Mr. Seamus McCarthy:

As members are aware, public private partnerships, or PPPs, involve complex contractual agreements between the public and private sectors for the delivery of infrastructure and-or services over contract lives which typically extend over 25 to 30 years. PPPs may take a number of forms, reflecting the manner in which investment project risks are shared between the public and private partners and the manner in which the private sector partners are remunerated for their input. In many cases, the public sector partner pays the private sector partner for the provision of the assets or services in the form of regular agreed unitary payments over the life of the contract. In other cases, including tolled roads, the private sector partner is remunerated through payments by service users or a combination of user charges and State payments.

The report before the committee aims to provide an overview, to mid-2017, of PPP-related payments and commitments made by central government agencies arising from contracts entered into in the past two decades and further projects in development. Members should note that the report does not deal with PPP commitments entered into by local authorities, for example, in respect of the Poolbeg waste incineration facility or the areas of water and wastewater treatment facilities, responsibility for which has transferred to Irish Water.

The Department of Public Expenditure and Reform maintains a central website providing details of the Exchequer-funded payments under public private partnership, PPP, arrangements. This indicates that as of end-2016, projects already entered into involve Exchequer payments totalling an estimated €9.6 billion, with just over €3 billion already incurred and an estimated €6.6 billion in outstanding commitments. This compares to total Exchequer payments and commitments on PPP projects at end 2012 estimated at €6.1 billion.

In figure 4.1, the report outlines the status as at July 2017 of a programme of 12 major PPP projects in train or announced in July 2012. Three of the projects have not progressed as PPPs. Of the remainder, two were operational by July 2017, six were in construction and one was still in procurement. Two further projects announced after 2012 - a social housing bundle and a second motorway services area bundle - had commenced procurement by July 2017, and a number of others were in development at that time. Payments under Exchequer-backed PPP arrangements in 2016 amounted to €225 million. We noted that the infrastructure and capital investment plan 2016 to 2021 had indicated that a cash limit had been placed on the annual cost of PPPs. The Accounting Officer for the Department of Public Expenditure and Reform will be able to update the committee in that regard.

The Department’s public spending code requires that, before a State body commits to a major capital project, it should assess whether there is a clear socio-economic case for the infrastructure or service. If such a case can be made, a follow-on exercise is required to establish whether it is more cost effective to procure the proposed investment via a PPP structure or to use a more conventional procurement approach. This value for money testing of the procurement method is done by comparing the projected Exchequer net cost under the PPP approach with the estimated benchmark net cost of delivering the project using conventional procurement. Responsibility for ensuring the value for money testing is done rests with the sponsoring Department or agency, and the National Development Finance Agency assists public sector bodies with this analysis as required.

Public bodies are also required to carry out look-back evaluations of PPP projects when they are up and running for a reasonable time, indicating how the outturn compares to the original project proposed, and what useful lessons can be learned for improving succeeding projects, including those procured conventionally. Transport Infrastructure Ireland does this routinely, and the Courts Service reviewed the Central Criminal Court's PPP. At the reporting date, however, the Department of Education and Skills had not carried out any look-back reviews, even though it has many PPPs in place. I have previously reported that very little information is made publicly available about PPP pre or post contract with regard to value for money evaluation results. Publication of the evaluations, or at least summaries of key evaluation assumptions and findings, should help to improve public understanding of the factors that influence the achievement of good value for the public money spent on PPPs.

Contract monitoring and enforcement are key to ensuring good value is delivered through PPPs. Penalties provided for in contracts have been applied in some cases where service performance and availability of facilities have not met specified standards. Periodic benchmarking and market testing of service costs have also been carried out in a number of cases but these have generally not resulted in significant changes in costs.