An investigation by the Auditor General has exposed damning failures by the government in its deal with Vitals Global Healthcare.
Times of Malta takes a look at some of the key findings by the National Audit Office into the 2015 concessions which saw VGH take over the running of the St Luke's, Karin Grech and Gozo hospitals.
1) 'Impotence' in holding VGH to account
In the 460-page report, the NAO found there were “critical departures” between what was expected by the government in the 2015 tender the eventual services agreement signed with VGH, as well as later amendments to it.
"The changes effected consistently and solely favoured the interests of the VGH, with government rendered impotent in holding the concessionaire to account", the Auditor General said.
VGH won the tender despite having no prior experience in healthcare, aided by what the Auditor General said was "collusive behaviour" with the government in the first part of its investigation into the deal published last year.
2) 'Inadequacies' evident at tender stage
The report says the failure of VGH to deliver on its commitments was compounded by the government's lack of action in tackling the “evident inadequacies” of the concessionaire.
Instead of holding VGH to account on its contractual obligations, the NAO found government representatives provided “waiver after waiver” with respect to the requirement to secure financing.
These constant waivers perpetuated the failure that this concession came to represent, the report says.
“In effect, the origin of this situation can readily be traced to the grossly erroneous selection of the VGH as the concessionaire, whose lack of financing and technical expertise was evident at the selection stage of the concession”, the NAO contends.
St Luke's Hospital: VGH was meant to invest €220 to revamp the St Luke's, Karin Grech and St Luke's hospitals.The Auditor General said the failure of VGH to deliver on its commitments was mirrored by government’s lack of action in attending to the "evident inadequacies" of the concessionaire
3) Konrad Mizzi's machinations
The NAO had harsh words for former Health Minister Konrad Mizzi, saying in a “consistent manner,” the former minister in his various capacities first entered into agreements or commitments with VGH, then sought cabinet’s approval.
Attempts by the NAO to understand the negotiation process between the government and VGH proved futile.
The report says the process remained “opaquely concealed” due to the lack of documentation kept and conflicting accounts provided by those involved.
A lack of coordination between key ministries responsible for the project “created ideal grounds for the VGH to capitalise on government’s weaknesses”.
This lack of communication between the energy ministry, responsible for overseeing the capital investment by VGH, and the health ministry, tasked with operational management, allowed for the concession to remain an “unimplementable project”, an “insurmountable challenge” and “irreparable situation”, the Auditor General said.
Key government officials like Konrad Mizzi (left) and Chris Fearne failed to work together on the project.The government administrative and political weaknesses were all too readily exploited by VGH, the report continues.
4) A deal built to favour VGH
It was further found that revisions to the service agreement with VGH were “consistently adverse to government”.
These revisions saw a “significant reduction” in services without any change in the compensation due.
The NAO was not even able to establish whether VGH had maintained the same level of services that were in place prior to taking over running of the three hospitals, as “conflicting information” was obtained in this regard.
“In conclusion, the NAO is of the opinion that several of the failures that emerged at the implementation stage of the concession may readily be traced to the selection of the VGH as the concessionaire, a poor choice that set the stage for what was to come”, the Auditor General said.
5) Waivers instead of action
According to the investigation, none of the contractual milestones set by the government were achieved by VGH.
“Although responsibility for this failure rests primarily with the VGH, the situation of default was allowed to persist and enabled by the government representatives’ successive waivers through which the concessionaire’s inability to secure financing was condoned”.
Aside from failing to deliver an improved health infrastructure, the concession fell short of achieving another critical objective set by government, namely shifting the project expenses off the government’s balance sheet.
The NAO said its concerns regarding these key shortcomings is heightened when seen within the context of the multiple failures in good governance, accountability and transparency that characterise this “flawed concession”.
6) Ministerial bickering and backstabbing
Health Minister Chris Fearne and his ministry’s permanent secretary told the Auditor General they were not appropriately consulted or involved in the decision-making process leading to the contracts signed with VGH.
The permanent secretary for the Tourism Ministry, the last portfolio held by Mizzi prior to his resignation in 2019, “claimed” that certain key stakeholders were intentionally reluctant to cooperate, willing the project to fail, the report says.
It was noted “with concern” in the report how despite the restructuring of ministerial portfolios, which ought to have shifted the project away from Mizzi’s responsibility, he ultimately retained responsibility, even when he was tourism minister.
This meant the health ministry never assumed complete control of the project, the Auditor General said.
It was also found that the finance ministry remained a “conspicuous absence” in the steering committee overseeing the project.
7) The €4,000,000,000 surprise
The Auditor General said the failure to consult the finance minister about a concession conservatively valued at €4,000,000,000 is a gross shortcoming in terms of financial management of public funds.
Noteworthy to the NAO were assertions by Fearne regarding the “covert role” of the Prime Minister’s office in negotiations held.
The role of the prime minister's office, then headed by former prime minister Joseph Muscat (right) and his chief of staff Keith Schembri (left), was also raised in the report.8) Parallel negotiations
The health minister told the Auditor General that parallel negotiations were held with VGH by Mizzi and OPM chief of staff Keith Schembri.
Fearne said this situation persisted from when he was a parliamentary secretary for health in 2014 right the way through to him becoming health minister.
The report says Fearne noted that contentious issues which arose with VGH were at times resolved by the concessionaire resorting to OPM’s intervention to push forward its interests, bypassing the health ministry.
Concerns highlighted by Fearne were corroborated by several other senior health ministry officials, the NAO said.
The NAO said that while it is of the opinion that cabinet’s authorisation of the negotiated concession was sought, and obtained, notable gaps persisted largely due to the “omission” of key stakeholders.
This failure to comprehensively consult the health and finance ministries assumes greater relevance as the main goal of improving healthcare without burdening public expenditure was not reached, the Auditor General said.
A bit of background
Former opposition leader Adrian Delia is leading a court challenge to have concession rescinded.
A seperate magisterial inquiry into the deal triggered by rule of law NGO Repubblika is ongoing.
VGH crashed out of the concession in 2017, with American company Steward Healthcare taking over.
Relations between the government and Steward have since soured, but no action has been taken to terminate the contract despite accusations that the American company has not lived up to its end of the deal.