Mr. John Conlon:

I thank the committee for the opportunity to discuss the changes to the public spending code that were announced in March. I am an assistant secretary in the Department of Public Expenditure, National Development Plan Delivery and Reform. I am accompanied by my colleagues, Kevin Meaney and Frank Newman, from the national investment office in the Department.

The public spending code and infrastructure guidelines set out value-for-money requirements and guidance for evaluating, planning and managing Exchequer-funded capital projects. I should emphasise that management and delivery of investment projects and public services and the appropriate national frameworks is a key responsibility of every Department and Minister. The code is underpinned by a number of principles. Given that many large infrastructure projects can have a high degree of complexity, improved decision making throughout the life cycle of a capital project is required. Proportionality is core to the public spending code, with additional rigour applied to projects as they increase in cost and complexity. It provides a focus on cost competitiveness. It provides for accountability and transparency and enhanced project governance and management. The code, as a tool, can help ensure that projects are set up for successful delivery.

As the committee will know, investment in capital projects has grown substantially in recent years, from €4.6 billion in 2017 to over €12 billion this year. The national development plan, NDP is providing for ambitious plans to enhance public transport infrastructure and to provide a greatly enhanced estate for school and education facilities, more homes and better healthcare. In the public transport sector, for example, good practice is in place where the sponsoring agency, Transport Infrastructure Ireland, has well-defined responsibility for evaluating, planning and managing capital projects. The approval authority, the Department of Transport, has the ultimate responsibility for projects and assesses the business case at the appropriate stages.

Major investment projects require rigorous appraisal and the scale and detail of evaluating, planning and managing projects should be commensurate with the scale of the proposal. Ireland has had challenges in terms of capital delivery across recent decades and with some major projects in recent years. The public spending code seeks to rigorously appraise projects early in the development stage to ensure that likely risks and costs have been fully considered prior to approval. It should be noted that cost overruns on major projects are not unique to public sector. Private projects are just as prone to cost and time overruns, which can arise for many reasons. The issue of successfully managing the delivery of major projects remains a key business requirement.

The Department considers that good governance in capital projects is beneficial for effective delivery. The code provides processes for risk management, solid controls and clarity in objectives by bringing a rigour to decision making, noting that the development of capital projects is essentially grounded on a series of decisions. Factors such as scope creep, which are deviations from the original design, and delays due to the planning process and, in some cases, subsequent judicial review are often provided as reasons for overruns on cost or time. Other causes can often be derived from various biases, including optimism bias. The code protects owners and the taxpayer from biases through more rigorous appraisal and the consideration of appropriate cost forecasting and benchmarking, including external perspectives and experience from previous projects.

Using the code effectively provides for a sound approach to addressing issues that arise in project development in the right way and in a timely way. Through the life cycle stages, it provides for opportunities to re-evaluate and update projects. Therefore, project agility can be provided so that adjustments can be made to current conditions.

Capital appraisal guidelines were initially introduced in the mid-1990s, alongside criteria for the drawdown of EU structural funds, which focused on value-for-money appraisal. In 2013, the first public spending code was published, which clarified the minimum standards of appraisal to apply to capital project development across all sectors. The latest public spending code was agreed by the Government in 2019. This guidance was the product of a programme of analysis and validated by stakeholder engagement with Departments and agencies.

The 2019 public spending code sharpened the focus on risk and cost management, reduced the compliance burden on low-risk projects and brought Ireland into line with leading international approaches to major project delivery. Before 2019, major capital project assurance in Ireland had focused on business assurance, looking at whether proposals aligned with strategic policy goals, had creditable objectives and were supported by robust demand analysis and whether sufficient financial and economic options analysis had been conducted. However, project and programme assurance, including looking at the robustness of planned delivery, the accuracy of cost forecasts, the consideration of risk and the appropriateness of procurement strategies, had not been undertaken in a consistent way. The introduction of the external assurance process and the establishment of the major projects advisory group in late 2021 further improved the governance and oversight arrangements for major projects by providing a standardised vehicle to support both business and project and programme assurance. This has been seen in the scrutiny that has been afforded by these processes in advance of significant NDP projects such as MetroLink, BusConnects and the elective care centres in Cork and Galway being approved by Government.

We consider that the process since 2019 has bedded in well. There is solid engagement on the application of the code and a range of Departments and agencies have developed sector-specific arrangements within the parameters of the overall code, for example, in the health sector.

A high-level review among Secretaries General in key capital spending Departments was commenced in April 2022 to review the requirements of the code. This review had a particular focus on whether the additional review processes introduced in 2019 were causing unnecessary delays in project implementation and whether the code fully reflected the role of Accounting Officers in assessing risk and project implementation. This group set out a series of six key principles, which are appended to this opening statement. These were referred to a practitioner group of experienced public servants across Departments to consider with a view to amending the processes in the code. In March of this year, recommended amendments were considered and approved. These were published as part of Circular 06/23, which is included in the supplementary material provided to the committee. It is expected that these changes will reduce the administrative burden for Departments delivering capital projects while allowing them greater autonomy to pursue the delivery of their priority projects while still complying with overall value-for-money principles.

The particular process changes that are expected to reduce the length of time taken to achieve project approval are as follows. First, the removal of the formal approval gate and technical review by the Department on completion of the strategic assessment report. Departments have indicated to us that the process of gaining approval at this point was taking three to four months based on internal approval processes and the four- to six-week turnaround timeline for our technical review. The second is the removal of the external assurance review and major project advisory group review at pre-tender stage. The timeline expected for an external assurance review is in the region of six to eight weeks, and the major project advisory group typically takes a further six weeks to review and return its report. Therefore, the removal of these reviews at pre-tender stage should reduce the time taken to gain approval by a minimum of a further three to four months.

These reforms, the 2019 update to the public spending code, the introduction of the external assurance process and the major projects advisory group and the most recent updates outlined by the Minister in March 2023 were informed by a number of different factors. These included recommendations arising from a number of different reports, including the 2017 IMF report, the independent review of escalation in costs at the national children’s hospital and a consultation process involving key stakeholders.

Finally, the Department is finalising a set of infrastructure guidelines which will replace the public spending code. As I indicated, Circular 06/23 outlines the updates to the code on the requirements for evaluating, planning and managing public investment proposals.

I hope this statement provided a helpful summary of the reforms. We look forward to discussing these issues.