Brian Cowen (Laois-Offaly, Fianna Fail)

I am pleased to be before the House to present the National Development Finance Agency (Amendment) Bill 2006, the purpose of which is to provide a statutory basis for the Government's initiative to improve the capability of Departments or agencies to undertake public private partnerships, PPPs. The measure involved the establishment in 2005 of a centre of expertise for PPP procurement within the National Development Finance Agency, NDFA, in addition to the NDFA's existing advisory and financing functions. I stress that the Bill is amending legislation. The basic legislative provisions for State authorities to undertake PPPs and 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.

I will outline some background information on PPPs generally and go through the specific provisions included in the Bill. Senators will recall previous statements on PPPs in the Seanad on 17 November 2004 and the NDFA annual report on 3 October this year. The overall context for the use of PPP arrangements includes a national framework for PPPs agreed with the relevant social partners in 2001 under partnership structures, legislation to facilitate State authorities' engagement in PPPs in 2002 and to establish the NDFA in 2002 and the inclusion of PPP targets in the rolling multiannual capital investment envelopes from 2004.

A key activity 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 may be considered for more than 60. It completed its advice on 22 projects at the end of 2005. Its annual report for 2005 outlines that the cumulative value of the projects on which it had compiled its advice was almost €2.4 billion by the end of that year and is expected to reach almost €4 billion by the end of this year.

The PPP approach can provide value for money and for the timely delivery of infrastructure when applied to projects of the right risk, scale and operational profiles. The process is intensive and demanding because it requires that the whole-life costs and service requirements of the asset being procured be quantified, the negotiation of a contract that will typically be of 25 to 30 years in duration and a number of formal value for money tests. 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. Overall, delivery times have been impressive.

The use of PPPs has become well established in respect of roads, with a steady stream of projects moving through the planning process and reaching the market. There are three toll-funded PPP roads in operation procured by the National Roads Authority, namely, the Kilcock-Kinnegad motorway, the Dundalk bypass and the Rathcormac-Fermoy bypass. Regarding environment and local government, local authorities have brought forward a range of projects in the areas of water services and housing with and without the use of private finance. They are also advancing waste projects.

I will turn to the specific background to the legislation before the House. By 2005, deal flow was established in respect of roads and in the local government sector. However, progress was not at the pace anticipated in the area of PPPs funded by unitary payments from Departments' Votes. A variety of reasons for this was identified and the need for specialised skills and capabilities 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 necessary skills, particularly in areas that lack experience of the process, has proved to be a challenge across many jurisdictions. After a period of review and consultation, the Government decided last July that the full range of the procurement delivery skills required for the PPP procurements in question should be centralised in a centre of expertise, which the Government decided to locate in the NDFA. This measure was designed to improve the capacity of the public sector to develop PPPs funded by unitary payments from departmental or agency Votes. The NDFA's centre of expertise will consolidate the core skills and capacities required to support these complex procurements in departmental or agency areas. As is the case with the National Roads Authority in respect of roads and the Railway Procurement Agency in respect of rail and metro, it will underpin strong continuity in managing PPP procurement in the public sector.

The Government also decided that the PPP projects to be initially pursued with the assistance of the centre of expertise should be in the education, justice and health sectors. Projects already 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 of expertise in July 2005, a number of projects are 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 for 23 new post-primary schools, four new primary schools and 17 projects at third level to be procured by the centre on behalf of her Department. Significant progress has been made in the programme. The first bundle of schools, consisting of St. Mary's CBS, Portlaoise, Scoil Chríost Rí, Portlaoise and two amalgamation projects in Ferbane and Banagher, has entered the procurement process with the NDFA. A second bundle of schools was announced last week, consisting of six schools on five sites in Cork, Limerick, Kildare, Wicklow and Meath. Progress is also being made in the justice area with the criminal courts complex and the Mountjoy complex relocation, and in the health area with regard to radiation oncology units.

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 now a prerequisite to enable the NDFA to conclude contracts for PPP schools projects in the first half of 2007.

I will set the procurement role of the NDFA in context. The NDFA is a project taker. The agency is responsible for the procurement to delivery stage of projects, within the parameters set by the sponsoring Department or agency. The relevant Minister decides what projects are to be pursued, within the allocations available for such projects. Under these arrangements, 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, with the assistance of advisers, including NDFA financial advice, as necessary. Procurement delivery is the responsibility of the centre of expertise. The centre of expertise undertakes the procurement after all policy issues are cleared by the sponsoring Department or agency, output specifications are set and the public sector benchmark is signed off.

The existing arrangements for NDFA accountability to the Committee of Public Accounts will embrace the new procurement function accorded to the agency by virtue of the extension of the NDFA's powers in the proposed legislation. 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. 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. This reflected both the generally increased workload of the board under the new arrangements and the importance of deepening and widening its resources for procurement. 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, 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. This is provided for in the legislation before the House.

Provision is also sought 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. I have already followed through on the Government's commitment and have appointed Mr. Liam Berney of the Irish Congress of Trade Unions to the board on an interim, non-statutory basis pending enactment of this Bill.

As I said earlier, the centre of expertise will, in the first instance, procure projects in the justice, education and health areas. Existing arrangements are being maintained for particular PPP projects already in train outside these programme areas, to provide consistency and to allow those projects to be completed.

The move to the centre of expertise is to be complemented with more streamlined decision making in Departments, based on a clarification of roles, and the development of a more standardised approach to PPP contracts. The procurement phase for all future PPP projects 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. My Department recently 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. The new PPP guidelines will provide a further support to the implementation of the targets for PPP investment in the rolling multiannual capital envelopes.

I have outlined that the NDFA is already 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 to date. I also understand that 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 into the future. The NDFA annual report for 2005, which was laid before the House earlier this year and debated in the Seanad just a few weeks ago, sets out the significant work already undertaken in its new role and the resourcing arrangements now being put in place.

This Bill 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. The Bill includes consequential amendments to existing provisions governing the NDFA's functions, addressing issues such as ministerial guidelines and charging of costs. It also provides for a small number of other matters pertaining to the legislation generally.

I will now turn to 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 provisions enable 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 relating to PPPs based on best practices to ensure good corporate governance, 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 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 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 principal Act, 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 NDFA on specific projects — in practice, the cost of specialist external advisers — should be charged directly to the relevant State authorities and not solely to Votes, as was provided for previously. The provision for recovery of expenses is being extended to cover the new procurement functions of NDFA as well as its advisory functions. The provision also clarifies that NDFA may pay expenses from the central fund in the first instance, with subsequent recoupment from the relevant bodies.

Senators will be aware that 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, as 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 National Development Finance Agency, to ensure that those PPP arrangements that 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 have stated on a number of occasions, the PPP approach has benefits when applied to projects of the appropriate scale, risk and operational profile. While PPPs are not the main procurement option for the capital investment programme, I expect PPP to play a more significant role in the next national development plan.

Of course, PPP is 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 which it will face in the coming decades. I believe that PPP has shown it has a role to play, along with the other procurement options, in delivering investment in our economic and social infrastructure and that the steps we have put in place will help PPP to fulfil that potential as we move forward. 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 that we are committed to delivering over the coming years.

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