Digital Hub contract was altered to flat fee

The Government altered the terms of Ms Laura Magahy's percentage pay contract to a flat fee basis last June for her executive team's work for Dublin's Digital Hub project. At the time, Ms Magahy offered to also change the terms of a similar contract for work on Campus and Stadium Ireland Development Ltd (CSID).

The payment contract for CSID continued to be calculated as a percentage of the overall costs of the complex. This contract is, however, under review. Some predictions suggest that the project's costs could go as high as double the original £350 million estimate.

The Digital Hub contract was altered after the Department of the Taoiseach and the Department of Finance examined it over a year ago and asked the Attorney General, Mr Michael McDowell, to review its terms.

The Department of Enterprise, Trade and Employment, which has a member on a liaison committee for the Digital Hub, would also have been informed a year ago of the concern over the percentage contract and would have known that it had been altered.

As a result, Digital Media Development Ltd (DMDL), the management group overseeing the Digital Hub redevelopment project in Dublin, was asked to revise the contract's terms. Ms Magahy's company, Magahy & Co, provides executive services to DMDL and also to Campus Stadium Ireland Development.

Mr Paddy Teahon was executive chairman of both projects, but stepped down as executive chairman of CSID this week amid controversy over the contracts for the aquatic centre development at Campus Stadium Ireland. He remains executive chairman of DMDL.

In March 2001, both the Departemnt of the Taoiseach and the Department of Finance expressed concern to DMDL about the percentage payment arrangement in the contract, a spokesman for the Department of Public Enterprise has confirmed. The contract was then sent to the Attorney General.

In March, the Digital Hub project was in the process of being transferred to the Department of Public Enterprise, considered to be more closely linked with the project's technology and communications sector goals. The multi-million-euro redevelopment initiative aims to make Dublin's Liberties area a centre for digital media research, arts and business.

Both the stadium and Digital Hub projects originated in the Department of the Taoiseach. Mr Ahern appointed Mr Teahon, his former secretary-general, as chairman of each initiative. In both cases, Mr Teahon and his executive boards chose Magahy & Co to provide services in contracts set at 1.8 per cent of the cost of each initiative.

The Comptroller and Auditor General, Mr John Purcell, told the Dáil Public Accounts Committee last week that such an arrangement offered no incentive to control costs. During the PAC's examination of CSID's accounts he called the contract's terms "a novel approach".

Although his Department asked for changes to the 1.8 per cent clause of the DMDL contract a year ago, Mr Dermot McCarthy, Mr Teahon's successor as secretary-general of the Department of the Taoiseach, told the committee that he was concerned about the costs of Ms Magahy's CSID contract. The head of the Department of Tourism and Sport, Ms Margaret Hayes, and the chairman of the Office of Public Works, Mr Barry Murphy, echoed this view before the PAC.

In June 2001, the month in which the Department of Public Enterprise formally took over the Digital Hub project, DMDL agreed to alter the terms of the executive services contract so that pay would be offered at a flat fee, according to a spokesman for the DPE. The executive team, which includes Magahy & Co, PricewaterhouseCoopers, BDO Simpson Xavier, Murray O'Laoire and Judo Design, is being paid €140,000 a month until the end of 2003. Before this contract they were paid €1.5 million in fees for the first nine months.

The contract for CSID remained unchanged after the DMDL contract was altered. However, it is understood that Magahy & Co offered last summer to change it to the flat fee agreement, similar to its revised DMDL contract. This has not been done.

Arthur Beesley adds: Mr Paddy Teahon will retain his position as chairman of the company developing the Digital Hub zone in central Dublin, a DPE spokesman said yesterday.

An assistant secretary at the Department of Tourism, Sport and Recreation, Mr Con Haugh, was appointed chairman of CSID yesterday. The board also appointed the commissioner of the Office of Public Works, Mr Seán Benton, as chief executive.