Mater Dei dispute waiver clause in 2009 agreement exposed Malta 'to significant risks' - NAO

The National Audit Office has concluded a three-year investigation into the Mater Dei hospital project and the findings are anything but good • Investigation was prompted in 2015 after the discovery of defective concrete structures

Former prime minister Lawrence Gonzi (centre) with former FMS CEO Brian St John (left), who were responsible for the 2009 closure agreement with Skanska (Photo: DOI)
Former prime minister Lawrence Gonzi (centre) with former FMS CEO Brian St John (left), who were responsible for the 2009 closure agreement with Skanska (Photo: DOI)

A waiver clause accepted by government in 2009 left it with “limited means of recourse” to rectify structural defects discovered at Mater Dei hospital years later, the National Audit Office has confirmed.

In a lengthy report traversing the turbulent lifespan of the project that started in 1990 as a specialised hospital and was completed in 2011 as an acute general hospital, the NAO did not hold back in its negative descriptions of the management process. The report was tabled in Parliament on Tuesday evening.

The audit investigation requested by the government in 2015, was hampered by a lack of documentation, missing files and incomplete records that made it difficult for the NAO to carry out its work.

The investigation was prompted after government plans to expand the hospital hit a snag when preliminary testing revealed defective concrete structures at Mater Dei hospital in 2014. An engineering report completed in 2015 confirmed the initial test results.

The NAO said the project closure agreement signed in 2009 between the government and Skanska, the Swedish company that was entrusted with the design and construction of the hospital, had included a waiver clause requested by the company.

READ ALSO: Malta opens legal proceedings against Skanska over faulty Mater Dei concrete

Apart from the settlement of €5,125,000 in variation costs, the agreement meant that the parties were also waiving “all concerns, claims or disputes”.

“According to the President FMS Board, the waiver clause was inserted on the insistence of the SMJV (Skanska Malta Joint Venture). Aside from governance concerns relating to the manner by which the waiver clause was introduced, the NAO’s attention focused on the resulting implications of this change, with government exposed to significant risks arising from latent defects and left with severely limited means of recourse to rectify such defects,” the NAO said.

Furthermore, the NAO noted that performance and retention guarantees held by the government foundation, valued at €7 million, were released in favour of Skanska, despite the two parties having pending differences of opinion.

Construction on the hospital began in 1996
Construction on the hospital began in 1996

“In the NAO’s understanding, the contradiction in the acknowledgement of pending issues and the simultaneous release of the €7,000,000 guarantees is evident. While bearing in mind the implications of the waiver clause within the project closure agreement, the Office is of the opinion that the FMS should have ascertained that pending matters were resolved prior to consenting to the release of the guarantee,” the report said.

In its concluding remarks, the NAO said a comprehensive investigation of the hospital project was not possible, “primarily due to the significant lack of documentation with respect to all stages of the project”.

It added that notwithstanding the FMS’s long-term responsibility for the management of the project, dating back to 1998, it was unable to provide the documentation requested by the NAO, including the project’s accounting records.

“The NAO is of the opinion that the foundation’s inability to provide basic information relating to a project of this magnitude represents an institutional failure and gross negligence in the administration of public funds,” the audit office said.

Damning remarks by the NAO

Excerpts from the report indicating gross mismanagement of the project and poor controls by the Foundation for Medical Services responsible for it

“Documentation provided by the FMS in respect of expenditure reported was severely limited.”

“In certain cases, the FMS indicated that the files/documents sought by the NAO were not found and that the said boxes, referenced as containing the documents requested, were in fact empty.”

“Given the lack of information, the NAO was hindered in establishing a high-level understanding of the overall framework of project control… Compounding matters was the extensive duration of the project, conceptualised in 1990 and concluded in 2011.”

“In the NAO’s overall opinion, the FMS’s failure to provide the required information and documentation, together with the various other shortcomings highlighted in this report, represents a scenario characterised by the breakdown of any sense of accountability, transparency and good governance.”

“In this Office’s opinion, failure to take timely corrective action when attention was drawn [to shortcomings in quality standards at initial construction phase] created the setting and context within which subsequent shortcomings and concerns were allowed to materialise.”

A brief timeline of Mater Dei's construction

1992: PN wins second election in a row and promises to build a new specialised hospital on the lines of Milan’s San Raffaele hospital

1993: Monte Tabor Foundation is tasked with designs of the new hospital, construction,

supervision services and take over operations

1995: Skanska (Malta) Joint Venture (SMJV) wins tender for the construction of the hospital

1996: Malta Labour Party is elected to government and opts for a bigger general hospital instead of a specialised one

1998: Norman and Dawbarn are contracted for the design of the expanded hospital by the Labour government

1998: The PN is re-elected to government later that year and a memorandum of understanding is signed with SMJV.

2000: SMJV is contracted for the design, execution and completion of the new general hospital

2003: PN is re-elected to government and a gap analysis report commissioned by the Foundation for Medical Services finds a variance of Lm38 million (€89 million) between the original target value and the projected final cost

2004: Lawrence Gonzi becomes prime minister after Eddie Fenech Adami resigns

2005: Under Gonzi’s direct responsibility, a lump sum agreement is reached with Skanska for the completion of the project

2008: The PN is re-elected to government

2009: A project closure agreement is signed that includes a waiver clause through which both parties agree to give up any claims against each other

2013: The PL is elected to government

2015: Hospital expansion plans hit a snag after tests reveal defective concrete structures, prompting government to seek redress from Skanska for defective works, despite the limiting waiver clause

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