Brian Cowen (Laois-Offaly, Fianna Fail)

I move: "That the Bill be now read a Second Time."

I am pleased to bring before the House the Bill, which was initiated and passed all Stages in the Seanad last November. I acknowledge the support received in that House and I look forward to consideration of the Bill by this House. However, I must emphasise this is amending legislation. It extends the existing powers of the National Development Finance Agency to allow it to provide a centre of expertise for procuring PPP projects on behalf of State authorities, in addition to its existing functions. One of the key activities of the NDFA is to advise on the optimum means of financing public capital investment projects within the State sector, including PPPs. The NDFA reports that, to date, it has been asked to advise on more than 100 projects, of which PPP procurement has been considered for more than 60. It completed its advice on 28 projects at the end of 2006, the cumulative value of which was more than €3 billion. The basic legislative provisions for State authorities to undertake PPPs and for the establishment of the NDFA are in place in the State Authorities (Public Private Partnership Arrangements) Act 2002 and the original National Development Finance Agency Act 2002.

The background to this Bill is the Government decision in 2005, following a period of review, to improve the capability of Departments and agencies to undertake public private partnerships, PPPs. The centre of expertise for PPP procurement in the NDFA will facilitate the procurement of PPP projects funded by a stream of annual payments from Votes. This is but one of a number of measures put in place by the Government to secure improved management and delivery of the capital investment programme by Departments and agencies. Others include the establishment of the NDFA in 2003 with a key role in advising Departments and agencies on the optimum means of financing large capital investment projects. Since 2004, a medium-term planning framework has been provided in the five-year rolling capital investment envelopes for Departments, published with the annual budget. My Department issued revised capital appraisal guidelines in 2005 that clarify the delegation, evaluation and accountability requirements of Departments-agencies for undertaking all capital investment projects. All capital projects worth more than €30 million must be subject to full cost benefit analysis and an individual must also be appointed as project manager for all such projects.

I have also recently established the central expenditure evaluation unit in my Department to promote best practice in evaluation and project appraisal and compliance by Departments and agencies with the capital appraisal guidelines and value for money requirements. The Government also undertook procurement management reform resulting in the development of fixed price contracts in the traditional procurement area and capacity building of the public sector to manage these contracts. This period also witnessed the development of improved skills and capacity in procurement agencies such as the National Roads Authority. To help address the issue of planning and legal delays, the Government brought forward the measures enacted in the Strategic Infrastructure Act last year. All these underpin the Government's programme of capital investment, as set out in the recently launched national development plan.

I will outline some background on PPPs generally and then I will go through the specific provisions in the Bill. The overall context for the use of PPP arrangements includes a national framework for PPPs agreed under partnership structures with the relevant social partners in 2001; legislation in 2002 to facilitate State authorities' engagement in PPPs and to establish the NDFA; the inclusion of PPP targets in the rolling multi-annual capital investment envelopes from 2004; and the targets for PPP in the new NDP, under which it is estimated that such partnerships will fund €13.35 billion of plan investment across the economic infrastructure, human capital, social infrastructure and enterprise science and innovation priorities. PPPs are only one means of procurement in the NDP which includes overall investment of almost €184 billion over the next seven years. We have seen the use of PPPs become well established in the roads area, with a steady stream of projects coming through the planning process and reaching the market. Three toll-funded PPP roads are in operation, procured by the National Roads Authority — Kilcock-Kinnegad, the Dundalk bypass, and the Rathcormac-Fermoy bypass.

In the area of environment and local government, local authorities have brought forward a range of projects in water services and housing, both with and without the use of private finance, and are also advancing waste projects. The PPP process is demanding but it has the potential to provide value for money and timely delivery of infrastructure when applied to projects of the right risk, scale and operational profile and when managed by experienced and skilled practitioners. The process is demanding up front in that it requires that the whole life costs and service requirements of the asset being procured be quantified. It involves the negotiation of a contract that, typically, will be of between 25 and 30 years' duration. Our central guidance for State authorities has been updated to take account of our experience of the process as it has developed.

Last year, my Department revised the central PPP guidelines on the assessment and procurement of projects to take account of the revised capital appraisal guidelines issued in 2005, the establishment of the centre of expertise and my recent value for money initiatives. These aim for a pragmatic approach, while maintaining an appropriate level of rigour in consideration of the various steps. A number of formal value for money tests are applied in the process. After a project is identified as suitable for procurement as a PPP, it can take 18 to 24 months or more to reach construction stage but looking back on the experience of using this approach in the national roads programme and in the first PPP projects in the Government's PPP programme, overall delivery times have been impressive.

I refer to the specific background to the legislation. By 2005, deal flow was established in the roads area and in the local government sector. However, progress was not at the pace anticipated in the area of PPPs funded by unitary payments from departmental Votes. A variety of reasons for this was identified and the need for specialised skills and capability to manage this relatively complex procurement process was singled out as a key factor. Finding the most appropriate way to put in place the full range of skills needed for PPP procurement, particularly in areas that lack experience of the process, has proved to be a challenge across many jurisdictions.

Following a period of review and consultation, the Government decided in July 2005 that the full range of the procurement delivery skills required for PPP procurement in this area should be centralised in a centre of expertise and to locate it in the NDFA. This measure was designed to improve the capacity of the public sector to develop PPPs funded by unitary payments from departmental-agency Votes. As is the case with the National Roads Authority in the roads area and the Railway Procurement Agency in light rail and metro, it will underpin strong continuity in managing PPP procurement in the public sector. In tandem, the Government decided that the PPP projects to be pursued initially, with the assistance of the centre of expertise, should be in a small number of areas initially, moving on to other areas as required.

Projects in train outside the new arrangements have been handled pragmatically in terms of the existing level of involvement of the centre of expertise. Since the announcement of the centre in July 2005, a number of projects have been in train in the area of PPPs funded by unitary payments from Votes. The first major initiative for the centre was in the education sector. The Minister for Education and Science announced PPP programmes of 23 new post-primary schools and four new primary schools, and of 17 projects at third level, to be procured by the centre of expertise on behalf of her Department. Significant progress has been made on the programme. The first bundle of schools in the new programme comprising St. Mary's CBS, Portlaoise, Scoil Chríost Rí, Portlaoise and two amalgamation projects in Ferbane and Banagher is being procured by the NDFA and bidders have been short-listed. A second bundle of schools was announced last November, consisting of six schools on five sites in Cork, Limerick, Kildare, Wicklow and Meath. The NDFA commenced the new PPP procurement role on an interim, non-statutory basis, pending the making of the necessary legislative provisions. Acting on a non-statutory basis does not present significant problems for the early stages of the procurement process. However, statutory provision is necessary to enable the NDFA to conclude contracts for PPP schools projects in the first half of 2007.

I would like to set in context the procurement role of the NDFA. The agency is a project taker and it is responsible for the procurement to delivery stage of projects within the parameters set by the sponsoring Department or agency. There is a clear distinction between the project development phase and the procurement delivery phase. Project development is the primary responsibility of the sponsoring Department or agency, with the assistance of advisers, including NDFA financial advice, as necessary while procurement delivery is the responsibility of the centre of expertise in the agency. The centre undertakes the procurement after all policy issues are cleared by the sponsoring Department or agency, the output specifications are set and the public sector benchmark, PSB, is signed off.

The existing arrangements for NDFA accountability to the Committee of Public Accounts will embrace the new procurement function being given to the agency in the proposed legislation. These arrangements mirror those for other State agencies and Departments.

The projects will be returned to the Department or agency at turnkey stage and the unitary payments to the private sector partner will be made from the Vote of the Department or agency. The procurement phase for all future PPPs in the areas funded by unitary payments by Votes or agencies will be centralised in the centre of expertise, with the exception of projects agreed between the appropriate Minister and the Minister for Finance. These new arrangements will not apply to the transport sector or local government where PPP deal flow is established and where the existing procurement arrangements will continue.

The Government decision of 25 July 2005 also provided for the strengthening of the NDFA board by the appointment of two additional members. As an interim measure, I appointed two additional members to the board on a non-statutory basis, Mr. Fred Barry, Chief Executive of the National Roads Authority, and Mr. Stewart Harrington, a quantity surveyor, but their formal appointment requires amending legislation to increase the statutory limit on the number of board members in the National Development Finance Agency Act 2002. Provision is included in the Bill for a third additional board member. In the context of negotiations with the social partners on Towards 2016, it was agreed that the Government would favourably consider the appointment of a trade union representative to the board of the NDFA. Mr. Liam Berney of the Irish Congress of Trade Unions was appointed to the board on an interim non-statutory basis pending enactment of this Bill.

I already noted that the NDFA is carrying out the new procurement functions on a non-statutory basis. I am informed that practical arrangements have been developed to manage the interface between the centre of expertise and the relevant sponsoring Departments. I also understand these have facilitated access to pre-existing expertise. The centre of expertise continues to expand and is building up the necessary skills to ensure the sustained delivery of projects in the future. The NDFA annual report for 2005 set out the significant work already undertaken in its new role and the resourcing arrangements being put in place.

The Bill I present to the House formally allocates the new procurement function to the NDFA. The provisions are enabling rather than prescriptive. The Bill also allows for the appointment of the three additional board members. It includes consequential amendments to existing provisions governing the NDFA's functions which address issues such as ministerial guidelines and charging of costs and makes provision for a code of conduct to be put in place by the NDFA to govern its functions in regard to PPPs. It also provides for a small number of other matters pertaining to the legislation generally.

I will now outline the specific provisions of the Bill. Section 1 is a standard interpretation section to define terms used in the Bill, in this case defining the National Development Finance Agency Act 2002 as the principal Act. Section 2 is a technical amendment to the definitions in the principal Act to make the text consistent with the wording used elsewhere in legislation.

Section 3 amends section 3 of the principal Act, which sets out the functions of the NDFA. The amending provision enables the NDFA to carry out two new functions, namely, to enter into PPPs with a view to transferring the rights and obligations under the PPP to a State authority and to act as agent for any State authority in entering into PPPs. It is anticipated that in most cases the NDFA will act as agent for a State authority.

Section 4 inserts a new section in the principal Act, requiring the NDFA to draw up a code of conduct on PPPs based on best practices to ensure good corporate governance and to be approved by the Minister for Finance. The code of conduct is intended to address, inter alia, any potential conflicts of interest or objectives. It is considered desirable to provide for a statutory code of conduct in the context of the new procurement functions and the legislative framework governing public procurement at European level.

Section 5 makes a consequential amendment to section 4 of the principal Act. It extends the existing obligation on the agency to have regard to ministerial policy and guidelines on PPPs to include the exercise of the new procurement functions.

Section 6 amends sections 12 and 14 of the principal Act, providing for the appointment of three additional members to the board and making a consequential increase to the quorum for meetings from three to four.

Section 7 amends existing provisions governing the signing of contracts by the NDFA in section 15 of the principal Act. The provision will allow for contracts to be signed by any two staff authorised in writing by the board as well as by members of the board in recognition of the volume of documentation involved in PPP contracts. As the NDFA does not directly employ staff but carries out its functions through the National Treasury Management Agency, the section refers to NTMA employees signing contracts.

Section 8 amends section 18 of the principal Act to allow the NDFA to disclose confidential information to an "appropriate Minister" as well as to the Minister for Finance. "Appropriate Minister" is defined in the principal Act and covers any Minister of the Government who has functions or general responsibility in connection with a PPP or a State authority.

Section 9 amends section 22 of the principal Act to bring the procedures for adding bodies to the list of State authorities covered by the legislation into line with current good practice in regard to the use of secondary legislation. The new provision takes account of developing case law in this area.

Section 10 substitutes a revised section for section 26 of the National Development Finance Agency Act 2002, which deals with the expenses of the NDFA and how they are to be met. In an elaboration of the original provisions in the principal Act, it is proposed that expenses incurred by the NDFA from specific projects, which in practice means the cost of specialist external advisers, should be charged directly to the relevant State authorities and not solely to Votes, as was previously the provision. The provision for recovery of expenses is being extended to cover the new procurement functions of the NDFA, as well as its advisory functions. The provision also clarifies that the NDFA may pay expenses from the Central Fund in the first instance, with subsequent recoupment from the relevant bodies. Deputies will be aware that the NDFA's functions are performed through the NTMA under section 11 of the principal Act. The NTMA also incurs costs in performing these functions, including staffing costs, and these are met from the Central Fund, which is the case for NTMA costs generally.

Section 11 updates the Schedule to the principal Act to include all public bodies added to the Schedule by statutory instrument since the enactment of the principal Act and includes a new general category in line with the provisions of section 9 of the Bill. Section 12 amends the Schedule to the State Authorities (Public Private Partnership Arrangements) Act 2002 by adding the NDFA, to ensure those PPP arrangements that the NDFA enters as principal are also covered by that Act. Section 13 is a standard construction and citation provision.

The establishment of the centre of expertise is one of a range of measures to enable the public sector to avail of PPPs where they are appropriate. As I stated on a number of occasions, the PPP approach has benefits when applied to projects of the appropriate scale, risk and operational profile. PPPs are not the main procurement option for the capital investment programme but they have an important role in the new NDP. Of course, PPPs are ultimately only a means to an end. The objective is to put in place public services and infrastructure on a value for money basis for the taxpayer so that Ireland remains well placed to meet the challenges it will face in the coming decades. In the new NDP, we have set out a role for PPPs, with other procurement options, in delivering investment in our economic and social infrastructure. In that context, the provisions contained in this amending legislation, together with the other steps the Government has taken to support the process in a practical and realistic fashion, will help to bring about the kind of world-class investment in social and economic infrastructure we are committed to delivering over the coming years. Applying the necessary skills in the area of PPPs, within a robust framework of guidance, is consistent with the Government's overall commitment to achieving value for money in public investment.

I look forward to hearing the comments of Deputies on this Bill and to a more detailed debate on Committee Stage. I commend this Bill to the House.

See this speech in context