The National Convention Centre Contract – what a cock-up!

24 June, 2011

Sometimes one comes across a set of circumstances which are, to put it mildly, eyebrow-raising.   The awarding in 2007 of the contract to construct and operate Dublin’s new Convention Centre is an example.

Last September, the Irish Independent reported as follows:-

A PROPOSAL to build the newly opened national convention centre for half of its eventual cost was rejected by a government-appointed committee, a report by the Comptroller & Auditor General (C&AG) reveals.

Spencer Dock Convention Centre Dublin (SDCCD), part of businessman Johnny Ronan’s ailing Treasury Holdings group, won the public private partnership contract to build and run the centre after bidding €390m in 2007.

However, it has now emerged that the rival Anna Livia consortium, which was backed by Bennett Construction, had three bids between €203m and €224m rejected by a government steering group.

Convention Centre Dublin, located in the Dublin docklands, was officially opened earlier this month.

The Sunday Tribune used the headline “Taxpayers’ €47m-a-year bill leaves a bad smell” when it ran a report last July (the reference to a bad smell is a pun, as the Convention Centre was also revealed to be without proper sewage facilities, despite the high spend):

Under the multi-million euro deal worked out between the government and Spencer Dock Convention Company Ltd (SDCCL), the state will pay €47m a year for the next five years and €23.9m a year for the following 20 years to the company for building and running the controversial centre.

This works out at a total outlay of €713m, making it one of the most expensive state projects, on a par with the Luas and the Port Tunnel. The first monthly instalment of just under €4m is due next month and these will continue until 2015 after which the payments will drop down to just under €2m a month until 2035. The centre will then revert to state ownership…..

Responding to criticism of such a massive spend on a conference centre in such straitened times, a spokesman for the OPW said the total payment of €713m over 25 years is equivalent to €350m at today’s prices.

The capital costs of both the winning and the losing bids were apparently much the same and the huge difference arose in the tendered cost of  operating and maintaining the centre.

Amazingly, in the tender assessment process only 25% of the available marks was originally allocated to financial factors, far too little,  and this was mysteriously reduced to 20% during the process.  The C&AG points out that “In a meeting of the Steering Group in 2004, the Department of Finance had concerns when the financial criteria weighting was lowered from 25% to 20%, and the design and construction weighting increased to 40%.”    Furthermore, within the financial criterion, only 13 of the 20 marks allocated were assigned to an assessment of the cost of the deal. Most of the remainder were awarded based on evaluating the revenue sharing mechanism proposed and the financial robustness of the deal.

The C&AG said that this weighting system was not enough to distinguish between bids with widely varying costs.

And here’s the really stupid part:  the costs of the proposed bids were assessed not relative to each other but by comparison with a level of 90% of a pre-established public sector benchmark (PSB) cost.  The Office of Public Works, which oversaw the awarding of the contract, was required to develop a PSB against which tenders from the private sector could be assessed. It estimated the cost of the project at €422m in net present value terms.

Bids costing 90%, or less, of this estimate were to be awarded full marks irrespective of how much cheaper than the 90% they were. The  C&AG notes that “This had the effect of awarding relatively high marks to proposals that were much more costly in absolute terms”.

The report includes a comparison with the financial assessment of the PPP project in relation to the Criminal Courts Complex.  This differed in two key ways from that used in the assessment of the tenders in the Convention Centre project: (a) a total of 30% of the overall marks were allocated to financial criteria as compared to 20% for the Convention Centre, with 27% of the overall marks based on the cost of the bids as compared with 13% in relation to the Convention Centre; (b) the assessment of the cost of the bids in relation to the Criminal Courts Complex  compared the cost of the bids relative to each other rather than by reference to the cost as identified in the PSB.

Not surprisingly, the C&AG said that there needs to be a change in how future bids for public-private partnerships are assessed.  His report can be found here.

This looks like a giant financial cock-up, and wicked people could postulate a more sinister interpretation.  I’m told that conspiracy theorists have been wondering what Richard Barrett (Johnny Ronan’s partner in Treasury Holdings) meant when, at the official opening of the Convention Centre,  he was caught on camera jovially remarking to former Taoiseach Bertie Ahern “keep pulling for us”.   Sheer begrudgery, no doubt.

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