Taxpayers have forked out at least an extra $330 million for blowouts in commissioning, transition, information technology and contract costs with Serco as a result of the Health Department’s failures to properly plan for the opening of Fiona Stanley Hospital.
And they could be on the hook for at least a further $25 million to $50 million of IT costs, plus unknown extra expenses associated with negotiations with Serco for some additional managed equipment services that are outside the scope of the original $4.3 billion deal, the State Government’s largest ever contract.
At an explosive hearing of the Education and Health parliamentary committee this afternoon, Under Treasurer Tim Marney said he was “pissed off” that Treasury got its first serious look at the contract, which runs for 10 years with two five-year options, just two weeks before it was signed by Cabinet.
Mr Marney said Treasury still does not know how much the hospital will cost to run on an annual basis, which represented one of the “top three” risks to the State Budget.
Mr Marney, whose last day as Under Treasurer before moving on to a new role as Mental Health Commissioner is tomorrow, told the committee Treasury would ordinarily be involved in a contract negotiation of the scope of the Serco deal for at least six to 12 months to assist with procurement and evaluation.
Instead, he said, Treasury had “extremely limited visibility” of the deal as it was being negotiated.
“We were given our first look at the contract – our first serious engagement – two weeks before the Government was asked to make a decision,” Mr Marney said.
“I can honestly say on behalf of the public interest, we were pissed off. The magnitude of that consideration … meant it should have had much more exposure within Treasury, and indeed across government procurement than it had.
“We were all put into a situation of, ‘Give us your comments (quickly) or you’re going to hold up the opening of the hospital.”
At that stage, in mid-2011, the target opening date was still April 2014. Despite the physical hospital buildings being completed in December 2013 ahead of time, on budget and with enhanced scope, the hospital will not be fully up and running until at least April 2015.
Asked by Liberal MLA Rob Johnson if there was a reason Treasury was kept away from the contracts, Mr Marney replied: “I don’t know why that was the case … The fact it was coming quite late in the commissioning time frame meant that it was a rush.”
Mr Marney told the committee, chaired by Liberal MLA Graham Jacobs, that he had formed the view by September 2012 that the hospital commissioning plan was “substantially underdeveloped” and “probably way behind schedule”, placing the State at risk of big cost blowouts.
While he repeatedly raised concerns with the Department of Health and passed warnings on to Treasurers including Christian Porter and Troy Buswell, former Department of Health director general Kim Snowball refused to believe things were off course and he advised Health Minister Kim Hames everything was on track.
It wasn’t until June 2013 that the Government finally acknowledged that delays were unavoidable and approved a new, delayed timeframe for the hospital opening, with a staged rollout from October 2014.
Labor MLA Rita Saffioti said IT risk at the hospital was supposed to be transferred to Serco under the contract but Mr Marney said that had not happened.
“One of our concerns at the time was Serco’s ability to deliver on their contractual requirements was critically dependent on Health delivering the IT platform in the hospital,” he said. “My concern was that the track record of Health delivering on IT projects was extremely poor. If you put them together, that meant we were going to be up for some form of compensation for Serco.”