BAMBOOZLING!

By: Michael O’Farrell

Investigations Editor

THE construction group awarded the contract to build the National Children’s Hospital has a track record of budget overruns and costly engineering mistakes, the Irish Mail on Sunday can reveal.

The hospital is now expected to cost €1.7bn – that’s made up of €1.4bn in capital build cost and a further €300m to cover IT costs.

The €1.4bn build cost is €450m higher th an the €983m approved by Government in 2017 and €813m higher than the initial tender figure of €620m approved in 2012.

The massive overrun will impact directly on other priority health spending, which must be curtailed in order to free up sufficient funding for the behemoth the National Children’s Hospital has become.

The scale of the increase and concerns about Dutch builder BAM’s original tender – which was €131m lower than its nearest rival – have led to calls for a public inquiry.

The Government agreed this week to appoint consultants Price Waterhouse Coopers to investigate why costs have soared so much. Its report – set to cost €450,000, another sizeable burden on the taxpayer – is due in March.

BAM Building Ltd – a wholly owned subsidiary of Dutch construction giant Royal BAM Group – was selected as the preferred bidder for the Dublin hospital contract in February 2017.

So precise was the figure in the tender award notice that it was rounded to the nearest cent, €620,380,173.64. That 64c was included in the final tender award.

Based on that costing, BAM would make a profit of €21m on the project, according to the 3.4% profit margin the group posted in its 2017 accounts.

It helps, too, that these profits will be generated in Ireland where the BAM Group pays 6% of its revenue in tax compared to Holland, where 35% of revenue is eaten up by tax.

The hospital contract was good news for BAM at a time when it was suffering significant failures elsewhere. In May 2017, a large portion of a multistorey car park it was building at Eindhoven Airport in Holland collapsed.

Just three weeks ago, on January 3, BAM reached a confidential settlement with the airport.

The airport disaster wasn’t the only bad news for BAM Group shareholders in 2017.

There were other problems, too – problems involving a massive cost and time overrun on the construction of the largest sea lock in the world.

Due to design errors, the lock – at the North Sea port city of IJMUIDEN not far from Amsterdam – will be delivered over two years late with a cost overrun of about €100m.

‘We are very disappointed with this significant cost overrun,’ BAM group CEO Rob van Wingerden told shareholders in December 2017.

He had every reason to be upset.

BAM – along with its consortium partner in the project – had to take the financial hit. This knocked 1% off BAM’s profit margin for that year. That’s €68m that would otherwise have been profit.

 

Irish and Dutch bosses at BAM and what they’re paid

BAM Building Ltd, the construction firm contracted to build the new National Children’s Hospital, is ultimately owned by the Royal BAM Group.The BAM Group – a Dutch construction giant – is listed on the Euronext Amsterdam stock exchange.

BAM’s Irish operations – run from a headquarters in Kill, Co. Kildare – turned over €465m in 2017, made a profit of €15.9m and paid its Dutch parent firm dividends of €9.5m.

The directors of the Irish operation – headed by Cork-based Theo Cullinane – shared salary and benefits worth €622,000 in 2017 – down from €2.6m the previous year.

However, the biggest earner at BAM is Group CEO Rob van Wingerden, who heads up a three-member executive board.

Between the three of them, in 2017, they were rewarded with more than €2.9m in wages, bonuses and stock options.

Mr Van Wingerden’s share of that was €1.2m. His fellow executive board members, Erik Bax and Thessa Menssen, received €843,000 and €799,000 respectively. Thessa Menssen, the groups’s chief financial officer, left the firm in July 2018.

Erik Bax, the group’s chief operations officer, recently announced his intention to move on from BAM.

He may be more than a little familiar with Ireland as prior to joining the BAM Group he worked for years at international construction giant CRH (Cement Roadstone Holdings) which, of course, is incorporated and domiciled in Ireland.

By December 2018, the amount BAM had lost on the project had risen to €80m. Those responsible for the mistakes at the lock project are now no longer in situ. The management team that made the costly error has been replaced. Such is the reality of the private sector.

The disaster knocked €80,000 off Van Wingerden’s bonus in 2017 – though he still had a salary and benefits worth €1.2m (see below). BAM does not have the same problem in Ireland where, to date, it appears to be immune to any liability for escalating costs at the children’s hospital.

Instead, it appears the Irish taxpayer is on the hook for the overrun thanks to the contract negotiated by the National Paediatric Hospital Development Board (NPHDB).

BAM, it would appear, managed its exposure to the consequences of cost overruns better than the Irish authorities did. However, some believe something more underhand may have taken place. For example, BAM was accused this week in the Dáil of deliberately underpricing its bid to get a foot in the door.

Such fears are stoked by the fact that BAM’s original bid was €131m lower than the next bid, yet construction costs have since increased by €319m more than BAM’s winning bid.

It seems BAM has previous in this regard. For example, last February the firm told the Commercial Court it had made a €12m arithmetic mistake after it won a €46m tender at Cork Port.

The firm also went back to ask for an extra €12m from the Government after a €53m contract had been agreed for an entertainment venue in Cork (see panel above).

But NPHDB chairman Tom Costello has told the Joint Health Committee he has no concerns about underbidding for the hospital contract.

The BAM bid was ‘outstanding’ and ‘very professional’ he said. Mr Costello also stood over his board’s procurement strategy, saying it ‘transfers the risk to contractors in relation to cost, quantities, coordination issues and any project delays – unless caused by client changes or lack of design informa-tion’.

At the same time he told the committee the extra €319m in construction costs now evident had been cleared by the board and its independent advisers.

‘On completion of the various reviews and interrogations, the board were satisfied that, despite the huge disappointment with the outcome, proper procedures were followed… in determining the final contract sum,’ said Mr Costello.

BAM’s attitude to risk is outlined in its last annual report. ‘The general willingness of the Group to run risks is rather low, taking into account the sector in which managing risk is a necessary core competence to survive,’ the report reads.

It may have messed up in Holland but with the children’s hospital BAM seems to have managed its risk better than those representing the Irish taxpayer.

There’s also another difference.

Those responsible for BAM’s Dutch loss have been moved on. Nobody involved in sanctioning the €1.7bn hospital spend here has been fired or had to stand aside as a result of the cost overruns – though politically, pressure must be mounting.

It was all so different back in May 2017 when then-taoiseach Enda Kenny – having announced his resignation plans – laid the hospital foundation stone with Health Minister Simon Harris.

Our politicians are good at photocalls when there’s good news to shout about.

So good, in fact, they did it twice.

In October 2017, Mr Harris was back – this time with new Taoiseach Leo Varadkar – to turn the first sod.

Pity they’re not so good at budgets.

FIRM WITH HISTORY OF MASSIVE OVERRUNS HERE AND ABROAD

 

COST overruns and delays are not new for BAM, the firm contracted to build the children’s hospital.

Neither is the manner in which the taxpayer seems to end up picking up the tab.

In May 2017, a large portion of a multistorey car park it was building at Eindhoven Airport in the Netherlands collapsed. Just three weeks ago, BAM reached a confidential settlement with the airport.

Also in 2017, it was involved in a massive cost and time overrun on building the largest sea lock in the world.

Due to design errors the lock – at the North Sea port city of IJmuiden – will be delivered over two years late with a cost overrun of about €100m. By last December, BAM’s losses on the project had reached €80m.

In February 2016, Enda Kenny turned the sod on a 6,000-seater event centre at Cork’s old Beamish and Crawford Brewery.

The price tag was to be €53m and the Government agreed to contribute €20m. A year later BAM asked for an extra €12m.

The Port of Cork Company wound up in the commercial courts last year when BAM admitted it had made a €12m arithmetic mistake after it won a €46m contract for work at Ringaskiddy.

Details of how the matter was resolved have not been made public. In the UK, BAM, via its subsidiary BAM Nuttall, won a contract for the Cambridgeshire Guided Busway.

Due to be finished in 2009 at a cost of £116m, it was handed over to the council in 2011 at a reported cost of £152m.

The matter went to court and in 2013 BAM Nuttall agreed to pay £33m to Cambridgeshire council.