:

– Early commencement on site, two years ahead of traditional procurement (Phase A works commenced on site on 3 October 2017 and are nearing completion. Finalisation of instruction for Phase B main works in parallel allows these works to commence on site at end January;

– Market engagement with Irish and international contractors identified this procurement approach would attract increased competition in a situation where there are a very limited number of contractors with the ability to undertake a project of this scale. This was borne out by the competitive nature of the tender process with 5 contractors shortlisted for the main contract, 4 for the mechanical installation and 4 for the electrical installation;

– Claims are addressed up front, prior to main construction, rather than as is traditional throughout the project and beyond;

– Reduce exposure to rising inflationary pressures in the construction market through procurement at 2016 tender market rates (versus 2018 tender rates);

– Provide opportunity for the 3 contractors (main contractor and Mechanical & Electrical contractors) to influence/interrogate the detailed design and assume contractual responsibility for completeness including quantities at end of Stage 2 Design;

– The programmes for main works are fully aligned across 3 contractors with a single point accountability for site management;

Guaranteed Maximum Price

– A Guaranteed Maximum Price (GMP) is determined prior to the instruction to proceed with the main Phase B works (with the GMP only adjustable for clearly defined exclusions such as changes in scope, excess national construction tender inflation above 4% post July 2019, changes in legislation (e.g. VAT, PRSI, statutory labour rates, building regulations);

– Other than in respect of exclusions, the GMP ceiling cannot be exceeded with any amount in excess not recoverable by contractors;

– Project substantially de-risked in relation to ground conditions with Phase A nearing completion prior to instructing and commencing the main hospital build (Phase B); and

– Incorporation of streamlined dispute resolution including using an independent expert whose decisions are binding on all parties.