The SAO audited PPP project aimed at construction of hotel-type accommodation for Central Military Hospital
Press Release – September 19, 2011
The audit aimed at the Central Military Hospital and its activities related to the public private partnership project Accommodation for Central Military Hospital Staff, Hotel-Type Accommodation and Parking Lot. The Central Military Hospital planned constructions of accommodation and connected buildings and intended to pay almost CZK 6.5 milliard for the constructions and running of the facilities for 25 years, which should have been managed by private partners.
As shown by the results of the auditing operation, the Ministry of Defence and the Central Military Hospital did not base the subject of the PPP project proposal on clear and properly demonstrated needs or on the financial possibilities of the Central Military Hospital and the state budget.
During the preparation phase, the Central Military Hospital, with the Ministry’s consent, expanded the original project (accommodation with a capacity of 240 beds and parking lot with a capacity of 200 cars) to include a swimming pool, which should also have been used by the private partner for commercial purposes. After concluding the contract for the PPP project, it designated this plan as non-essential and above its financial resources.
The Ministry and the Central Military Hospital took steps to approve the PPP project regardless of it becoming apparent after receiving bids during the private partner selection procedure that the costs would quintuple compared to the original costs, i. e., from CZK 1.3 milliard to CZK 6.4 milliard, and did not undertake an assessment of whether the increased costs corresponded to their financial possibilities.
The Central Military Hospital did not demonstrate objectively the merit of implementing the project in the form of a PPP. Despite all of the above facts, the Central Military Hospital did not make use of the contractual possibility to withdraw from the agreement and concluded an addendum in which it undertook to reimburse the private partner for costs of up to CZK 175 million in case of termination of the agreement. The SAO did not find any relevant reasons for undertaking to reimburse such costs.
In connection with the preparation of the PPP project, the Ministry and the Central Military Hospital spent additional CZK 42 million on advisory services (including CZK 36 million from the state funds).
The SAO, based on the findings from the auditing operation, filed, in accordance with Section 81 of Act No. 141/1961 Sb., on criminal judicial proceedings (Code of Criminal Procedure), a notification suggesting the fact that a crime could have been committed.
The auditing operation was performed from November 2010 to May 2011. The audited period extended from 2004 until the completion of the audit; where relevant, the preceding period was also scrutinized. The audited bodies were the Ministry of Defence and the state allowance organization Central Military Hospital, Prague. The auditing operation was included into 2010 Audit Plan of the SAO under No. 10/27. Jiří Adámek, Member of the SAO Board, managed the operation and prepared the audit conclusion as well.
Communication Department
Supreme Audit Office