Oireachtas Joint and Select Committees
Thursday, 22 March 2018
Public Accounts Committee
2016 Annual Report of the Comptroller and Auditor General and Appropriation Accounts
Chapter 4 - Overview of Public Private Partnerships
Mr. Robert Watt (Secretary General, Department of Public Expenditure and Reform); Mr. Gerard Cahillane (Head of Finance and Operations, National Development Finance Agency and Deputy Director, National Treasury Management Agency); Mr. Seán Ó Foghlú(Secretary General, Department of Education and Skills); and Mr. Michael Nolan (Chief Executive, Transport Infrastructure Ireland) called and examined.
9:00 am
Seán Fleming (Laois, Fianna Fail)
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We will be focusing today on chapter 4 of the 2016 annual report of the Comptroller and Auditor General on the overview of public private partnerships, PPPs. Throughout the year the committee has raised concerns about the amounts of money spent through public private partnerships, in the education and transport sectors in particular. In 2016 the figure for commitments to PPPs was €6.6 billion. Members have been worried about the level of transparency surrounding some of the biggest infrastructural projects in the country. This is an important meeting in trying to understand whether and how value for money is being achieved in the spending of public money on these projects. We are joined from the Department of Public Expenditure and Reform by Mr. Robert Watt and Mr. Brendan Ellison; from the National Development Finance Agency by Mr. Gerard Cahillane, Mr. Paul O'Neill and Mr. Sean Court; from the Department of Education and Skills by Mr. Seán Ó Foghlú, Ms Emma Leonard and Mr. Gary O'Doherty; and from Transport Infrastructure Ireland by Mr. Michael Nolan, Mr. Nigel O'Neill and Mr. Michael Kennedy.
We have picked Transport Infrastructure Ireland and the Department of Education and Skills as two of the key State bodies involved in PPPs. Other Departments are involved in PPPs, but we could not bring everybody in and considered these to be two of the key bodies involved, with the Department of Public Expenditure and Reform and especially the National Development Finance Agency which is heavily involved in the entire process.
I remind members, witnesses and those in the Visitors Gallery to turn off their mobile phones or switch them to airplane mode. Leaving them in silent mode is not adequate because they will still interfere with the recording system.
By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to do so, they are only entitled thereafter to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the provisions within Standing Order 186 to the effect that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policy or policies.
I call on the Comptroller and Auditor to make an opening statement.
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.
Seán Fleming (Laois, Fianna Fail)
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I thank the Comptroller and Auditor General. I now invite Mr. Robert Watt, Secretary General of the Department of Public Expenditure and Reform, to make his opening statement.
Mr. Robert Watt:
I am pleased to have the opportunity to be here today, with Secretary General Mr. Seán Ó Foghlú and colleagues from the Department of Education and Skills, the National Development Finance Agency and Transport Infrastructure Ireland, to offer any assistance we can provide to the committee in its consideration of Chapter 4 of the Comptroller and Auditor General's Report 2016 - Overview of Public Private Partnerships. We welcome the report and its recommendation.
The primary role of the Department of Public Expenditure and Reform in PPPs is to facilitate the PPP process centrally by developing the general policy framework and the capital investment policy framework, within which the PPP operates. The new national development plan, launched by the Government recently, is the new framework within which we consider these matters. The Department of Public Expenditure and Reform also facilitates the PPP process by providing central guidance to Departments and other State authorities in that context. Responsibility for individual PPP and concession projects rests with the relevant sponsoring Department or agency, where appropriate. This includes financial responsibility and responsibility for compliance with the requirements of the public spending code and the overall PPP guidance set out by our Department.
The Department of Public Expenditure and Reform publishes a full suite of guidance to facilitate the PPP process, which is available on the central PPP unit's website at www.ppp.gov.ie.
To ensure that Departments obtain the best value-for-money from public capital investment, PPPs are subject to the same robust and rigorous project appraisal process as applies to traditionally procured projects. All projects over €20 million are required under the public spending code to be subject to a cost benefit analysis or cost effectiveness analysis. In addition, the public spending code also requires that the sponsoring agency seeks the advice of the National Development Finance Agency, NDFA, on all projects above €20 million, in terms of the optimum means of financing the project on a value for money basis, to assess whether traditional or PPP methods of procurement are the best way to ensure value for money and to deliver the project for the taxpayers and citizens. The public spending code also provides that the options should be considered by the sponsoring agency as part of the project appraisal.
The public spending code requirements ensure that all PPPs are subject to specific value for money tests at four stages during the procurement process. There are particular requirements in respect of PPP projects.
Following completion of the project, all PPPs are subject to the public spending code requirement that a post project review be carried out, once sufficient time has elapsed to allow the project to be properly evaluated with sufficient evidence of the flows of benefits and costs from the project. There should be two separate focuses of such a review - project outturn and the appraisal and management procedures. These may be undertaken at the same time or at different stages, but they should be done as soon as is practicable. In the case of PPP projects, once contract close has been reached, the cost of the project to the sponsoring agency is essentially set for the duration of the contract. It is, therefore, possible for an element of the post project review to be undertaken on a provisional basis at that stage. A final, definitive post-project review for PPP projects will effectively only be possible at the completion of the contract when the asset is handed back to the sponsoring agency and all costs arising under the PPP contract are definitively known. This is normally after 20 or 25 years, which is the normal period over which these contracts are set. An interim review conducted mid-way through the life of the contract could provide a useful indication of the likely final outcome at hand-back.
Post-project reviews are not the only mechanism for reviewing past experience in order to draw lessons which can be applied in the future. The NDFA is the financial adviser on all PPPs and procures all accommodation projects on behalf of the sponsoring Departments. Experience gained on each project procured helps inform the procurement of each subsequent project. The NDFA also carries out an in-house lessons learned exercise following all PPP procurements. This enables them to see what improvements can be made in processes and procedures. This has resulted in a number of changes in the way PPPs are procured over the years. The Department of Public Expenditure and Reform chairs a PPP steering group, which meets regularly to review progress across all PPPs in planning, procurement and operation. This group provides a forum for the sharing of information and experience in the planning and delivery of PPPs, so that lessons learned on one project or in one area can be applied across the entire PPP programme.
The committee will also be aware that there have been two recent reviews of PPP policy in Ireland. One review was part of the public investment management assessment, PIMA, of Ireland undertaken by the IMF in July of last year at the invitation of the Department of Finance. We asked the IMF to review of capital planning and appraisal, including PPPs. The second PPP review was undertaken by an inter-Departmental and agency group, which was established in 2017 to review Ireland's experience of PPPs and to make recommendations on the future role of PPPs in the context of the Government’s new ten year national development plan. The PIMA report categorised the institutional strength of-----
Catherine Connolly (Galway West, Independent)
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Is that completed?
Mr. Robert Watt:
The review is completed and is with the Minister. Aspects of it were referenced in the national development plan. I would be happy to give a broad outline of where we are but the Government has not approved it yet. This will happen shortly, at which time it will be published in its entirety.
The PIMA report characterised the institutional strength of the PPP management framework as good, and its effectiveness as medium. The IMF made a small number of recommendations to further strengthen the process and procedures already in place. The PIMA report was published last November and is available on the Department’s website.
The report of the PPP review is with the Minister, who intends to bring the report to Government in the coming weeks for approval to publish. However, the key findings and recommendations agreed were included in the NDP published in February. These can be summarised as follows.
The review concluded that PPPs have been very useful in the past in facilitating the delivery of important infrastructure projects. This was particularly the case when the Exchequer was seriously constrained in its ability to fund infrastructure directly during the fiscal crisis. It was noted that this enabled projects to proceed which would not otherwise have been deliverable on the basis of the Exchequer funding available at that time alone. However, under more normal economic and fiscal circumstances, the ability to use PPPs to deliver "additionality" in that context is now less relevant. The NDP sets out the Government's plans to increase public capital investment to among the highest levels in the EU and sustain it at that level over the period to 2027. In this context, the pursuit of further additional investment projects by PPP, over and above the planned NDP level of investment, is not recommended. To do so would pose a risk that such projects could give rise to a level of public capital investment overall that is not consistent with macroeconomic or fiscal sustainability. The PPP review therefore recommends that PPPs should continue to feature as a procurement option available to Government for appropriately structured projects which demonstrate value for money over a traditional procurement option and which meet the robust and rigorous tests for project appraisal that apply to all public investment projects under the public spending code. However, projects to be pursued in this way by PPP should be progressed as part of the NDP, as opposed to additional projects. This is consistent with the PIMA recommendations. Accordingly, decisions on pursuing further PPPs will be taken on a case-by-case basis based on the merits of using PPP in the case of each individual project.
The PPP review recommended two other changes, the first of which was the discontinuation of the budgetary control mechanism limiting exposure to PPPs to 10% of the aggregate Exchequer capital allocation on an annual basis. In effect, this was the approach we introduced a number of years ago which meant that unitary payments in any year could not be more than 10% of the Exchequer capital cost. Therefore, if the overall Exchequer programme was €5 billion, the unitary payments on PPPs could not exceed more than €500 million on an annual basis. The review recommended reinstating the previous budgetary control mechanism of charging the capital value of PPPs to the capital allocation of the sponsoring Department over the construction period. This will ensure that PPPs and traditionally procured projects are treated equally in the selection of the most appropriate procurement mechanism for each individual project. This approach was also recommended by the IMF in the PIMA report. This is a significant recommendation which in effect ensures that Departments face the same incentives when they are choosing between a PPP project or an Exchequer-funded project because the capital cost of the PPP would be notionally charged to their accounts as if it were procured traditionally. This means, regarding the accounting treatment, that there is no bias one way or the other in respect of the selection of projects. This is a fundamental change which will impact how we select, approve and develop this programme into the future. In addition, in order to improve transparency in reporting on PPPs, a number of changes in the reporting arrangements have also been recommended and will be introduced. These involve publishing cost-benefit analyses, CBAs, and public sector benchmark reports and in effect making available the information that is used to make decisions to make that information available publicly.
I hope I have given the committee an understanding of the role of our Department in respect of PPP, some assurance regarding the guidance and procedures which are in place to ensure PPPs are used to provide a value-for-money option for the State, and an update on some of the key policy developments in this area. I am very happy to answer any questions the committee may have.
Seán Fleming (Laois, Fianna Fail)
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I thank Mr. Watt. Members have indicated in the following order: Deputies Burke, Cullinane, Kelly, Connolly and MacSharry. The first speaker has 20 minutes, the second speaker 15, and third and subsequent speakers ten minutes each. I will keep strictly to the time, and people will get an opportunity to come back in a second time. The term "public private partnership" has been used. Before I call on the Deputies, will Mr. Watt explain to the public in straightforward English what precisely is meant by PPP? They can be design, design-build, design-build-operate or finance. It is a very broad term. Will Mr. Watt explain why some are one kind and others are another kind? We have used the term "PPP" probably 20 times already, so I ask him to tell people what a PPP is. This is for the benefit of people watching these proceedings on the television.
Seán Fleming (Laois, Fianna Fail)
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That is the full package.
Mr. Robert Watt:
That is the full package, which would be funded, without a concession, by unitary payments from the Exchequer. I ask the committee to think about the building of a school. Let us say the school costs €5 million. Traditionally, one would take two or three years to build the school and the cost would be charged to the Exchequer in the normal way. This is the normal appropriation with which members would be familiar. It is a standard, traditional approach. It is how most schools, for example, are procured. PPPs involve a contract whereby we enter into an agreement for 20 or 25 years. The private sector builds, as it would in the case of traditional appropriation, but under design-build-operate-finance, DBOF, it would also provide the finance and would enter into an agreement to sustain, maintain and hand back the school after 25 years. There is therefore a difference between this type of contract and the way in which we traditionally procure. The unitary payments then would be made over 20 or 25 years. That would be the standard. These unitary payments would be a charge on the Exchequer each year over the period of the contract. The unitary payment in effect would cover the capital cost, the financing cost and the operating and maintenance costs of the project. That is the commonest standard form.
Road projects are a combination of concessions whereby tolling is involved as well, so there is a combination of user charges and unitary payments. This is a little more complex, but in effect we enter into an agreement whereby company X would build a motorway and there would be a concession. Some of the projects could be tolled, and the toll could meet a significant part of the payment. Then there could be issues regarding guarantees. Our colleagues from Transport Infrastructure Ireland can talk in more detail about some of these contracts. They are quite complex. Again, they are a subset of PPPs which are different. Outside of tolling, the main one would be a DBOF, which is as I have described.
Seán Fleming (Laois, Fianna Fail)
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Are there any design-build-operate-maintain contracts without finance?
Seán Fleming (Laois, Fianna Fail)
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Of the order of €1 billion.
Mr. Robert Watt:
Significant sums, absolutely. Many of the treatment plants, waterworks, sewage plants and so on would be on that basis. They are all fully on balance sheet because they are not financed. We enter into different contracts. In effect, the Exchequer would procure it, pay for it upfront, but the operation of it would then be subject to a contract, not the financing. That is different. That is on balance sheet and is not spread over a 20- or 25-year period.
Seán Fleming (Laois, Fianna Fail)
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I ask Mr. Watt to give us a simple pen-picture. Most people would have thought a PPP included finance, but Mr. Watt is saying this is not necessarily the case.
Seán Fleming (Laois, Fianna Fail)
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However, the Irish Water and the local authorities ones were not-----
Seán Fleming (Laois, Fianna Fail)
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Operation but not finance.
Seán Fleming (Laois, Fianna Fail)
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Out of the €6 billion outstanding at the end of the year, then, how much is financed by the private sector and how much is financed by the Exchequer?
Seán Fleming (Laois, Fianna Fail)
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Irish Water.
Seán Fleming (Laois, Fianna Fail)
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I apologise to Deputy Burke for that. I just wanted to put that information on the record. Deputy Burke has 20 minutes.
Peter Burke (Longford-Westmeath, Fine Gael)
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I thank the witnesses for taking the time to present to us and I thank the C&AG for his report. Does Mr. Watt think PPPs represent value for money for the Exchequer? Furthermore, does he think they are adequately transparent in terms of the reporting requirements to the C&AG and the taxpayer?
Mr. Robert Watt:
Regarding the reporting, a large amount of information is available and we have now made a decision on publishing information on the cost-benefit analysis and the public sector benchmark. We set out for each of the projects - I think the details of this are in the annexe to the papers we sent to the committee - the cost each year of the unitary payments that will fund the capital cost, the financing cost and the maintenance and servicing costs of the contracts. We are certainly open to any other suggestion as to what other information people may feel is required. We certainly would be in favour of publishing as much as we can as long as-----
Peter Burke (Longford-Westmeath, Fine Gael)
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How many post-project reviews have been published from the various projects that were undertaken?
Peter Burke (Longford-Westmeath, Fine Gael)
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To answer the question, then, how many have been published?
Seán Fleming (Laois, Fianna Fail)
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Mr. Watt cannot come in here and say, "I do not think." He should know the answer.
Seán Fleming (Laois, Fianna Fail)
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It is black and white. Either the Department has published them or it has not.
Seán Fleming (Laois, Fianna Fail)
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I am being straight. We want to be precise here.
Mr. Robert Watt:
Yes. We have not published them but we are certainly in favour of publishing the reviews. We think we should because it sets out in detail then what the assessments have been, and the extent to which the products have actually delivered, in terms of the benefits and the outcomes relative to cost that were set out.
Seán Fleming (Laois, Fianna Fail)
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Which ones have we received? I am sorry, Deputy Burke.
Peter Burke (Longford-Westmeath, Fine Gael)
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Go ahead.
Seán Fleming (Laois, Fianna Fail)
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Which ones has this committee received? I mean the Committee of Public Accounts, which works on behalf of the people of Ireland through the national Parliament. What reports have we received, the national Parliament?
Seán Fleming (Laois, Fianna Fail)
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No, the post-project reviews.
Seán Fleming (Laois, Fianna Fail)
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None. Can we put that-----
Seán Fleming (Laois, Fianna Fail)
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Can we get a straight answer? Deputy Burke asked the question.
Peter Burke (Longford-Westmeath, Fine Gael)
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I thank the Chairman.
Seán Fleming (Laois, Fianna Fail)
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We want a straight answer.
Peter Burke (Longford-Westmeath, Fine Gael)
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I am not sure if I did because there were a number of addendums to the answer at the end. Mr. Watt said that he thought there were none.
Peter Burke (Longford-Westmeath, Fine Gael)
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I shall return to my original question. Does Mr. Watt think that public private partnerships, PPPs, on the basis that the post-project reviews have not been published, are transparent for the taxpayer and, indeed, the Comptroller and Auditor General, in terms of us independently assessing whether we get value for money?
Mr. Robert Watt:
I think there are a number of aspects to it. First of all, there is the assessment, which we undertake, to assess whether we should build the school in the first place. That is the cost-benefit analysis.
Secondly, it is whether the PPP option versus the traditionally procured option makes sense, and that is the public sector benchmark. We now publish the public sector benchmark. I think within the pack there are examples of that from the different sectors that are available. We have committed to and we have set out, in our response to the report, that we are in favour of publishing the post-project reviews so that people can look and then see in detail.
Peter Burke (Longford-Westmeath, Fine Gael)
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But as it stands currently-----
Peter Burke (Longford-Westmeath, Fine Gael)
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No. I first asked Mr. Watt whether there is transparency for the taxpayer and the Comptroller and Auditor General to assess this matter. A number of projects have been undertaken using the PPP model but no post-project reviews have been published. In other words, I, as a taxpayer and as a member of this committee and, indeed, the Comptroller and Auditor General who audits these issues, are totally in the dark about whether these projects have worked, their effectiveness, whether certain variations are effective and whether they were value for money. As we do not possess any of that data, how can Mr. Watt even remotely think that this matter has been transparent? It is not as if we have not been provided with the information that would allow us to make those judgments.
Mr. Robert Watt:
I think, within the Comptroller and Auditor General's report, variations in contracts are set out. So where there are variations in contracts we set that out. There are changes in performance review clauses. The Comptroller and Auditor General sets out, in detail, where that impact occurs. That information is out there and it is reviewed.
In terms of the original value for money assessment, we set out for the committee the public sector benchmark where we say, at the time the contract was established and it was decided to go ahead with the procurement of PPPs, we set out the assessment there of the costs and benefits of the PPP against the traditional.
In terms of, over time, looking at the value of any piece of infrastructure, so let us say one looks at a road that will be there for 20 or 25 years. So the benefits of the road over time would be the traffic volumes, the time savings and the impact on congestion. Reading a particular review would tell one.
Peter Burke (Longford-Westmeath, Fine Gael)
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I am sure that information could be found in a post-project review.
Peter Burke (Longford-Westmeath, Fine Gael)
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Some of these roads are open and in operation, and other buildings, for a significant period. Let us consider the Department of Education and Skills and, indeed, the national roads infrastructure. Does Mr. Watt think it is good enough that we, as a committee, or, indeed, the taxpayer at large, do not possess post-project reviews for these projects?
Peter Burke (Longford-Westmeath, Fine Gael)
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But we have not got them.
Seán Fleming (Laois, Fianna Fail)
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Who is blocking them?
Peter Burke (Longford-Westmeath, Fine Gael)
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Why have we not received the reviews?
Seán Fleming (Laois, Fianna Fail)
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If Mr. Watt, as the Secretary General, is in favour of doing so then who has blocked him from issuing them?
Seán Fleming (Laois, Fianna Fail)
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Everyone thinks the reviews are a good idea but they are not going to do them.
Seán Fleming (Laois, Fianna Fail)
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We have not got them.
Mr. Robert Watt:
-----which we never provided before, in terms of public sector benchmark reports, which were not published before, and they are available. We have provided that information. Nobody is blocking it. I do not have any issues. As long as there are no concerns about confidentiality, which the sectors can advise us on, I have no problem with them being published. The reports should be published, absolutely. I am okay with that.
Seán Fleming (Laois, Fianna Fail)
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Is it Mr. Watt's call or that of the Secretaries General of the line Departments, as to whether the reviews are published?
Seán Fleming (Laois, Fianna Fail)
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I am going to ask the Secretary General of the Department of Education and Skills the same question. Is Mr. Ó Foghlú happy? His Department has done none actually so he can publish them.
Seán Fleming (Laois, Fianna Fail)
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We know that.
Seán Fleming (Laois, Fianna Fail)
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Some of these schools are operating ten years.
Seán Fleming (Laois, Fianna Fail)
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Yes, sorry.
Mr. Seán Ó Foghlú:
We have published the public sector benchmarks. We publish public sector benchmark information initially after five years. Following the committee's request, we have actually provided the public sector benchmarks to it, via the National Development Finance Agency, NDFA, for any project which is more than five years old. We think that that is valuable and helpful.
We, obviously, publish the deductions and the variations, and they are all in the public domain. We are now commencing and arranging for the first of our post-project reviews. We have a group in place, of different Departments, to assist us in that regard and we have tendered for it. We intend to publish the outcome of that when we have it.
Seán Fleming (Laois, Fianna Fail)
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How long will that work take? Will it take 12 months or less?
Seán Fleming (Laois, Fianna Fail)
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I want to ask Mr. Nolan the same question. Has Transport Infrastructure Ireland published any of its reviews yet?
Seán Fleming (Laois, Fianna Fail)
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Is Transport Infrastructure Ireland waiting for the change in policy?
Seán Fleming (Laois, Fianna Fail)
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When will Departments be notified of the change in policy?
Mr. Seamus McCarthy:
On a point of information, at the time we completed the report none of the post-project reviews had been published. The Courts Service had indicated that it was proposing to publish one in relation to the Central Criminal Courts. That has been published since the report was published.
Seán Fleming (Laois, Fianna Fail)
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Yes. Sorry, Deputy Burke. I shall give him extra time to make up for my interruptions.
Peter Burke (Longford-Westmeath, Fine Gael)
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I thank everyone for the information. I am very concerned about the delay in publishing these reports because the taxpayer needs to be in possession of such information in order to make a credible judgment.
In terms of Project Ireland 2040 and the fact that the economy has significantly improved, has the State resiled from PPPs? Has the State walked away from them?
Mr. Robert Watt:
No, I do not think there has been. What we said is that during the crisis PPPs were there. They achieved value for money but they were there also, in terms of additionality, because we were not in a position to fund all of the capital needs that we wanted to with funds from the Exchequer, in the normal way, because of the large deficit that we had. There was merit in terms of looking at PPPs as a stimulus, and that was the policy. That was set out. Now that we are in different times we can fund more of our needs through the Exchequer through the traditional way. There is not the same requirement for additionality from PPPs as an additional source of finance. Within the accounting treatment that I mentioned, we have changed the rules where, in the past, it was set at 10% of the overall capital programme. Now we are saying that the capital cost of PPPs should be charged against the accounts in the same way as traditional. We are not resiling from PPPs. It has a role to play. Certainly, its role is different now given the changed circumstances in which we find ourselves.
Peter Burke (Longford-Westmeath, Fine Gael)
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Having read the document, the PPP model has not been referenced as much as one would have thought but that is obviously due to the economy. One must ask the following questions. Are PPPs value for money? Do they impose huge risks on taxpayers? Does Mr. Watt agree that PPPs are risky for taxpayers?
Mr. Robert Watt:
There is a judgment to be made here in terms of PPPs. It is set out that the financing costs of PPPs are more expensive than the costs for the Exchequer because it is private finance so it is more expensive. There is the cost of planned maintenance over a period, which can be expensive. The higher cost to the State needs to be balanced against the benefits and the risk transfer, and that is always the calculation. We are very cautious about PPPs.
We have a policy approach which reflects that caution. Public private partnerships, PPS, will play probably less of a role in the future than they have done in the past, reflecting that caution. It is a very difficult calculation to make. Members would have seen the public sector benchmark and the details. It is very difficult to make a comparison between a PPP project, which sets out the financing cost, the maintenance and so on, against a traditionally procured approach where the maintenance cost or something like that is a budgetary over time. It is very hard to make that comparison, and members can see in the papers the discussion that is set out in reaching that conclusion. I do not think PPPs will play as significant a role in the future but they do have a role to play and, as I mentioned, we are cautious about this type of financing because it can be expensive for the State.
Peter Burke (Longford-Westmeath, Fine Gael)
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The recent report from the European Court of Auditors published on 20 March raises a huge number of concerns about the value for money regarding PPPs. Of the three projects in Ireland, one would be termed a PPP but I am at a loss to understand the reason for that because it was not completed. "NA" is in all the boxes in the tabular format; they do not seem to reference it much. In terms of the general points, however, the report indicates there are massive risks in terms of competition in the tendering process for PPS and that there is a potential exposure to the State. Would Mr. Watt agree with that?
Peter Burke (Longford-Westmeath, Fine Gael)
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Yes, 20 March.
Alan Kelly (Tipperary, Labour)
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Two days ago.
Peter Burke (Longford-Westmeath, Fine Gael)
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It covered one, the N17-N18, but it was not completed in terms of some of the details-----
Peter Burke (Longford-Westmeath, Fine Gael)
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-----so they could not do a full assessment of it. However, if the State is in severe economic distress and it uses PPP as a model for off-balance sheet, there are significant risks for the State in terms of competition. We have seen a number of those that have not worked out as one would have envisaged.
Peter Burke (Longford-Westmeath, Fine Gael)
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There is a more significant risk in one that is backed by a PPP.
Mr. Robert Watt:
PPPs are more complex because they involve not just entering into a procurement process to build a piece of infrastructure but entering into a contract to maintain and sustain it over a 25 year period. They are more complex and more involved, and there are different stages in the process. There is the procurement, the financial close area and so on. It is probably fair to say it is more complex, and that complexity can lead to more risks. As the Deputy will have seen from the papers, we have in place a very detailed approach to assessing, valuating and procuring to ensure we are minimising that risk and getting value for money for the Exchequer, but there is no doubt these can be incredibly involved and, with complexity, can become more risky. The key challenge for us is to ensure the risk is transferred to the private sector. That is part of the reason we pay higher financing costs. For example, the risk of maintaining the school over 25 years is with the private contractor. With traditional procurement, we build a school and then the school principal and board of management, with the support of the Department, is responsible for maintaining it so in terms of the risk on us to maintain that school, within a PPP that risk is transferred and they have to hand over the school in good condition after 25 years or there are penalties incurred. That risk transfer piece is the key issue for us. In terms of the higher costs we pay and whether we are getting the benefit of those risk transfers, that comes down to a judgment, and it can be difficult at times.
Peter Burke (Longford-Westmeath, Fine Gael)
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That judgment can be very difficult when we are talking about risk transfer and traffic guarantee payments. In terms of the M3 Clonee to Kells motorway or the Limerick tunnel and the potential huge risk to which the taxpayer is exposed, that is a huge challenge to meet.
Mr. Robert Watt:
Yes. There is also a risk with a traditionally procured motorway where we might have said that X number of vehicles would use the road and it turns out the number is not X. In that case, there is not a financial penalty to the State in that sense but there is a significant loss to the State because the benefits of the road subsequently are not commensurate with the benefits we thought of. It is not the case that there are no risks with those type of contracts. In regard to PPPs, it is more transparent that we have not met the traffic projections, as opposed to projects which are procured traditionally. Where there is a loss to the State it is a notional loss because the value of the investment we made has not been realised.
Peter Burke (Longford-Westmeath, Fine Gael)
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It is where it has a direct impact on the Exchequer on an annual basis. If we are talking about €1.2 billion in 2016 and €4.6 billion in 2017, that is a huge sum of money.
Peter Burke (Longford-Westmeath, Fine Gael)
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Yes, but if doing it in an efficient manner has the potential to reduce our capacity to build more, we have to question it.
Peter Burke (Longford-Westmeath, Fine Gael)
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It is our responsibility as elected representatives to get the best value for money. We cannot just take a blasé approach and say, "Who does not want to build a road?".
Peter Burke (Longford-Westmeath, Fine Gael)
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We are compensating them for that.
Peter Burke (Longford-Westmeath, Fine Gael)
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We are in those two cases.
Peter Burke (Longford-Westmeath, Fine Gael)
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I want to be clear about that. I am aware of the payback for the private sector in terms of motorways. There is a concrete projection of traffic flow etc., but how does that work for schools?
Mr. Seán Ó Foghlú:
We pay a unitary charge, subject to inflation, for a 25 year period. We have projections for the numbers of students in schools. The majority of our PPPs have been second level schools. The second level school-going population will continue to increase until 2026. We track the numbers in each of the bundles of schools. We are aware of the numbers in terms of the effective use and design of the buildings and knowing that the need exists.
One of the advantages of working with schools is that we have had good planning in place for the past ten years and we know the location of the bundles of population so that, other than where school choice arises, we know where the potential population for school children will be and therefore that the schools will be used. Also, in terms of the type of schools we choose for PPPs, we have to go for new schools or newly built schools of an existing school, often after an amalgamation, so that we know there is a demand for a large number of pupils in the school. We do not enter into PPPs for small extensions and things like that; they have to be major projects which are then bundled together.
Peter Burke (Longford-Westmeath, Fine Gael)
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Resource constraints were cited as a reason the planned review into a pilot schools bundle was not carried out. What was the reason for that?
Peter Burke (Longford-Westmeath, Fine Gael)
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It was supposed to be about 2013.
Mr. Seán Ó Foghlú:
Yes. We had hoped to put the review in place earlier. We had actually started an internal process but we realised we needed an intense effort with outside assistance and at the same time we are dealing with a huge demographic bulge. We were very appreciative that while investment was cut across the board on the capital side in the downturn, we maintained a significant schools budget to deal with the additional places we needed, and we had to make sure we put the effort and energy into that. We would have wished to undertake the review quicker but we have not been able to, and we now have the arrangements in place to undertake the review. We have the oversight group in place and we are tendering for the review. The sort of people we-----
Peter Burke (Longford-Westmeath, Fine Gael)
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Has that gone to tender?
Peter Burke (Longford-Westmeath, Fine Gael)
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When is the contract expected to be in place?
Peter Burke (Longford-Westmeath, Fine Gael)
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What was the outcome of the criminal courts review? Does any of the witnesses have an answer on that?
Seán Fleming (Laois, Fianna Fail)
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The witnesses advise the Minister on the PPPs. The Courts Service has done a post project review.
Seán Fleming (Laois, Fianna Fail)
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It is the organisation that advises the Minister, and it has not seen the report.
Seán Fleming (Laois, Fianna Fail)
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When was that issued?
Seán Fleming (Laois, Fianna Fail)
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When was the Courts Service report issued? It is the post-project review.
Seán Fleming (Laois, Fianna Fail)
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We have a list of 30 PPPs all over the place. They relate to the areas of health, the Office of Public Works, justice, education, transport infrastructure, etc., and a Dublin city waste-to-energy proposal. The first post-project review carried out by the Courts Service was published six months ago.
Seán Fleming (Laois, Fianna Fail)
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Right. The witness is now telling us it has not been read and studied.
Seán Fleming (Laois, Fianna Fail)
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Given that this is the key organisation that advises every body that wants to spend over €20 million and helps them in designing PPPs-----
Seán Fleming (Laois, Fianna Fail)
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I understand that. The agency helps to design it and when the project is up and running, it goes back to the Department. If the agency continues to provide advisory services for PPPs and the witnesses know that a post-project review was carried out by the Courts Service, would it not have made sense to read and study it for any lessons learned and to see if the objectives set out at the beginning were achieved? It is extraordinary that one review was carried out months or years ago and that nobody has chosen to even look at it. Do the witnesses understand that this is really a Pontius Pilate job of washing one's hands of it? Where is the joined-up public service? The witnesses have no idea if it achieved what they said it should when they handed it back. Am I missing something here?
Seán Fleming (Laois, Fianna Fail)
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It is extraordinary that Mr. McCarthy has to tell us this because the NDFA representatives cannot.
Seán Fleming (Laois, Fianna Fail)
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The agency is responsible for the finance aspects.
Seán Fleming (Laois, Fianna Fail)
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Mr. Cahillane told me he had not seen the report.
Seán Fleming (Laois, Fianna Fail)
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As Chairman of the Committee of Public Accounts, I find this extraordinary. There has been a post-project review of one project but the NDFA has not studied it in detail to see what lessons can be learned. It is advising on new PPPs but there is a report out there and it has not been studied. I am a little disappointed that somebody from the agency did not take an hour to read the report that we all received in the past day or two before coming here today. It is in the public arena.
Seán Fleming (Laois, Fianna Fail)
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Please do but I want a response from the NDFA. There is a serious link missing in this chain of following through in the public interest.
Seán Fleming (Laois, Fianna Fail)
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Given that it is the agency's line of business to deal with PPPs and that there is a report out there, would the witnesses not have read it, even if they were not obliged to? Would they not have an interest in the topic? I find it extraordinary that there is a report available and that nobody has chosen to be even interested in reading it?
Seán Fleming (Laois, Fianna Fail)
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I am a bit exasperated at the way in which this meeting is going. Everybody is in favour of publishing them but they have not been published. The Department of Justice and Equality published one and nobody has looked at it. I would have thought the Department of Public Expenditure and Reform and the NDFA would have gobbled it up and learned lessons from it. Nobody has even taken the time to read it.
Peter Burke (Longford-Westmeath, Fine Gael)
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Have any significant issues been flagged by the Comptroller and Auditor General?
Mr. Seamus McCarthy:
I can give a couple of points from the report. It was completed in October 2012 and the complex had opened around 2009. The stated overall aim of the review was to determine whether any stage of the courts project could have been done better, with any lessons applied to future projects. The review approach concentrated on assessing the processes used rather than the outcome of the project in terms of impact on court business. At an overall level, the review concluded that the project objectives had been realised within a timeframe appropriate for a PPP project of its complexity. It concluded that the project processes had been satisfactory. The review suggested that further analysis should be carried out to assess the operational impacts resulting from the delivery of the project.
In terms of learning lessons, the review included recommendations for the PPP process and some of the recommendations were specific to the project; others had more general application. These indicated that future projects should report against a benefits realisation plan and strategy and an issues log should be produced and maintained to record details of key decisions in a single document. It is important to distinguish between a process review, or seeing how procurement worked and whether it could be streamlined, and whether the value proposal or business case was realised.
Seán Fleming (Laois, Fianna Fail)
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It was a partial review.
Seán Fleming (Laois, Fianna Fail)
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It was a limited review but lessons could still be learned regarding the process for future PPPs.
David Cullinane (Waterford, Sinn Fein)
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It was not a cost-benefit review.
Seán Fleming (Laois, Fianna Fail)
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We have not any post-project review.
Peter Burke (Longford-Westmeath, Fine Gael)
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We are back to zero.
Mr. Michael Kennedy:
As I stated earlier, we have done ten post-project reviews. We listed a summary of the findings in the report and as Mr. Nolan has said, they will be published in the near future. One of the big lessons we learned was that forecasting traffic in a toll demand scenario was very difficult. As Deputy Burke mentioned, there was significant risk and much of it was carried by the private sector. There are two schemes with a floor on the exposure of the private sector but it means they are hovering at a low level in terms of where they thought they might be with traffic. For the other six toll concession schemes out there, they carried all the risk. As the Comptroller and Auditor General has said, the reviews we undertook were for the procurement and statutory approval processes, as well as how it was done and the out-turn and timing of processes. In a number of cases, it was recommended, given that traffic had not been as expected, that additional cost-benefit analyses should be done. These were done in two cases and there is another we ought to do. We will do that. In all cases, it found that processes were satisfactory and the decision to procure via PPP was correct. The cost-benefit outturns proved that the roads continued to represent value for money for the State.
Seán Fleming (Laois, Fianna Fail)
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We have to take the witness's word for that because we have not seen the reports.
Seán Fleming (Laois, Fianna Fail)
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Is there a timescale for the publication?
Seán Fleming (Laois, Fianna Fail)
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We must wait and see. I have eaten into Deputy Burke's time again.
Peter Burke (Longford-Westmeath, Fine Gael)
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That is okay. It is important to get confidence behind these projects for the taxpayer and the Comptroller and Auditor General. It is not good enough that we are putting pressure on people at a meeting of the Committee of Public Accounts to publish post-project reviews that are already completed. We need to be in possession of this information to adjudicate on value for money.
David Cullinane (Waterford, Sinn Fein)
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I share the Chairman's exasperation at the responses we received so far. I am beginning to wonder if there is any point in even proceeding as none of the questions we ask will see answers of any substance materialise. There was a very cavalier approach from Mr. Watt and Mr. Ó Foghlú. They seemed to shrug their shoulders as the post-project reviews have not been published and that is it. There is no real reasoning behind it. There is a bit of a laugh and joke and it is not really being taken seriously. We have nothing really to probe.
We have no reports we can examine. We have the response from Mr. Cahilllane, which was extraordinary as well. I have prepared for-----
Seán Fleming (Laois, Fianna Fail)
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I will take up the Deputy's suggestion and suspend the meeting now. The committee will go into private session. We would have thought that we would have some information on the review. None is available. What we can do is seriously limited until we get some of these reports. Perhaps there is a limited value in carrying on.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Before we go into private session, notwithstanding the disappointment with various aspects, I have plenty of questions.
Seán Fleming (Laois, Fianna Fail)
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That is fine.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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That is not to say that we will not have them back again when they will have had the opportunity to read reports.
Alan Kelly (Tipperary, Labour)
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We should go into private session to discuss this.
Seán Fleming (Laois, Fianna Fail)
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We have the questions, whether the witness are able to supply the answers.
I ask members to remain for a few minutes while we go into private session.
Seán Fleming (Laois, Fianna Fail)
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I thank the witnesses for coming back. The committee met briefly in private session to discuss the progress of the meeting. The committee is disappointed that none of the post-project reviews has been published. It would have been of tremendous assistance to the public, the national Parliament and the Committee of Public Accounts to have a meaningful discussion in respect of value for money with regard to those projects. There is a commitment to publish them. It has not happened yet. We are told that some will be published in a couple of months' time. It is clear to this committee that, while we can have a useful engagement today, it will certainly not be possible for us to conclude our business as a result of today's meeting. That will have to wait until such time as we see some of these reviews published. We will be proceeding but we will not be able to conclude. I ask the Comptroller and Auditor General to give us some context in respect of where we are with this issue.
Mr. Seamus McCarthy:
I welcome the commitment from the Department and the agencies present to publishing more information about value for money. It is a recommendation which we have previously made. On previous occasions, Departments had indicated that they had some concerns about the timing of publication and commercial sensitivities that might arise. There are ways of working with the information and of putting useful information into the public domain which, as Deputy Burke mentioned earlier, would help to build confidence in procurement through public private partnership, PPP, where it can be demonstrated that it delivers good value for money.
Seán Fleming (Laois, Fianna Fail)
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Okay. We will continue with the meeting but, as we have said, we will not be in a position to conclude.
Mr. Robert Watt:
If I could respond, I do not think Deputies could be surprised as we set out very clearly in our response to the recommendation that these reviews have not been published in the past. As the Comptroller and Auditor General has said, we have now committed to publishing. I do not think Deputies should have been surprised that we have not published them heretofore because that is very clear in our response to the recommendation on page 65 of the report. We accept the merit of the argument and we are in favour of having a much more transparent and open approach to these matters in order that Deputies, on behalf of the citizens, can establish that these projects represent value for money. It is an important issue and we have set out more information here than ever before in respect of public sector benchmarks, cost-benefit analyses and so on. We are very happy to work with the committee. I have spoken with colleagues and we will publish the reviews as quickly as we can and we will move on with it.
I do not think, however, that we can let go of the remark levelled at us by Deputy Cullinane suggesting that we have adopted a cavalier attitude to coming before the committee. That is not fair. We have presented a large amount of information to this committee in order to assist it. We have worked with the Comptroller and Auditor General in the preparation of his report and we are all here. Many of my colleagues are here to answer the committee's questions. We have fairly answered all of the questions put to us this morning. I want to put it on record that I do not accept for one moment that officials have adopted a cavalier approach. In actual fact it is quite the opposite. We have been quite upfront and honest in terms of the information we have provided and in terms of our responses this morning. I do not want to strike a discordant note at this meeting, but I am very happy to take it up with the Chairman and Deputy Cullinane on another date if he really, genuinely believes that we have adopted a cavalier approach to this committee, because I do not accept that for one moment.
Seán Fleming (Laois, Fianna Fail)
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As Chairman of the Committee of Public Accounts, I want to say that billions of euro of taxpayers' money has been invested in PPPs. The public is entitled to know if it is getting value for money.
Seán Fleming (Laois, Fianna Fail)
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And we agree with that. We have not got to that point yet. Previously, contractual agreements and confidentiality were in question. We are now slowly edging to a position where we might see some of these reports published, but it is the mission of the Committee of Public Accounts to see that these are published in due course.
Mr. Robert Watt:
Absolutely Chair but, in fairness to colleagues here who are working away on this, the committee should recognise that we have now provided information to this committee which we never provided before in respect of public sector comparators. We have provided much more information than we have ever provided before and we have also given a commitment to publish the post-reviews, which is also something which was not done before. That should also be acknowledged.
Seán Fleming (Laois, Fianna Fail)
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As I have said, we are moving in the right direction in respect of publication but we are not there yet. I think Mr. Watt would accept that the reports are not out. As I said, we will not be able to complete our consideration of the PPP chapter in the report of the Comptroller and Auditor General until we see some of these reports published. They will help us conclude. I do not think there is a bias involved. It is good for confidence in PPPs. People might have different views on the concept but many people are happy to see work going ahead. The public, however, wants to be assured that it is getting value for money. That is all we are trying to assist.
Mr. Robert Watt:
They also want assurance, however, on other projects that are funded through the traditional Exchequer manner. There is no reason why we should not undertake reviews of such projects, which should also be published. The same issues arise. As I mentioned earlier, if we build a road through traditional procurement, the issue is then whether we have met the volume and has the project delivered a benefit. There is a wider question. It is not just about PPPs.
Seán Fleming (Laois, Fianna Fail)
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We will come back to that later. I take Mr. Watt's point. I call on Deputy Cullinane.
David Cullinane (Waterford, Sinn Fein)
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Can I first of all say that I stand over everything I said before we went into private session. It is my personal opinion. It is not the opinion of every member here, but I have given my opinion. Giving us huge volumes of information does not equate to proper public accountability. What Mr. Watt seems to miss is that we have not got the information which we need. Yes, we can welcome that he has now come to the view that the post-project reviews should be published but we are here today to ask questions. The meeting is today, not next month, in three months' time or next year, whenever these reports are eventually published. It is today and we do not have the reviews. Our job is to examine and to probe. One of the observations from the Comptroller and Auditor General, in his opening remarks and in his report, is that there is a lack of public scrutiny, public debate and public accountability in the whole area of PPPs. I would not imagine that the Comptroller and Auditor General was talking about the political sphere alone, but also about academics and other outside organisations, which would also look at this area because reports are not published. Let us be honest, some of these reports go back 16 years. It has been 16 years and only one has been published. That is why we are frustrated and if that upsets any of the officials here, so be it. We have a job to do and we are to do it today, not tomorrow, next month, in six months or in a year. We will be back. How many of these post-project reviews that have not been published actually exist?
David Cullinane (Waterford, Sinn Fein)
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Mr. Watt can answer it again because I have asked it. I would like a number please.
David Cullinane (Waterford, Sinn Fein)
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There are ten which have not been published. How many have been carried out in the area of education?
David Cullinane (Waterford, Sinn Fein)
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The Department has not carried out one.
David Cullinane (Waterford, Sinn Fein)
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Why not?
David Cullinane (Waterford, Sinn Fein)
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This is where we can understandably be frustrated. I accept what the Comptroller and Auditor General said when he gave the context. If I am reading this right, and I want to be fair to everybody, there was opposition from the Department of Public Expenditure and Reform in the past to publishing the post-project reviews. We then had an analysis, review or examination by the International Monetary Fund. It carried out a review and people would have been consulted. On the back of that there was a change of heart. A different position was adopted by the Department of Public Expenditure and Reform, which is now open to publishing these post-project reviews. That does not excuse the matter or answer the question as to why they were not carried out at all in one of the key Departments, namely, the Department of Education and Skills. I do not believe that Mr. Ó Foghlú has given a satisfactory answer as to why not a single post-project review has been carried out. This goes right to the heart of public accountability. How can we evaluate whether there was good use of taxpayers' money, whether benchmarks which were set were met, whether there were any legal issues or impediments, or whether we got value for money? None of this can be evaluated by this committee because Mr. Ó Foghlú and his Department have not carried out any post-project reviews. Will he take me through that again in layman's terms? He should help me, as a public representative, to understand why not a single post-project review was carried out.
Mr. Seán Ó Foghlú:
As Mr. Watt set out in his introductory comments, a number of different value for money tests are undertaken. The concept of a post-project review is a mid-term concept. Our first completion was in 2002 and we are now 16 years on from that out of 25. We focused on that. We have undertaken a number of value for money tests. We were the first Department to publish post-project public service benchmark, PSB, information. We have also now made available to the committee the three PSBs for the first three schools bundles that had PSBs. We are now publishing PSBs, as a policy, five years after so that commercial sensitivity is protected. We have been very open with regard to being innovative in publishing information about PSBs and in publishing PSBs. Analysis of those PSBs can be undertaken. We saw the post-project review process as a mid-term review process. We sought to do it a small number of years ago but we realised that we needed an intensity of engagement with it such that, given the pressures that we had to deliver school places, we had to prioritise school places. School place delivery was prioritised over the last five or six years in a major way as we faced this demographic bulge. We succeeded in providing school places for every child despite a huge increase in the number of places.
David Cullinane (Waterford, Sinn Fein)
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When Mr. McCarthy was talking about the post-project value reviews, he also mentioned value for money assessments.
David Cullinane (Waterford, Sinn Fein)
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Had they been done for all of the projects in the Department of Education and Skills?
David Cullinane (Waterford, Sinn Fein)
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Has the Department published those?
David Cullinane (Waterford, Sinn Fein)
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Can they be made available to this committee?
David Cullinane (Waterford, Sinn Fein)
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When will the ten or 11 post-project reviews that exist be published?
Mr. Robert Watt:
We are happy to publish them as soon as possible and to clarify that the new public spending code will contain a reference to our view that they should be published. In advance of that being sent out, we can write separately to organisations to ask them to publish them. I believe our colleagues in the Department of Transport, Tourism and Sport are in a position to do that. We will do that as quickly as possible.
Seán Fleming (Laois, Fianna Fail)
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I want to come in on one point. Is the public spending code finalised? Is it currently under review?
David Cullinane (Waterford, Sinn Fein)
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What is the delay? Why not publish them today?
Seán Fleming (Laois, Fianna Fail)
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These gentlemen indicated that they are waiting for the public spending code to be finalised.
Seán Fleming (Laois, Fianna Fail)
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I will quote something that Mr. Watt wrote last September, seven months ago, which he referred to a minute ago. It is paragraph 4.46 of the Comptroller and Auditor General's report. He stated "no post project reviews have been published." He made a recommendation and the response from Mr. Watt was "Part agreed." It could have been last August but was probably last September at the latest. Mr. Watt wrote, "A requirement to publish post project reviews (subject to redaction of any commercially sensitive information) will be included in a revision of the Public Spending Code currently underway and in revised PPP guidance to be issued in the near future." Mr. Watt wrote that in his response seven months ago. He is here today, saying that it is coming out in the near future, seven months later. It is still in the near future. When I would have read that last September, when this report was published, I would have expected to see that before Christmas, but we are here now at the end of March, seven months on. When is the near future? Mr. Watt's official response was that it would be the near future. Is there a date for it?
Seán Fleming (Laois, Fianna Fail)
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So we will have a definite timetable by Easter?
Seán Fleming (Laois, Fianna Fail)
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I am handing back to Deputy Cullinane. The point that I am making is that when the Comptroller and Auditor General does a specific chapter on a topic and the relevant Accounting Officer says he will publish guidance in the near future, which was last September, and we are here at the end of March and that is still not out, we are entitled to ask what Mr. Watt meant by near future when he said that.
David Cullinane (Waterford, Sinn Fein)
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Mr. Watt is the Accounting Officer.
Seán Fleming (Laois, Fianna Fail)
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These are Mr. Watt's words, not our words. We are asking Mr. Watt to explain his own words.
Seán Fleming (Laois, Fianna Fail)
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Will we have that guidance by the beginning of April? I am not asking for it to be published. That will be later. When will the Department of Public Expenditure and Reform have finished its part of this process?
David Cullinane (Waterford, Sinn Fein)
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I am trying to demonstrate patience and it is not always easy when we have witnesses before the Committee of Public Accounts. I will move on.
Mr. Robert Watt:
We have been here honestly answering these questions. We have done our best to answer the questions and we have heard the view about this and we will publish the reviews. The notion that we are being evasive and not co-operating is unfair. I say that a second time. We need to be treated fairly too.
Seán Fleming (Laois, Fianna Fail)
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Any comment by an individual Deputy at this meeting is only the view of the individual. It is not the view of the committee.
Seán Fleming (Laois, Fianna Fail)
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There are 13 members. If one member or another member says something, it is not the view of the other 12. Let us be very clear. Any Deputy's individual view is not the view of the Committee of Public Accounts.
David Cullinane (Waterford, Sinn Fein)
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I will not apologise to anybody for doing my job and nor will I apologise to anybody if I feel that we are in any way being frustrated and not getting the information and answers that we need. I will stick to the issue of the code. Mr. Watt said in his opening statement that all projects over €20 million are required, under the public spending code, to be subject to a cost-effectiveness analysis. When Mr. Watt says require, what does that mean in his language?
Mr. Robert Watt:
When we are deciding on whether to develop or build infrastructure, we need to assess whether that represents value for money and whether the benefits over the future lifetime of the project will exceed the costs. That is a cost-benefit analysis. We also do the public service benchmark. When we are deciding which way to procure it, the NDFA undertakes an analysis which looks at the costs and benefits of a public private partnership, PPP, type of approach compared to the traditionally procured approach. Various different tests are undertaken at different-----
David Cullinane (Waterford, Sinn Fein)
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Is that a legal requirement?
David Cullinane (Waterford, Sinn Fein)
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Is that legislative-----
David Cullinane (Waterford, Sinn Fein)
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So it does not have to happen.
David Cullinane (Waterford, Sinn Fein)
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The code itself has not been put on a legislative basis.
David Cullinane (Waterford, Sinn Fein)
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That brings me on to the next point. I read the public spending code last night - all 147 pages of it - and it says on page 2 that "Nothing in the Public Spending Code should be taken as precluding Government or Ministers, under the delegated sanction arrangements set down by the Minister for Public Expenditure & Reform, from deciding to approve projects independent of the detailed application of the Public Spending Code." In other words, the public spending code and guidelines can be ignored if a Minister so decides. Why is that the case? What is the logic for that?
Mr. Robert Watt:
There may be occasions on which a Government needs to make a decision to do something quickly or where it is clear that the benefits of investing in that infrastructure or spending that money are such that they have to, out of necessity, due to time constraints, push ahead. For example, with the recent flooding where there was significant damage to part of the country, it was clear that we needed to invest to restore the road or pavement and it would not necessarily be the case that one would need to do a cost-benefit analysis to demonstrate that one needed to invest in improving a road which had been subjected to damage. That is just an example. In most cases, the code is there to ensure that, when we look at projects over €20 million, we have a full assessment of the costs and benefits.
We debated for a long time the question of whether the threshold is appropriate or should perhaps be lower or higher. This issue is being kept under review to ensure sponsoring bodies have to develop strong business cases. When they are deciding to commit to a project, they must be disciplined and have evidence that the benefits exceed the costs. When we are dealing with cost-benefit analyses, in many cases the benefits of a project are uncertain or difficult to establish. There are many issues with the actual methodology or the approach to assessing the costs and benefits of particular projects. There is an element of subjectivity here. What is stated in the code is very important in ensuring Departments meet value-for-money criteria.
David Cullinane (Waterford, Sinn Fein)
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I have heard the response and I thank Mr. Watt for it. I put it to the Chairman that when we consider this matter as part of a further periodic report, perhaps we should recommend that the code be put on a legislative basis so that it is not perceived as a fig leaf. It should not be the case that the code can be ignored.
Seán Fleming (Laois, Fianna Fail)
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That is something the committee will discuss.
David Cullinane (Waterford, Sinn Fein)
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It is something we could consider. I want to raise two other matters. I appreciate that other members want to contribute. Mr. Cahillane is here on behalf of the NDFA, which engages in what was described earlier as an "in-house lessons learned exercise". What does that involve?
David Cullinane (Waterford, Sinn Fein)
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Is this done for each project?
Mr. Gerard Cahillane:
It is done for each project we are involved in the delivery of. In some of the earlier projects, we found that the procurement process was very long. There were many complaints from the market that it was very expensive. We decided that, in the case of PPPs, we would not ask the private sector to get full planning permission and instead we would obtain planning permission for these facilities.
David Cullinane (Waterford, Sinn Fein)
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How many of these look-backs have been done?
David Cullinane (Waterford, Sinn Fein)
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How many would that be?
David Cullinane (Waterford, Sinn Fein)
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Have they been published?
David Cullinane (Waterford, Sinn Fein)
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Public accountability must mean that these reviews can be examined by external bodies. They are carried out internally, but can they be made public? Can they be sent to this committee?
David Cullinane (Waterford, Sinn Fein)
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Given that we want as much information as possible, I ask Mr. Cahillane to do more than consider it. Could he send them-----
David Cullinane (Waterford, Sinn Fein)
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There is no reason it cannot be shared.
David Cullinane (Waterford, Sinn Fein)
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Okay. Perhaps they could be sent on for the next day.
I would like to ask Mr. Watt about risk. When we discuss PPPs, we hear an awful lot about the risk to the private contractor. What risk is there in building a school? Is it that the pupils will not turn up? What would it be? I am struggling to try to understand how there is a risk to a private company in building a school.
Mr. Robert Watt:
There are many risks. There is risk associated with ensuring the school is maintained over a period and handed back in a good condition 25 years afterwards. That risk is with the private PPP operator or entity that has to maintain the school. I guess that is the main risk over a long period.
David Cullinane (Waterford, Sinn Fein)
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Would Mr. Watt genuinely consider maintenance of a school to be a risk?
Mr. Robert Watt:
I am talking about maintaining the whole building and ensuring that it is still in good condition - as good as it was when it was built - after 25 years. Obviously, there is a risk that something could happen to the building. We have had issues in the past with buildings that do not perform as expected. That risk is transferred to the PPP entity that finances and operates the school.
David Cullinane (Waterford, Sinn Fein)
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Is that not what insurance is for?
David Cullinane (Waterford, Sinn Fein)
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There is also a risk to the State. I would argue that the biggest risk with these PPPs is often to the taxpayer. Projects relating to the construction of six schools collapsed because of Carillion. I have looked at some of the press reports on that. Obviously, that was not a very good exercise by the Department. I imagine that it was not very desirable in any event. I am sure Mr. Ó Foghlú will agree that it was unforeseen. Who carried the risk for the collapse of those six projects?
David Cullinane (Waterford, Sinn Fein)
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Are we now caught in a legal wrangle with that company? To Mr. Ó Foghlú's knowledge, is there going to be any added cost to the Department because of the collapse of these projects?
Mr. Seán Ó Foghlú:
Obviously, there is a wrangle, to use the Deputy's word. The PPP company is responsible for sorting that wrangle out. It is seeking to sort it out. We are very hopeful that it will be able to succeed in doing so. There is no dispute between the Department, the NDFA and the company involved. The company is seeking to sort it out.
David Cullinane (Waterford, Sinn Fein)
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Has an assessment been done regarding whether there will be any additional cost to the Department as a result of the collapse of the company and these specific projects?
David Cullinane (Waterford, Sinn Fein)
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I know other members want to come in. I will come back in later.
Seán Fleming (Laois, Fianna Fail)
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Okay. Deputy Kelly has ten minutes.
Alan Kelly (Tipperary, Labour)
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I know we have had a little tension this morning. I will try to calm things down a bit. It is probably the first time I have attempted to do that at this forum. Transparency is part of the issue with which we are dealing. To be fair to the witnesses, some of the things we are analysing here predate their appointment to their current positions. The economic circumstances in this country have gone all over the place since many of these PPPs were signed. A great deal of decision-making needs to be contextualised. It should also be remembered that political pressure on decision-making does not help sometimes. There is some frustration about the process of getting information out there. I accept that commitments have been given by the Secretary General in the context of writing to Departments. I am sure everyone will get the information out there. That will be co-ordinated. We will take that at face value.
I have some valuable and useful information about the change in the PPP review and the mechanism for limiting exposure to PPPs to 10% of aggregate Exchequer value. I think there is a need for a peer-to-peer review of PPP projects that compares such projects with directly-funded projects. I agree that Exchequer-funded projects do not represent value for money. This is not always evident, however, when such projects are subjected to line-by-line comparisons with PPP projects. When value is being assessed, consideration must be given to whether something was a priority for spending in the first instance. At a future date, I will, along with TII officials, review the analyses and algorithms used when decisions were made on some of the projects that were selected for inclusion in the 2040 plan, with a particular focus on those which may or may not have changed in the weeks before the launch.
We certainly need to conduct a peer-to-peer examination that compares Exchequer-funded projects and PPP projects. There needs to be a breakdown by sector within that equation. There is no one present from the Department of Health, but I would like to mention as an example the bundles that were drawn up for PPP primary care centres. When I see the centres that are progressing, including the one in Carrick-on-Suir in my constituency, I look at the other options which have been set out in competitions for the construction of primary care centres. Some of those who win contracts essentially flip them by selling them on. It is speculation, basically. Again, there is exposure here. When we are doing comparisons, we should think about getting down to the unit basis. It would be helpful if we were to look not just at roads, but also at the decisions made within that realm.
I want to focus on a couple of direct issues. I had the pleasure of travelling through the Limerick tunnel going to and from a certain match last weekend. I would like to go through the costs relating to this famous road, as set out on pages 67 and 68 of the report.
I am particularly interested in the total exposure as regards the traffic risk sharing component on pages 67 and 68 of the report. I want to get into the real figures, if possible. These questions are for TII. No. 2 is a design, build, operate, fund and maintain, DBOFM, classification and the total project cost is €281 million. Note F reads: "Includes payments required under the traffic guarantee contract mechanism. The nominal value of remaining payments does not include any amounts for future payments under this mechanism". It costs €4.6 million because of the traffic flows and there are low and medium traffic growth projections. What has it cost as part of the traffic risk sharing component to date and what is the projected cost based on current levels?
Mr. Michael Kennedy:
In the briefing document provided we have not provided projections for traffic guarantee or variable operation payments as they are described. To date, we have paid €34.1 million for the Limerick tunnel and prepared future projections for what we consider to be conservative traffic growth scenarios. The future payments would amount to approximately €150 million. We provided this information by year in the briefing documents submitted to the committee. In total, we are looking at a figure of €200 million in traffic guarantee related payments under the scheme.
Alan Kelly (Tipperary, Labour)
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Is that not just insane?
Alan Kelly (Tipperary, Labour)
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Does Mr. Kennedy have a worse word than "insane"?
Mr. Michael Kennedy:
No. There are schemes in which we transfer traffic risk and schemes which we procure through PPPs in which we do not transfer it. There are two schemes in which there is a variable operation payment mechanism. It allowed the funders and the providers to have a sense that there was a floor and enabled funders to provide good prices on these high risk schemes. In respect of the Limerick tunnel, we have all learned that trying to forecast demand risk in an urban area is very difficult.
Alan Kelly (Tipperary, Labour)
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Given that the Dublin Airport Authority is directing 96% of traffic to Dublin, it is crucifying Shannon Airport – I live close to the area – and I cannot understand the projections. To the normal taxpayer, these figures are astronomical.
Mr. Michael Kennedy:
We have mentioned Exchequer funded road schemes on which there is no tolling. The Exchequer pays the capital, operating, maintenance and life cycle costs. That is why I disagree with the Deputy about it being insane. Somewhere or other roads are paid for. There are six road schemes where the private sector took all of the traffic risk. Where traffic is not materialising, it affects their returns. The level of traffic achieved on the eight toll road schemes we procured was recently 70% of what had been expected.
Seán Fleming (Laois, Fianna Fail)
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Over what period?
Mr. Michael Kennedy:
The period from 2011 to 2017, inclusive. I took that period because many of them had been opened in 2010. There was a downturn in the economy in those years. Their revenue has suffered even more because, remarkably, we have gone through a period of very low inflation A decade or so ago the forecast would have been 2% or 3% a year.
Alan Kelly (Tipperary, Labour)
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I prefaced my comments by talking about the economic cycle, but I am concerned about the scale. I had not intended to put Mr. Kennedy on the spot.
Can Mr. Watt say whether this would have met the requirements of the process by which we assessed PPPs, given the figures we now have? I know that it is comparing apples and oranges, but in general would that be the case? For the taxpayer, the figures are astronomical.
Mr. Robert Watt:
There are six road schemes where the entire risk is with the private sector. On these two roads we share some of the risk. Our sharing of some of the risk impacts on the financing costs of the schemes. There would have been higher costs for the financers of the other schemes where they took on the full risk. On the face of it, there is no doubt that the moneys are significant, but motorway infrastructure is expensive, whichever way the cost is cut and diced. Whether it is funded exclusively by the Exchequer or the private sector or there is a sharing of the risk, the cost is approximately €10 million per kilometre. The challenge for us is always to find exactly the balance between the taxpayer, tolls and public and private partners. I agree that the numbers are significant. In this case, because of the nature of the contract, they are very clear. For projects funded exclusively by private finance, the equity holders are losing money. We may not be delivering the benefits on other roads funded exclusively by the Exchequer because we made an over-specification or traffic volumes have not been delivered. There are many ways to looking at the issue.
Alan Kelly (Tipperary, Labour)
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I know, but from the point of view of transparency point, the contract runsl-----
Seán Fleming (Laois, Fianna Fail)
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Until 2041.
Alan Kelly (Tipperary, Labour)
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Yes. We are looking at a figure of €4.6 million, but I cannot see traffic volumes changing dramatically. Personally, I do not think there is a hope in hell of this getting through in 2018. Is this one of the ten projects being reviewed?
Alan Kelly (Tipperary, Labour)
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I look forward to the publication of the review.
Alan Kelly (Tipperary, Labour)
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I appreciate that.
Mr. Michael Kennedy:
That does not mean that it is a bad scheme.
The Deputy asked if we had the choice again whether we would do it by a PPP. Lower traffic volumes on the PPP side are also lower traffic volumes on the Exchequer side. Both sides would be compared and both would be lower. The expectations would not be as high as when we procured the scheme. We did assess it and re-examined the scheme in the light of the traffic volumes known at the time and the information on the traffic guarantee amounts being paid and the cost benefit result was that it was still a viable scheme, given the volume of traffic using the tunnel every day.
Alan Kelly (Tipperary, Labour)
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I look forward to dissecting the review. Ironically, I was Minister of State at the Department of Transport, Tourism and Sport when the Taoiseach was the Minister and I recall him being very critical of the payments made under schemes such as this. It is unacceptable that there have been no reviews of projects. The Secretary General knows that representatives of Cork Institute of Technology have been before the committee on several occasions. They are among our favourite witnesses and will be back soon. Two of the projects relate to the Maritime Institute which has been funded by way of a PPP since 2004. I have photographs of the building which seems to be in rag order. Has it been inspected? There was to have been a review after ten years.
It seems that the people who were in charge were not qualified. They were brought back by the college subsequent to being let go. They were employed by companies that were subsets of the colleges. It seems that the volume of funding that has gone into them means that there have to be questions asked about the product that has been delivered.
Alan Kelly (Tipperary, Labour)
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There is scaffolding up all over the place which is falling down.
Alan Kelly (Tipperary, Labour)
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Who is picking up the tab? Is the PPP companyl?
Alan Kelly (Tipperary, Labour)
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Has the Department been reviewing the project on an ongoing basis?
Alan Kelly (Tipperary, Labour)
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Were the people who were in charge the appropriate people to be in charge to allow it to get to this stage?
Mr. Seán Ó Foghlú:
The difficulties emerged and the people who were there made us aware of them. There has been a follow-up with the PPP company. We are reviewing the contract management arrangements which were put in place. We are satisfied with the role discharged by the contract managers, but we are of a view that it should be strengthened. We will engage with the NDFA to assist us as it assists us in the case of PPP schools.
Alan Kelly (Tipperary, Labour)
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For the record, Mr. Ó Foghlú is happy with the contract managers. Second, there is no exposure for the taxpayer.
Alan Kelly (Tipperary, Labour)
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Is it the same in the case of the Cork School of Music which has a similar problem?
Ms Emma Leonard:
We are not aware of a specific problem at the Cork School of Music, but there is an assessment ongoing. We have applied deductions of €111,000 to the unitary charge payments laid on the NMCI. Therefore, we are getting money back because work shops have been unavailable as a result of the issues encountered. The current plan sees the work being completed by the summer. We have taken on our own structural engineers to review the position and make sure the work is done properly.
Alan Kelly (Tipperary, Labour)
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My issue which we flagged is there are lots of questions. This crosses over into our questioning of Cork Institute of Technology on educational issues. There are lots of questions about management, finances and a whole load of others things in the college and we will not stop digging until we get to the bottom of the matter.
Seán Fleming (Laois, Fianna Fail)
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Will the Deputy put his last question, please?
Alan Kelly (Tipperary, Labour)
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This is my last comment. The PPP, the creation of the Maritime College, the way it was run, the multiplicity of companies underneath it, the crossover between people who were employed directly and subsequently employed by the companies, the fact that there is a serious structural deficit in the building all mean that it cannot result in an exposure for the taxpayer. If there is, there will have to be an inquiry into the matter.
Mr. Seán Ó Foghlú:
The exposure on the building is to the PPP company. As requested by the Committee of Public Accounts, an investigation into the relationship between Cork Institute of Technology and its subsidiary companies has been commenced under the aegis of the HEA. A company has been engaged to undertake the review.
Catherine Connolly (Galway West, Independent)
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Cuirim fáilte ar ais roimh na finnéithe go léir. Cuirim fáilte roimh an Uasal Leonard. Is bean í i measc na bhfear arís. I welcome the witnesses and the briefing documents given to us. I have looked at them as best I can. Perhaps a wiser person might stay quiet and listen more, but we have to ask questions. I have looked again at Mr. Watt's opening statement. I welcome the confirmation that there will be publication of the post-project reviews, I hope within the next few weeks. That is the clear statement I hear. However, it would have been more helpful if it had beenincluded in Mr. Watt's opening statement as a recognition of the necessity for it. It would have been helpful in instilling confidence, particularly as it was the one item identified in the chapter by the Comptroller and Auditor General. It was the subject of a very specific request or recommendation, but it was not dealt with in the opening statement, which is to be regretted, but it is welcome that he is now saying he will progress the matter.
I will clarify a few little things. Are we now saying the policy is to move away a little from PPPs? Significantly, in the chapter the Comptroller and Auditor General points out that in 2012 the figure was €6.1 billion. In 2016 it was €9.6 billion. Does Mr. Watt expect it to reduce in the next few years? Is there a change in policy?
Mr. Robert Watt:
That will depend on decisions the Government takes on future projects. The commitments set out are in respect of projects we have already built and are being operated. In time, as the unitary payments for the original projects fall away and disappear, they may be replaced by new projects and some of the slack taken up. What we have set out, I hope reasonably clearly, is that we are cautious about PPPs. There is a new environment and we are in a position where the Exchequer is in a position to fund projects in the traditional manner. In time, we will probably see the overall commitments number peaking. There are a number of projects in the pipeline which have not yet been finalised and once they are completed, we will start to make unitary payments which will get up to a peak figure of about €400 million.
Catherine Connolly (Galway West, Independent)
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A figure of €400 million.
Catherine Connolly (Galway West, Independent)
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Is there a change in policy?
Catherine Connolly (Galway West, Independent)
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Is the Department cautious because the economy is now better? What led to its caution?
Catherine Connolly (Galway West, Independent)
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No. Will Mr. Watt just explain to me what has led to the Department's caution.
Catherine Connolly (Galway West, Independent)
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Therefore, the motivation to achieve value for money was not on the same level as finding a way to build in a difficult environment.
Mr. Robert Watt:
During the recession and crisis when we were trying to fund in any way we could infrastructure to employ construction workers who were unemployed and to provide needed infrastructure, there was a focus on the additionality point, as well as value for money. Deputy Peter Burke mentioned the report from the European Commission. There is also a report from the National Audit Office in the United Kingdom. There is our own work which we will publish shortly. Proving there is value for money is a challenge. In time, we will see what position the Government will take.
Catherine Connolly (Galway West, Independent)
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Is that not the kernel of the matter, proving there is value for money?
Catherine Connolly (Galway West, Independent)
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What I have before me is the audit from the European Union. I have the one prepared by the budget office. Its theme is the difficulty in proving value for money on any level. What the audit states is that the brakes should be hit.
Catherine Connolly (Galway West, Independent)
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Yes, the one Mr. Watt will read in due course. It states we should put the brakes on PPPs and not promote a more intensive and widespread use of them until the issues which have been identified are addressed.
Catherine Connolly (Galway West, Independent)
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All of them, including the one from the budget office and many more, state value for money has not been established. That is why we were all hot under the collar about post-project reviews not being published because that would have given some indication to us on whether there was value for money. Mr. Watt can see from where we were coming.
Catherine Connolly (Galway West, Independent)
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Value for money.
Catherine Connolly (Galway West, Independent)
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I have often mentioned that I sat at local level for a long time - 17 years - when I heard the constant refrain that PPPs were excellent and that public contracts were bad. There was no evidence whatsoever for that refrain and it is very worrying that that was the way we went. I heard in Galway only last week about a project I will not mention. It was in the music sector and said PPPs were excellent, but there is absolutely no evidence for saying that. It is the contrary - they are more expensive. I have a number of specific questions and will come back to the Department of Education and Skills. What is the longest contract entered into?
Catherine Connolly (Galway West, Independent)
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Is that the longest?
Catherine Connolly (Galway West, Independent)
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Those two are what I would refer to as the bad ones. I am not saying they are bad, but they tie us in to high traffic.
Catherine Connolly (Galway West, Independent)
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That is against all advice on climate change, and so on. I am sorry, I interrupted Mr. Kennedy, but those two are 45 years and -----
Catherine Connolly (Galway West, Independent)
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Let us return to schools. According to this document prepared by the Parliamentary Budget Office, it quotes from a report saying:
The increasing level of unitary payments which arise on PPP projects [...] is an issue of concern for the Education budget, given the large unitary charge in the budget for 25 schools built using the PPP model capital. In 2016, for example, of the total Education capital expenditure of €704 million, €85 million, 12%, was allocated to PPP projects.
Will Mr. Ó Foghlú give us some clarification on this concern?
Catherine Connolly (Galway West, Independent)
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It was 12% the previous year.
Mr. Seán Ó Foghlú:
Yes, the proportion of the education budget that went on unitary charges was 12% in 2016 and 10% in 2017. Obviously, we operate within the overall Government policy. We are cautious about having too high a proportion of our budget going on unitary charges. This is an argument for the past rather than for the future, but at the same time, given the budget available to us and the demand for school places, it was very important that we use diverse methods of delivery. I believe 12% of additional places in the school system have been delivered through PPPs in 6% of projects, because the projects are of scale. While we are very happy with the engagement on the national development plan, and of course I am very ambitious for delivery on it, clearly its funding does not kick in in scale for several years and we are running with two more bundles of higher education PPPs.
Catherine Connolly (Galway West, Independent)
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How many colleges does that apply to?
Catherine Connolly (Galway West, Independent)
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Is it correct that most of the Department's PPPs are for secondary schools?
Catherine Connolly (Galway West, Independent)
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What is the direct comparison between a direct build and a PPP of a secondary school.
Catherine Connolly (Galway West, Independent)
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No, I am asking that now, given the fact that 12% of the education budget in 2016 went on PPPs.
Catherine Connolly (Galway West, Independent)
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I will return to that in a moment. If one were to build a secondary school in Galway city, for example -----
Catherine Connolly (Galway West, Independent)
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-----what is the difference between a direct build and one by PPP?
Catherine Connolly (Galway West, Independent)
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We need schools and we need a secondary school. What leads to the decision to build using a PPP? I understand there are factors such as Government policy, lack of money and a difficult economy, but in terms of value for money, which is cheaper?
Mr. Seán Ó Foghlú:
We need to come in below the public sector benchmark when we decide to go with any of the bundles of schools. We have come in below the public sector benchmark on each of the bundles of schools that we have advanced and have published the information on the first three. On that test, the value for money is in the PPP model. Obviously, we must undertake the review process to check that and there will also be a completion time. The risk is the area in which we think there is the majority of savings but there also seem to be savings in facilities management.
Catherine Connolly (Galway West, Independent)
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What does a secondary school cost to build, roughly? Can Mr. Ó Foghlú give me a range?
Catherine Connolly (Galway West, Independent)
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€20.5 million for a school for 1,000 pupils. Is that the cost using PPP?
Catherine Connolly (Galway West, Independent)
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What would a PPP cost for that over 25 years?
Catherine Connolly (Galway West, Independent)
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I understand where Mr. Ó Foghlú is coming from and that there is a policy here. I understand that the EU has put us in a situation with fiscal rules that things have to be shown off balance sheet and all sorts of magical accountancy rules that do not seem to be applied to direct public housing. However, if one is using a PPP, what is the cost of the school? What is paid to the private company over the 25 years?
Catherine Connolly (Galway West, Independent)
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So they are put into a bundle to facilitate the PPP?
Catherine Connolly (Galway West, Independent)
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I suppose it was never an issue for banks. Money was never an issue when it came to Government policy, but it is an issue for the direct build of schools or the other things that are necessary for a civilised society.
Returning to roads, I refer to the N17 to N18, Gort to Tuam, which I mention because it brings up issues at many levels. It was very much welcomed in Galway as having come in before time, for which we all hailed it. I look at the figures and see that it came in five months early, it was €550 million for 53 km. There were savings in relation to refinancing, which was great, but then there were variations which cost more. Then there is an audit from the EU that says documentation was not handed over. I will look through my papers here, in order to quote it in a moment. Then there was a legal action, and a huge delay in the procurement of five years. This particular project raises many issues for PPP. I do not know who will respond on this, but it came in on time yet it cost more. The audit from the EU says that when it requested documentation, there was a refusal to hand it over. Who refused to hand over what?
Catherine Connolly (Galway West, Independent)
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The five years for procurement took considerably longer.
Mr. Michael Kennedy:
The procurement was definitely bogged down. We had got to a stage where we had a preferred tender appointed and then the financial crash occurred. The funders would not come into the market to fund a private sector bid to build the scheme. We had to engage with the European Commission to try to progress the scheme, to see how we might do it in terms of the procurement process. We did not want to have to start the entire process again. That was 2010. It was 2014 when we awarded the contract. There was significant downtime because of the funding crisis. Had that not happened the scheme would have been built long before that. Once we had got over that hurdle, and I am looking to my right at colleagues in the National Development Finance Agency who were our financial advisors on the matter, we eventually did get funders to come back into the market. A very limited pool of banks was willing to fund then. Earlier, additional schemes were mentioned. These were developed at a difficult time for the economy and gave many jobs in the west at a difficult time for the economy. It was very difficult. The procurement was very difficult, and getting the scheme to construction.
Catherine Connolly (Galway West, Independent)
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That took five years, for some of the reasons Mr. Kennedy has outlined.
Mr. Michael Kennedy:
Deputy Connolly mentioned variations. They are things that we ourselves determine, the PPP company could make suggestions, but they are things that we would look at and want to apply to a scheme. I do not know all the variations on a scheme but I know that there was a junction where an improved layout had to be considered. It was a requirement over and above what the PPP company had bid for. We specified that after it came to light that the initial design was not going to be quite as good as we would like it to be. If we wanted to show signage, there may have been additional lighting requirements under environmental considerations, these are the types of variations which are things that we instruct on, and can happen on any road scheme, whether it was procured traditionally or through PPP.
Seán Fleming (Laois, Fianna Fail)
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I want to let a final speaker in.
Catherine Connolly (Galway West, Independent)
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On page 52 it states:
Although the European Commission’s investment in the Marguerite Fund falls [under the TEN-T regulation, which provides for the Court’s audit rights even in case the beneficiary is a private partner,] the Irish authorities refused to provide us the PSC and the tender dossier for the N17/18 motorway project, which were also not available at the Commission. Accordingly, the rationale in designing and procuring the project and in choosing the PPP option instead of alternative procurement methods (such as traditional procurement and concession) could not be assessed.
That has just come out this week. How can that be an example of accountability?
Mr. Michael Kennedy:
The European Court of Auditors came in on the basis of having given EU funds to the scheme but no EU funds were given to the scheme. We engaged with the Department of Public Expenditure and Reform and the view was that the court had no basis for the audit. Their people looked for our documents but had not funded the scheme. They had provided funding to an equity provider who was on the private sector side of the scheme. We met them and brought them on a site visit of the scheme. We provided them with a full overview of the process we undertake and they were made aware of all the documentation that was available, as well as our guidelines etc.
Catherine Connolly (Galway West, Independent)
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TII did not give them the documentation because the EU did not fund the scheme but gave equity to only a private company in the scheme.
Mr. Michael Kennedy:
If any of the banks or other funders asked to see our documents, I would tell them they were not for them but were public documents. The court did not have a basis for its audit. We engaged closely with the Department of Public Expenditure and Reform and were advised by that Department as to our obligations.
Catherine Connolly (Galway West, Independent)
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It is difficult for us when the audit tells us no documentation was handed over.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Did I hear Mr. Ó Foghlú correctly as saying the Department had never carried out a review of a PPP?
Mr. Seán Ó Foghlú:
We have never done a post-project review, though we have done value-for-money reviews of the public sector benchmark at the time of initiation. We have continuous monitoring of engagements and we have put in place new arrangements as we have learned things. The post-project review is a mid-cycle review and our first one was in 2002. We are 16 years into a 25-year programme and, while we would prefer to have got to it a bit sooner, it was always going to be a mid-term review.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Did Deputy Kelly's example indicate we need to up our game?
Mr. Seán Ó Foghlú:
No. The example indicates that the monitoring we have in place can be effective and can lead to an understanding of where there needs to be engagement. The post-project review would not necessarily be the way to bring that about as that would be achieved by monitoring on a continuous basis. We have phone lines from school principals-----
Alan Kelly (Tipperary, Labour)
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Is the fact that it is falling down not an indicator?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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When did the Department become aware that there was an issue with the Maritime College in Cork?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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In May 2014, the then Chairman of the Committee of Public Accounts asked Mr. Ó Foghlú what qualifications a contract manager should have and what qualifications the contract manager in this case actually had. Mr. Ó Foghlú said he was not aware of the details but that he would get them. I have checked through the records and he did not come back to the committee.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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To the best of my research, Mr. Ó Foghlú did not come back.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Maybe it was a mid-term approach.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I could find nothing showing that Mr. Ó Foghlú came back on it. I did my own research and I found that this individual was vice president of strategy with a background in science. Does that concur with the details of the person in this case?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I am not talking about the current contract manager but the contract manager when this building, which is now falling down, was being built.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Mr. Ó Foghlú might get them for me because my information is that the details will concur with those to which I have just referred. In Mr. Ellison's view, what would be an adequate qualification for a contract manager?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Would that be someone with a science background?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Is anybody in here involved in contract management?
Mr. Gerard Cahillane:
The NDFA procured, on behalf of the Department of Education, the first four bundles of schools apart from the pilot bundle. The Department of Education has engaged us to do the contract management in respect of those and it has been working very well over the past number of years.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Does the NDFA have many scientists on the staff?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It has no scientists.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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If Mr. Cahillane was recruiting somebody to assist as contract manager, how likely would he be to have "scientist" on the advertisement?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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How would it be possible for somebody with a science background to have that familiarity?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It would be possible if the person concerned coincidentally happened to have an interest in science but also happened to be mechanical or electrical engineer. Let us say they were not an engineer, nor a contract manager, and had no experience of project management but were a scientist, would Mr. Cahillane seek them out?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It seems that was the case with the National Maritime College. That is a problem, considering the difficulties that have emerged since.
We will be getting into more detail on these matters with Cork Institute of Technology, CIT, but there was a whistleblower's report and a KPMG report into the issue, the latter of which highlighted that pages were missing from the whistleblower's report which it had received, in particular page 14. The KPMG report was heavily redacted but states that it was felt the allegation was adequately addressed and may have related to somebody retiring today and coming back in as a consultant on Monday. I think this referred to the scientist who was the project manager. I have managed to find the missing page 14 and, despite the then president of CIT calling the contents of the report malicious falsehoods in an article in the Irish Examiner, page 14 highlighted all these matters. Somebody was hired as a consultant on the Monday after retiring. Is that normal? We have heard of-----
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I do not know.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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One of the things the missing page 14 stated was that there was a major problem with a lack of succession management, which was not highlighted by Deloitte or anybody else but was highlighted by Mr. Seamus McCarthy, the Comptroller and Auditor General, as an issue. This person, a scientist with no relevant experience according to the National Development Finance Agency, was taken back on the Monday following his retirement as a consultant on €21,000 for one day a week. The KPMG report states that approval was not sought from the HEA or the Department prior to the appointment but afterwards, retrospectively. Was Mr. Ó Foghlú aware of this?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Has Mr. Ó Foghlú seen the whistleblower's report?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Does Mr. Ó Foghlú have page 14?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I will give it to Mr. Ó Foghlú. KPMG was not giving it but I have it here. I will certainly be happy to give it to him. Incidentally, I know from other engagements here, and we will be going back to them directly, that CIT has a history of lavish parties. Was Mr. Ó Foghlú at the retirement party for this individual?
Seán Fleming (Laois, Fianna Fail)
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This is not in respect of public-private partnerships, PPPs, now.
Seán Fleming (Laois, Fianna Fail)
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I am chairing this meeting.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Through the Chair-----
Seán Fleming (Laois, Fianna Fail)
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Retirement parties are not PPPs. The question about this lavish party is not PPP based.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Through the Chair, I realise that as Secretary General of a Department you get to direct a lot of what goes on, but you do not direct what goes on in this room, whether you like it or not.
Seán Fleming (Laois, Fianna Fail)
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Through the Chair, Deputy.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It was through the Chair. If I have questions for you, Mr. Watt, I will let you know. In the meantime, I am talking to the Secretary General of education who, to the best of my knowledge, does not report to you. I am asking Mr. Ó Foghlú, did you happen to be at the retirement party for that individual?
Seán Fleming (Laois, Fianna Fail)
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Secretary General, I am saying to you-----
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Sorry, it is perfectly relevant, Chairman, and I will tell you why.
Seán Fleming (Laois, Fianna Fail)
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Explain to me why it is relevant to PPPs.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I will tell you why it is relevant. There are huge issues with this particular institute. It seems not only to go to building of things, public-private partners, re-employment of people, throwing out lavish amounts of public money, which is what this committee is about. This committee is about taxpayers' money, Mr. Watt, and we are here to question that whether you like it or not. If that means there are difficult questions about what officials knew and what they did not know, then that is what I am paid €90,000 a year by the public to ask. You can dislike it all you like. If the question is relevant, can I ask, did you, Mr. Ó Foghlú, happen to participate in a retirement function for a gentleman who was rehired a few days later as a consultant?
Seán Fleming (Laois, Fianna Fail)
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As Chairman, I am saying that is not related to PPPs.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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They are all interrelated. We have established this gentleman did not have the adequate expertise according to the national development management agency. He was re-employed the following week as a consultant and we have also established that the building is falling down. Can you tell me, please, Chairman, why is it not relevant?
Seán Fleming (Laois, Fianna Fail)
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In the opening remarks at the beginning of the meeting, I asked people not to identify any person, persons or entity-----
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I did not name any person. I am only talking about public funds.
Seán Fleming (Laois, Fianna Fail)
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-----by name or in such a way as to make him, her or it identifiable. We are into the position of identifying a person who is not in the room and I am saying Mr. Ó Foghlú is not to answer that question-----
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I do not know who they are.
Seán Fleming (Laois, Fianna Fail)
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-----about a retirement party for an individual. It is identifying a person who is not in the room and that is not fair practice. You are not to answer that question.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I have to say, Chairman-----
Seán Fleming (Laois, Fianna Fail)
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Fine. I understand that but I am ruling on it and Mr. Ó Foghlú is not to answer the question.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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What are we doing in here? If we want to find out-----
Seán Fleming (Laois, Fianna Fail)
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We are dealing with-----
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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If I may.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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We are supposed to find out whether taxpayers' money is spent in the correct way but we are not allowed determined who made the decisions. Our whole talk this morning in private session was because there is no accountability because officials consistently - not necessarily the group that is here today - come in knowing there is no outcome. There is no sanction and no issue. The house always wins, the ship will sail in whatever direction it wants, whatever way suits them. No matter how difficult the questions are in search of the truth, on behalf of the people, who are what it is all about, we cannot go there.
Seán Fleming (Laois, Fianna Fail)
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The purpose of today's meeting is to deal with Chapter 4 of the Comptroller and Auditor General's report, which is the overview of public-private partnerships-----
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Yes, and they are all interrelated. How can a contract manager who was not qualified get re-employed the following Monday and on what basis? Was it to do with the succession planning that was highlighted in the whistleblower's report on the missing, elusive page 14 or was it some other function? I think that is perfectly relevant.
Seán Fleming (Laois, Fianna Fail)
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Mr. Ó Foghlú, if that question identifies an individual in your opinion, you are not to answer that question. There are other fora to deal with that. We are dealing with public-private partnerships here today. I personally cannot link that question to the chapter in the Comptroller and Auditor General's report myself and I am saying Mr. Ó Foghlú is not to answer it.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I was just wondering.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Absolutely. I am not talking about that party at all.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I was just wondering was there any ice sculptures at these particular parties for people who were coming back to work the following Monday. That is all. It is a perfectly reasonable question.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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That answers the question and now we know.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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In any event, could you ask was the re-employment of this person as a consultant relevant to the contract management, which had been done so well that the building is falling down? Or was it for some other purpose? I think that is perfectly relevant to public-private partnerships.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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The HEA and the Department have to okay it, do you not, even though you were approached after he was re-employed as a consultant?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I do hear you on that. Have we guidelines-----
Seán Fleming (Laois, Fianna Fail)
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Was Mr. Ó Foghlú's Department directly involved in the employment?
Seán Fleming (Laois, Fianna Fail)
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That is all you can say on the matter today.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Will Mr. Ó Foghlú come back to us next week?
Mr. Seamus McCarthy:
Chairman, I refer back to a report that I published in 2013, namely, "Report on the Accounts of the Public Services 2012". We looked at contract management arrangements at that stage and I think the Deputy has already referred to an issue that I raised. What we found at the time was that the CIT staff member acting as the contract manager for the two CIT projects had been involved with the project since the procurement stage and had been involved in managing the contracts since the two projects became operational. The examination found that the contract manager had detailed knowledge of the project arrangements. A matter that I raised in conclusion was that while CIT also had significant skills and experience in respect of the management of PPP contracts, there was a risk of over-reliance on a single individual as much of CIT's capacity in this area was vested in the contract manager for the two CIT projects. The risk that was there would appear to have crystallised when the individual retired. The college was left without a capacity and a knowledge base. Based on what I have already reported, I do not think it is fair to characterise the individual as not having relevant skills or experience. That would be my suggestion.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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In fairness, the Comptroller and Auditor General is the best auditor in the business but he is not in the human resources area. That is why I asked the national development management agency.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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The other thing is that this individual did return as a consultant. If we lost all that expertise and it crystallised, as Mr. McCarthy said, what was he brought back to do? Is that not a reasonable question?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I knew the context. Human resources is one thing and the national development management agency told us the kind of expertise they would seek. This person did not have that. They may have had knowledge because they were there in a position after the fact. We know it did not go all that well. We know they came back the following Monday as a consultant, but to do what, if we lost all this expertise? I will leave it there.
Seán Fleming (Laois, Fianna Fail)
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Okay. The next speaker was Deputy Jonathan O'Brien but he is not here at the moment. I am trying to find out what is happening in the Dáil Chamber. We were expecting a vote five minutes ago.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Are we coming back?
Seán Fleming (Laois, Fianna Fail)
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We will for a short while after the break but it will not be for long. If anyone has any commitments on your side of the House, we will have no problem meeting them.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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May I ask one more question?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I do not know who I am directing this question to. It just occurred to me. When people pay tolls - on the N4 it is €2.90 and on some of the other roads it is €1.90 - and they do not have the electronic tag which I and I am sure many of us have, they throw the €2 or €3 in but do not get their €0.10 change. Is any assessment done on the amount of money that comes to? Is it the PPP that gets it? Is it much money?
Mr. Michael Kennedy:
I do not have any figures to hand on that. It is the PPPs that get the money, The change that people do not collect at the toll goes to the PPP. Similar to most schemes, half of the vehicles that use the motorways have tags, so there is no issue. A segment of traffic goes to the manual operator at the toll booths. I cannot comment further on the excess coins because I do not know the position.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It would be great to put an estimate on the amount and perhaps we could prevail on the PPPs to consider whether they might donate the excess to charity.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I have nothing against my good colleague, Deputy Aylward, but why can one drive to Kilkenny on a motorway for free but it costs €2.90 at the toll to drive to Sligo.
Seán Fleming (Laois, Fianna Fail)
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One can drive to Portlaoise for free as well.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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How does one determine which roads are tolled?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Poor people.
Seán Fleming (Laois, Fianna Fail)
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That answers it.
Mr. Michael Kennedy:
I do not have that power. The alternative route is the N78 to Athy and the N11 corridor, which goes through Wicklow and Wexford. The options for diversion did not allow tolling on the latter. It would not be a viable corridor for tolling because the volume of traffic is not as high as on the other routes and the available alternative routes would lead to too much leakage. Deputy MacSharry's point has been taken.
Seán Fleming (Laois, Fianna Fail)
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I call Deputy Cullinane.
David Cullinane (Waterford, Sinn Fein)
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We may be interrupted by a vote. I do not wish to be unfair to anybody. It is correct that we are robust and that we ask the appropriate questions. I will stick to the issue of PPPs but I believe we have a responsibility to reflect on today's meeting to determine whether we have made progress in terms of getting value for money. There is a commitment to publish the post-project reviews. When those reports are published, perhaps we will be in a better position to determine whether progress is being made.
Members have asked questions on whether we can really determine that the taxpayer gets value for money in terms of PPPs. One of the difficulties we have is that we do not have any information. I ask Mr. Ó Foghlú and Mr. Watt to put themselves in our shoes. A post-project review is like hen's teeth, the members of the Committee of Public Accounts have never seen them. I have never seen one. I do not know what analysis has been done and outcomes that have been achieved. I would imagine if I were looking at a post-project review, I would see an evaluation of whether the benchmarks that were set were met; whether there were impediments, delays, additional legal costs, and whether mistakes were made and a range of other issues. One learns from a review. Does Mr. Ó Foghlú understand that, from our perspective, if no post-project reviews were carried out by the Department, how can he learn or how can we learn so that we ensure we get value for money?
Seán Fleming (Laois, Fianna Fail)
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I propose that we adjourn for the voting and that we reconvene 30 minutes after the conclusion of the votes. Rather than setting a specific time, at the conclusion of the voting, members have 30 minutes to get a bite to eat.
Catherine Connolly (Galway West, Independent)
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And the witnesses will also have that time.
Seán Fleming (Laois, Fianna Fail)
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Voting can happen quickly or it can take a long time. I just do not know what will happen. That is why I am allowing an additional 30 minutes after the votes before we resume.
Seán Fleming (Laois, Fianna Fail)
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This afternoon we are completing our overview of public private partnerships. Before we begin that topic I wish to raise one other issue arising from a vote in the Dáil Chamber. The Dáil has voted strongly on the motion in relation to the strategic communications unit, SCU, in favour of the Taoiseach, Deputy Leo Varadkar, and the Secretary General of the Department of the Taoiseach appearing before the Committee of Public Accounts at the earliest possible date to account for spending of public money by the SCU.
At a meeting two weeks ago, we decided to invite the Secretary General of the Department of the Taoiseach to appear at the committee. As the Taoiseach is due to appear in committee soon on the Estimates for his Department, we decided to await the outcome of that meeting before deciding what action to take. However, in light of the vote of Dáil Éireann this afternoon to the effect that the Taoiseach appear before this committee, we will formally invite him to do so.
David Cullinane (Waterford, Sinn Fein)
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I agree. The Dáil has agreed the motion and the Taoiseach and the Secretary General of his Department should appear before us. We agreed to invite Mr. Watt, Mr. Concannon, head of the strategic communications unit, and Mr. Fraser to appear before us . As Mr. Watt is here today, will he confirm that he will appear before us on that specific issue?
Seán Fleming (Laois, Fianna Fail)
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We had written separately to Mr. Fraser.
Seán Fleming (Laois, Fianna Fail)
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We are taking it for granted that the Accounting Officers will respond positively. The motion passed by the Dáil specifically requesting the Taoiseach to appear before the Committee of Public Accounts is unusual and it is not for this committee to ignore the wishes of Dáil Éireann.
Seán Fleming (Laois, Fianna Fail)
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We could make up for it today.
David Cullinane (Waterford, Sinn Fein)
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We were reliably told that the last thing Mr. Watt had was an ego so we did not have to reference him specifically.
Seán Fleming (Laois, Fianna Fail)
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Is it agreed that we follow through on the Dáil motion? Agreed. The secretariat will make the necessary arrangements. We will resume our discussion on public private partnerships.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I apologise for not being here earlier but I was in the Dáil dealing with parliamentary questions. I have a couple of questions for the witnesses, the first of which is on risk. What formula is used in calculating risk?
Mr. Robert Watt:
There are various types of risk in regard to public private partnerships, including construction risk, which in a PPP project is treated differently from a traditional project, and risk associated with maintaining the building and having it available because unitary payments are made on the basis of the availability of the asset, whether a school or accommodation. Risk is taken account of in terms of the public sector benchmark reports. We have circulated some of them to the committee as part of these deliberations. The challenge is the difficulty of comparing the benefit of the risk transfer when it comes to the PPP with the risk pertaining to traditional projects. There are various formulae set out in the manual on how we do public sector benchmarking. The NDFA officials may be able to elaborate in more detail about how that is calculated. It is explicitly taken account of but it is challenging because obviously there are many uncertainties involved.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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As a cost-benefit analysis and a cost-effectiveness analysis is required to be undertaken prior to a project being sanction, is the risk calculated at that stage?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Are those analyses made public?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Will Mr. Cahillane elaborate further?
Mr. Gerard Cahillane:
In respect of the PPP projects, we conduct a risk workshop. Risk workshops are attended by officials from the sponsoring Departments and by legal, financial and technical experts. At this stage, we seek to identify all of the risks throughout the lifetime of the project, from planning stage to construction stage and in regard to facilities management and life-cycling to ensure that facilities will be handed back in a fit state after 25 years. At the end of a PPP project, there is a residual life requirement. For example, the roof would have to be good for 35 years, the plant and equipment would have to be good for ten years and the paint work would have to be good for five years. Possible risks at each stage are identified and the cost of fixing any problems that arise are quantified. We assign a probability to each of those risks and we develop a risk matrix. We then identify who is the best party to manage the risk. We only allocate risk to the private sector that it is best able to manage and we keep risks on the State side that we are best able to manage. For example, in the case of a school in which there are pupils, we would not pass on that risk to the private school but we do pass construction risk to the private sector. Once all of the risks have been quantified in a risk matrix, they are then translated into the contract and we ask the private sector to price in that regard as part of its bid for the facility.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Is Mr. Cahillane satisfied that the formula for the calculating risk is the correct one?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Does the Comptroller and Auditor General agree?
Mr. Seamus McCarthy:
It is a process of estimation. It is built on assumptions. If we were looking at it, we would be looking at the reasonableness of the assumptions and the basis upon which the estimates were arrived at. It is fair to point out that in public sector benchmark risk does feature as a very significant cost element which is added to what one thinks the construction cost and running costs would be on the public sector side. There is then a significant additional loading on the public sector benchmark. It is an area that, if being reviewed, would require careful consideration as to how those figures are arrived at.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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We discussed the situation regarding Carillion. I understand that what happened in this regard is not new in that a private investor in a PPP was liquidated. I understand that the all of the projects concerned have been completed and are operational. In such cases, is there an additional indirect cost to the Exchequer? For example, if a party to a PPP housing project goes bust the result would be a slowdown in the construction phase. To my mind, there would be an indirect cost associated with that whereby, owing to the lack of availability of houses, the State would have to continue paying housing supports. In the case of a school project, there would be an indirect cost around renting prefabs. Are such costs factored in on the State side?
Mr. Robert Watt:
On the potential of a party being liquidated, that could impact on a project whether it is a PPP or traditional project. In terms of the most recent case, the State incurred some cost in regard to clearing the site and so on but the private financier incurred the capital cost of building the school. We have not made any unitary payments yet and we will not do so until the school is handed over. This is an example of where risk transfer is working. In the case of a PPP, they have very clear incentives to complete works and hand over the schools because they will not get any payments until they do so.
In the case of traditional procurement, the implications of a company going bust could be even more severe because we have made substantial capital payments during the course of the construction stage.
That could be more difficult for the State as we would have to get a new contractor to finish when we had invested a significant amount of Exchequer funds in the project. With a PPP, we have not invested the bulk of the funds which come rather from private finance. It is an interesting example of how the risk transfer provisions with a PPP work and should be seen to work. To answer the Deputy's question it is implicitly the case that within the comparator the risk is taken into account. Whether we do it traditionally or by PPP, there is always a risk the developer could go bust. I think of O'Devaney Gardens a number of years ago where the project did not happen. One must then get a new contractor and there could be a delay where people who were relying on that housing may have to be housed elsewhere. That is a cost or risk associated with any project, whether it is a PPP or official. The point the Deputy makes is valid and those potential costs are inherent in all projects we do.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Do we have a figure on any of those indirect costs which we may have accrued?
Mr. Robert Watt:
It has not happened that often that we have had a situation in which a company has been liquidated. Certainly we could look at it. The indirect cost would relate primarily to delay. Pupils hoping to be in a school may be delayed and the question arises as to what the cost of that delay would be where they would have to stay in accommodation which is not as good. There is that cost. In the case of housing, people may have to be housed. We can certainly come back to the Deputy if we can find historical examples where that has happened. It is a challenge we face across the board. There have been cases where we were building accommodation infrastructure, in particular during 2007 to 2011, which companies were not in a position financially to complete. That creates numerous problems for the State which we have to manage our way through as best we can. There were one or two cases where we decided not to finish the works and other cases where we had to take someone on to finish them. The response is case by case by the various bodies.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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The Minister indicated this morning that the 10% cap would be scrapped. What implications will that have?
Mr. Robert Watt:
The Deputy is right. The procedure up to now is that there is an affordability cap where we say the unitary payment in a given year will not be 10% more than the Exchequer or capital cost. If the Exchequer budget is €4 billion, the unitary payment should not be more than €400 million. We have moved back to the original budgetary control mechanism where in effect the capital cost of the PPP will be charged against the account of the body as if it were an Exchequer project. That means that when the sponsoring entity or Department is looking at the project from an accounting perspective, there is no advantage one way or the other as to how that is accounted for when a decision is made on which option to go for. If a secondary school costs €20 million, for example, and it takes three years to build, that will be set notionally against the account of the Department of Education and Skills for its budget. That means the PPP and the Exchequer or traditional approach would be accounted for in the same way when deciding on the merits of projects. It is a significant change if one goes back to the way we were before. We will see over time what impact it has on the decisions people make on these projects.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I turn to why we still use PPPs, whatever about ideological opposition to them. I will not argue it but someone could say there was a rationale for PPPs in the economic downturn. However we are getting to a situation in which even that argument no longer holds water when only four or five other European countries use them. The reason other countries do not use them is that there are questions over whether they provide value for money. What is the situation on that? We are third highest at 1.1 and Britain is in front of us. I do not know who else is in front of us but countries like Germany are at zero. They do not use them.
Mr. Robert Watt:
It is true. We had this debate today and Deputy Connolly referenced the Commission report. Others referenced reports from the UK. There is an increasing debate, which is important, on how we fund infrastructure. Do we fund it by user charges or by Exchequer funds and traditional or by deferred or unitary payment PPPs? There is a debate to be had. We discussed this at length today. Internationally, there is increasing debate about whether they stack up or constitute value for money. That is why in the various studies we have done and the debates we have had there has been a strong focus on value for money, the comparator and the evidence, and whether we are sure this makes sense for the State. I agree with the Deputy that during the crisis years, additionality was a reason and that reason does not hold anymore. As such it has to be focused on value for money as opposed to the balance sheet treatment. We accept that and we debate the role of PPPs in the future. We are increasingly cautious about them which will drive the policy into the future.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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My final question is on the variation in costs that can happen. We have got some figures in particular on costs or variations incurred by TII over the period 2013 to 2016 which amounted to €13.3 million. The two main ones are the N11 and the Newlands Cross scheme. There was a €4.2 million in relation to Newlands Cross and a variation of €1.1 million in relation to the N17-N18. What was the nature of those cost variations?
Mr. Michael Nolan:
I do not have the exact detail on the variations on the Newlands Cross and N11 Arklow-Rathnew scheme, but one of the larger variations related to the reclassification of the dual carriageway on the N11 to motorway status. There was a big variation there with regard to signage delineation lighting and whatnot. Obviously it was a higher speed road open to 120 km/h as opposed to 100 km/h. There were other variations with regard to drainage upgrades. Part of the scheme was to revitalise a section of the road south of Arklow and Rathnew down as far as Gorey. It was 40 km of old dual carriageway which had to be refreshed. They were the main variations. I do not have the detail on the N17-N18 project but I think there were a lot of accommodation works variations. One junction was upgraded with a safer layout following a safety audit. There was one accommodation road coming down from a property where we saw an opportunity to lengthen the road and provide alternative access in the event of flooding which was a regular occurrence in the area. That provided some relief. It is that sort of thing.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Mr. Nolan might pass more detail on to the committee.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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The number of legal challenges to PPPs by underbidders is a concern. We are looking at a figure of 10% for legal costs as an overall figure within PPPs. What can be done to reduce the incidence of legal challenges?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Is it fair to say that PPPs are more open to legal challenge than ordinary public-----
Mr. Robert Watt:
I am not sure that is the case. I am not sure we have the evidence to back that up. There are many contracts - traditionally pure contracts - where we have a procurement process or planning issue which is challenged. In his report the Comptroller and Auditor General set out some high-profile issues. The one in relation to Grangegorman could have happened under any type of procurement contract and was not specific to PPP. However it was very high profile and it was disappointing the development was delayed for so long. People say that because there is more complexity in these types of contracts it leads to more litigation, but I do not know. I would not want to say because I am not quite sure we have the evidence to confirm what the Deputy suggests. Certainly they are more complex.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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In fairness, it is not just what I am suggesting. The Comptroller and Auditor General also referenced it in his contribution and the Parliamentary Budget Office, PBO, publication that we got also referenced the issue of legal costs. It is not just myself.
Mr. Robert Watt:
I agree with the Deputy. There are legal costs and the Comptroller and Auditor General has instanced examples where there are a number of legal challenges. We can certainly come back to the Deputy. I suppose the point I would make in relation to the Comptroller and Auditor General's report is that all capital works projects, not just PPPs, are vulnerable to legal challenge. It is a fair point. It is a constant challenge for us.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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That is the reason I asked what the comparison was between PPPs and non-PPPs. That may be a body of work that could be undertaken.
Mr. Robert Watt:
It is a fair point. Most of the projects that we develop are traditionally procured; they are not PPPs. We have an awful lot more examples on the other side. Certainly, we can have a look. I do not know if we have done a review. It is a big job but, certainly, if there is any evidence that suggests, we can go back to it. There is always a risk that people will challenge.
Seán Fleming (Laois, Fianna Fail)
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Mr. Cahillane wants to contribute.
Mr. Gerard Cahillane:
We in the NDFA have procured about eight or nine projects and we have had only one challenge, which was to do with the unfortunate development in Grangegorman. Where we were challenged, it has delayed the project significantly. The good news there is that we won on all counts and the costs were awarded against the entity that challenged the State.
Mr. Seamus McCarthy:
I will comment in relation to that. Because PPP projects are so big and they take so long to develop, underbidders tend to spend a lot of money to stay in the game for a period and they hate to lose and are likely to be quite litigious and try to recover some of their costs. When we first looked at PPPs, there was a practice in places to pay some of the underbidder costs but a view was taken here, I think, probably rightly, that that was not a course that would be followed here. The practice was where one would indemnify the bidders against high costs. There is a kind of a trade-off in the matter.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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What we are saying is that perception may exist but there is no evidence there to support it.
Mr. Robert Watt:
That is a fair view. I hear what the Comptroller and Auditor General is saying. The cost of preparing the bids for the consortia are greater and that, obviously, increases the incentive for them to challenge if they are unsuccessful. Everything else being equal, one would expect that there will be more challenges.
We just do not have the full range or database which looks at it because there is a lot of legal action. Somebody might threaten to take action against the State in respect of something and then it is dropped pretty quickly or we decide we will settle, or we go all the way, we challenge and we win or we lose. Sadly, there is a lot of activity down in those courts.
Mr. Seamus McCarthy:
Another factor that might come into play with a lot of projects is that there tends to be claims after the project has been undertaken, that is, from the successful developer, and one can get into settlement negotiations and compromise agreements, or legal challenges, when they are settling the account. It is quite difficult to manage the threat of legal action. I suppose the best defence against losses arising in that way is to ensure that one follows good process and good procedures, that, if you like, i's are dotted and t's are crossed, and that one protects oneself in that situation against losing a case. What is interesting is that where the three legal challenges were referenced in the report, in all cases the State side won.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I might come back in later.
David Cullinane (Waterford, Sinn Fein)
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Despite the robustness of some of the exchanges earlier, Mr. Watt stated that he values public scrutiny and public accountability, and I do not doubt that. Obviously, that is why we are here to examine and probe the use of taxpayers' money and whether we get value for money or not.
My first question is an obvious one. I was making the point earlier that I have not seen any of these post-project reviews and I gave my understanding of what might be in them. Would Mr. Watt see it as acceptable that this committee, which examines value for money, has never seen a single post-project review?
David Cullinane (Waterford, Sinn Fein)
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Is it fair to say as well, and this is not peculiar to Mr. Watt, it was not always the view of the Department that post-project reviews should be published?
David Cullinane (Waterford, Sinn Fein)
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Is that because Mr. Watt obviously sees value in post-project reviews?
David Cullinane (Waterford, Sinn Fein)
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Data evidence, and I would imagine learnings, would flow from it as well. We can learn from it.
David Cullinane (Waterford, Sinn Fein)
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Were there mistakes identified in the existing ten or 11 reviews, which we have not seen them but Mr. Watt has seen?
David Cullinane (Waterford, Sinn Fein)
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I am coming to them.
David Cullinane (Waterford, Sinn Fein)
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Learnings can lead to changes which could then save money.
David Cullinane (Waterford, Sinn Fein)
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That is why I was asking Mr. Ó Foghlú earlier would he share my frustration that, despite 16 years of using PPPs, not one single post-project review was carried out by his Department. How can I be satisfied then, despite the other processes that he says are in place, that we have learned from all the PPPs under his Department's watch?
After 16 years, I am intrigued that Mr. Ó Foghlú talked a number of times about it as a mid-term analysis. It is hard to square that. It does not sit right with me. My question to Mr. Ó Foghlú is obviously a direct one as well. Is it acceptable that not one single post-project review was carried out by his Department?
Mr. Seán Ó Foghlú:
I will answer that question, but can I start by talking about the public sector benchmarks that we have? We were the first ones to publish the information and we have also now made available the three benchmark reports. There is substantial information to make judgments on value for money within those, if the committee wished to look at those in detail. We collectively decided that it was a good thing to do to make those publicly available from the point of view of transparency.
We have a number of different areas to look at to make sure that we are getting value for money and to learn as we are going. Particularly, the contract management is one, but also the NDFA referred to the review it puts in place after a contract is signed. We have learned significant lessons and changed approaches significantly as a result of those steps, not just in PPPs but in school buildings and other education sector buildings. For example, in one of the initial PPPs, in order to reduce wear and tear corridors were widened by the PPP company itself at its own cost. We adopted that as a Department standard.
David Cullinane (Waterford, Sinn Fein)
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In terms of the benchmark reports, no doubt Mr. Ó Foghlú has learned.
David Cullinane (Waterford, Sinn Fein)
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I understand. I appreciate that and I appreciate the fact that the Department of Education and Skills was one of the first Departments to publish them. Mr. Ó Foghlú has given that context. He dealt with that earlier and we can accept that was right for his Department to do.
David Cullinane (Waterford, Sinn Fein)
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Mr. Ó Foghlú can and then when he is finished, he might just answer my question-----
David Cullinane (Waterford, Sinn Fein)
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-----about the post-project reviews, as to why his Department has not conducted one and can he share my frustration.
Mr. Seán Ó Foghlú:
What I am trying to get at is that post-project reviews are not the only ways to learn. I have given one example of learning. I will give a second. There are more, but the second has been to change how we do the planning in terms of the processing. We used to get outline planning permission and now we get full planning permission because that way there can be more certainty and it does not create a doubt, an uncertainty and a risk, especially given planning within the State.
That is very important.
I wanted to give a couple of examples to show that we have not introduced this, sat on our hands and not learned any lessons. We have learned significant lessons. I would prefer if we had completed a review and I am disappointed that we have not. I referred to it as a mid-term review. I would rather that we had done it a significant time ago but we have not been able to do so. It is a very complex review. We are going to take a bundle of approximately five schools to be compared to five other schools and analyse the effectiveness of how the facilities have been run, look at the standard of the buildings and compare and contrast all of those aspects. It is going to be a huge piece of work. We have tracked the numbers in the schools but the review will also consider that. It is going to look at all of those elements and I expect that we will learn from it. I do not think we will repeat it in the same way because it is so intense. We started doing it four or five years ago and had to pause and rethink how we were doing it. We have now restarted it. I accept the Deputy's point that we should have done it earlier.
David Cullinane (Waterford, Sinn Fein)
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Mr. Ó Foghlú has made the point that there is huge value in the exercise the Department is going to embark on. My point is that if that had been done over the past five years, this meeting may have gone very differently and members would have had the opportunity to ask questions and learn from the data and analysis that would have been done. We will now have to wait until it is completed. Mr. Ó Foghlú is correct that a range of other reports and analyses have been done but post-project reviews do a very specific job and have a very specific purpose. He made the point that he sees value in them and anticipates learnings therefrom. If it had been done earlier, we might be in a better position.
I wish to turn to the witnesses from TII who have not yet accounted for post-project reviews of PPPs under their watch. Is Mr. Nolan the appropriate witness to deal with this aspect?
David Cullinane (Waterford, Sinn Fein)
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How many of the post-project reviews has TII carried out?
David Cullinane (Waterford, Sinn Fein)
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The only ones done were by TII.
David Cullinane (Waterford, Sinn Fein)
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Apart from the Courts Service.
Seán Fleming (Laois, Fianna Fail)
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Do the witnesses have a list of the ten post-project reviews?
David Cullinane (Waterford, Sinn Fein)
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Has the Department of Health undertaken PPPs?
David Cullinane (Waterford, Sinn Fein)
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Has any other Department carried out PPPs but not completed a post-project review?
Seán Fleming (Laois, Fianna Fail)
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Dublin City Council and the OPW-----
David Cullinane (Waterford, Sinn Fein)
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The vast bulk of the post-project reviews that have been carried out were done by TII.
David Cullinane (Waterford, Sinn Fein)
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Okay. So, there is ten. However, there have been far more than ten PPPs.
David Cullinane (Waterford, Sinn Fein)
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Are there any PPPs on which post-project reviews were not and will not be carried out on Mr. Nolan's watch?
David Cullinane (Waterford, Sinn Fein)
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Okay. Mr. Watt stated that he does not have a difficulty with any of these reviews being published. I presume that, similarly, Mr. Nolan would have no difficulty in that regard.
David Cullinane (Waterford, Sinn Fein)
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We have been told that commercial sensitivity is one of the reasons why such reviews are not published. Is there a chance that heavily redacted reports will be published or will a comprehensive version be made available? The last thing we want is to leave this room thinking we will have all these wonderful reports only to find that they have been heavily redacted. I ask Mr. Watt and Mr. Nolan to address that genuine concern.
Mr. Robert Watt:
TII can look through the reports and make a decision in that regard. However, there is a balance to be struck because we do not want to publish information that may affect upcoming or ongoing competitions as that may ultimately impact on the taxpayer getting the best value. However, we will approach this issue and follow up with our colleagues on the basis that we will provide the information and only redact what we are certain is sensitive information. We are confident that the vast majority of the information will be made available.
David Cullinane (Waterford, Sinn Fein)
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What is Mr. Nolan's view on that issue?
David Cullinane (Waterford, Sinn Fein)
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Have there been any PPPs relating to Irish Water?
Seán Fleming (Laois, Fianna Fail)
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Certain works were carried out through the local authorities.
David Cullinane (Waterford, Sinn Fein)
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Have any post-project reviews been carried out in that regard?
David Cullinane (Waterford, Sinn Fein)
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Can we find out?
Seán Fleming (Laois, Fianna Fail)
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Such PPPs were commenced under the then Department of the Environment, Community and Local Government before being handed over to Irish Water. We will check with the Department, in its new guise, as to whether any reviews were done before the handover and we will ask the same question of Irish Water, even though I do not think it does not technically fall under the remit of this committee. We will ask the same question of both Irish Water and the Department in order to ascertain whether any were carried out either before or after the hand over.
David Cullinane (Waterford, Sinn Fein)
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Has Mr. Watt read the special report of the European Court of Auditors on PPPs?
David Cullinane (Waterford, Sinn Fein)
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It is the very aptly named special report entitled Public Private Partnerships in the EU: Widespread shortcomings and limited benefits.
David Cullinane (Waterford, Sinn Fein)
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It is the one that was referred to earlier.
Seán Fleming (Laois, Fianna Fail)
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It was published two days ago.
David Cullinane (Waterford, Sinn Fein)
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It was published by the European Court of Auditors.
David Cullinane (Waterford, Sinn Fein)
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Mr. Watt has not had a chance to read it. He might be surprised to learn that three PPPs in Ireland were examined as part of the report, which is far from glowing in its assessment of PPPs. As I said, the report is entitled Public Private Partnerships in the EU: Widespread shortcomings and limited benefits. I imagine there is some bedtime reading and some learnings for Mr. Watt in that report.
Seán Fleming (Laois, Fianna Fail)
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One of the three Irish projects mentioned-----
Seán Fleming (Laois, Fianna Fail)
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The European Court of Auditors has a different-----
Seán Fleming (Laois, Fianna Fail)
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PPP arrangements were in place before the legislation came------
David Cullinane (Waterford, Sinn Fein)
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That may be the case but I ask Mr. Ellison to take at face value the report of the European Court of Auditors, in which three projects in Ireland were evaluated. He may have a different view on whether those projects were PPPs and I take his word that they were not. My point is that, regardless of the examination carried out for that report, its title is Public Private Partnerships in the EU: Widespread shortcomings and limited benefits. I am not being difficult but, rather, am saying that there are learnings in that report for everybody here. It was only published a couple of days ago but, as we are here to discuss PPPs, its publication is timely. It is another report and body that has examined this area and there will be learnings for the State from it.
Mr. Watt said earlier in response to my colleague that there is a very healthy international public debate on PPPs.
David Cullinane (Waterford, Sinn Fein)
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There is debate regarding how we fund capital projects, whether that be through direct funding, charges for the service provided, general taxation, PPPs or a hybrid version of any such measures. Myriad options are available. There is a very healthy debate on whether or not we get value for money. The difficulty is that there is a dearth of genuine, transparent reporting and analysis in the State in regard to whether we get value for money. One of the issues referred to by the Comptroller and Auditor General is that far more could be done to improve public debate in this State on PPPs. If we take anything away from this meeting, it is that far more must be done. Notwithstanding the robustness of the exchanges, I think all present will agree that we have shone a spotlight on the issue. I am of the view that there has been insufficient scrutiny, oversight and genuine public debate because the data are not there. None of the post-project reviews have been published. How can any academic or think-tank evaluate them if the data or reviews are not available? There is much we can learn and many improvements we can make in terms of what is going to happen.
It is just disappointing that it did not happen up to now. Mr. Watt can respond to that if he wishes. If I can just make a final point, the other thing I learned is that the code Mr. Watt referenced earlier is voluntary. I want to come back to that. It is not a legal requirement and it is not underpinned by legislation. It is still a voluntary code. That is something from a policy perspective, which is not a matter for Mr. Watt but for Government, to which we should return to in our own periodic report because it has been raised with us and we have had some discussion on it. I do not know whether Mr. Ó Foghlú or Mr. Watt would like to respond to my general observations.
Mr. Robert Watt:
As an observation, in order to have a debate we need to put out information. We have provided an awful lot of information as part of these discussions. The first step is to look at the public sector benchmark and the comparator between the assessment of cost benefits for traditionally procured projects and those of projects procured through PPP. For the first time that information is out there and that could lead to informed debate around assessing which option we should go for. As the Comptroller and Auditor General mentioned in respect of a previous issue around risk, there is an element of estimation here. It is not clear-cut. There needs to be debate about that. People need to scrutinise the comparator and see if they are content with its robustness. Based on the information which we set out, there is potential to have a much more informed debate. Just having the information out there does not, of course, mean that debate will be informed, but it has the potential to be. The post-project reviews could also help, but let us see how that contributes to the debate.
This issue is not exclusive to PPPs. It is relevant for all public works. The whole debate is very important because there is a lot of discussion about how we fund infrastructure. People talk about off-balance sheet and innovative solutions and all the rest of it. Many Deputies responding to many policy issues suggest that there is an innovative or off-balance sheet solution when in fact there is not and the options are that the people who use the infrastructure pay for it, that the taxpayer pays for it now, or that the taxpayer pays for it on a deferred basis. It must be clarified that somebody has to pay for infrastructure and that how we pay for it is the key issue. I fully agree with the Deputy in terms of the debate.
On the public code, I do not think we would describe it as voluntary. It is not voluntary for Departments to decide whether they will do a cost-benefit analysis of a project. They have to do it or the Minister for Finance or for Public Expenditure and Reform will not approve the money because the Government will not approve it. It is not voluntary in that sense but there is no legal sanction because it is not based on legislation. Of course, there are many things which we do not put in legislation for very good reasons. Administrative rules and regulations drive much of our activity. Whether we want to go down the route of trying to codify it in law is another policy issue but it would raise many different questions.
David Cullinane (Waterford, Sinn Fein)
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I have one final observation. I thank the Comptroller and Auditor General and his office for the work they have done because the fact that this issue was in the special report allowed us to put a spotlight on it. He was very fair in outlining that there were difficulties, a lack of public debate and other issues to which he alerted this committee but also in outlining that there were changes under way which would be of benefit to all of us. I just want to thank his office for the work it has done.
Catherine Connolly (Galway West, Independent)
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The debate should take place in the Dáil. Our role is to highlight the issues, as is the role of the Comptroller and Auditor General, so that proper facts and information can feed a debate in the Dáil which would lead to a proper policy. That is the difficulty. I do not blame the witnesses for that. There has been no backup for the policy. It was an ad hocreaction to difficulties in the economy for a particular ideological reason. We are here today and we cannot say that there is good value for money.
I would like to ask practical questions. There is a significant change in respect of the 10%. Am I correct that ceiling is gone? Yes. So it has gone back to each Department. What was the price of the school which Mr. Ó Foghlú gave me this morning when I asked?
Catherine Connolly (Galway West, Independent)
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It was €20 million.
Catherine Connolly (Galway West, Independent)
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It costs €20 million to build a secondary school for 1,000 pupils. If we use that as an example, would the Department of Education and Skills show that as an upfront cost as opposed to being spread over the 25 years? Is that right?
Mr. Robert Watt:
There are two issues. When we account for it in cash terms, the appropriation account of the Department will show the unitary payment over the 25-year period of the school. When it comes to comparing the projects for accounting purposes in the short run, the Secretary General, Mr. Ó Foghlú's Department of Education and Skills, has an envelope for the next number of years for a given amount. If the Department decides to undertake a PPP project instead of a traditionally procured project, the capital cost of that will be set against the Department's capital envelope as if it had been procured traditionally, even if it goes down the route of PPP. In effect, the Department of Education and Skills will not be able to spend that money again if it decides to go down the PPP route because it will take up some of the envelope set out for it. In effect, there is a difference between the cash accounting, which is the unitary payment for PPP, and the notional accounting when it comes to our rules about how envelopes are managed when it comes to these projects.
Catherine Connolly (Galway West, Independent)
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So the restriction on PPPs will be in terms of the capital budget for the Department in question.
Catherine Connolly (Galway West, Independent)
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To use the example of €20 million to build a school - which seems extraordinarily high but I am no expert so I will leave the fact alone for a moment - the developer is paid off over a 25-year period and then the school is handed back to the Department of Education and Skills. What happens then with maintenance? I presume that no school has come back yet.
Catherine Connolly (Galway West, Independent)
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Which five schools are due to come back?
Mr. Seán Ó Foghlú:
Say we had five second level schools. The first group, which was from 2002, will come back in 2027. The Department will typically own those. They will be on land which it owns. Just as we do with other new schools we build, we will lease the use of the schools to the trustees in question. They will then have to come back into the system in which schools outside of PPP operate and we will fund them for caretaker services, maintenance and so on.
Catherine Connolly (Galway West, Independent)
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Is there an option in any of those contacts for the company that has the contract to stay on or will they all come back to the Department?
Catherine Connolly (Galway West, Independent)
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Sharing of revenue was built into some of the contracts for schools but I see that no revenue came back. I think Mr. Ó Foghlú's comment was that there was very poor uptake. I am delighted by that because I thought it was a very bad idea. It is acknowledged that there was poor uptake from people wishing to use schools outside the educational system.
Mr. Seán Ó Foghlú:
The issue relates to the profit that would come back. Schools get a certain number of hours a year, I believe it is 300 or 400, outside of school time. There can be usage after that which just pays the costs. It is the usage after that which makes a profit. There is then the issue of splitting where the profits go. That has been quite limited.
Catherine Connolly (Galway West, Independent)
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I understand that.
Catherine Connolly (Galway West, Independent)
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I understand that the Department has stated that there has been limited third party use of the schools. Is that correct?
Catherine Connolly (Galway West, Independent)
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So revenue did not come back that way.
Catherine Connolly (Galway West, Independent)
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This was another criteria used to sell the PPP which really was without foundation. I have to tell Mr. Ó Foghlú that I am delighted because I think it was a very bad idea. A school should be used for the community and never for profit. That was a criteria that was set. Why is Mr. Ó Foghlú shaking his head?
Catherine Connolly (Galway West, Independent)
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Absolutely. They should be used by the community.
Mr. Seán Ó Foghlú:
By the community, absolutely. We also have some different arrangements in place with local authorities to encourage school usage. It is something we are really striving to do. It is a matter for the school. We have issued encouragement through circulars for schools to do that. We are generally seeking to encourage them to have after-school care and school completion programmes funded by the Department of Children and Youth Affairs. Tusla and so on operate on school premises. They are all really good things and we wanted to continue that in the context of PPPs. However, we wanted schools to have the first call on the hours.
Catherine Connolly (Galway West, Independent)
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Are they to pay for those hours?
Catherine Connolly (Galway West, Independent)
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Okay. Who will be dealing with the revenue coming from the National Conference Centre? I understand the revenue due back from that project was quite sizable. There was €2.4 million in 2013 and then no revenue in 2014, 2015 and 2016. Who monitors the revenue?
Catherine Connolly (Galway West, Independent)
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There is nobody from the Office of Public Works.
Catherine Connolly (Galway West, Independent)
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So the OPW has no role in that at all?
Catherine Connolly (Galway West, Independent)
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Again, I do not understand that. We have the national conference centre. If the threshold exceeds a certain level, money is presumably due back to the taxpayer. Some of it came back in 2013. I will not go into the minutiae of it. In 2014, 2015 and 2016, no revenue share was available for the OPW.
Catherine Connolly (Galway West, Independent)
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Yes, but who assesses performance?
Catherine Connolly (Galway West, Independent)
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Does the Office of Public Works have a contract manager? Does it have enough staff to do that?
Catherine Connolly (Galway West, Independent)
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I saw that but then there was nothing in 2014, 2015 and 2016.
Mr. Seamus McCarthy:
In fact, the figure for international conference delegates, which is the key metric for performance for the national convention centre, was ahead of target in that period. It was not the case that if one was ahead of target; one had to be substantially ahead of target to generate a surplus. There is a space there for the private sector operator to generate a certain element of extra profit. It is when it becomes a super profit-----
Catherine Connolly (Galway West, Independent)
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When it exceeds that, it is shared.
Catherine Connolly (Galway West, Independent)
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Going back to the Gort-Tuam road, I re-read that over lunch. In respect of the Marguerite Fund, its interpretation of TEN-T regulation provides for the court's audit rights even in a case where the beneficiary is a private partner. Are the witnesses disagreeing with that? This is what is set out in the report. I might be putting the witnesses at a disadvantage because they have not read it but it clearly sets out that even in a situation involving a private partner, the funding is coming under the Marguerite Fund. No documents-----
Catherine Connolly (Galway West, Independent)
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I understand all that. My question is-----
Catherine Connolly (Galway West, Independent)
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I heard that from Mr. Kennedy but-----
Catherine Connolly (Galway West, Independent)
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Is that not relevant?
Mr. Brendan Ellison:
There was no EU money. We got our own legal advice. Because no EU money was involved, the remit of the European Court of Auditors did not extend to decisions the Irish Government made with its own money. On that basis, we were helpful in showing it the project but we did not show it the decision-making process that went on in Ireland-----
Catherine Connolly (Galway West, Independent)
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Why not?
Catherine Connolly (Galway West, Independent)
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Is that not the crucial thing for us - how the Department makes a-----
Catherine Connolly (Galway West, Independent)
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It clearly has a different opinion on this. When one goes back and reads the report, it is set out on page 52.
Catherine Connolly (Galway West, Independent)
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It clearly has a different opinion, which is that when funding is received under this fund, notwithstanding that it is a third party, a private company, there is an obligation. The Department is saying it does not accept that.
Catherine Connolly (Galway West, Independent)
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Is that where it rests? The Department has said that is where it rests.
Catherine Connolly (Galway West, Independent)
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The PPPs started in 1999. Was around the turn of the century? How many projects have been completed here in that length of time?
Catherine Connolly (Galway West, Independent)
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Forty or 50 of them.
Catherine Connolly (Galway West, Independent)
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And then there is the wastewater.
Catherine Connolly (Galway West, Independent)
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Within this room, how many are we talking about?
Catherine Connolly (Galway West, Independent)
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I think the misunderstanding might have been because the Comptroller and Auditor General referred to ten. Eleven reviews have been done. One of them is that of the court while the other ten are transport so 11 have been done in total. If we take this one where everybody gave great praise because it came in under time, would it not have been a perfect opportunity to say to the European Court of Auditors "this is why we made this decision, it has worked out much cheaper" and just give over the information? It asked the Department for it.
Catherine Connolly (Galway West, Independent)
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Maybe I am naïve. This was a golden opportunity to show how the Government makes decisions about going for a PPP, as opposed to direct-----
Catherine Connolly (Galway West, Independent)
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That ties in with the point that the Department does not voluntarily give anything until it is actually forced to do so.
Catherine Connolly (Galway West, Independent)
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The Comptroller and Auditor General is not coming in on that?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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So he did not get the papers, did he?
David Cullinane (Waterford, Sinn Fein)
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The European Court of Auditors did not ask the Comptroller and Auditor General to hand the papers on to it?
David Cullinane (Waterford, Sinn Fein)
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But did it seek that back door option?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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If the Comptroller and Auditor General had got the papers and carried out a report, that report would have been made public.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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So the European Court of Auditors could have got the report then?
Mr. Seamus McCarthy:
No, I would not necessarily publish the public sector benchmark. I have reported on a number of PPPs and have given considerable detail about how a decision was made to proceed with the PPP in question so, presumably, I would have gone through the same process if I had looked at the Gort-Tuam road. I may yet do it.
Catherine Connolly (Galway West, Independent)
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In his opening statement, Mr. Watt mentioned that each PPP will be judged on a one-by-one basis from now on. Is that different from bundles? What does that mean?
Mr. Robert Watt:
It comes back to the point about the accounting treatment and about we have the affordability cap as a percentage of the unitary payment percentage of the capital or whether we apply the capital cost of the projects over the number of years. I was making the point that when it comes to the incentives facing Departments in choosing between PPP or Exchequer, they would treated exactly the same when it comes to the accounting treatment.
Catherine Connolly (Galway West, Independent)
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In respect of health centres and the bundle, will they come back to the State to be owned by the State like schools?
Mr. Gerard Cahillane:
In respect of the delivery of 14 primary centres, at least seven of them have already been handed back to the HSE for operations and the other seven will be delivered over the next couple of months.
Catherine Connolly (Galway West, Independent)
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They will be a public asset owned by the State.
Catherine Connolly (Galway West, Independent)
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It is different on the eastern side of Galway city where we are paying rent of €250,000.
Catherine Connolly (Galway West, Independent)
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It is a primary care centre. The National Development Finance Agency seems to have a huge role in monitoring, reviewing, learning and procuring.
Does the agency also source finance?
Catherine Connolly (Galway West, Independent)
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Who does the agency advise?
Catherine Connolly (Galway West, Independent)
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So the agency advises the State.
Catherine Connolly (Galway West, Independent)
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With regard to monitoring by the unit in the Department of Public Expenditure and Reform, by the National Development Finance Agency NDFA and by each Department ,who looks at the direct build? Is there a unit for that? Does the NDFA cover that or does the agency just do the PPPs?
Catherine Connolly (Galway West, Independent)
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Who does the analysis of the direct build? When I refer to "direct build" I mean without the project going through a PPP.
Catherine Connolly (Galway West, Independent)
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We have the team in NDFA and we have the Department of Public Expenditure and Reform and a central unit. Who does this monitoring for the public spend directly on a hospital or a health centre?
Catherine Connolly (Galway West, Independent)
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The policy.
Catherine Connolly (Galway West, Independent)
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Each body whoever it is.
Seán Fleming (Laois, Fianna Fail)
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Is Mr. Cahillane the head of the NDFA?
Seán Fleming (Laois, Fianna Fail)
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Who is the director?
Seán Fleming (Laois, Fianna Fail)
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Is there a vacancy?
Seán Fleming (Laois, Fianna Fail)
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How long has the position been vacant?
Seán Fleming (Laois, Fianna Fail)
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There is a competition ongoing. Who was the previous incumbent?
Seán Fleming (Laois, Fianna Fail)
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I thank Mr. Cahillane for that clarification. I now wish to focus on roads and schools and I will turn first to the issue of transport. My questions are based on the documentation supplied to the committee by Transport Infrastructure Ireland. Reference was made to the list of the ten areas where some work has been done as part of the post-project reviews. The list includes the Kilcock-Kinnegad motorway, the Dundalk western bypass, the N8 Rathcormac-Fermoy bypass, the N25 in Waterford, the Limerick tunnel, the N3 road Clonee north to Kells, the M6 Galway to Ballinalsoe, the M7 and M8 to Portlaoise, the M50 project, and the motor services areas. These are the older projects. The chart is going around the Oireachtas but it is based on this same information. Is the operational date from the date the roads became open to use?
Seán Fleming (Laois, Fianna Fail)
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When would the contracts typically have been signed? Was it two or three years out? I am sure that construction was at least two years on all the projects.
Seán Fleming (Laois, Fianna Fail)
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I understand that. There has, however, been a little bit of a myth that has been going around here today that these became popular during the recession when the State encouraged this type of finance. I do not believe this is the case. These projects were in their height in the good times before the recession. When the recession came along many of the projects that had been in the pipeline stopped. This is the exact opposite to what some people have said at the committee today. The Clonee project for example started in 2010. That contract would have been made three years earlier. The Limerick project and the M50 were also in 2010. This means that all those contracts were signed in 2007. The Kilcock-Kinnegad contract was signed around 2002, the Dundalk contract would have been signed in 2002, the Fermoy project signed in 2003, the Waterford project was signed in 2006, the Galway-Ballinasloe M6 project was signed around 2006, the M7 and M8 in Portlaoise was signed around 2006-2007, and the motorway services project was signed around 2007. It has been said a few times in this committee that most of these projects were going when the State was not able to access finance and that they were good for employment and so on. This is not the case at all. The projects actually ground to a halt then. I recall some of the decentralisation programmes under PPP, one of which was three big Government offies in Carlow, Mullingar and Portlaoise. These went to final stage in the process. The contractor had spent millions of euro as the preferred bidder but the project was pulled at the end. This is an example of the risks borne by bidders in competitions. I have asked if that person was paid. That instance was offices for the Government so it was probably an OPW project. My point is that these projects collapsed during the recession and they are now picking up again. They were not countercyclical. They were very much it.
Seán Fleming (Laois, Fianna Fail)
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Am I correct in saying this? That was referred to several times at the committee today.
Seán Fleming (Laois, Fianna Fail)
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I know that Mr. Kennedy did not say it. I know who said it.
Mr. Michael Kennedy:
In a response to Deputy Connolly's point about a delay in the Gort-Tuam scheme, I said that it was because the project fell slap bang in the middle of the financial crisis and the private sector could not get funders. That scheme dragged on at the procurement stage, not at the construction stage. The procurement stage took quite a while to get signed. The Chairman is right that the national development plan in 2000-2006 identified PPP and particular schemes we were to procure through PPP. It was all set out, as the Chairman has said, back in the good times when there was a-----
Seán Fleming (Laois, Fianna Fail)
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The Comptroller and Auditor General was dealing with cost overruns into €16 billion and €17 billion at that time. That was the topic when the money was flying. Most of the projects did not come through during the recessionary period.
I want to take the witness through the document he gave. There is confusion in this regard for a lot of people who are watching. There is a value for money assessment in the comprehensive briefing note given to the committee by the witness today. Am I correct to say that the value for money assessment is done at the commencement and the beginning of project?
Seán Fleming (Laois, Fianna Fail)
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Okay, that is fine. The value for money figures included in the submission are at that early stage of the process.
Seán Fleming (Laois, Fianna Fail)
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I point this out in case somebody would get the impression that those value for money assessments related to post-project reviews. They were actually value for money reviews before the commencement of projects.
Seán Fleming (Laois, Fianna Fail)
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I want people to understand that because some people could very easily think the value for money assessments were done on these ten schemes post project. They were not. The assessments were done as a comparison. I refer the committee to pages 12 to 14, inclusive, of the briefing document. The information looks at post-project reviews. Page 12 contains the list I have read out. Page 13 looks at the conclusion of post-project reviews. These are the reviews that have been done which will be published shortly. When the committee sees these reviews, we will talk again. Transport Infrastructure Ireland has included some conclusions in the document forwarded to the committee today. The conclusions cover planning, the implementation of projects, the objectives achieved in helping to reduce traffic volumes and congestion in towns and bypass routes, reduction in the numbers of fatalities, and the contribution to providing the motorway and dual carriageway network routes. When Transport Infrastructure Ireland conducts its post-project reviews, how does it take account of the value of these motorways in the reduction of fatalities? Motorways have done this. Before these towns were bypassed by motorways, we know that people had been killed by vehicles in the towns. It is a fact that the motorways have saved lives. I cannot think of a town that did not have fatalities before the bypasses were constructed. The bypasses also took the juggernauts out of the towns and allowed them to do a bit of local business instead of three miles of juggernauts each way every evening. How does Transport Infrastructure Ireland incorporate this value or does it just do the review on specifics? Does it look at societal benefits over and above cost values? There are other benefits to motorways and does Transport Infrastructure Ireland take this into account?
Mr. Michael Kennedy:
In the cost-benefit analysis of a scheme one would look at the existing history of that section of road. There are standard values that would then apply to the new-build sections such as accident rates that are set out on upgraded road networks and agreed with the Department of Transport, Tourism and Sport. These are standard appraisal values. We publish them in our projects appraisal documentation section of our website as accident types by road type. Going from a single carriageway to a dual carriageway or motorway, one gets a far improved road safety record.
Seán Fleming (Laois, Fianna Fail)
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There are fewer junctions and so on.
Seán Fleming (Laois, Fianna Fail)
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Did Mr. Kennedy put a value on that? How does he work that into this? It is intangible.
Seán Fleming (Laois, Fianna Fail)
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Without being awfully crude, I will not ask the question.
Seán Fleming (Laois, Fianna Fail)
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One would think I was getting ghoulish now. I am raising the point that there are road safety and financial benefits.
Mr. Seamus McCarthy:
A point to draw out is that the public sector benchmark analysis is focused on determining whether building a project by public private partnership, PPP, or conventional procurement is the better way to do it. It does not address the question of whether the project itself is worth doing. The issue raised about lives saved relates to whether there is a socio-economic benefit to doing the project which is separate from the cost of procuring it.
Seán Fleming (Laois, Fianna Fail)
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To move on to Mr. Kennedy's conclusions, they state that although no economic appraisal was carried out, that was done in many cases a number of years prior to the contract being awarded with no interim reappraisal to account for changes in costs and traffic forecasts. An economic appraisal was carried out on day one. It might have been years before the project got off the ground. One of Mr. Kennedy's conclusions is that there was no interim reappraisal. We would always say that there should be a full economic appraisal every five years. It might have made sense five years ago but does it still make sense now? I have seen projects take 15 years from beginning to end. Mr. Kennedy has highlighted in his conclusions that there was a clear weakness there. That is the only conclusion. Then we talk about the concessions and the Limerick tunnel. Essentially, a lay person reading about the Limerick tunnel and Clonee route would conclude that, without the State agreeing to that minimum payment for minimum traffic, that project might not have happened. It could not have happened. The traffic flow did not justify it so the State came in and said that it would put a floor on the income regardless and that possibly made the project viable for somebody to take on. Am I giving a reasonable assessment?
Seán Fleming (Laois, Fianna Fail)
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I am trying to put balance in this. There are some good PPPs too.
Mr. Michael Kennedy:
Going back 15 or 16 years to the beginning of the 2000s, cost-benefit analyses were done. It then took a number of years to get to the procurement stage of the scheme. When we did the post-project review, the look-back concluded that it should have been reappraised. As it happens, our guidance had moved during the middle of the decade. We had already put into our new guidance that this should be done more frequently and be more up to date. It is our current practice and we have addressed that matter. The Chairman is correct that this was the issue with the scheme at the Limerick tunnel, the city centre scheme and such. A tunnel scheme is a high-risk scheme. In market consultations, the view was that people would not come in to tender. We talked earlier in the day about competition and such. It was important for us to get the competition in.
Seán Fleming (Laois, Fianna Fail)
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I am still on the roads. I want to move on to page 28 of that document. The reason I ask this goes without saying. It is the Portlaoise PPP scheme. Without getting too detailed, will somebody explain page 28? The witnesses have given us the ten value for money assessment analyses on doing a road project by the traditional method versus the PPP. There are ten pages there. There is a page for each of the ten on which reports have been done. I presume that those in the system understand what that page means. With regard to the traditional procurement, will somebody briefly explain what that page is all about? The witnesses have given us ten pages. Do they understand my question? We are the Committee of Public Accounts. It is not just for Sean Fleming to understand. I want the public who watch to be able to follow up on this, see these documents and at least have an idea of what they are about.
Seán Fleming (Laois, Fianna Fail)
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They were for internal use.
Seán Fleming (Laois, Fianna Fail)
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Give us a little help, then.
Seán Fleming (Laois, Fianna Fail)
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The witnesses do not need to go into too much detail now. We will get it in layman's English for the general punters when the time comes. The witnesses have given costs, toll costs, VAT and estimates of all those things, and then the project risk retained. Some €103 million seems like a massive figure to me. I know the witnesses tell me they have a formula. It is a very big figure. Rather than taking time here, will the witnesses send us an information note on that chart in layman's English in due course? People cannot see what we are looking at.
Seán Fleming (Laois, Fianna Fail)
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The witnesses have gone to the trouble of getting us ten charts and saying that they are providing great information. I have been told that here all day. The witnesses are providing information but some of it is not easily understandable. They might help us with the understandability of it. I am confident enough to say as an accountant that I understand most things, but if I have difficulty with it, I guarantee the witnesses that other people have difficulty with it. Did I say anything there that Mr. Nolan wants to comment on?
Seán Fleming (Laois, Fianna Fail)
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The Committee of Public Accounts has that document?
Seán Fleming (Laois, Fianna Fail)
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I do not need to go there today then. The witnesses will send that document to us. I will move on to the schools now. We have had a chat on that. I am teasing out the information that has been given here today. On the schools issue, the witnesses mentioned it early on in this document, No. 1154. There are several pages of different schools and PPP projects. There is a page on each. Mr. Ó Foghlú mentioned earlier that a 1,000 pupil secondary school costs an average of approximately €20 million.
Seán Fleming (Laois, Fianna Fail)
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So it is an average of €20,000 per pupil.
Seán Fleming (Laois, Fianna Fail)
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Mr. Ó Foghlú said that a few minutes ago. Does Mr. Ó Foghlú see what I am talking about on his document, No. 1154? We will not go through the details of that. I see €63 million. That was in 2001 for 3,475 pupils. That was an average of €18,000 per pupil. On the next page and the figures are in the same order, approximately €20,000. The chart here on the right states the capital value per financial model excluding VAT is €60 million. Is that just the capital? That is not the maintenance and construction over the lifetime of the body but just the capital. Mr. Ó Foghlú is comparing the capital costs of that with what the traditional costs of building would have been. That is one of the reports the Department will be doing and then it will try to-----
Seán Fleming (Laois, Fianna Fail)
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It is the live costs, the maintenance. As Mr. Ó Foghlú can see, I mentioned two big schools in Portlaoise. There are several around. The value from an education perspective is very important. If a door has fallen off a hinge, someone broke into the school at the weekend or the central heating is not working, it is not the principal's problem. He or she gets on with the job of education. A company, Sodexo or one of that crowd, does all that. It relieves schoolteachers and the board of management of much nitty-gritty of looking after the building, which leaves them with more time for the purposes of what the school is about, which is educating the pupil. There are benefits. Has Mr. Ó Foghlú a way of building that in?
Seán Fleming (Laois, Fianna Fail)
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Mr. Ó Foghlú can see that there is a benefit. It is probably a bit intangible but it would be begrudging not to acknowledge that there is a benefit to the running of the school if it does not have to worry about cutting the grass and that sort of thing.
Seán Fleming (Laois, Fianna Fail)
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I am nearly done. Later, that document has value for money reports, the school bundle 1, which happens to include the Portlaoise schools, school bundle 2 and school bundle 3.
The value for money report for the school bundle 2 is about 12 pages and the one for school bundle 3 is about seven pages but the report on school bundle 1 is a 29 page document. Could Mr. Ó Foghlú explain why bundle 1 is so big and why there is so much in it and whether it was decided that it was a case of too much information and that some of it should be cut out?
Seán Fleming (Laois, Fianna Fail)
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I have added the two. In one case there was an eight page report and then a four page report and I have added them.
Seán Fleming (Laois, Fianna Fail)
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Yes. Why was the first report so big? On pages 14 and 23 there were serious redactions on school bundle 1. Is that an example of what we can expect when we get the published reports?
Seán Fleming (Laois, Fianna Fail)
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There are no redactions in the other bundles.
Mr. Gerard Cahillane:
That is correct, yes. We gave the committee three reports. The NDFA procured bundles 1 to 5 on behalf of the Department of Education and Skills. The first one was produced a long way back and we had a lot of unnecessary detail in it. We have a project board and the reports and a lot of other documents go to it. We have a price change report, an assumptions report and several others but the value for money report is the key report. To make the three more recent reports that we gave to the committee more consistent we did not include certain-----
Seán Fleming (Laois, Fianna Fail)
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Mr. Cahillane is saying they were very comprehensive.
Mr. Gerard Cahillane:
If I could add some other information that you might be interested to know, Chairman, about those three particular projects, on the first bundle we short-listed the three and the second and third ranked did not beat the PSB. In the second bundle of schools all three of them beat the PSB.
Seán Fleming (Laois, Fianna Fail)
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What is the PSB?
Seán Fleming (Laois, Fianna Fail)
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Okay. I know Mr. Cahillane will not tell me what was redacted but could he explain to me why we are getting into redactions on page 23 in the report on the first bundle and there are no redactions in the other reports? There are redactions on pages 14 and 23.
Seán Fleming (Laois, Fianna Fail)
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I see Mr. Cahillane's version is not redacted. Oh my God, I need a bit of backup now on this one but they are all gone.
Mr. Gerard Cahillane:
That table goes into what we call the price change report. The price change report is the bid that comes in and when we sign the contract. It looks at every change. It is the bidder's financial model. It is very technical. We are very happy to publish the price change report as well if the PAC requires that.
Seán Fleming (Laois, Fianna Fail)
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Obviously it is a concern when documents are printed if they are heavily redacted.
Seán Fleming (Laois, Fianna Fail)
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If my eyesight was good enough I could read that from here. We are nearly there. I wish to raise some issues. During the lunch break Deputy MacSharry raised the issue in previous meetings of the PAC information had been sought in respect of the Cork Institute of Technology. Mr. Ó Foghlú has checked his records in the meantime and has confirmed that he did write back to the previous Committee of Public Accounts committee on 10 June 2014. I wish to put that formally on the record as there was confusion about it earlier.
One of the reasons we are here is because public private partnerships have a role. I am agnostic on the policy approach but not everyone is agnostic on the issue. If they are good, they are good. If they do a job, I have no issue, but the public is always entitled to know whether we are getting value for money. In the course of the past year we have had Transport Infrastructure Ireland before the committee and the Department of Education and Skills. When we see a significant payment going out each year through the appropriation account for PPPs and we are told it is for a school or a bypass, the PAC does not know if it provides good value for money and that gives some people an opportunity to say it is not good value for money. It would be in the interests of the PPP disciples to put more information out there to show whether the projects are good value for money to prove their point but as long as there are no explanations a vacuum causes problems.
In recent months the committee has not approved any appropriation account with PPP payments because we cannot say whether we think it is good or bad. There is a gap in the process from the point of view of the PAC. I cannot stand over appropriation accounts on the Plinth if there is a figure for €120 million for a PPP if I and the PAC are not satisfied that it was good value for money. The witnesses can understand where we are coming from. There has been a lot of secrecy in the past but society moves on. Contracts are in place and there is printed information available. As time goes on people will know that once a contract is up and running the commercial sensitivity diminishes and it is not necessary to wait for many years to pass. Essentially, that is one of the reasons we are here.
I know the committee will not be satisfied to conclude this chapter in the Comptroller and Auditor General's report until probably much later in the year when we see some of these reports. I do not say there is an issue but it will make it all the better if we can issue a report having seen more information but we are not at that point yet. The witnesses seem to be saying we will get to that point soon. In due course we will come back to that topic. That is all I wish to say.
I thank the witnesses. I accept the exchanges in the meeting earlier on were robust but there is a bit of frustration among members due to the information that is not yet available that we would like to see. We hope it will become available shortly.
I thank all the witnesses from the Departments of Public Expenditure and Reform and Education and Skills, Transport Infrastructure Ireland, the Comptroller and Auditor General and his staff, and the National Development Finance Agency. We will not dispose of chapter 4 for the reasons stated. We will now adjourn until our next public meeting on Thursday, 29 March at 9 a.m. when we will be considering the grant funding to Galway's art house cinema, which is chapter 16 of the Comptroller and Auditor General's report. We will also be looking at the appropriation accounts 2016, Vote 33 for the Department of Arts, Heritage, Regional and Gaeltacht Affairs.