Auditor General: $2 billion QEII redevelopment at risk for fraud

The province’s auditor general released a critical report yesterday that looked at the $2 billion project to expand the Halifax Infirmary and build a new Community Outpatient Centre at Bayers Lake to replace the decrepit Victoria General and Centennial buildings. Michael Pickup’s strongest criticism and first recommendation declared: “The Department of Transportation and Infrastructure Renewal should implement a fraud risk management program specific to the QEII New Generation Project, including a fraud policy, fraud risk assessment, and fraud training.”

Pickup said the project is simply too large to rely on the internal audit measures that the government normally follows and he referenced the recent building of Colchester East Hants Hospital in Truro where costs doubled during the construction period.

About $400 million in contracts associated with the QEII renewal have already been awarded. Lindsay Construction was awarded the management contract to oversee the expansion and the construction of  new operating rooms above the present day Halifax Infirmary. A builder will be chosen in 2021. The target opening date is 2025.

A contract will be awarded next year to build a new Community Outpatient facility to open by the end of 2022. A major $138-million , three-storey expansion at the Dartmouth General Hospital opened last week that includes four new operating rooms, an orthopedic centre, and additional rooms for patients to help replace those that will disappear once the VG eventually closes.

“For a project the size of the QEII New generation Project, we expected  to see a project-specific fraud risk management program which included a fraud policy, code of ethics, fraud risk assessment, fraud awareness training and processes to ensure ongoing monitoring of fraud risks,” Pickup stated in his report. “However, these have not been completed.”

The Government Response

In a written response to the auditor’s recommendations, all of which it accepted, the Department of Transportation and Infrastructure Renewal (TIR) said project staff have completed fraud-related training as of this month. It has also hired an outside consultant to begin the work of conducting fraud audits.

“Work is underway to mirror the provincial and TIR fraud policies and procedures for the QEII New Generation Project. This policy is being specifically revised to include all anticipated project related risks… The work underway is led by the Health Care Infrastructure Division of Nova Scotia Lands with professional support from the Province of Nova Scotia Internal Audit Centre and an external consultant.”

The second bombshell in the auditor’s report was that the government has failed to follow the advice of a consultant it hired back in 2017 to help it manage the complex $2 billion megaproject. Deloitte provided its recommendations to the Department of Transportation Infrastructure and Renewal as well as the Nova Scotia Health Authority in January 2018, almost two years ago.

Of Deloitte’s 18 recommendations aimed at keeping the largest project in the province’s history from ripping off taxpayers or going overbudget or getting behind schedule, the auditor determined only seven recommendations have been fully implemented.

Unfinished business

The auditor’s examples of the 11 incomplete recommendations include:

• project controls not in place — risk assessments not completed for projects

• the need for more human resources: only 40 of 49 project team positions filled; lack of succession planning to replace a key project team member.

• the need to clarify roles and responsibilities: no detailed project plan with milestones and responsibilities assigned; terms of reference not completed for some project committees.

“The lack of serious and appropriate oversight for a project of this scale is extremely concerning,” said Susan Leblanc, the NDP’s critic for TIR. “The Liberal government’s inability to ensure even their own consultant’s critical recommendations were implemented raises significant questions around the risk of fraud and how this $2-billion dollar project is being managed.”

Pickup determined that almost two years after Deloitte’s report was received, there are still some “gaps” about which department is supposed to be responsible for what. The responsibility is spread among Nova Scotia Lands (appointed last summer to oversee the replacement of healthcare infrastructure), TIR (responsible to award contracts), and the Nova Scotia Health Authority, which also has a seat at the table.

“We identified five committees that have a role in overseeing the projects, three of which have decision-making responsibilities. We found roles and responsibilities were not documented for three committees, including one with decision-making responsibilities,” said Pickup’s report.  “We also noted that meeting minutes for two committees with decision-making responsibilities were not consistently kept. The Halifax Infirmary Expansion and the Community Outpatient Centre are very complex and expensive infrastructure projects meaning clearly defined roles and responsibilities are essential to provide adequate oversight.”

“This failure to assign roles and responsibilities may be a sneaky way to avoid accountability, but it also increases the risk of fraud,” said PC leader Tim Houston. “It’s not enough to wave the victory banner that you’ve saved healthcare when it’s done this carelessly, it’s only a matter of time before something goes wrong.”

Start taking notes

TIR says work is underway to fully implement all outstanding recommendations from Deloitte. Oddly enough, one of the recommendations from the auditor general calls on project managers to take more notes of their interactions with all contractors. Pickup observed a surprising lack of documentation that may suggest a reluctance to create a paper trail that could become the subject of Freedom of Information requests by nosy journalists or members of the public.

On the plus side, Pickup found no issues with the process used to select and hire consultants and contractors. He also praised the McNeil government for bringing together a project team in one location and for recruiting outside managers with P3 expertise it recognized it lacked.

Interestingly, Deloitte was also tasked with recommending whether the province should go with P3 or traditional methods of financing and maintaining the new facilities. That report was filed during the summer of 2018 and in October of 2018, the province announced the Halifax Infirmary Expansion and the Community Outpatient Clinic would be P3 projects.

Michael Pickup is promising his next report in spring 2020 will look into what evidence Deloitte examined before choosing the private-public partnership model that will build, maintain, and operate these new medical facilities for 30 years. Unlike the P3 schools which were built in the past and which the government had to buy back, the province will own the buildings from Day One.

“We continue to call for the McNeil Liberals to reconsider using a P3 deal for this once-in-a-generation project. Considering the issues the AG has pointed to today, that call is even more urgent,”, said Susan Leblanc, the NDP critic for TIR.