Mr. Robert Watt:

I thank the Chairman.

Efficient capital investment allows the economy to grow faster on a sustainable basis by raising productivity and supply capacity. This has an important role to play in alleviating capacity constraints that might otherwise restrict economic and social progress. Value for money is the key policy objective and policy seeks to support efficient and sustainable public investment.

The selection, appraisal, and delivery of individual public capital projects is the responsibility of each relevant Department. My Department is responsible for overseeing the implementation of the national development plan within Project Ireland 2040, supporting value for money and protecting sustainable capital investment of the State. In that context, I will discuss very briefly Project Ireland 2040 and progress in rolling out the different projects; the existing processes for selection, appraisal and delivery of public sector capital projects, including governance; and the plans in place to strengthen those processes.

Project Ireland 2040 was launched a year ago. As Deputies are aware, it seeks to achieve ten strategic outcomes building around the overarching themes of well-being, equality and opportunity. It consists of the national development plan and the national planning framework and it seeks the alignment of investment with the spatial outcomes set out in the planning framework. Project Ireland 2040 moves beyond the approach of the past, which saw public investment spread too thinly and investment decisions that did not align with a spatial strategy. These practices contributed to some of the major issues that we face today as a country, particularly the predominance of Dublin in terms of economic growth and development, alongside the challenges facing rural communities.

Project Ireland 2040 seeks to develop Cork, Galway, Limerick and Waterford as viable cities of scale that can act as alternatives and a counterbalance to the continued growth of Dublin and its surrounding region. These cities will act as drivers of growth for their wider regions and for rural areas. Over the first ten years of Project Ireland 2040, €116 billion will be invested and investment will reach 3.5% of national income - defined through GNI* rather than GDP - this year and over 4% of national income by 2027. This significant acceleration in investment is in line with national and international analysis to the effect that Ireland's public capital infrastructure needs to be substantially strengthened to support the resilience of our economy in response to risks such as Brexit. As Deputies are aware, public capital spending was necessarily impacted upon as the Government sought to restore the public finances during the recession. This plan seeks to accelerate the necessary catch-up in public capital infrastructure.

There has been much recent commentary on the delivery of large-scale projects. In that commentary, we can lose sight of the significant progress that is being made. Project Ireland 2040 is already delivering better transport links, facilitating improved health and environmental outcomes and delivering more housing. I will not go through the list of projects but I will highlight some of them. The national road network is being upgraded and, for example, the M11 Gorey-Enniscorthy motorway will open to traffic later this year. It is the largest project under way in the State and is currently scheduled to be completed on time and on budget. Works will be started on key arteries on the N4, as Deputies know, the Ardee bypass, the N22 and many other projects.

To improve our international connectivity, works commenced on the new runway at Dublin Airport last month, which is due to be operational by 2021. This is a significant project for Dublin Airport, and we can consider the time taken to deliver it compared with high-profile runways in our nearest neighbour. It is a useful benchmark of the speed with which this project will be delivered.

There will be over 90 new school building projects in construction this year and over 300 schools will benefit from minor works improvements, while 2019 will see the completion of the national forensic mental hospital and the opening of 18 primary care centres throughout the country. There will be 6,500 social housing units developed and when acquisitions and leased units are added, that figure will be reach 10,000.

The Bandon flood relief scheme will be completed this year, along with other flood relief schemes. The projects upgrading the water supply in Drogheda and Dundalk will be completed this year and projects to address water quality and capacity in other towns and cities will also begin this year. Sewerage schemes in Blanchardstown, Athlone and Liffey Valley will commence in 2019.

The majority of recent projects have been delivered on time and on budget, and I will highlight a few of them. The N22 Tralee bypass was completed on time and at a cost of €73.4 million, which is under budget. The N25 Cork south ring road interchanges upgrade was completed at a cost of €81.5 million, while the north docklands sewerage scheme was also completed. The Waterford towns and villages wastewater project was also completed on budget at just under €26 million, while phase 2 of the National Indoor Arena is expected to be completed ahead of schedule this March at a cost of €26 million. Notwithstanding the challenges that exist and which we will no doubt discuss later, this highlights the professionalism across many sectors in delivering public capital projects.

To support Departments as they work to achieve value for money in investment in capital infrastructure, a suite of key reforms has been introduced to support the efficient implementation of Project Ireland 2040 and its objectives. The Land Development Agency has been set up by the Department of Housing, Planning and Local Government to ensure optimal use of State land. Four new funds have been set up focused on urban and rural investment, climate action and disruptive technology to prioritise funding to the best projects, and they are being managed by the relevant line Department. A construction sector group has been established to ensure regular and open dialogue between the Government and the construction sector, which is important in addressing various capacity and skills issues that exist in the sector, as well as the need for the Government and the system to work collaboratively with the sector in order to improve performance in the years ahead.

A Project Ireland 2040 delivery board meets regularly to ensure effective leadership of the implementation overhaul. The investment projects and programmes office has been established in my Department to co-ordinate reporting on Project Ireland 2040 and drive reforms, including strengthened business cases and project appraisal. A capital projects tracker is published on our website to inform citizens of the variety of projects being implemented in their area and to give a greater overview to the construction and infrastructure sectors. The tracker is currently being updated. A capacity and capability review of public sector bodies is being commenced in the Department to ensure that the State's delivery practices are to the highest standard. This reflects a concern that the capacity and performance of bodies varies, depending on historical role in delivering infrastructure. Given the scale of this project and the demands placed on Department that would not previously have managed projects, it was necessary to carry out a review of that capability.

As part of the ongoing reform of Ireland's capital management systems, the Office of Government Procurement is conducting a review of construction procurement strategy and we are reviewing the public spending code. The purpose of these reviews is to strengthen the existing guidance to better align with the realities of project delivery and with a particular focus on improved financial appraisal, cost estimation and management.

I will touch on the processes that are in place to ensure the effective selection, appraisal, delivery and oversight of capital projects. Let me stress that the management, delivery and oversight of individual investment projects within the agreed allocations is a key responsibility of every Department and Minister. The Government receives regular reports informing it of actual expenditure and my Department is in regular contact with all other Departments and offices to ensure that actual expenditure is being managed within the overall fiscal parameters. In addition, the drawing down of funds from the Exchequer is monitored and reported on against profile on a monthly basis in the published Exchequer statement.

A range of processes and guidance is in place to support Departments and Ministers in securing value for money and I will discuss some of these as they relate to the public spending code and public procurement rules. The public spending code is the set of rules, procedures, and guidance to ensure value for money in public expenditure. The public spending code encompasses guidance on a variety of issues related to the management of expenditure at each stage of the expenditure cycle. This includes central guidance on the application of appraisal and evaluation methodologies, including cost-benefit analyses. The public spending code sets out the oversight and approval process for public expenditure proposals, including capital projects. Governance and clear lines of responsibility are key to successful public capital investment. The public spending code supports this by clearly setting out the responsibilities that lie with different roles. These main roles are the sponsoring agency and the sanctioning authority.

The Department or agency proposing and implementing a project is the sponsoring agency.

It is responsible for appraisal, planning, implementation, management and post-project review of the project. The sponsoring agency is responsible for developing a project proposal, which is then submitted to the sanctioning authority for decision on approval at key designated gates in the project lifecycle.

The Department or body funding the project and which is responsible for project approval is the sanctioning authority. It is responsible for approval in principle at the key gates in the project lifecycle, that is, following appraisal, approval to proceed to tender, and approval to accept a tender if the project has significantly changed, such as through an increase in costs. The sponsoring agency is responsible for managing and monitoring the implementation of the project. The sanctioning authority must be satisfied that the agency has appropriate systems to ensure that the project is delivered in line with what has been approved. If adverse developments occur which affect the desirability or viability of the project, the sponsoring agency must report to the sanctioning authority.

Sponsoring agency and sanctioning authority roles can lie within separate public sector bodies. The relevant local authority will typically be sponsoring agency and the Department of Housing, Planning and Local Government will be the sanctioning authority for a social housing regeneration project. Sponsoring agency and sanctioning authority roles can also be within one body. For example, for maintenance projects funded by local authorities, the local authority may be both the sponsoring agency and the sanctioning authority. For larger projects costing more than €100 million - and this is a key point - the Government is the ultimate sanctioning authority. For practical purposes, in respect of these projects, the relevant Department will lead on that project.

The public spending code is supplemented in some instances by sector-specific appraisal guidance. These are developed by the relevant Department and set out additional requirements and parameters specific to the sector while remaining in line with the public spending code. In the transport sector, for example, specific rules and cost-benefit analysis of transport projects may differ from the cost-benefit approach in other areas of public policy.

Public procurement rules cover the acquisition of works, supplies and services by public bodies. National rules governing public procurement must comply with the relevant EU, WTO and national legal requirements and obligations. The aim of European and national rules is to promote an open, competitive and non-discriminatory public procurement regime.

The high-level review and reporting structures set out in the public spending code are key to better project management and form the basis of the guidance material on project management that is set out in the capital works management framework, which was first published in 2007.

All public works projects delivered under the Exchequer-funded element of the plan must be procured in accordance with the provisions laid out in the capital works management framework. The framework is mandated by circular and was developed to provide an integrated set of contractual provisions, guidance material, technical templates and procedures which cover all aspects of the delivery process of a public works project from inception to final project delivery and review to assist contracting authorities in meeting their requirements. The public works contract is a key component of the framework and is a lump sum, fixed-price contract which is used not on all projects but on most public works contracts.

This framework is maintained by the Office of Government Procurement in conjunction with the Government contracts committee for construction. As mentioned, David O'Brien, who is with me today, is the chair of that committee. The committee has representatives from all the main sanctioning authorities and bodies across the public service. It is possible for public bodies to seek a derogation from the use of the standard forms of contract from the committee. This process may be used for complex or large projects which have specific requirements that do not naturally fit with the standard "lump sum" contracts and has been availed of by a number of sanctioning authorities. A derogation, if agreed, does not approve the approach or strategy of the authority but simply acknowledges that the circumstances are such as to warrant a different approach from the standard. It is a matter for the contracting authority and the sanctioning authority to satisfy themselves as to the adequacy of the approach with regard to compliance with procurement rules and project appraisal in accordance with the spending code.

Reform is an element of Project Ireland 2040. We also have to learn from experiences, both good and bad. There is no doubt but that the experience of delivering capital projects highlights the need to step up the pace of reform still further. The delivery of large, complex, multi-year capital projects in a construction market impacted by shortened economic cycles brings many challenges in terms of tender price volatility, skills shortages, etc. This is why the Minister for Public Expenditure and Reform recently set out a further suite of reforms.

First, we need more certainty on project costs. Government will no longer pre-commit to major bespoke projects until there is 100% clarity on tendered costs. The Government will approve major projects to be evaluated and designed, but there will be no final commitment until the tendering process is complete. It is not possible to know the price of a capital project with a high level of certainty unless there is a full design specification, planning, if necessary, has been achieved, and the project has been competitively tendered. In future, Government will not commit to projects until the design and price are clear. This could delay projects, which I know will be an issue, but will ensure greater cost certainty. There is a trade-off between timeliness and core certainty regarding large bespoke projects because the time it can take to develop the detailed design, in many cases, can be years. This certainly increases the cost but it also takes time. Of course, it also involves expenditure up front. Depending on a final decision on a project, that may involve expenditure which ultimately does not lead to an end product or a final build.

We need more realistic costs and a better understanding of costs in capital projects. In future, the budgets of large bespoke projects will include a significant premium for risk in order that cost estimates are more realistic. As risk is managed through the project lifecycle, the risk premium will reduce. For example, a project on a brownfield site with a high degree of complexity and which has not been fully designed has a higher risk premium incorporated into its budget. As the risk is managed, this premium should reduce over time. The revised capital works management framework will require Departments and their agencies to improve the quality of information on projects as they are implemented. This will improve decisions on projects and allow projects to use digital technologies such as building information modelling, BIM, to improve how efficiently they are developed. This is another significant challenge for sanctioning authorities in ensuring that the information is there at the outset to ensure we can use the technology embedded in the BIM approach. As part of the reviews of Ireland's capital management systems, my Department will conduct a full assessment of how cost estimation for capital projects could be improved. This will include exploring the potential of external peer review of cost estimates for projects over a certain size.

We also need to strengthen our capital management systems. As I mentioned, we are reviewing them. The Office of Government Procurement is conducting a review of construction strategy and we are reviewing the public spending code. The purpose of these reviews is to examine how capital projects are currently selected, designed and delivered and to strengthen these processes, taking account of lessons learned. The reviews will result in a range of changes. I will highlight just two changes at this point. One is earlier identification of projects. At present, Departments are typically presented with projects which are fully formed and in respect of which the delivery methods and project roles and responsibilities have been set. In future, Departments will engage at an earlier stage to have more input into project roles and responsibilities; delivery method, critically; identification of risk; and discussion on costs. Second, and finally, a number of high-profile projects have highlighted issues with the performance of advisory firms. We will seek to link payments to advisory firms to clear performance standards. We will bring in performance standards linked to payments in future contracts with those firms.

That is, I hope, a quick run through of our approach to what is a very complex area involving many different types of projects and many different agencies and authorities across the public service. I look forward to engaging with the committee on these matters.