Mr. Seamus McCarthy:

The appropriation account for Vote 29, Communications, Energy and Natural Resources, had total gross expenditure of just under €425 million in 2014. Figure 1, in the presentation, indicates how that expenditure was divided between the various Vote programmes.

The largest programme was in regard to broadcasting. Just under €240 million, or 56% of the total expenditure, was on that programme. The bulk of the expenditure was in the form of grants paid to broadcasters. RTE received just under €179 million, while Teilifís na Gaeilge received €34.3 million, and €14.2 million was paid into the Broadcasting Fund. That expenditure on broadcasting was substantially funded by television licence fee receipts collected by An Post and paid to the Department. In 2014, a total of just over €213 million in broadcast licence fees was received by the Vote, accounting for the bulk of the appropriations in aid of the Vote. Some €11.1 million was paid to An Post in respect of the costs of collecting broadcasting licence fees.

The net expenditure on the Vote in 2014 was around €9 million less than was provided for in the Estimate. The Department got the agreement of the Department of Public Expenditure and Reform to carry over €4.6 million in unspent capital funding to 2015. The balance of the surplus was due for surrender.

Turning to Chapter 13 of the report in the accounts of public services, until July of last year, Ireland was the only developed country that did not operate a system of postcodes. The Eircode system has now been in operation for six to seven months, providing postcodes for both residential and business premises, related to individual postal delivery locations. This differs from the kind of postcode long used in many other states, where the postal services typically operate systems based on individual post codes that may be shared by a number of premises in a defined locality – often a street or road, or a cluster of buildings.

At the end of 2013, the Department entered into a contract with Capita Business Support Services Ireland Limited to develop and implement a postcode system, and to maintain it for ten years. There is an option to extend the contract for a further five years.

The report before the committee this morning sets out the results of an examination of how the costs and benefits of the project were assessed, how the project was managed, the costs to date and the various procurements associated with the project. Members will recall that the postcode project evolved over a long period, commencing in 2005. Initially, the proposal was for a locality-based postcode system, to be operated under licence by a private service provider. This was assessed as not being economically viable, and a Government decision was made in 2006 not to proceed at that time. Work continued on the project, and a Government decision to proceed was taken in 2009. Progress thereafter was slow, due mainly to a combination of a protracted competition to procure a service provider; difficulties in agreeing terms for access to a comprehensive State-owned property and address database owned by Geodirectory; and changes in data protection legislation.

The Department had identified the database access and data protection issues as important at an early stage in the development of the project. Geodirectory is a company established by An Post and Ordnance Survey Ireland, and it was considered to hold the most complete data source for addresses. Discussions relating to its use by a potential postcode licence holder began in 2010 but were not finally resolved until February 2015. Data protection issues arising from an address-specific postcode were identified in 2006, and resulted in a locality-based postcode originally being proposed. While the proposal changed to an address-specific system in 2012, legislation to address the data protection issue only came into operation in July 2015.

Given the likely public expenditure involved, the Department was obliged to undertake a detailed cost-benefit analysis of the proposal and to update it as the project evolved. The cost benefit analysis originally prepared in 2006 identified a net present cost for the project of €96 million. This means that taking account of the timing of cash flows, the costs were expected to exceed the benefits by a net €96 million. A revised analysis in 2008 had a very different result. This projected that the project would generate benefits that would exceed the costs by a net €6 million. This was further revised upwards in 2010 when a €20 million net present value was projected for the project.

The main projected public sector benefit was identified as improved data matching by Revenue, valued at just under €4 million a year. Revenue have since indicated that by the time the Eircode system was launched, it had already largely achieved improved data matching through other address-related developments, such as the establishment of a local property tax register and better data matching techniques. Overall, I concluded that it was not clear that benefits to the value projected in the cost benefit analysis will be achieved as a result of the implementation of Eircode.

The examination also identified a number of shortcomings in the cost-benefit analyses undertaken for the project. In particular, each round of analysis was based on a locality-based model only rather than the address-specific model that was ultimately introduced; the full project costs, including departmental staff and payments to consultants, were not included, and the shadow cost of public funds was not applied to the projected Exchequer-funded maintenance costs; the documentation available from the Department did not fully support some of the values used in the analysis; and different discount factors than those recommended for public sector projects were used.

Estimates of the cost have increased substantially over the life of the project. When first approved by the then Government in 2009, the project was projected to cost the Exchequer €18 million over an 18 month development phase, with no recurrent Exchequer payments to the operator. In 2013, the estimate provided to Government was for a cost of €31 million over a ten year licence period, including recurrent Exchequer payments of the order of €1 million a year. Departmental staff costs or the cost of consultants were not included in that estimate. The examination reviewed the costs incurred to date as well as outstanding contract obligations and estimated that the cost over ten years will be about €38 million. This includes some €686,000 arising from contract changes agreed after the contract was signed.

The procurement of the licence holder proved to be a protracted process. The process began in January 2011 with the publication of a tender pre-qualification questionnaire. The contract was signed almost three years later in December 2013. Issues in regard to procurement included EU concerns around the qualifying criteria for the licence holder tender, and a pattern of non-competitive procurement for consultants engaged to assist the Department with various aspects of the project.

The chapter makes a number of recommendations in regard to future projects of this kind which emphasise the importance of ensuring that adequate project governance structures are in place, with sufficiently broad membership; including all relevant costs in project estimates and in cost benefit calculations; revising and updating the cost benefit analysis where there are material changes or delays, and ensuring documentary evidence is available to support all elements of the analysis and assumptions made; and adhering to national and EU procurement rules when planning and implementing projects.

I am glad to say that the Department has accepted all the recommendations included in the report.