Mr. Seamus McCarthy:

Thank you. The 2017 appropriation account for Vote 13 - Office of Public Works records gross expenditure of just over €394 million. Appropriations-in-aid were almost €34 million, resulting in net voted expenditure of just over €360 million. The surplus for surrender at the year-end was €4.6 million. The appropriation account is presented under two programme headings: flood risk management, on which a total of €75 million was spent, and estate portfolio management, in respect of which the total expenditure was €319 million. The graphic that is shown on screen outlines the main areas of expenditure in 2017.

In addition to activities funded by the Vote, the OPW acts on an agency basis in the property management area, mainly managing capital works projects on behalf of other Departments and agencies and leasing accommodation for small State agencies. The associated expenditure is reflected in the accounts of the client Departments and agencies. Total expenditure handled by the OPW on an agency basis amounted to €84 million in 2017.

I issued a clear audit opinion in regard to the appropriation account but drew attention to procurement in 2017 to the value of €812,000 that was not compliant with public procurement rules. This is disclosed by the Accounting Officer in the statement on internal financial control.

The OPW signed a new, 25 year lease in May 2017 in respect of large office premises at Miesian Plaza in Baggot Street, mainly to accommodate the Department of Health and the Department of Children and Youth Affairs. Even though lease payments were incurred from December 2016, the premises remained unoccupied until May 2018. Chapter 6 of my report examines the issues that gave rise to the delay in occupying the premises and a number of other matters related to the lease.

The Miesian Plaza lease represents a very significant commitment of public funds, with annual rent starting at €10 million and subject to five-year rent reviews in line with inflation over the 25 year period of the lease. The examination found little evidence of the key elements of a standard business case that should support the commitment of that level of public funds. In particular, there was little evidence of detailed evaluation of other options, no economic appraisal was carried out and the full costs and risks associated with the project were not documented and considered in advance.

In March 2016, the OPW board approved the lease on the basis of the terms negotiated by consultants on its behalf. At that stage, it was envisaged that, allowing for a fit-out period of eight to ten months, the premises would be ready for occupancy in the first quarter of 2017. As it turned out, the first occupancy was achieved only in May 2018 and full occupancy was achieved only in July 2018. We estimated that the delays that occurred from March 2017 resulted in ineffective expenditure on unoccupied premises of around €11 million.

There was extensive engagement between the OPW and the two main client Departments in seeking to achieve timely occupancy of the leased premises. The main issues that gave rise to delay were finalisation of the number of staff to be accommodated and agreement on the layout of the accommodation and on shared facilities. Currently, Miesian Plaza does not have capacity to accommodate all of the staff of the Department of Children and Youth Affairs and the expected future staffing needs of both Departments. Currently, the OPW targets a space allocation of 12 sq. m per person. In Miesian Plaza the space allocation achieved is 15.3 sq. m per person, about 27% more than the target level. The report recommends that the OPW review its approach to agreeing accommodation needs with Departments and that it should establish standards for space allocation and fit-out that take account of the business needs of different categories of occupant.

The examination also identified an issue with the area of the premises to which the agreed rental rate was applied. There are different standards for measuring property which result in different reported areas for a building. The rental rate agreed for Miesian Plaza was based on what is known as the net internal area. From 2016, a new international property measurement standard was introduced and measurement of Miesian Plaza on this basis resulted in a larger reported area. The rental rate agreed should have been adjusted pro ratato reflect the change in the basis of measurement. However, this did not happen and the signed lease applied the rate per square metre negotiated on the basis of the net internal area to the larger area, as measured by the new standard. We estimated that this error resulted in annual rent that was €344,000 higher than what was negotiated. After taking account of inflation, the projected additional cost to the Exchequer is of the order of €10 million over the 25-year term of the lease. At the time of finalisation of the report, the Office of Public Works stated that it had engaged with the landlord with a view to rectifying the matter.

The examination team reviewed a sample of 20 other live OPW leases with various start dates, and identified one other possible excess payment case in that sample. This involves a 20-year lease entered into in 2006 where confusion about measurement appears to have resulted in an excess annual payment of some €141,000. I understand the OPW is examining that case.

I thank the Chairman.