Mr. Robert Watt:

-----but I will try to focus on the best bits.

I thank the committee for the invitation to discuss the role of the Department of Public Expenditure and Reform in respect of the national paediatric hospital. The committee will be aware that my Department is not the sponsoring agency or sanctioning authority for this project. In addition, I am not the Accounting Officer for it. I have submitted a detailed document to the committee addressing the matters raised in the letter of invitation. I do not propose to go through that in detail but I will take the opportunity to set out my Department's role in respect of capital projects in general, my Department's role in respect of the national paediatric hospital and the role of the Office of Government Procurement, OGP, in the issues being discussed today.

The Department of Public Expenditure and Reform's responsibility in overseeing the effective implementation of the national development plan, NDP, in respect of capital projects is to set the overall five-year multi-annual capital expenditure ceilings for each ministerial Vote group and settle with each Department how these multi-annual ceilings are reflected and refined in the annual Estimates, which are voted annually by the Dáil. Decisions on how and where these allocations are invested is a matter in the first instance for the relevant Minister and Department, in line with the conditions of the delegated sanction, that is, the formal approval to spend Vote moneys, which they receive via the relevant Vote section in my Department. We monitor actual spend against monthly expenditure profiles based on information submitted by Departments to the Department of Public Expenditure and Reform's relevant Vote section, to keep track of aggregate spend by each Department compared with planned profile spend. The Department does not approve expenditure at the individual project level. Of course, for projects costing more than €100 million, the Government is the sanctioning authority and we brief the Minister for Finance and give our views to the Minister in the context of debates at Government. We maintain the national frameworks within which Departments operate to ensure appropriate accounting for, and value for money in, public expenditure, such as the public financial procedures and the public spending code.

The NDP and Project Ireland 2040 do not change the long established arrangements for oversight, monitoring and management of voted Exchequer resources. Exchequer funding continues to be managed through the normal systems for control of voted funds. Departments and agencies are still responsible for delivering their projects within their budget allocations.

Two features of capital expenditure are monitored each month: aggregate capital and carryover spend in the year to date, and compared to profile and spend in the previous year; and Departments which are significantly ahead of or behind profile in actual spend and the reasons for the variation.

Departments must provide an explanation for variances. Where necessary, my Department liaises with Departments, through Vote sections, to ensure that significant variances in actual spend are addressed and overall expenditure stays on track over the course of the year.

End-of-year monitoring for December reviews the annual position, including comparing the percentage of the Revised Estimates Volume, REV, capital allocation spent compared to the previous ten years. Any capital unspent by each Department is identified, along with the amount of carryover into the following year. This important change, which was introduced a number of years ago, ensures that we do not have the practice of unnecessary spending at year end, that is, Departments trying to spend capital in a hurry towards the end of the year. Instead, Departments are allowed to carry over amounts into the next year, which is a sensible approach from a budget management perspective. The focus is on budgetary aggregates rather than performance on individual projects, which is the responsibility of individual Departments and Accounting Officers.

My Department has responsibility for the public spending code, which is the set of rules, procedures and guidance that ensure value for money in current and capital public expenditure. It sets out the rules and guidance on the oversight and management of spending at each stage of the capital project life cycle, including by setting out the responsibilities that lie with different capital expenditure project roles; setting out appraisal requirements where differing levels of public expenditure will be incurred; and setting out approval requirements at different project stages.

The main roles in the context of responsibility for capital expenditure projects 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. It is responsible for developing a project proposal, which is then submitted to the sanctioning authority for decision on approval at each designated stage, or gate, in the project life cycle.

The Department or body funding the project and responsible for project approval is the sanctioning authority. The sanctioning authority must be satisfied that the sponsoring agency has the appropriate systems to ensure the project is delivered in line with the approval it has been given. The sanctioning authority is responsible for approval in principle at the key designated stages in the project cycle, namely, following appraisal, approval to proceed to tender and approval to accept a tender if the project has significantly changed due to, for example, an increase in costs.

As the committee will be aware, for projects costing more than €100 million, the Government is the sanctioning authority. The day-to-day oversight functions in those instances are the responsibility of the relevant Department funding the project. The Department of Public Expenditure and Reform is not the sanctioning authority for the majority of capital projects. It is only the sanctioning authority for the capital projects funded by its Vote group, which account for less than 3% of overall voted capital expenditure.

To support Departments as they work to achieve value for money in capital infrastructure investment, a suite of key reforms have been introduced to support the efficient implementation of Project Ireland 2040. The Land Development Agency, LDA, has been set up by the Department of Housing, Planning and Local Government to ensure the optimal use of State land. Four new funds have been set up focused on urban and rural development, climate action and disruptive technology to prioritise funding to the best projects. These are managed by the relevant line Departments. The objective was to ensure an element of competitive tendering within the system to try to bring forward the best projects as early as possible for funding.

A construction sector group has been established to ensure ongoing dialogue between the Government and the construction sector. A past criticism was that while the construction sector was delivering projects on behalf of the State, we did not have proper channels of communication. We now have a group that meets to discuss the procurement, capacity and skills issues that impact upon the sector's ability to deliver on behalf of the Government and the taxpayer.

A Project Ireland 2040 board has been put in place and meets regularly to overview the overall implementation of the plan. The investment projects and programmes office, IPPO, has been established in my Department to co-ordinate reporting on Project Ireland and drive reforms, including strengthened business case and project appraisal. A capital projects tracker is published on my Department's website to inform citizens of the variety of projects being rolled out in their areas and to give a greater overview to the construction and infrastructure sectors. The tracker is currently being updated. A capability and capacity review of public sector bodies is being commenced by my Department to ensure that the State's delivery practices are to the highest standard. There has always been a concern that capacity varies across elements of the public sector. We understand and appreciate that and will undertake a review to ensure that all bodies charged with implementing the plan have the necessary expertise and skills.

As part of the ongoing reform of Ireland's capital management systems, the OGP is conducting a review of construction procurement strategy and my Department is 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, with a particular focus on improved financial appraisal, cost estimation and management.

In line with the public spending code provisions, the Government is the sanctioning authority for the national paediatric hospital and the day-to-day oversight functions of the sanctioning authority are the responsibility of the Department of Health. My Department's role in that project involves setting out the overall five-year capital envelope ceilings for the health Vote and settling on the annual basis for these multi-annual ceilings to be reflected and refined in the annual Estimates submitted to the Dáil for its approval. Decisions on which projects to invest in is the responsibility of the Minister for Health and his Department in line with the "delegated sanction" for overall capital expenditure. The Department of Public Expenditure and Reform's role also involves monitoring actual spend against monthly profiles based on information submitted to its Vote section so as to keep track of aggregate spend by each Department compared to planned spend. We maintain the national frameworks within which Departments operate to ensure appropriate accounting for, and value for money in, public expenditure, such as the public financial procedures and the public spending code. Responsibility for compliance with the national frameworks is a matter for the relevant Accounting Officer, who is the Secretary General of the Department of Health in respect of the project in question.

The committee will be aware that the OGP is a division of my Department. The OGP leads on the implementation of the Government's procurement reform programme. It provides procurement solutions, advice, guidance and systems for public bodies, promoting good practice and proactive engagement with our sourcing partners in the health, education, defence and local government sectors through the procurement executive. It also has responsibility for developing and setting out the overarching policy framework for public procurement. This framework enables a more strategic, consistent and co-ordinated approach to public procurement across the public sector by setting out the procedures to be followed by public bodies.

Public works procurement is covered by the capital works management framework, CWMF. This consists of a suite of best practice guidance, standard contracts and generic template documents. It is mandatory for use on all projects delivered under the Exchequer-funded element of the public capital programme. The CWMF is maintained by the construction policy unit of the OGP in consultation with the Government contracts committee for construction, GCCC. Mr. David O'Brien, who is present, is the chair of that committee. The OGP has no direct involvement in works procurement, with the exception of the framework for rapid-build social housing. Capital works are procured directly by the many public bodies tasked with delivery of the public capital programme.

Regarding the paediatric hospital, the responsibility for the day-to-day oversight rests with the Department of Health. The role of the GCCC in this instance was to consider a request for a derogation by the National Paediatric Hospital Development Board from the use of the standard forms of contract. A request for a derogation may be used for complex or large projects that have specific requirements that do not naturally fit with the standard "lump sum" contracts. Since 2011, there have been 12 derogations from the lump sum contract. Not all of them has gone through the two-stage process used in respect of the children's hospital, as there are other forms. It is unusual, but not unique, that derogations are sought and given. The derogation acknowledges that the particular circumstances warrant a different approach. It does not approve the approach or strategy and the responsibility for the public procurement process rests with the contracting authority.

Reform is part and parcel and a key element of Project Ireland, but we also have to learn from experiences, both positive and negative. There is no doubt that the experience of delivering capital works in recent years 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 that is impacted by a shortened economic cycle 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. We need more certainty on project costs. The Government will no longer commit to major bespoke projects until there is clarity on tendered costs. It will approve major projects to be evaluated and designed, but there will be no final commitment until after the tendering process is complete. It is not possible to know the price of a capital project with a high level of certainty until there is a full design specification, any necessary planning has been achieved and the project has been competitively tendered. In future, the Government will not commit to projects until the design and price are clear. This could delay projects, leading to commentary and angst about delays, but it will ensure greater cost certainty. There is a trade-off between speed of delivery and cost certainty in respect of large, complex projects, in particular.

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 risks so that cost estimates are more realistic. As risk is managed through the project cycle, the risk premium should reduce.

For example, a product on a brownfield site with a high degree of complexity which has not been fully designed would have a higher risk premium incorporated into its budget. As the risk is managed, the premium should reduce. The risk premium of a standard project such as a school, primary care centre or road, where we have lots of experience of building similar projects, is commensurately lower than that of a larger, once-off bespoke project. 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 to improve the efficiency of their delivery. As part of the reviews of our capital management systems, my Department will conduct a full assessment of how cost estimation for projects could be improved. This will include exploring the potential for external peer review of cost estimates for projects over a certain size.

Moreover, we need to strengthen our capital management systems. As I mentioned, we are reviewing our management system. 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 into account lessons from the range of projects that have been completed. The reviews will result in a range of changes. I would like to flag two of these at this stage. One change will be earlier identification of projects. At present, Departments are typically presented with projects which are fully formed or for which the delivery method and project roles and responsibilities have been set. We believe that Departments should engage at an earlier stage to have more input into roles and responsibilities, delivery method and identification of risks and costs. That process should take place earlier in the life cycle, particularly with larger projects. Second, several high-profile projects have highlighted issues with the performance of advisory firms. We propose 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.

I hope I have set out our Department's role in relation to the children's hospital. I hope my briefing is helpful to the committee. I am very happy to engage with any questions members may have.