Mr. Seamus McCarthy:

The Vote for Public Expenditure and Reform was a new Vote in 2011. The Department was established on 5 July 2011 following the enactment of legislation to separate the functions of the then Department of Finance. The expenditure-focused functions transferred to the Department of Public Expenditure and Reform, and are reflected in the programmes under which the Vote expenditure is accounted for.

While the Department was not established until mid-year, the Vote Estimate was for the full year, 2011. Accordingly, the appropriation account was presented on that basis also. The appropriation account recorded gross expenditure of €35 million in 2011. The equivalent figure for 2012 was €42.6 million.

The Vote for superannuation and retired allowances provides mainly for the payment of pensions, retirement lump sums and death gratuities for civil servants and their dependants. The appropriation account for 2011 recorded gross expenditure of €433 million. The corresponding expenditure in 2012 was €520 million. The payment of Civil Service pensions is administered by the finance branch of the Department of Finance, and the associated costs are reflected in the Vote for that Department. The Department of Public Expenditure and Reform has responsibility for policy matters in relation to public sector pensions, and the related costs are borne on the Vote for that Department.

The committee may wish to note that significant expenditure is also incurred on other accounts regarding the pensions of other public servants. This includes pension related payments to teachers, health service staff and security services personnel borne on the Votes of the relevant Departments. The pensions of former Ministers, judges and other officeholders are paid out of the Central Fund of the Exchequer and accounted for in the finance accounts.

Most of the accounts out of which current public sector pensions are paid do not include estimates of the present value of pension entitlements already earned and that are expected to be paid over future years. At the end of 2009, the accrued liability was estimated to be of the order of €116 billion. There have been significant changes in public sector pay and pension arrangements since then, including increased employee pension contribution rates and accelerated retirements. However, updated estimates of liability to reflect the impacts of those developments have not been prepared.

I recommended that actuarial reviews and projections of public service pension outflows should be carried out regularly to ensure the State is aware of the long-term cost impact of pensions and the timing of pension outflows. Such assessments are an important element in public sector pension policy formation. The Accounting Officer has agreed to implement the recommendation, and my office has met officials from his Department about this.

Chapter 6 deals with the State’s financial commitments arising from public private partnership, PPP, contracts. Aspects of this chapter have been considered in the context of the committee’s examinations of other bodies, including the National Development Finance Agency. The Department of Public Expenditure and Reform’s role regarding PPPs involves setting the general policy framework and providing guidance on appraisal, procurement and evaluation of projects. The Department has a dedicated PPP website which contains information and guidance on the PPP process. It also presents a listing of all PPP projects with a capital value of more than €20 million.

As chapter 6 indicates, central government expenditure to the end of 2011 on major PPP projects totalled just over €2 billion and there are future commitments in regard to those projects of around €4 billion. Further projects are planned as part of the capital stimulus package announced in July 2012, and these will increase the level of commitments as new contracts are signed. An update on each project is given in the 2012 report.

A project should only proceed as a PPP if it can be shown to deliver better value for money than if delivered through conventional procurement. The Department’s guidelines stipulate that the cost of PPP delivery should be appraised against the estimated cost of conventional procurement, which is referred to as the public sector benchmark. The chapter recommended publication of these appraisals, including in cases where a project fails the test to proceed as a PPP, in order to help improve understanding of the factors affecting the achievement of value for money in public projects.

Post-implementation review of projects, once they have been in operation for a number of years, can not only establish whether good value has been achieved but can also identify lessons for future projects, including those that proceed as more traditional capital projects. Even though some projects had been in operation for up to ten years, no such reviews had been carried out when I reported. This was despite a requirement in the Department’s guidance that such reviews should be conducted.

Chapter 12 summarises the expenditure and receipts of all Votes for 2011. Relative to a peak level of €53.8 billion in 2008, there had been a cumulative reduction of 7.6% in gross voted expenditure by the end of 2011. This had reduced further to a cumulative drop of almost 9% by the end of 2012.

The basic principle underlying public procurement rules is that there should be an open, competitive process, both to achieve good value in procurement and to ensure fairness between competing suppliers. However, the rules also recognise that there are exceptional situations where a competition may not be possible or appropriate. Accounting Officers for each Vote are required to submit annual returns to the Department of Public Expenditure and Reform and to my office, setting out details of contracts worth €25,000 or more that have been awarded without a competitive process. Based on the information in those returns, chapter 13 sets out the extent of non-competitive procurement.

In 2011, as in earlier years, there were substantial reported levels of procurement without the use of a competitive process. The returns show that there were 555 such contracts awarded with a total value of €266 million. However, there is evidence that some returns are not complete. As reported previously, the HSE does not yet have a system capable for compiling a complete return. In other cases, additional non-competitive contracts were reported after submission of the annual returns. Our sample-based audit work also identifies some contracts which have been omitted from the returns. This under-reporting occurs because contracts are recorded on an exception basis. The report recommends, therefore, that all Departments and offices should maintain a single register of all procurement contracts awarded. That register should contain key data on each contract, including supplier name and the nature of the procurement, and indicate whether the contract was awarded using a competitive process. This would help ensure all non-competitive contracts would be identified and reported in a timely way. It would also enable better analysis of overall procurement expenditure, which is a basic requirement for effective management and control of procurement spend.