An agreement between a private developer and Beaumont Hospital regarding a multi-story car-park may have cost the State up to €13 million, according to a highly critical report from the Comptroller and Auditor General.

The hospital's failure to fully scrutinise the arrangement exposed the State to considerable cost, the report claims. It says the hospital should have funded the car-park itself, rather than entering an arrangement with Howard Holdings plc, a British property company in 1998.

Howard Holdings, via a subsidiary, was given a lease over the car-park and a right to charge parking fees in return for building and bearing the cost of providing the facility.

Under the deal, ownership of the car-park reverts to the hospital in 13 years.

Howard benefited from "substantial tax breaks" under the arrangement, according to the report. The Comptroller and Auditor General, Mr John Purcell, outlines three major concerns:

The tax breaks involved made the arrangement far more costly than if the hospital had proceeded with the project on its own.

The car-park was transferred to a firm that offered less income than other bidders for the contract.

The hospital has not received the rental income originally expected under the scheme.

Mr Purcell says the tax-based deal involved considerable expenditure by the State in terms of the taxation "foregone".

Under the arrangement, Howard was able to avail of two tax incentives: a 50 per cent capital allowance on the construction cost of the car-park and a double rent allowance for operating the car-park.

"The analysis indicates that public finances were worse off by between €9 million and €13 million in net present value terms as a result of choosing the tax-financed option rather than direct provision of the parking facility."

He also says the hospital did not "include any analysis of the relative merits" of the tax-based deal. He says this failure "clearly cost the State money in the longer term".

Mr Purcell also refers to the three proposals made in 1998 in relation to the car-park. The two that were rejected, says Mr Purcell, "appear to have offered better rental income in the event of higher levels of turnover being achieved", but this was not recognised at the time by the hospital.

The hospital hoped to receive an income of at least €1.8 million between June 1999 and March 2002 from the car-park.

However, only €120,000 was received because the hospital had to pay so much money for incidents of "illegal parking", according to Mr Purcell. This was because, under the agreement, the hospital had to compensate Howard for any cars parked illegally. The hospital was required to pay a full daily rate per car as part of this arrangement.

Mr Purcell says a failure to properly manage parking in the hospital and a "lack of management awareness" contributed to this situation.

In relation to the car-park, Mr Purcell says it was meant to provide 600 spaces but was built on the site of the existing main ground car-park and, consequently, 370 spaces were eliminated.

"Thus, the total number of additional parking spaces provided was 230."

The hospital's chief executive is quoted as saying that, if he had known about the losses being incurred between 1999 and 2002, "action to stop these losses would have been taken at an early stage".

The Department of Health has set up a group to examine the "lessons to be learned" and prepare guidelines for the proper management of such initiatives. The possibility of financing such projects with bank loans next time will also be considered.