Plans for a Dublin-based national conference centre are to suffer another setback with the loss of £26 million (€33 million) in State funding to the developers.

According to its contract the Spencer Dock Development Consortium was to have had "significant construction" under way by January at its Dublin docklands site. Since this has not apparently taken place the developers will lose this money, according to sources in the Department of Tourism and Sport.

The Government will be reviewing the situation in January and may decide, according to the sources, to build a national conference centre itself after what sources described as the "disaster" of the public procurement process. If it decides to go ahead it may choose another site. It is also examining whether Dublin Corporation could build the centre or whether the project should be put back out to public tender.

However, a spokesman for the Spencer Dock Development Consortium said yesterday that as far as it was concerned the developers were still fully bound by the contract with Bord Failte.

In July An Bord Pleanala refused planning permission for a proposed £1.2 billion development in Dublin's docklands. It did grant planning permission for a 2,500 seater conference centre which was the focal point of the massive scheme "which would have been the largest proposed urban development in the history of the State".

However, planning permission was refused for the remainder of the high-rise development which included two hotels, nine office blocks and 11 apartment blocks on the 51-acre site, mainly owned by CIE, part of the development consortium led by Treasury Holdings.

The decision came as a major setback for the developers who had offered largely to finance the construction and operation of the loss-making national conference centre provided it could earn revenue from the rest of the development.