On 12 June 2015, the Minister for Finance requested the National Audit Office (NAO) to investigate the process, from design to eventual closure of the Mater Dei Hospital (MDH) project, citing concerns relating to the governance, transparency and financial management. Responsibility for the overall management of the MDH project rested with the Foundation for Medical Services (FMS), with diverse roles in the various phases of the project entrusted to other stakeholders.

Despite all efforts by the NAO, a comprehensive investigation of the MDH project was not possible, primarily due to the significant lack of documentation with respect to all stages of the project. This deficiency prohibited the Office from establishing a comprehensive understanding of the project, an essential requirement in formulating an audit opinion. Notwithstanding the FMS’s long-term responsibility for the management of this project, dating back to 1998 and concluding in 2011, it was unable to provide the documentation requested by this Office, including the project’s accounting and fixed asset records. The NAO is of the opinion that the Foundation’s inability to provide this basic information represents an institutional failure and gross negligence in the administration of public funds. Moreover, an inadequate and unreliable audit trail detracts from the expected level of accountability, transparency, fairness and governance warranted in this national project.

In the circumstances, the NAO is not in a position to provide assurance with respect to the comprehensiveness of the contractual framework regulating all aspects of the project. Neither is the Office in a position to provide assurance as to whether applicable public procurement regulations were adhered to and the required approvals sought for all contracts/agreements. No documentation was provided substantiating the choice to adopt the San Raffaele Hospital of Milan as a model, while successive radical changes in policy and scope of the project following the 1996 and 1998 changes in administration perpetuated the haphazard management of the project. In December 1998, Skanska (Malta) Joint Venture (SMJV) assumed the design function in addition to its existent role in the construction of the hospital; however, the NAO was not provided with any related documentation. In the NAO’s understanding, this disorganised series of changes reflected poorly on the overall planning and management of the project and bore long-term negative effects.

Between 2000 and 2003, concern regarding material escalation in project cost emerged, with the final cost estimated at Lm121 million from the initial Lm83 million. This led Government to resort to a Lump Sum Agreement, intended to limit the further escalation of costs and associated risks. However, this was not the case, as a Settlement Agreement, later confirmed through a Project Closure Agreement entered into in February 2009, comprised an additional disbursement by Government of €5,125,000 (excl. VAT), and more importantly, an absolute waiver of rights, which provision exposed Government to significant risks arising from latent defects and provided for severely limited means of recourse.

It was not possible for the NAO to ascertain whether payments made were in relation to eligible goods and services under the relevant contracts and established controls. In addition, the Office could not verify whether there were instances when claims for payment were signed despite identified shortcomings in terms of the quality of work. A reconciliation between the amounts submitted as certified works/goods by the contractors and the Government/FMS accounting records and hospital inventory was not possible. Reconciliation would have allowed the NAO to provide assurance, or otherwise, to Parliament and the taxpayer of the regularity of public funds availed of to finance the MDH project. Notwithstanding this gross limitation, based on the partial information obtained, the NAO arrived at a best estimate project cost of Lm234 million (€546 million).

To view report (.PDF) please follow link.