1998 Annual Report of the Comptroller and Auditor General and Appropriation Accounts.

Vote 25 - Department of the Environment and Local Government.

Mr. J. Farrelly (Secretary General, Department of the Environment and Local Government) and Mr. M. Tobin (Chief Executive, National Roads Authority) called and examined.

The purpose of this meeting is to give further consideration to the 1998 annual report of the Comptroller and Auditor General and Appropriation Accounts. We are dealing with Vote 25 - Department of the Environment and Local Government. Relevant correspondence and documentation have been circulated, including a letter dated 2 February from the Department of the Environment and Local Government re consultancies engaged by the Department; a letter dated 25 January from the Department of the Environment and Local Government re drawing down of allocated funds by local authorities; a letter dated 22 April 1998 from the Department of the Environment and Local Government re new accounting systems for local authorities and over-spending by local authorities; and a letter dated 11 August 1999 from the Department of the Environment and Local Government re drawing down of local funds by authorities.

Witnesses should be aware that they do not enjoy absolute privilege and should be apprised of the contents of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunity of Witnesses) Act, 1997, particularly section 10 thereof.

Chairman, the development of the national roads network is on today's agenda. This is an important document and there are considerable aspects to be examined. Would you think it wise if we were to put that in the context of the National Roads Authority for special scrutiny, examination and evaluation?

I am in the hands of the committee. What are you suggesting, Deputy?

That we defer consideration of the document until the National Roads Authority comes before the committee.

Representatives of the National Roads Authority are present.

They are very welcome.

The matter might be of considerable interest to the Committee on Public Enterprise and Transport.

It is a very important document. I thought only the Department of the Environment and Local Government was represented today. There is much in the document to be thought and talked about.

Do you think we may need to give it further consideration beyond today?

That may well be the case. We will see how we progress. I welcome Mr. Jimmy Farrelly, Secretary General of the Department of the Environment and Local Government and I would like him to introduce his colleagues.

I am joined by Mr. Tom Corcoran, assistant secretary, housing division, Mr. Ian Keating, finance officer; Mr. John O'Connor, assistant secretary for planning, urban renewal and sanitary services; Mr. John Cullen, assistant secretary, local government division; Mr. Niall Callan, assistant secretary, roads division and Mr. Kevin Ring, principal officer, fire services division.

You are all welcome. I also welcome Mr. Michael Tobin, chief executive of the National Roads Authority and I would be obliged if he would introduce the officials accompanying him.

Mr. Tobin

I am accompanied by Mr. Eugene O'Connor, head of project management and engineering; Mr. Michael Egan, head of corporate affairs and Mr. Cyril Sullivan, head of support services.

You are all welcome. I also welcome Mr. Stephen O'Neill from the Department of Finance. I intend to proceed as follows. There are four paragraphs on this report - paragraphs 21, 22 and 23 together, and 24. We will then have a general discussion.

Paragraph 21 of the report of the Comptroller and Auditor General reads:

The Local Government Audit Service is responsible for the audit of the accounts of all Local Authorities. In addition to the Local Authorities themselves, the LGA audit reports are submitted to the Department of the Environment and Local Government as part of the controls exercised by the Department in relation to public expenditure by the Authorities. Some £624 million was paid to Local Authorities by the Department in 1998. Copies of the audit reports are made available to me in my capacity as auditor of the Department. As at 1 July 1999, I had received copies of all 39 LGA reports for 1996 and copies of 31 of the 1997 reports.

In both my 1996 and 1997 Reports, I referred to certain critical comments included in the LGA reports about controls over Local Authority finances. These comments were common to a number of Local Authorities and had been adverted to in previous years' reports. My review of the 1997 LGA reports indicated that the matters reported in previous years continued to feature as audit concerns and included the following:

Capital projects carried out by Local Authorities are usually financed by way of recoupment of the agreed cost from the Department. However, Authorities do not always recoup the full cost of projects, for example, when adding to their land banks for future housing development, or when engaged on projects not funded by departmental schemes. Such expenditure, where unmatched by receipts, is shown in the Authorities' accounts as Adverse Debit Balances on Capital Account. The LGA reports continue to highlight these balances, specifically drawing attention to the fact that many are unfunded. In those reports which I have examined, a total of almost £8 million is highlighted as unfunded. The LGA reports also identify other debit balances of over £37 million. It is not apparent in most cases how these balances are to be eliminated through funding from internal and/or external sources.

Some Local Authorities continue to carry adverse Revenue Account balances with no provision for their elimination in the following year's estimates. Earlier than usual receipt of higher education grants gave a once-off boost to the 1997 Revenue Account balances of many Local Authorities. The total adverse balances identified in the LGA reports which I have examined amounts to £39 million.

The internal audit function is still not in place in many Local Authorities or, where an internal auditor has been appointed, the function is restricted in operation, in some authorities.

Expenditure in excess of estimates should be approved beforehand by the Local Authority. Various programmes had expenditure exceeding that estimated without such approval, although retrospective approval was given in most cases in the following financial year. The situation showed some improvement over previous years, with a reduction in the number of cases where this type of incident occurred.

The collection yield on Local Authority service changes and housing rent and annuities showed improvement in 1997, with the number of Local Authorities subject to critical comment on this matter being reduced in that year.

I would ask the Comptroller and Auditor General to introduce paragraph 21.

Mr. Purcell

Paragraph 21 is the normal paragraph in which I summarise the results of my review of the reports of the local government auditors of their audits of the accounts of local authorities. Exchequer contributions in 1998 to the activities of local authorities channelled through the Vote totalled about £940 million if payments to the National Roads Authority are taken into account. The committee will recall that in 1998 the rate support grant from the Vote finally disappeared with the advent of the allocation of motor taxation revenue to the authorities. Apart from the items referred to in the paragraph which emanate from the financial audit, the local government auditors also carry out value for money studies which are now published to facilitate greater transparency.

The committee might wish to note that an external review on the audit service was completed last year. The focus was to assess how it can maximise its contribution to value for money developments in local government while continuing to deliver a satisfactory service in its financial and regulatory audit role. The report of the review is being examined in the Department as part of a wider consideration of financial management structures in local government.

Mr. Farrelly, do you wish to say anything in general before we the questions?

The Comptroller and Auditor General has set out the position arising from his examination of the audited reports of the local government audit service under a number of headings. I will deal briefly with one or two of them. The issue of unfunded capital balances will come to a head in the context of the new financial management system being introduced in local authorities and I can elaborate further on this if you wish, Chairman. When this is being introduced, decisions will have to be taken as to how these unfunded balances are to be handled, including whether they are transferred to the revenue account.

The other issue touched on in the Comptroller's report concerns the adverse revenue account balances. The position is improving slightly and when the new financial management system is in place, the money owed to local authorities will be taken into account and balances will then show in credit. Local authority accounts give an untrue picture in that while they take account of money the local authority owes, they do not take account of money owed to the local authority. The inclusion of money owed to the authority can transform the picture. A revision of local authority accounting systems will take that on board.

The issue of internal audit was mentioned. The local government audit service is currently conducting a major value for money examination of the internal audit function in local authorities. It is expected that the examination will be completed in June. Clearly, we will act on the recommendations which will be issued at that stage. The preliminary results show, not surprisingly, that while many local authorities have an audit function, it is often quite limited and does not really constitute the broad system-space audit which is required. We have exhorted local authorities to provide for internal audit and more and more local authorities are doing that. We are not sitting on our hands and are stressing the importance of strengthening the internal audit function.

The report also touched on the issue of expenditure in excess of estimates. This relates to the timing of grant approval for the excess rather than grant approval not being obtained. In a number of cases, approval is sought after the event. I want to emphasise that local government functions, be they audit or financial systems or otherwise, are undergoing radical change. The current system is clearly out of date and must be changed. I am not in a position to anticipate the specifics of the local government Bill which will be published in the near future. The Bill will deal with the issue of making the local government system more flexible, and hopefully, will result in the system being brought into line with the Civil Service system in which individual Departments have the power of virement which can be operated with the consent of the Department of Finance.

Collection yields were referred to by the Comptroller. We are all aware that local authorities have faced difficulties in the past in regard to unpopular charges such as water charges. Taking account of waiver schemes and the circumstances of the needy in society, collection yields are not what one might expect in a normal commercial organisation. It is likely that some of the uncollected moneys will have to be written off as bad debts.

What is the percentage of uncollected yields?

On the average collection yields for domestic water charges, the figure in 1994 and 1995 was 62%, 96% in 1996 and 27% in 1997.

Not collected?

They are collection yields. The 1997 figure is totally unrepresentative and does not give a true picture. The 27% relates to arrears carried forward from the previous years. Domestic water charges were abolished in any event and one is dealing here with hard core, uncollectable money. A 27% collection figure would be incredible.

On domestic sewerage charges, the collection rates were of the order of 74%, 70%, 65% and 52%, respectively, in the four years 1994-97. On domestic refuse charges, which are more standardised as these charges continued to apply, the collection rates over the four years were relatively even at 69% in 1994 and 68% in each of the three years 1995-97. In regard to commercial collection rates, the figure in 1994 was 82%, 83% in 1995 and 87% in 1996 and 1997.

The 1996 and 1997 reports contain certain critical comments, including comments on LGA reports. According to the Comptroller, the review of the 1997 LGA report indicated that matters reported in preceding years continued to feature as audit concerns. Is the Comptroller's concern justified and, if so, is it being addressed?

Yes, these issues are being addressed. In my opening remarks I outlined four or five of the main headings involved. The first issue highlighted by the Comptroller was unfunded capital account balances. As I indicated, we are in the process of finalising a new financial management system for local authorities which will deal with this in a thorough and effective manner. I can go into greater detail on the system if Members wish.

The position in regard to adverse revenue account balances is improving but the critical point is that we are working on a new financial management system which, when in place, will take account of moneys owed to local authorities resulting in radically different balances.

The internal audit function is a matter of concern but we are satisfied that the position has improved considerably. The local government audit service will finalise a value for money examination in June and we will proceed from there. We have taken on board the concerns expressed in regard to all of these issues and have addressed them in an interim manner. More important, we have instituted various studies and operations to deal comprehensively with these issues.

We can only go by Vote 25 with which we are dealing. I note that now we are told the issue has improved considerably, while the witness in his opening remarks said the position was improving slightly. Is he referring to the same issue? The report states that almost £8 million is highlighted as unfunded. The LGA reports also identify other debit balances of more than £37 million. Further on, the report states that the total adverse balance identified in the LGA report amounts to £39 million. These are considerable figures. Will the new system eliminate this?

The unfunded balances mainly consist of preliminary expenditure on various schemes, particularly in relation to water, sewerage, housing, land acquisition and so on. It also includes balances relating to completed schemes, the funding of which may be in dispute. We have requested the local government auditors to identify and quantity the value of unfunded balances for 1997 and to include this information in their audit report. This has not yet been finalised but we will continue to pursue the matter.

Looking to the future as part of the enhancement and development of local authority accounting, it is intended that the new format of financial accounts will include a balance sheet, which is not available at present. This will give a more representative statement of the overall financial position of local authorities. It will, therefore, be very important that all unfunded capital balances are identified. The probability of funding each balance will have to be realistically assessed. Balances which are unlikely to be funded will have to be written off to the Revenue accounts under this new system. As part of the preparation for balance sheet accounting, identification and classification of unfunded capital balances will be carried out in respect of 1998. We expect this information to be available by the end of May. Each balance will be reviewed by each work section within the Department and we can then proceed to a more detailed analysis.

Under subhead E.6, more than £3 million is quoted for An Bord Pleanála. What number of staff is employed by the board? Under subhead E.9, Urban Renewal, almost £14 million was estimated and £9.7 million was the outturn. Was there not enough take-up of the scheme? Where are the one-stop-shops and what is their value?

The staffing complement in An Bord Pleanála is 94.5, in other words, 94 staff plus a job sharer. There are health board members who are full time executive board members. Staffing is critical and relevant to the pressures within the planning system. It is important that An Bord Pleanála continues to be adequately staffed to deal with the pressures. In the past two years, we have responded to all demands from the board for increased staff. We have approved all the staffing proposals.

The period for dealing with appeals is supposed to be three months, yet this is frequently extended for a further three months before a decision is made. Why is this the case if there are sufficient staff?

The Deputy is correct. We have set a target whereby the board should decide appeals within a four month time frame. Early last year 40% of cases were being decided within that four month time span. This has since increased.

I would not consider 60% of cases exceeding the time limit as satisfactory.

I accept the Deputy's point that it is not satisfactory. We have provided extra staff and resources and the situation is improving gradually. It has improved from 40% to 60%. Certainly the development pressures in terms of numbers and so on are creating problems. While we approve of extra staff, the reality is that it takes time to get staff on board, whether in the case of the National Roads Authority, a local authority or An Bord Pleanála. From the time staff are approved to when they sit at a desk or hear cases, there is a considerable time lapse.

Is it considered unsatisfactory that 60% or 40% of planning application decisions are not made within the recommended time?

I accept that happens, as does An Bord Pleanála. However, the situation is improving. We are continuing to do what we can to increase the number of decisions made.

What specifically is being done?

We have extra board members, extra staff and extra money. The board has introduced bonus schemes for staff who work outside normal hours and so on. Private consultants are being taken on to deal with planning appeal cases. There is a package of measures in place which is improving matters, but not as fast as we would wish.

How does the budget compare to other years?

The board receives any money it requests. Whether in relation to requests for extra staff or money, there is not any problem in so far as the Department is concerned.

Money will not solve the problem?

No. If money was the issue in the present circumstances, the problem could be solved overnight.

What is the reason for the difference in the estimate and outturn in relation to urban renewal?

In urban renewal, the problem is the delay in getting the work done.

We are only dealing with paragraph 21 at present.

This problem has come to our attention on numerous occasions. The Department of Health and Children wrestled with this problem in 1997-98. This was in the context of the accountability legislation which would prohibit any overruns. As I recall, the outstanding sum was approximately £47 million but the solution was to pay all outstanding debts on a once-off basis. Should this be done in the context of the major changes taking place in relation to funding and the enactment of the local government legislation? Should there be a once-off write-off? The land bank is a huge factor in all of this. In 1975 or 1976, a major change took place. The decision to disallow the rolling up of interest had a huge effect. Prior to that the interest accrued over the year was allowed when the land was sold. Mr. Tully, the then Minister, changed the system. It created massive problems because land had to be serviced even though it was not built on. There should be a write-off so a start can be made.

I looked in the collection yield and local authority service charges section for a recognition of the efforts of some local authorities up to now. In Cork the collection rate for service charges in 1998 was 97.6% and in 1999 it was 98.5%. The local authority was collecting that type of revenue when other local authorities were not even applying service charges. Will the new funding arrangement recognise that effort? If write-offs are granted, will the Department recognise that effort?

Local authorities which do things the right way may appear to be penalised by comparing them to others which are less proactive. A study is being carried out to assess the needs of different local authorities. The intention is to take overall need into account when money is being allocated in future. We hope that arrangement will be in place by the time next year's allocations are made to local authorities - that there will be a realistic assessment of the specific needs of local authorities which would discount failures by authorities to act in a responsible manner. Local authorities which fail to collect what they should will not be compensated for the corresponding loss of money.

On local authority accounts, under the present system, the balances do not give the true picture. They fail to take into account debts due to the local authority itself. In many cases, when this is done, an extraordinarily large debit balance will become a credit balance. Against that, if this figure is fed into a new account system, adequate provision will have to be made for bad debts which, on the basis of the figures I mentioned earlier, would be substantial.

For a number of years in the sanitary services side of the Department, we did not allow the local authorities to draw down money from unfunded capital balances in the early stages for preliminary expenses. This would only be paid eight or ten years later when the scheme was proceeding. We have changed our practice in that area and that helps local authorities.

Is there any prospect of a once off write-off?

A once off write-off is difficult because it would provide a benefit to those who might be least entitled to it.

I take the point.

Looking at the South Dublin County Council capital account over recent years I noticed that the funds in the bank rose and rose. Where there was a need for current spending, these funds which were increasing were untouchable. There was always the answer that the funds were needed for certain projects but they were years into the future. Why are the funds in the capital account not available for important and necessary works on a revenue basis?

There should be a better accounting system for local authorities to give us the true picture. A debit or credit balance may not represent the true position. I cannot comment on an individual authority but there can be situations where land transactions temporarily give a certain balance on the current account. The experience would not be of a local authority system which has a credit balance on current accounts. That would not be the overall position.

I understand that there would not be a credit balance on the current account but there are massive credit balances on the capital account. Then there appear to be arbitrary transfers from the capital account on a yearly basis to the current account yet the transfers are very small relative to the vast amounts in the bank. The projected expenditure for which that money is needed will not be incurred for years to come. Why is more money not transferred from the capital account? Why are such high fees charged for the installation of water supplies and footpaths if the money is being hoarded in a bank? Most local authorities have a small amount in the current account for interest payable. They will deposit £25,000 and in some instances that figure will never be payable. Is that just window dressing for the benefit of the Department?

There should not be and, in general, there is not. We are touching on the extent to which local authorities use capital money for capital purposes. It should not be used for current expenses. Assets can be sold off and substantial funds created in the process but if capital money is continually used for current purposes, the larder will soon be bare and that will be bad for the local authority. My answer might not be relevant to South Dublin County Council but, in general, that authority covers an area in which there is an enormous amount of work to be done which requires a great deal of capital. That local authority and Fingal County Council are two of the major development areas in the greater Dublin area. There is not a great deal of money available on the current side. There may be circumstances in which capital has come in the form of contributions for development and which may be awaiting use, I do not know. I would be amazed to discover that there was substantialusable money lying unused. That is not our experience.

South Dublin County Council has an embarrassment of money in the bank. Over the past two years the amount rose from between £1 and £2 million to more than £20 million. The level of contributions from developers for major developments is very significant. I wonder if it is too much and if it is contributing to the escalation in house prices generally. It has not been shown that there is a need for this money. There are no plans for the use of these funds. There is talk of plans being shown to the council in the future but there are none at the moment. It seems unfair to people who are submitting planning applications or trying to improve their properties or get housing that huge contributions are being demanded of them by local authorities. There is something wrong in the balance. If the money was being used immediately and was seen to be used for a purpose that would benefit the community I would not question the practice, but it is being lodged in a bank with no plans for its use, even in the medium term.

I will not go against the tide of Deputy Ardagh's contribution. I will look into this matter and report back to the Committee. On the basis of discussions I have had with the manager of South Dublin County Council, this is not my understanding of the situation. I may not have the correct picture but I would be amazed to learn of a free flow of unused usable funds through South Dublin County Council. The picture I have is of an authority under considerable pressure to meet the development needs of the area and to finance ongoing activities. I will check on this matter and report to the Committee.

I would not like Mr. Farrelly to use this as a stick to beat the council.

When the manager reads the Official Report of this meeting he will not be pleased with Deputy Ardagh.

I understand that. However, this item must be addressed.

We have other business to deal with and I wish to conclude this business by 1 p.m.. Local government expenditure is not a matter for this Committee although we are concerned with the Exchequer grant. We are rightly concerned as to whether proper controls are in place. Let us focus on that.

The Comptroller and Auditor General has stated that an internal audit system is not in place in many local authorities. Where is it in place?

It is difficult to give an absolute answer to this question. Some form of internal audit is in place in almost every authority but in many cases an individual has an internal audit function allocated to him in addition to a series of other functions. That is not an acceptable form of internal audit, in my view. I cannot answer this question until the comprehensive review which is being carried out at our request by the local government audit system is available by the end of June.

Does Mr. Farrelly agree that an internal audit has a very specific function and duty. One cannot have a "kind of" internal audit or an audit which consists of an individual having a look at matters and coming up with a set of views which might not stand up to analysis.

There must be independent and reporting structures.

I agree with Deputy Doherty. An internal audit function must be a totally dedicated system operating in an independent manner with no other duties tacked on.

Local authorities have celebrated 100 years of existence. Surely, with the expenditure of large amounts of money, the systems used in all other sectors which take their functions seriously should be in place in local authorities. How can one do an effective local government audit without being able to correlate with the internal audit?

It does not improve the position, either from the viewpoint of the internal auditor or from the viewpoint of accountability.

It is important that this Committee would know which local authorities do not have an internal audit system in place and the dependence of the local government auditor on internal audit? We should know how he manages to bring a true and accurate account of matters to the Department in the absence of an internal audit function.

There is a very well developed system of internal audit in all the major local authorities. In the smaller authorities the situation is much more problematic.

What smaller authorities?

Urban districts are a particular problem. We are not satisfied with some local authorities. I accept the point regarding the relevance of internal audit to the overall local government function. That is why we have asked the internal audit system itself to do a comprehensive study of this matter.

Fraud is difficult to detect at the best of times. When one is dealing with vast quantities of money there are greater opportunities for fraud - I do not say it occurs - when an internal audit function does not exist. It is important that the Committee be given a full list of local authorities where an internal audit function exists in a proper form. We cannot be satisfied withad hoc arrangements. We should also hear the comments made by local government auditors in the context of every local authority which did not have an internal audit. Local government auditors are not doing their job effectively and efficiently if they do not take account of the fact that an internal audit function is not in place and report that fact. Does Mr. Farrelly agree?

I agree absolutely. Within four months we will have a detailed and comprehensive report on this matter and all the information will be available to the Committee. We will proceed from there. The report will be available to the Committee and to the Comptroller and Auditor General.

What does an internal audit entail at present? Does it relate purely to monitoring expenditure and ensuring that proper procedures were followed or does it take value for money into account?

As of now, it generally does not have a value for money function. We have allocated a specific role in relation to value for money to the local government audit system. One would expect the internal audit system within local authorities to be largely systems based. It would not tick off expenditure so much as ensure that systems are in place to prevent and eliminate fraud and to guarantee the integrity of the system.

Given the circumstances and the responsibility of local authorities to deliver services to the public, a matter to which Deputy Doherty referred, I would have thought that a modern audit would entail such matters as good value for money and efficiency in the delivery of services as well as strict control of expenditure.

If one looks at the overall public sector system one will see that the Comptroller and Auditor General conducts value for money audits across the Civil Service. So far as the local authorities are concerned, the local government audit system has a value for money function. That is not to say that local authorities should not take account of the question of value for money in everything they do.

Let me put the question in a different way. Is it intended that it will be recognised as an integral part of the audit structure in future?

It is. We have a consultants' report——

When will it come into operation?

It is in operation. The local government audit system has conducted a number of value for money audits - about 20 in total - covering different aspects. This will increase in time.

Is it in operation in all local authorities?

It is not in operation throughout the country. The local government audit system has a value for money function. Each year it gives priority to particular projects which are the subject of value for money audits.

Perhaps I have not made myself clear. Is it intended that a modern audit of an agency or agencies, the responsibility of which is to deliver services to the public, will assess their level of efficiency and value for money obtained in the delivery of services with the money provided?

Perhaps I have been giving the wrong picture; I was concentrating on a value for money audit system which concentrates on particular topics.

The total operation.

In conducting the normal audit the local government auditor will have regard to value for money obtained. Value for money reports cover specific topics.

To test the system - I have suggested this previously - it might not be a bad idea to conduct from time to time an independent audit in a number of local authorities throughout the country. The local authority of which I was a member used to test its own system by seeking tenders. The points I have raised should be taken into account - efficiency and value for money obtained in the delivery of services with the money provided.

As I said, a consultants' report has been prepared on this topic and it is under consideration. The point raised by the Deputy will be one of the issues considered - a cross-check or cross-verification——

Would you recommend it?

The Comptroller and Auditor General referred to excess expenditure over the amounts allocated in the Estimates. Why do local authorities retrospectively approve excess expenditure? From memory - it is not long since I was a member - it used to be normal procedure to approve extra expenditure as it arose on foot of a proposal from the manager.

As I said, to some extent excess expenditure is due to the inflexibility of the system. Excesses occur where expenditure limits for any programme or sub-programme are breached, even if overall limits are respected.

That does not answer the question.

I will deal with it. Under the law with which they are not complying local authorities are required to approve excess expenditure, which means waiting for the next council meeting. I wish to draw a comparison with the system operating in the Civil Service as managed by the Office of the Comptroller and Auditor General and the Department of Finance for Government Department expenditure. If I wish to switch funds between provisions without exceeding overall allocations I can, where reasonable, seek the approval of the Department of the Finance; in other words, I do not have to return to the Dáil. In the case of local authorities under the system which has emerged, the approval of the council is required in respect of each individual item. The local government Bill——

I have read it.

——will provide an appropriate opportunity to debate the matter. It is not for me to publish its contents but it will deal with this issue.

Will it provide for virement?

It will provide for that possibility.

That is in the future. What I am referring to is the point made by the Comptroller and Auditor General which relates specifically to the procedure to be followed by local authorities in cases involving over-expenditure. As you and I know, a motion is placed before the local authority by the county manager for debate following which it is either approved or disapproved. You are now saying this will change under the local government Bill. What I am saying is that, by your own admission, the current procedure is not being adhered to.

As I see it, in all cases the sanction of the elected members is obtained. What is at issue is the timing of the sanction——

It is sometimes obtained retrospectively.

Absolutely. It is sometimes obtained retrospectively.

Regularly.

Due to its inflexibility the system in operation is not geared to cope with modern needs and development pressures. The local government Bill will attempt to change this in a manner which meets the concerns of all.

In respect of development levies to which others referred, to what extent do you assess the uses to which they are put by local authorities having particular regard to the conditions laid down in respect of planning permissions on the uses to which general and specific levies should be put? I refer in particular to the seven year rule in respect of expenditure on such matters as car parking space which is limited in most towns and villages?

We do not control directly the uses to which development levies are put. The Planning and Development Bill which has been passed by the Seanad and is being given its Second Reading in the Dáil——

Under which planning Act is it being controlled?

There is a new provision in the Planning and Development Bill which will change the entire system under which local authorities will be required to place the money in a specific account——

And before this.

Not to the same extent——

No. The planning Acts enable local authorities to impose a levy for specific purposes. Local authorities will be tied down much more under the provisions in the planning Bill in relation to how they use and account for funds.

Let us deal with that quickly. Can you confirm or deny that there existed heretofore provision whereby levies applied in respect of, for instance, car parking, had to be refunded if not expended by the local authority within a seven year period? Is that true or false?

That is true.

The next question relates to derelict sites. Have you available to you, by way of audit or otherwise, information relating to unused or derelict sites in the city or the country, in both urban and rural settings? If so, to what extent have you or the local authorities focused upon it, given the serious pressure for development land for both industrial use and housing, and the current serious situation in relation to housing?

That is quite clearly a departmental matter. We do not have that information. That is a function which is appropriate to the local authorities. What we do is provide a framework, the necessary legislation with the necessary provisions, to enable local authorities to deal with this matter.

If they do not, what do you do?

If they do not do certain things, various sanctions can be applied. They are subject to audit and so on. However, what local authorities do cannot be controlled absolutely from a base in the Custom House or anywhere else. What we have to do is modernise the whole local government system to give local authorities real powers which they should be encouraged to operate in a proper and effective manner, and they must be given the resources to do so.

I put forward that argument 20 years ago.

It is probably your speech we are using now.

I was going to ask another question, but I am quite shocked by the Secretary General's statement that the Custom House cannot lead the local authorities. I have taken up with the Minister the issue of infill housing and laneway developments in the Dublin area, but I would be interested to hear the Secretary General's view on it. Local authorities give contradictory decisions in relation to infill housing in urban areas. One person can get permission to develop a corner site and build a second house on it. That has a socially desirable result because there is a housing crisis. However, in the same local authority area, possibly even in the same street, another person applies for permission but does not get it. Nevertheless, the Department of the Environment and Local Government will not issue guidelines to local authorities instructing them that infill housing is desirable, that it should be carried out nationally and that planning applications should be dealt with in an even-handed way. I am mystified as to why the Department makes no effort to be consistent by issuing guidelines or making regulations relating to the planning code which would apply throughout the country. A development can be rejected in one county which would be accepted in another, and there is absolutely no leadership from the Department in terms of guidelines or regulations. I am intrigued and would like to hear the Secretary General's view on it.

We are on local government financing and that is stretching it a bit.

Deputy Durkan opened up the 2000 crisis.

On procedure, we decided on a rota. Both Deputy McCormack and I were asked to stay. We asked a question each. I had eight questions on the Vote but in deference to others I did not ask them. I certainly find this discussion about derelict sites——

We are on local government funding generally and I want to move on to other issues. Do you have any other questions, Deputy Lenihan?

I want to say a few things. The genesis of this, the letter of 11 August, which we are taking in conjunction with Vote 21, was the discovery that, in the case of national roads, county councils had sent in false invoices to claim money in advance. We discovered on further inquiry that a number of other local authorities also certified work that was not done to get payment in advance. We have dealt with that fairly thoroughly. We asked you whether local authorities were claiming moneys in advance under any programmes, and we find that they are. They are saying work has been done when it has not been done. This is wholly unacceptable and reprehensible and it has to be stopped across the board. It is the Secretary General's job, as Accounting Officer to this committee, to put mechanisms in place to ensure that this cannot happen.

I am glad a local government Bill is due to be published in the near future which will address some of these issues. I certainly would like the views of this committee to be sought in respect of finances and auditing generally.

A couple of things occur to me. There is a significant weakness in the local government audit system in that, first, there are up to 30 local government auditors, so there is no critical mass. There is not, therefore, the necessary expertise and spread to enable them to check one against another. Second, there is no effective oversight. County councillors are in a notoriously weak position in checking against their own managers. They are not independent enough. Third, there is a significant amount of Exchequer funding going to local authorities. If one counts the money going through the National Roads Authority, it is getting up to £1 billion, for which there is no accountability to the Oireachtas. That is a gap which is unacceptable and which ought to be addressed.

One possible way of addressing this might be to consider either putting the local government service under the general supervision of the Comptroller and Auditor General or giving the Comptroller and Auditor General certain inspection rights. This is my view and it may be the view of the committee. I am not speaking for the Comptroller and Auditor General, I am just rais-ing the issue. It is of concern to this committee that there continues to be laxity in controls in the local authorities. There is the weakness in the audit function, not just the absence of internal audit. There is lack of a critical mass and moneys voted by the Exchequer are not being accounted for.

I have no wish to extend the remit of this committee. I can see a very sensible role, a parallel role, for the Committee on Environment and Local Government in overseeing and vetting the audits of local authorities. Something has to be done about it. It is alarming to find that county managers are actually certifying, under several different programmes, that work has been done in order to claim money in advance. Whatever the excuses are, it is wholly bad practice, insidious and dangerous. There is a supposition here that money has not been lost. I am not accepting that money has not been lost. If people can tell lies toget money under one heading, I could have no confidence that lies would not be told to divert money, although there is no evidence of that. However, there is a danger, and we have to stop it.

There is a further review going on. A working group has been established. Will you bring us up to date on the position?

I will deal with one or two things you have mentioned. You mentioned a particular concern as to the relationship between the elected members and manager. I cannot go into the detail of what will or will not be in the local government Bill. However, this is an area that will be dealt with in terms of audits. At the moment councillors, elected members, are not in as strong a position as they should be to raise issues in relation to the audit. That is being taken on board. Whether the Bill satisfies everybody is another matter. Efforts will be made to deal with this in a significant way.

It can be done but councillors, of necessity, have to ingratiate themselves with the manager to get works done in their area.

They operate a system whereby every time they find out something they get something.

With all due respects, that system has to change.

I hope it will.

I share the committee's concerns on points made about the activities of local authorities in the past. A great deal has been done in the meantime to deal with this. I hope and believe that is a shadow that is behind us. Arising from previous discussions, the Department established a working group to assess the potential for a harmonised set of drawdown criteria to be applied right across the capital programmes. Having examined it in detail there are conflicts in certain cases, in that one can draw money up front when a scheme starts but not in others. In other cases one has to take into account unpaid bills at the end of the year but for some other systems that does not apply. It is a question of drawing up a uniform harmonised system to apply right across the entirety of capital programmes. This will remove any ambiguity so far as the obligations and the responsibilities of local authorities are concerned. We have not taken a final decision, but in doing this I anticipate that officers of the local authority will be required, at that stage, to sign the claim forms for departmental grants and to certify that: (1) they understand fully those new conditions which we will specify, the drawdown obligations on them; (2) the claim form being signed complies fully with these requirements, in other words, there will be a new comprehensive set of guidelines, general uniformity in relation to drawdown and the payment of funds across all capital programmes; and (3) responsible officers will have to certify that they have read and understand fully these new requirements and that the claims being made are fully in accordance with those requirements. That is a bird's eye view of what we are aiming to do today. There is a further issue on that. My belief is that we will impose a penalty clause on anybody who breaches the criteria in respect of drawdown moneys even if only for the three weeks or so.

On the person or on the council?

On the council.

Will the county manager, as the effective accounting officer of the council, be held personally responsible?

That would arise in a different way. It would arise in the audit system whether the local government considered it appropriate to impose a surcharge. This would be on the council. Any surcharge would be on the manager or on——

In the case of Cork County Council the manager said this was done by a subordinate official and responsibility was disowned. Will the law provide that ultimately the manager, before claims are made, will have to satisfy himself that the claims are warranted so that the manager can be held responsible?

Public service systems now operate on the basis of devolving responsibility to appropriate people and making them responsible for their actions. There has to be an official who is responsible and it is possible for a manager to have devolved responsibility. Whether it is appropriate to impose a penalty on a named official is something that would arise in terms of the local government audit function.

Apart from a penalty, a duty should be imposed on him to ensure false claims are not being made to the Department. He should have a personal responsibility to countersign and vouch for the accuracy of the claim so that he cannot say he did not know about it afterwards.

In the final analysis, if one is at the top of an organisation one has to take responsibility for the good and the bad.

We have had cases where they have not taken responsibility and they disowned it.

Much of what has been discussed is contained in the letter signed by Margaret Moore on behalf of the Secretary General on 22 April 1998. In that letter she adds an appendix which is an extract from the document, Better Local Government - Programme for Change. Most, if not all, the points discussed are contained in that appendix. It sets out 15 objectives for the Department to follow. Can Mr. Farrelly say what progress has been made to fulfil the objectives set out in the document he submitted to the committee on 22 April 1998, most of which deals with control at local authority level in relation to financing?

I do not have that letter before me. The whole policy of change in the local government system has, rightly, been going on for several years and substantial progress has been made. We are at the stage where it is a toss between whether the planning Bill or the local government Bill is the comprehensive Bill in recent years. The local government Bill is nearing publication. In the local government system of 1999, we said that on the financial management system there would be a request for tenders for the computer system in the market. Now we have reached the stage where the contract is in place with Mentec for the provision of the system. The product chosen has a strong local government flavour while meeting the required accounting standards and providing much flexibility and functionality. On the issue of pilot sites identified in the financial management system, last year we said the pilot sites identified were Donegal and Meath County Councils. The pilot systems are under way in both these local authorities and live dates for running this system are scheduled for May or June 2000. Work is under way with the local authorities which are due to take on the system in 2001 to define the implementation plans and to put project teams in place. Under another heading we said last year that various working groups composed of local authority and departmental personnel should be collaborating on policy and implementation issues. We now have a new chart of accounts and coding structure produced for the pilot sites which are operating. We have fixed assets pilot project completed in Roscommon County Council. We have an implementation manual produced for use. I can go on and on this and you may get——

What I am trying to get at, is that all of what we are discussing here is contained in that document laid down by Government in consultation with the Department and notified to the committee on 22 April 1998. All that is required is that the Director General indicate to this committee, under the headings set down and approved by the Department - and contained in the appendix - what progress has been made on each?

That is an eminently sensible proposal. We will ask the Secretary General to update the committee within a month, paragraph by paragraph, on what progress has been made. I do not think we should leave local government finances at this because up to £1 billion of Exchequer funding, apart from local government funding, is involved here and we have no effective accountability for it. I want the committee to agree to seek some effective way of getting accountability for Oireachtas funding of local authorities, either directly or through agencies like the National Roads Authority. I would like the Secretary General to come back to us and tell us the steps that will be taken to give effect to the committee's insistent request.

The last time the Secretary General was here I asked him a question but he never got back to me on it. It concerned the league tables and the way particular local authorities are performing in terms of the provision of services, in other words, the cost of bin collections in one area relative to the next. This is an issue on which the Department should take an active role so that the public can see the value for money they are getting for the services being provided.

The Department, in consultation with a small group of managers from a number of authorities, has developed an initial range of appropriate non-financial performance indicators with a view to early adoption in each local authority; that is progress since the Deputy last raised the issue. These will be called service indicators so as to emphasise the customer focus and distinguish them from envisaged performance management systems. The factors relevant to service delivery in particular will be taken on board. As of now, 21 possible indicators have been developed for initial adoption under particular headings, including housing, planning, roads, environmental services, motor taxation, library services, revenue collection, corporate health, issues such as absenteeism, staff retention and those type of issues. There has been progress, and I am sorry if the Deputy got a commitment that we would get back to him, but we have, in consultation with a small group of managers, come up with these 21 indicators and the intention is to develop them to finality.

When will they come to finality? I asked about this matter a year ago. When will this information be published so that people can see the way different local authorities are performing?

To confirm the position, the Deputy's concern is reasonable on the time phase. We would hope to get a system going where these indicators would begin to be monitored and hopefully, 12 months down the line, we will have some returns from it. It will start in three weeks but there will be a lapse in time before it——

Is it possible that the committee could have copies of the scheme?

You can, of course.

I asked for this last year.

I have now decided that we should have that within the month, in line with the requests being made in respect of Deputy Bell - the progress made on the letter of April 1998 - and that we also want a response from the Secretary General within two months from today, 10 February, on the provision that will be made for accountability to the Oireachtas for the Oireachtas funds which are allocated to local authorities, either directly or indirectly. It is important that there are some arrangements for accountability.

I want to make a number of other points. You talked about the possibility of introducing virement to local authorities, and I can see that sort of flexibility would be desirable, but it would be very dangerous if it is another step to take away power from locally elected representatives. I used to be on the finance committee of Dublin Corporation. Perhaps there should be a role for the finance committee of a council or the chairman of a finance committee rather than it being a managerial function.

In regard to the practice of getting retrospective sanction, councils are faced with afait accompli, they have no choice. Effectively they are bypassing the law and that should be examined as well.

If I may interrupt on one matter. I would be concerned that anyone would get the impression that anything we are doing will be at the expense of the elected members of local authorities. I can give an absolute assurance that that is not the intention.

Though Mr. Farrelly is smiling.

They do not believe it.

I am afraid that when it comes to dealing with some issues like taxi licences and waste disposal charges, the councils are in an invidious position, and it is not always the most effective way of dealing with it.

Most of the time they do not know what the managers are doing.

That is decided. One month for the information to be produced, the league tables and the response to the letter of April 1998 from the committee. We want an update on those, paragraph by paragraph, and within two months we want to know the proposals that are in place to ensure accountability to the Oireachtas for Oireachtas funds allocated directly or indirectly to local authorities.

We will take the next three paragraphs together to allow for a more general discussion. I ask the Comptroller and Auditor General to introduce paragraphs 22, 23 and 24.

Paragraphs 22 of the report of the Comptroller and Auditor General reads:

22. Cost Overruns on Fire Stations

Under the Department's reporting and budgetary measures for fire station projects, Local Authorities embarking on a project require the Department's approval at all stages, from preliminary to contract stage. At construction stage, the drawdown of project funds by the Local Authority is subject to control by the Department. The approval of the Department of Finance is also required for projects over £1m in value. In the course of audit it was noted that a number of projects had final costs significantly in the excess of the original estimate as outlined in Table 3.

Table 3 - Cost of Fire Station Projects at Each Stage

Project

Project Approval in Principle

Design Stage

Contract Stage

Final Cost

Grant Paid to Date

£

£

£

£

£

Listowel

300,000(1993)

365,000(1994)

405,400(1996)

422,500(1997)

413,900(1998)

Kells

300,000(1990)

355,000(1995)

355,000(1997)

421,000(1998)

355,000(1999)

Project

Project Approval in Principle

Design Stage

Contract Stage

Final Cost

Grant Paid to Date

£

£

£

£

£

Kilrush

330,000(1989)

337,100(1993)

413,300(1997)

436,900(1998)

415,900(1999)

Wicklow

250,000(1992)

256,000(1994)

319,300(1997)

357,000 1(est 1999)

338,000(1999)

Milford

300,000(1990)

299,900(1991)

336,400(1996)

411,400(1998)

330,000(1999)

Kilbeggan

295,000(1995)

277,000(1996)

312,700(1997)

331,370

300,000(1999)

Kilkenny

96,600(1990)

102,000(1992)

227,400(1996)

255,700(1998)

255,700(1998)

1 Estimated, pending receipt of final accounts from the Local Authority.

In response to my inquiries the Accounting Officer stated that, generally, the principal causes for cost increases were:

*The significant time lag of some 5 to 6 years between approval-in-principle stage and completion of the projects. This delay was due to the limited funding available to the Fire Services Capital Programme, (average £4.8m per annum in the period 1990 - 1998), and the high level of demand from the fire authorities for funding of capital projects. As a result, cost estimates were overtaken by building industry increases.

*Conditions in relation to design and finishes imposed by planning authorities.

*Statutory increases under the terms of a contract's price variation clause.

*Variations to works specified in original contracts and additional works carried out at the request of fire authorities. Where the fire authorities do not obtain departmental approval prior to, or at the time of, incurring these additional costs the increases are examined fully by the Department at final account stage and a decision taken as to whether they qualify for fire services grant aid.

In an effort to minimise cost increases, and notwithstanding the comprehensive cost control procedures already in place, the Department has introduced further controls which,inter alia, require the authorities to:

*Submit updated cost estimates for approval before proceeding to invite tenders in thecase of proposals that have been before the Department for some time.

*Seek fixed price contracts for projects.

*Reduce the number of Prime Cost and Provisional Sums in contracts (where possible the items involved to be measured and priced competitively by tenderers).

*Review projects where, on receipt of tenders, it is clear that the approved budget limit will be exceeded.

In addition, the Department is now capping grants at appropriate limits at project detailed design or tender stages, where it considers this action to be necessary. All costs in excess of such limits would be a matter for the fire authorities to meet from their own resources, thus placing an incentive on the authorities to exercise stricter cost control measures. The Accounting Officer also stated that although it is expected that these provisions will go some way to curb the increasing costs of fire stations, it has to be accepted that the predominant factor in relation to cost increases is the degree of competition prevailing in the construction industry.

Paragraph 23 of the report of the Comptroller and Auditor General reads:

23. Tara Street Fire Station

In August 1996, following a public competition, Dublin Corporation stated they had accepted a tender of £3.6m for construction, on a design and build basis, of a new fire brigade headquarters at Tara Street, Dublin. The design and build contract required the contractor to provide a finished building for purchase by the Corporation, which would be completed in every respect and suitable for the intended purpose. The successful tender included a provision for the contractor to purchase surplus land on the site for a private development, at £1.2m, bringing the estimated net cost of the Corporation's project down to £2.4m.

Although it had embarked on the project and accepted the tender without the Department's approval, the Corporation formally requested a grant of £2.4m in December 1996. The Department had earlier contributed £450,000 in grants and £200,000 in loans towards site costs at Tara Street, but turned down the Corporation's grant application in January 1997 and again in April 1998, as the project had not been approved. The Department noted that despite its refusal of grant assistance, the contractor was on site in January 1997. However, in December 1998, £lm was paid to the Corporation as a once off contribution to the project. The Department advised the Corporation that no further contributions would be forthcoming. The current estimated net cost of the project is £4.37m as against the initial estimated net cost of £2.4m.

In response to my inquiries as to why the Department paid £lm when the contract had originally commenced without departmental approval the Accounting Officer informed me that:

*Dublin Corporation had for a number of years been seeking to redevelop the site at Tara Street. In seeking Exchequer assistance, Dublin Corporation pointed out that the Tara Street Station was the headquarters of the largest fire service in the State serving one million people, that it was a Victorian facility unsuitable for modern requirements and standards, and that staff and unions were threatening to withdraw from working in the station.

*It was not possible, however, to give Dublin Corporation a commitment that the normal 100% Exchequer grant assistance would be provided because of the scale and cost of the project, the limited funding available for the fire services capital programme and the competing demands throughout the country. Dublin Corporation, accordingly, decided to utilise the site's designated area status under the Urban Renewal Scheme to achieve the twinfold objective of having a new Fire Brigade Headquarters constructed while, at the same time, securing development on the surplus lands which had been derelict for many years.

*Against this background, Dublin Corporation decided to enter into a joint venture (Public Private Partnership) for redevelopment of the site to include the provision of a new fire brigade headquarters. The fire station was not a separate contract but part of an overall contract involving the development of the whole site, including an hotel and car park.

*The contract was advertised and awarded on a design and construct basis and the Department's procedures do not cater for this type of development. The Department was not included in the development of the fire station element of the project, as the project was not progressed in line with departmental financial and administrative procedures.

*In response to a request from Dublin Corporation in 1998, and as the original decision was considered to be somewhat harsh, the position was reviewed in the light of the different circumstances which then prevailed (the explicit support in Partnership 2000 for the concept of Public/Private Partnership) and a once off contribution of £1m was provided by way of Exchequer grant. As a high quality full-time headquarters fire station was being provided, this represented excellent value for money in so far as the Department was concerned.

Paragraph 24 of the report of the Comptroller and Auditor General reads:

24 Cost Overruns on Water Supply and Sewerage Schemes

Capital expenditure on water supply and sanitation schemes by the Department of Environment and Local Government amounted to £185m in 1998. Estimated expenditure on such schemes in 1999 is projected to increase by 50% to £275m. Projects approved by the Department to commence construction in 1998 range in value from £20,000 for the Athlone Water Conservation scheme to £200m for the Dublin Bay (Ringsend) Sewerage scheme, which will be financed over a number of years to completion.

The guidelines on awarding contracts for public sector construction projects stipulate that, in order to avoid increased costs later, every effort should be made to ensure that all aspects of the design are finalised before a project goes to tender. Upper cost and work limits should be established at the outset and a detailed design brief should be prepared. The design brief should be sufficiently comprehensive to establish clearly the services required and the relevant standards and constraints to be followed. Proper supervision is essential at construction stage to ensure that the works are being carried out according to the specifications and within the time and cost limits for the contracts and the project should be subject to a detailed cost review at completion.

A final account is transmitted by the Local Authority to the Department, which retains 5% of the scheme grant pending its submission.

Despite the existence of strict approval, reporting and budgetary control procedures designed to ensure adherence to the above guidelines at local and departmental level, it was noted on audit in previous years that cost overruns occurred consistently on water and sanitation projects. My 1995 Value for Money Report on Regional Development Measures indicated that, generally, cost estimations at the preliminary report stage differed substantially from design stage costing, which in turn tended to increase at the tendering stage. In some cases, cost at design stage became irrelevant because the schemes were delayed for considerable periods of time. In general, final costs of projects were in excess of the agreed contract costings and the excess arose as a result of adverse ground conditions not identified during site investigations, the introduction of additional cost classifications and substantial increases in salary, administration and miscellaneous costs.

In 1998, in response to an inquiry from my Office, the Department provided information on certain water and sanitation projects which indicated that the tendency for a cost drift to occur between tender and completion stages was continuing, as outlined in the examples in Table 4.

Table 4 - Water and Sewerage Schemes

Scheme

Contract Price

Final Cost

£

£

Bailieboro Sewerage

839,768

1,075,718

Annagry Sewerage (Donegal)

495,000

644,629

Scheme

Contract Price

Final Cost

£

£

Dunlaoghaire Water Sup- ply Contract No. 1

6,200,000

7,138,699

Dingle Sewerage

3,705,402

5,693,516

Killybegs Water Supply Contracts

10,900,000

17,695,950

Tralee Sewerage Contract No. 1

2,900,000

4,126,889

The Department indicated that the factors giving rise to these costs variations were the same as those outlined in my 1995 Value for Money report and that final accounts and material required to complete examination of the final accounts, such as construction drawings, engineers reports, etc. are still, typically, received no earlier than 2 to 3 years after substantial completion of a scheme, with longer delays frequently occurring. As a result, few final accounts are received and fewer final payments are made each year on completed schemes.

It was also noted that revised project monitoring arrangements introduced in 1998 include,inter alia, a requirement for Local Authorities to seek an increase in the approved grant from the Department at the time the projected cost overrun is identified, rather than when the approved grant is exhausted, as had happened previously. New arrangements on final accounts in early 1999 provided for the introduction of an interim final report, giving an initial assessment of the project and a preliminary statement of final costs, to be followed not more than two years later by the final report which should include a full post-project review and the complete final account. The Department also introduced design and build contracts for suitable projects in early 1999 as one of the main fundamental principles of infrastructure development under Public Private Partnership arrangements. The monitoring, payment and reporting procedures would remain broadly similar to those in current use.

Due to the substantial increase in final costs, I inquired as to whether the Department had conducted any further review of the factors giving rise to the cost overruns. I also inquired as to whether cost overruns on EU co-financed schemes were borne solely by the State or co-funded by the EU.

The Accounting Officer stated that the type of factors that led to cost variations were:

*Uncharted and poorly mapped services causing delays and disruption

*Road structures in poor condition when trenches were excavated, and requiring additional work

*In some cases, better but more costly technology becoming available during the contract

*New requirements of other authorities being made known during the contract

*Delays caused by difficult ground conditions not identified by initial survey

*Difficulties negotiating wayleave agree-ments

*Delays arising on associated contracts

*Changes such as adjusted Value Added Tax rates.

He also stated that, in recognition of, and in response to, the factors influencing the cost of a scheme over its lifetime, the Department had taken steps to minimise their effects as follows:

Measures taken by Department prior to Tender Stage

*Current practice is that schemes are not approved to proceed to planning stage unless the Department is confident that the funding is in place to allow the schemes to progress through to construction in the short-term. The Accounting Officer informed me that since 1997, the Department has published the list of schemes to advance through planning with the result that the time between completion of preliminary report and commencement of construction has been shortened.

*Since March 1997, the Department requires Local Authorities to give advance notice to the Department of the Marine and Natural Resources of proposed water services schemes.

Measures taken by Department during Post Tender Stage

*In June 1995, Local Authorities were asked to revise scheme costs as part of the Annual Capital Returns process and to submit a report to enable approved finance for the scheme to be reviewed. The report must outline the current scheme cost and itemise the elements giving rise to increases such as price variation clauses, certified claims, overruns and/or approved extras. It should also incorporate a detailed statement from the County/City Engineer on the scheme. In addition, it has been emphasised to Local Authorities that it is important that the information in claim forms is carefully checked and verified before they are passed to the Department for payment.

*Local authorities have been reminded of the need to institute value for money and cost control regimes. In particular, rigorous value engineering methodologies are applied to the larger schemes.

*A Steering Group, made up of Local Authority representatives, departmental technical and administrative personnel and the Consulting Engineers, to facilitate regular exchanges of information and early signalling of problems, must be established in respect of each project.

*Local authorities have been reminded of their responsibilities and obligations as contracting authorities to ensure that adequate site supervision, cost control and project management techniques are in place for all schemes. The Department must be notified immediately of likely increases in scheme costs and the factors giving rise to such increases must be fully documented. Local Authorities are generally required to apply for prior written approval before any commitment is entered into. Applications of this nature must also clearly state why the works were excluded from the original scope of the scheme.

*The Department has adopted a policy of limiting the Contingency Sum in contracts to a maximum of 2.5%.

*The Department issued a circular to Local Authorities in December 1997 dealing with the issue of sound financial management and control systems on water and sewerage schemes. In particular, guidance was given on:

*The introduction of the new administrative arrangements were notified to Local Authorities in December 1998 and, with effect from January 1999, the Department gave Local Authorities more direct responsibility, within approved cost limits, for the management of Water Service projects.

*A Working Group has been established with representatives of the Department and the Department of Arts, Heritage, Gaeltacht and the Islands to deal with archaeological issues arising.

*New arrangements have been put in place to ensure that site investigation works are carried out by specialist firms. In addition, Consulting Engineers are being asked to report to the Local Authority and the Department on the effectiveness of the site investigation contract where claims for extra cost due to ground conditions arise.

*The Department has put in place a system whereby baseline costs for projects are established with a view to determining at final account stage the real increase in costs over tender prices.

*The Department monitors the competitiveness of the sector by keeping track of the number of contractors bidding, and delays in start-up of jobs.

*In February 1999, the Department set out revised procedures for carrying out post-project reviews for water services projects. The main objectives of the new arrangements are:

*To provide an assessment of the management of the project

*To allow for a full evaluation of the impact and effectiveness of the project, particularly in terms of the environmental and economic objectives set

*To ensure that information is collected in a manner that facilitates the conduct of financial audits and the aggregation of national statistics

*To meet the various requirements of the EU in relation to the draw down of EU aid

*To determine the final outturn cost, and identify any cost increases over the original estimates and tender prices

*To identify, explain and, if possible, correct any irregularities in the management of the project and recover any financial losses arising from identified financial irregularities

*To ensure that the appropriate maintenance of the works in question and for the ongoing monitoring of their performance have been put in place

*The Department is implementing a standard accounts system for the monitoring of expenditure on water services capital projects.

The Accounting Officer also stated that the Department had recently engaged a consultant to undertake an audit programme of interim certificates issued by consulting engineers to establish that these certificates reasonably reflect the value and efficiency of the work covered by them.

With regard to the funding impact of cost overruns in EU co-financed schemes, the Accounting Officer stated that there is no obligation on the European Commission to increase the maximum amount of assistance from the Cohesion Fund, the source of the majority of funding for such schemes. Nevertheless, he stated that, up to April 1997, in practice the Commission has approved most cost increases on individual projects but that since then has tended to disallow cost increases on water projects. The reason for doing so is stated to be due to Irelands interpretation of Article 130 of the Treaty on European Union, i.e. the Polluter Pays Principle. Since that time also they have approved new water projects for funding at the lower aid rate of 80% (compared to a usual 85%) for the same reason.

In relation to a minority of schemes that benefit from Structural Funds and Interreg Funds, the Accounting Officer stated that the Exchequer bears any cost increases. However, he pointed out that no EU aid is lost to Ireland in this respect in view of the availability of schemes to be set against Structural Funds. In the absence of EU assistance, such schemes would be funded by the Exchequer in any event.

Mr. Purcell

Paragraph 22 draws attention to a pattern in the incidence of the escalation of costs on fire station projects undertaken in the second half of the 1990s. Some element of the increases undoubtedly stem from the time lag between the project approval and the placing of the contract, but extras were also a factor. As can be seen from the paragraph, the Department has introduced enhanced controls to try to minimise the extent of the additional costs, although I acknowledge that there are practical difficulties involved. In particular it is now capping grants in certain cases at the agreed design stage which means that additional costs will have to be met by the fire authorities. This should have the effect of encouraging the fire authorities to implement stricter cost control measures.

Moving on briefly to paragraph 23, this paragraph merely outlines the circumstances surrounding the financing of a new fire brigade headquarters at Tara Street. Dublin Corporation went ahead with its construction, without departmental approval, by taking advantage of the site's designated area status under the urban renewal scheme. It followed through by entering a public-private partnership arrangement under which it would get its new headquarters on a design and build basis for £3.6 million, whereas the surplus land on the site would be sold to the developer for £1.2 million, bringing the projected net cost to £2.4 million.

I do not have a final cost figure for the development but at the date of my report it was estimated at just short of £4.4 million, which was nearly £2 million over the projected net cost. The Department contributed £1 million from the Vote towards the cost of the project late in the day, even though it had no say in the manner of the construction of the building, but I understand it is not providing any other funding so presumably the balance will have to be met by the corporation, unless it has entered some kind of new sweetheart deal with the developer. I bring this case to the attention of the committee because it gives a flavour of the nature of arrangements for public-private partnerships and serves to emphasise the importance of ensuring that the State does not come out at the wrong end of any such arrangement.

Paragraph 24 focuses attention on the construction of water supply and sewerage schemes, and in particular the tendency for the cost to escalate somewhat highly during the course of the works. Capital expenditure on these schemes totalled £185 million in 1998, and the provisional outturn for 1999 is around £280 million. We are talking big money here; therefore any curtailment of costs can lead to substantial savings being achieved.

My staff last examined this area in detail in 1995, culminating in the inclusion of a chapter in my value for money report on regional development measures. When we carried out a limited review of the schemes in 1998, we found that cost drift was still a major problem but that the Department had begun to take measures to try to counter the factors underlying the increases. The measures are recounted in some detail in the paragraph but it is probably too early to say with any confidence whether they have been successful.

One of the main bugbears in trying to contain costs is the claiming for extra work arising from meeting difficult ground conditions not foreseen at the site investigation stage. In that context, consulting engineers have been engaged to report on the effectiveness of the site investigation in such cases, and while they have been satisfied in most cases, there have been instances where the consultants have reported negatively in this regard. This is a good example of the effectiveness of a proactive approach, but the jury is still out on the overall effectiveness of the Department's counter-measures.

An interesting development in early 1999 was the introduction of design and build contracts for some projects as part of public-private partnership arrangements. In due course I intend to carry out an examination of the outturn on the design and build projects and compare it with that of the more traditional contracts, which up to recently have been generally, if not exclusively, used for water and sewerage schemes.

I have a few questions on the various programmes. I do not know if the explanations are satisfactory for the increased costs, having regard to the cost of the Kilkenny Fire Station project which increased from £96,000 to a contract price of £227,400 to a final cost of £255,700. What is the reason for the major increase in cost in that case?

Paragraph 23 deals with Tara Street Fire Station. I am intrigued by what happened in that case and I would like more information on it. The successful tender included a provision for the contractor to purchase surplus land on the site at £1.2 million for a private development. Was that site designated under the urban renewal scheme and, if so, what area was the site? It was an extraordinary bargain to get land in that location for £1.2 million, if it was designated under the urban renewal development scheme. As the C&AG said, it seems to have been a good sweetheart deal. I would like clarification on that.

On the water and sewerage schemes, the costs involved increased greatly. The cost of the Killybegs water supply contracts increased from £10,900,000 to £17,695,950 and the cost of the Tralee sewerage contract No. 2 increased from £2,900,000 to £4,126,889. When the costs involved in such schemes escalate by such an alarming amount, is the allocation of Cohesion Funding amended to take account of the escalated cost?

I can deal with the matters raised in a general way and then deal with specific questions on the schemes.

The Department conveyed approval, in principle, to Kilkenny County Council's proposal for an extension to Kilkenny Fire Station in September 1992 subject to an all in cost of £102,000. In August 1994, the council submitted a revised cost plan, including an estimate for £153,000. The additional cost was claimed on the basis of substantial increases in building costs. The original project was submitted in 1990 and there was a considerable time lapse. There was a considerable time lapse in respect of all these schemes because the funding available at the time was limited. Projects were put forward but there was a considerable time lapse before they proceeded to implementation stage. The revised submission with the estimate for £153,000 was examined by the Department's technical staff and agreed. In June 1996, which was another few years down the line, the council was given approval to invite tenders. The recommended tenders received for the work, which consisted of a main contract and sub-contracts, amounted to £211,963. That process involved inviting tenders from the private sector and the best available at the time was a specific tender price of almost £212,000, which together with other miscellaneous items amounted to an overall cost of £227,000. In January 1997, the Department approved the council's tender proposals subject to certain conditions, including the submission of one or two small items and we set a provisional budget of £210,000 for the project. In July 1998 the council submitted final accounts showing an all in cost of £255,000. That cost of £255,000 compares to an overall cost of £227,500 more than a year earlier. Following a very detailed examination of the accounts the Department agreed to grant aid the full sum claimed by the council bearing in mind that increases can be expected in projects involving extension and alternations to existing buildings as work progresses and existing works are uncovered. This project did not involve a new purpose built station but the alteration of an existing one. The cost of the project increased from £227,500 to a final cost of £255,666.

Additional works were deemed necessary on discovery during the construction stage. That is to be expected when a project involves renovating or carrying out alterations to an existing building. One could ask if those items, which were not that significant, should have been discovered at planning stage? It may be difficult to discover these items when a project involves renovating or carrying out alterations to an existing building.

The timescale in the case was critical. The initial estimate, which had little relevance to the final cost, was received in 1990 and the final cost was agreed in 1998. There was an eight year timespan. One could ask if the project could have been completed for a cost of £102,000 eight years earlier, and the answer is that it could have been. One could ask if it could have been completed for that price, why was the work not done and would it not have represented better value for money. Funding for the project was not available eight years ago and it had to take its place in the queue. It came up on a priority list some eight years later. I understand the increase in the cost of the Kilkenny Fire Station project and I can justify it.

For a number of years Dublin Corporation had been seeking to redevelop the fire brigade site at Tara Street, which is the most important one in the country. It houses the headquarters of the Dublin Fire Brigade. The provision of a new headquarters for the Dublin fire services would have been the biggest and most significant fire station project we would have undertaken. In seeking Exchequer assistance, the corporation pointed out that Tara Street Station was the headquarters of the largest fire station in the State serving a million people, that it was a Victorian facility unsuitable for modern requirements and standards and, more critically, it had reached a stage where staff and unions were threatening to withdraw from working in the station. Because of the cost of the project it was not possible for the Department to give Dublin Corporation a commitment of 100% Exchequer funding for it.

All that information is in report. Was the site designated?

The overall site was designated. The corporation proceeded without the Department's approval. It was carrying out an overall urban renewal project on the site, which involved a hotel, the work on which has been completed.

The successful tender included a provision for the contractor to purchase a site surplus to his requirements for £1.2 million. What was the area of that site?

I do not have that information available, but I can check it and advise the Deputy and the Chairman.

That is important information. It must be a very small site in an urban renewal designated area to have realised only £1.2 million. What is on that site now?

There is the completed fire station——

No, the site that was ceded to the developer.

The rest of the development is the hotel and one or two commercial outlets fronting onto the street; there is a food shop -

Did anybody investigate whether that was the going rate at the time for such a site? How was it valued?

No, we would not have been party to adjudication on the value or the price achieved for the site. Our concern, from the point of view of the fire service facility, was that we got good value for money. We got a headquarters fire station for Dublin for an Exchequer payment of approximately £1 million whereas——

Irrespective of the value of the site.

There are systems in place in Dublin Corporation and the local authorities to ensure that sites are disposed of for the best price available in terms of value for money. Certainly, departmental or ministerial sanction is not involved.

Let me know the area of the site.

I can come back to you with it. I cannot give it to you now.

What about the final costs of Killybegs and Traleeversus the contract price?

In Killybegs, the tender price was £3.2 million; this is for contract work. This breaks down to three or four separate works. There are two major contracts. In the overall Killybegs scheme, the total tender price initially was £10.9 million and the final cost went to £18.7 million, which is an increase of £7.8 million. We do not have the overall final cost but they are the best figures available as of now.

It is even greater than in the table shown here.

It is about £1 million greater on the basis of more recent figures.

Can you give me an explanation of that?

It comes under two contracts, which are the two main contracts. Contract No. 1 was the civil works contract and the tender price on that initially was £3.2 million and the final cost was £7.3 million, which is a significant increase of over £4 million. The date of the tender was December 1989 and the completion date was February 1994. I can break down the items giving rise to the increase in costs. The price variation clause, which would be normal in this, was £0.66 million. That went up from 10% to 12.5% which is almost £0.5 million as well. That is the overall 12.5% on the increased cost, of course. There is also prime cost at provisional sums which exceeded the provisional amounts by £0.4 million. That is only £1.5 million.

At the treatment works and reservoirs, due to under-estimation and health and safety requirements, there was an extra cost of over £0.5 million. At the old treatment works and reservoirs there was an increase of £330,000 which was due to under-estimation and, in particular, to health and safety requirements which arose as a new factor. Road restoration came to £180,000 extra. In other words, on what I have outlined so far, the last items are an increase of £1.09 million and the earlier ones were a sub-total of £1.47 million. So far, we have a total of about £2.5 million.

Ground conditions were also a factor. There were unforeseen ground conditions at new treatments works sites due to lack of detailed site investigation. This is something where——

You need not go further. It appears that under-estimation accounts for £1 million and ground conditions might account for another £0.75 million. Is there no control or limit on what a contractor can put onto the contract price? It seems extraordinary. That is only the site development stage and the contract increased by £4 million on an estimate contract price of less than £2 million. It is extraordinary that a contractor for site development at that level could come back and secure £1 million for under-estimation and another £0.5 million for under-estimation of the ground conditions. It is extraordinary that such contracting would be acceptable.

I can only agree with the concerns being expressed. The Killybegs scheme gave rise within the Department to a different call so far as ground conditions and site investigations are concerned. At that time, the late 1980s, the practice was for site investigation to be carried out by the consultant engineer who was responsible for the scheme with assistance from the local authority. Arising from the Killybegs scheme, we have changed that practice. The new arrangements involve engaging specialist site investigation firms, independent of consultant and local authority, to carry out the necessary work. These new specialist consultants for site investigations are being asked to report to the local authority and the Department on the effectiveness of the site investigation.

Does that now mean the contractor for the site development works cannot change the contract price or cannot get extra money by just apparently demanding it because he under-estimated something?

No, it does not mean that. It means that we will get a better read on it initially and the scope for that type of thing happening is more limited. Ground conditions are such that no matter what investigations are carried out, when one actually does the job there can still be considerable difficulties. In the past the consultant was responsible for the main project with the local authority. We felt it was necessary to bring an independent dimension to site investigation and to carry out a more detailed investigation. The issue is getting the balance right.

Are there conditions in a contract that extra, undiscovered difficulties can be added to the contract price? If that is the case with every contractor, the lowest price contractor is bound to get the job and add what he likes to the price later when he discovers that he under-estimated everything. That is the logic.

Yes, that is the system with regard to these extra situations which were not envisaged in the original bill of quantities under the contract system.

Is it not time to change that?

We are moving to a system of design and build. There are considerable advantages in terms of getting better value for money and in transferring an element of the risk from the client to the contractor.

This system defeats the purpose of contract tendering, if the contractor can more than double the original contract price in one area and that is without going into the contract price for the development works.

Deputy McCormack is right. We are being taken for a ride here. Every scheme, whether for fire brigades or water schemes, significantly over-ran. A culture has developed where that is now accepted. It is a case of quoting a price and then adding to it. Something has to be done about it.

We are doing things about it all the time. The new site investigation system which has been brought into play is one of the significant things we have done. We are operating under a contract system where all these things in terms of extra money being paid have to be measured and quantified. The alternative to this is a fixed price contract. Such contracts are being tried in a few smaller schemes in the roads area now. However, fixed price contracts for schemes which go over a long period of time can add substantially to the initial cost because the contractor is not be prepared to take the risks. Needless to say, he will ask to be paid for the risks.

Design and build, in our experience in the water and sewage area where it has been tried in a number of places and we would hope to develop it much further and use it to a great extent, has in my view brought great benefits, better value for money and better returns. We will continue to focus and develop in that way. The form of contract generally in use across public sector systems, and not just the Department of the Environment and Local Government or local authorities, is where there is a bill of quantities, measures are established in those and when the job is finished one re-measures against what is in the bill of quantities. The jury is out on the extent to which it is preferable to pay the higher inflated cost for a fixed price contract and to what extent contractors are prepared to give fixed price contracts at any reasonable price in terms of the major schemes which go on over a number of years.

We take the fundamental point being made and of all the schemes we are discussing the Killybegs scheme is not one I would be happy about. Arising from that, we have taken action and the major issue which registered with us was site investigation. We had to do something about it.

My concern and that of the Chairman is that an attitude is developing with regard to public service contracts where contractors can be casual about the contract price. It will become widely known among those tendering that costs can be added if they meet difficulties on the site as they go along. If this is allowed to develop, it will be a very bad system.

It is more than that. This is a disgrace. It is a persistent pattern that overruns are a feature of everything. What commercial company would run their business in that way?

The only thing I can say is that I am not too happy about the situation. At the same time, the sums paid have been on the basis of measurement and quantification, etc. All this gives rise to an ongoing drive and commitment to introduce change. We are doing that. It is more difficult to come up with figures that hold in the water and sewerage area because one is dealing with situations of underground conditions, service arrangements and in many cases difficulties establishing where water mains or electricity lines are located. It is one where it is very difficult to come up with costs that hold. As the scheme is carried out, unlike a construction project, one can run into extraordinary difficulties.

Will Mr. Farrelly repeat the figures regarding the contract price for the site work compared to the actual price?

The tender price for the scheme was——

Will Mr. Farrelly break it down into the site work first? He said it was something like £2 million versus £4 million eventually.

I broke it down into contract one, civil works. Is the Deputy referring to this?

Yes. What was the civil works contract price?

The tender price was £3.2 million. That was in December 1989. The final cost was £7.3 million on a completion date five years later.

It is an extraordinary increase of £4.1 million on a £3.2 million contract.

In almost all the cases we are discussing, the variation between the original estimate and the final cost is up to 80%. I understand the effect of situations such as a five to six year gap between approval in principle and a completion date, but in the Secretary General's experience, is incompetence involved at the design and tendering stage locally or do local officials feel that if they seek the correct sum, it will be too high and the scheme will not be sanctioned? Is there an attempt to hide some of the final costs because of the fear that it would not be sanctioned or it would be delayed in the Department?

No, I would not think there is any question of that. The money put into design will determine to a large extent how reliable or good the figures are that one comes up with at that stage. It is a question of how far one goes on that. We are pushing the boat out further on site investigations. We might be criticised for bringing in another consultant to do the assessment of ground conditions, etc. It is an extra cost but it is justified on the basis that it gives better certainty of the integrity of the design figures at that stage.

However, how far should that system be carried? There is a separate firm looking at site investigation. It could do a cheap job which is not much use to anybody or it could do an in-between job which may meet the requirements or it could do a top of the range job which would cost a fortune. There is a balance to be struck there. I do not think there is any attempt to confuse anybody. In the past - we will not be subject to this to the same extent in the future - we had the problem of local authorities with a huge number of schemes in the queue forever and a day. The initial costs bore no relationship to the costs when the job was done.

In relation to the EU co-financed schemes, up to April 1997, the EU tended to sanction its percentage of the overrun of costs. However, since then, major changes in its approach have taken place. Will the Secretary General explain the implications of the new approach?

There are no implications in so far as overall funds are concerned. We had a situation in the latter years of the last programme where the EU did not give extra money towards the extra cost of schemes. However, the realities were that, at that stage in terms of our commitments and those of the EU, it did not have the extra money. We were taking up our quota of money and the critical point is that there were other schemes which were not being funded by the EU which could take up any surplus. All moneys available under the 1994-99 programme due to us for this type of work was or will be drawn down in full from the EU. There was no loss of overall funds. It meant that they were probably spread over more schemes.

My questions regarding the Vote may be mundane but they are nonetheless important to the people involved. Much of the local authorities' housing income accrues from the tenant purchase scheme. A huge change has taken place in the space of two years. Cork Corporation is now seeking an increase of up to 60% - and almost 100% in at least one case of which I am aware - in the price being asked for houses in the same estate. One sold two years ago for 50% of the price now being requested. That is due to the escalation in house prices. However, given that these are social houses, what plans does the Department have to deal with this? People who could have got a house for £25,000 or £30,000 two years ago cannot now pay £60,000. Does the Department have the discretion to change the 3% per annum tenancy allowance, up to a maximum of 30% of the price, to 4%? Does it have any intention of taking action on this phenomenon in the tenant purchase scheme?

As the Deputy is aware, local authority houses are sold at the market price less 3% for each year of tenancy, subject to a maximum of 30%, and also minus the £3,000 grant which would be available to the private house purchaser. The proceeds of those sales are put into providing other houses. This essential balance must be struck. Those are policy decisions. It would, of course, be possible to give the houses away for free but the reality is that people's rights must be looked at equitably. The money from these sales is recycled into houses for other people. It is felt, overall, that the potential 30% reduction for a ten year tenant plus the £3,000 grant is a reasonable deduction in the present circumstances. However, house prices are a bigger phenomenon than the local authority situation.

I am not quite satisfied with that reply. Some people have an ideological hang-up about selling the houses. However, we agreed nationally to a tenant purchase scheme. We are speaking here about social housing, not the private sector. We now have a situation where a person living four doors away from someone who got a house for £40,000 two years ago, with the same allowances, is being asked for £80,000 for the same house. The policy decisions are for the Minister, but does the Department have discretion to alter the 3% to 4% or 5%? Otherwise, we will not sell any houses because people will not be able to afford them. I am dealing at the moment with three such cases which occurred over the past fortnight. We have a social obligation in this area on which we made a national decision. Is the Department flexible enough to cater for what has happened in the past two years?

I am afraid I cannot say much to help the Deputy. We are selling about 2,000 houses a year under this scheme. This comes into the policy arena, in that we are operating the tenant purchase scheme that was approved. In justification of it, I would say the emphasis is rightly being put on the social housing aspect, which is very important. The money is recycled into further development to meet social housing obligations. There are no proposals to change it, as of now.

I wish to ask the Department about staffing, which we heard about in the context of An Bord Pleanála. Everyone is experiencing a shortage of professional staff, particularly the building trades. The position was ludicrous for years, with double, treble and quadruple checking of schemes, with Department staff revising drawings and other professional staff doing other work. Has there been an overall examination of the national staffing, in the context of the Department and local government, to see where they could supply a pool of talent or use prototype drawings? Has there been any innovative thinking in that regard to cater for the staff shortage?

We have, as far as possible, at Department level delegated a great deal of the work we used to do. I accept what the Deputy said about the staffing shortage problem. It is more obvious in some areas than others, particularly planning. We have encouraged local authorities to place advertisements for staff abroad. That has been reasonably successful, with a number of people returning to work here in such specialist areas. However, I accept it is a difficult balance.

I would like the utilisation of the current pool of staff to be examined at a national level.

A new central heating scheme has been advertised over the past couple of weeks under the special housing aid for the elderly scheme. Is any extra funding being allocated for that? Who will approve the needs? How will it gel with the previous document from the Department which encourages each local authority to do a greater number of small jobs rather than doing the more expensive jobs? Is it in conflict with that?

In regard to the 1998 allocation, of the eight health boards listed, the second lowest allocation by far was to the Southern Health Board, which was allocated £505,000, although it is the second largest board with a population of 510,000. Who allocated——

Is this in terms of housing for the elderly?

Yes, the voluntary housing aid. Who would decide on the allocation of that at national level? That allocation is out of kilter with the population.

At central level, the allocations are decided by the task force on special housing aid for the elderly. It was set up in 1992 to undertake the emergency programme to deal with this problem. It includes representatives of the Society of St. Vincent de Paul, FAS, Alone, local authorities, our Department and the Departments of Health and Children and Social, Community and Family Affairs. The scheme is operated on the ground by the community care departments of the health boards.

Could I ask a question?

We have significantly increased the money this year to £8 million overall.

I work in a voluntary capacity with Cork voluntary housing aid. There are eight or nine of us and we simply try to help out by using FAS and so on. However, there has been a change over the past 12 months, where jobs have been refused, with one window being changed instead of four. How will that gel together? Will the Secretary General bring to the attention of his task force the figures of the 1998 allocation and try to rationalise that allocation in terms of the population?

For the Southern Health Board?

For the eight boards. I do not know how that figure was arrived at, given the population. I ask him to draw that to their attention.

We have £8 million for this year, compared with £4 million for last year, so we have doubled the money. That will not necessarily solve the problem but, hopefully, it will help in some way.

As I said, the message from the Department has been to do a greater number of small jobs. I wonder how that will gel with this expensive work.

I have three questions on roads, which are all finance related. In regard to service providers under the non-national roads, a huge allocation has been made for urban roads for the first time, which I welcome. It was essential to get that money for surfacing. As long as service providers can do what they want we will not be able to cope. If we put in four times as much money it will still not solve the problem. Does the Department have any proposals to co-ordinate the efforts between bodies like Eircom and ESB? At the moment 95% of the damage in the Cork Corporation area is due to reinstatement problems. There will be a major scheme for which £700,000 was granted, but the current approach, with its multiplicity of reopenings, is a waste of taxpayers' money.

In Dublin, which may not be much help to the Deputy, this is controlled by the director of traffic. Local authorities have to adopt a tougher attitude in relation to statutory bodies. If such a body opens a road today, it should not be allowed to reopen it in four months time. A more focused approach is required. We share the Deputy's concerns that dealing with these services is costly and road openings should be tightly controlled in the interests of traffic management.

Has there been an examination of the systems in other countries? I have never seen anything like this in any other city. New York is bad but that comes from wear and tear. There is never this constant opening and reopening of streets.

The Department contributes to the problem to which the Deputy refers. The increase in funding for infrastructural programmes for the next seven years, compared to the amount available to the 1994-9 programme, means that everyone has more money to do work, including the statutory bodies. It is a problem but there are no clearcut answers. It is important that work is done in a cost effective manner at the appropriate stage. People should not be able to come in when a job is half finished and undo what has been done just because they have additional requirements. I share the concern and the Department will emphasis to local authorities the necessity for tight control and co-ordination of this area.

If Mr. Farrelly wants to make an impact on the Department which will be remembered for generations, he should get this under control. The public are very cynical about it and they blame the local authorities.

I told the Cork engineers they would receive funds for traffic calming schemes. There is a suggestion that 237 locations are being examined in Cork city for traffic calming measures with an estimated cost of £15,000 for one area. It appears that urban schemes are self-funded. Are there plans to carry on with the excellent start which has been made with the resurfacing of non-national roads in the urban areas? Will there be funding for the traffic calming schemes?

We started an EU funded scheme for the greater Dublin area which operated through the Dublin Traffic Authority. This year £1.5 million is being provided for the four county boroughs but excluding Dublin. That will not reach the areas to which the Deputy is referring but it pushes the boat out and in time it will go out further. That is the initiative for the present.

I would ask the Secretary General to revisit that. Anyone surveying local feelings will see traffic is a very important issue. The only complaint I have heard about the motor tests is that they are too stringent. People have told me of torn upholstery causing the car to fail. Are there many complaints about that?

We are introducing a car test dictated by the EU and the test specifications are laid out in an EU directive. We have been slow to introduce the test. The early stages are difficult because we are testing very old cars. For £35 a vehicle is totally checked; that would not be available in a commercial garage. I get the impression that those with older cars will not spend £400 on them if there is a chance it will be put off the road. They enter the test to see what is said and then do the work.

This scheme must bed down and it will not do that until the second year. We are testing cars which are over eight years old now but next year we will be testing cars which are between four and eight years old. Gradually the scheme will settle down. There is no way to take the pain out of it; if a person has a car which should not be on the road, he will be in trouble. There is a 50% failure rate.

I was at a meeting on Monday night and there were many complaints about areas under the Department's control. I dealt with the majority of them, although I could not deal with the one about the condition of the roads. I left the meeting and, within half a mile, I met a vehicle with only one headlight working and another with only one tail light. I understand the need for the test but I would like to know if the same standard is being applied across the State.

Independent consultants are employed to carry out a monitoring regime. We wanted this test to exist outside the system. It is run by the private sector and consultants are employed to monitor the scheme in different local authority areas.

Are litter fines paid to the Department or the local authority? The up to date submission on litter from the Department was very good.

The fines go to the local authorities.

In relation to the sewerage and water schemes tendering system, and contracts generally, it seems that they have one thing in common - the overruns are repeated year after year. I have been a member of this committee for 12 years and the same thing has come up again and again. Changes are to be made but will they ever give rise to a situation where contracts or tenders are submitted on the same basis as elsewhere in the commercial arena and that they are precisely on target, are competitive and stand up?

One will never reach the stage where there are no changes because one has to go back and understand the contract system under which we operate. It is a contract on the basis of a bill of quantities on a measurement system. To the extent that the measurements change, the price will change.

Why is that? I am on the steering committee for the new wing to Leinster House. There have been delays and changes, but we are still within budget. How is it that none of these are within budget? Have you just thrown in the towel completely? Is the problem that you are soft on it?

It is not a question of us being soft on it. This is a type of contract system which is approved across the public sector. The type of contracts in which we are involved, where one is going underground and so on, are totally different to those involving construction - building a building. That is something which should be fairly tightly controllable. If one was to prepare a bill of quantities for it, one should be able to say how many blocks or tiles one will use. It is clearly definable. When one is going underground, one is, to a large extent, going into the unknown.

At the same time, it is changing. All the things we are doing will bring about substantial and significant change. In the final analysis, one would like to move to a system where one has a fixed price contract but the jury is out on that in terms of the cases in which a fixed price contract will bring benefits or greater value. The client will take the risk and, by and large, the contractor will not. The movement to design and build contracts is bringing about efficiencies and will be pushed very hard in the water and sewerage areas.

You are excusing this on the grounds that it is underground but over the years, swimming pool contracts have consistently exceeded limits as have fire stations. It is a feature of many things in your Department, that is, that they go over budget whereas in other sectors, they do not. How do you explain the swimming pools and the fire stations going over budget? There are no underground problems there.

The fire stations, if you examine them, have not significantly gone over. The time span was the major problem in the past. From the time something is first thought about and a price is put on it to the time it is completed, there is a huge time gap. The increases in the fire stations have not, by and large, been that significant and, in general, are quantifiable and can be certified.

Can you compare with other utilities which have to go underground - for instance, telecommunications or gas? Do they have any similar overruns for their underground projects?

I do not know but I would be amazed if they do not have the same problems as us.

Why do we not do some comparisons to see if we are not being ripped off in this local authority area because I suspect we are? I think there is a culture of softness.

We take on board what you, Chairman, have said. We must strive for change and we are doing that. On the type of thing to which I referred, the site investigation, the design and build in my view is the way to move forward in the future. We are pushing that every step of the way in so far as these types of civil engineering schemes are concerned. The jury is out but the early indications are that there is better value for money and great cost effectiveness.

The jury is not only out but it is bewildered in so far as this part of the jury is concerned. It is totally unsatisfactory not only for Mr. Farrelly, but his predecessors to come back here year after year to tell us all sorts of stories about the ground conditions not being properly anticipated. Engineering contracts are the same the world over. All over the world, assessments have to be done as to the ground conditions and projections are made on that basis. For some unknown reasons, we can not do that in the local authority scheme. Other projects must do that and other contractors must keep to their contracts.

Not only are we bewildered, but the Comptroller and Auditor General is bewildered as well. He said that due to the substantial increase in final costs, he inquired as to whether the Department had conducted any further review of the factors giving rise to the cost overruns. He said he also inquired as to whether cost overruns on EU and co-financed schemes were borne solely by the State or co-funded by the EU. He said the Accounting Officer, Mr. Farrelly or his predecessor, stated - I would say the Comptroller and Auditor General was bewildered when he reached this juncture - that uncharted and poorly mapped services are causing delays and disruption - this is a reference to cables which you did not know were there being dug up - and that road structures were in poor condition when trenches were excavated and required additional work. I presume somebody looked at the road, which was in bad condition beforehand, and decided to leave it in the same condition afterwards.

I have a peculiar comparison to make. Consider gas pipe laying, which has taken place in towns and villages all over the country. They were able to slice up the middle of a road, put down pipes and cover them over with minimum disruption. I would like to know if there were cost overruns there because they leave the road as it was before the pipe laying and there has been no problem afterwards.

The Accounting Officer said that in some cases better but more costly technology became available during the contract. I would like to know more about that because I can recall a contract where it was clearly indicated to me that the technology being used was about ten years out of date before the contract was even given and it was proved true. I mentioned that at this Committee before.

It was said that new requirements of other authorities were made known during the contract. How could they be made known during the contract? The authorities were either there at the time the contract was first instituted or they were not. If they were not, then they had to go along with it. It was said delays were caused by difficult ground conditions not identified in the initial survey. That is really an uisce faoi thalamh one.

It was also said there were difficulties negotiating way-leave agreements. In recent years, I have difficulty understanding how way-leave agreements can cause difficulties because I was always under the impression the local authority was the ultimate authority in determining way-leaves and that it had certain powers. In the context of a contract for the local authority, the contractor, the tenderer or whoever the case may be, must surely fall within that area. I would like to know a little more about that as well.

It also states that there were delays with associated contracts - changes such as adjusted value and added tax rates. It goes on and on. The Comptroller and Auditor General is saying, very much tongue in cheek, that he said this before and has asked if something will be done about it.

It is one of these hardy annuals.

It does not look as if there will. It is totally unsatisfactory.

Deputy Durkan raised valid points. It is something about which I am completely dissatisfied. We should seek reports from the telecommunications companies, Cablelink, the gas company and the ESB on their experiences of underground services cost contracts to see how they compare with local authorities. I do not know what the vehicle is for this but we will communicate with the Secretary General on the subject and, possibly, directly with these companies to see how we can probe further. It is worth looking for comparisons. We should also look for comparisons abroad. Is this a feature in the United Kingdom, for instance?

I think so but it would not be a feature in a number of European countries because soil conditions would be totally different.

Let us pursue this further to see what information we can get. We will write to these companies, either directly or through the Department, and will get some comparisons from abroad.

Is there anything in the report on insurance claims against local authorities? Presumably it is not covered. Could you provide, for the benefit of the committee, an outline of the cost of accumulated insurance claims against them?

Last week we asked the Department of Finance to produce a report within three months on claims against local authorities, commercial State bodies, State companies and all the State agencies. Do you wish to make a general comment on this question of claims?

We do not have particulars because the local authorities carry their own insurance schemes. Most of them would be through the Irish Public Bodies Mutual Insurances Limited. Alternatively, some may carry their own insurance, where claims are settled locally.

We need to know about it.

We will be receiving a report from the Department of Finance within three months on the whole question of insurance claims, especially personal injury insurance claims.

It is being worked on and there is always an awareness that a number of local authorities are operating in a more effective manner. They have computer systems and are gradually sorting out the people who are creating accidents and who are claiming three or four times in the space of a few years. Life is tougher in that regard. In the past many insurance claims arose from created situations.

It had reached crisis proportions and it is still at a very high level.

We are getting a report.

On page 156 of Vote 25 Miscellaneous Items - a payment of £89,000 was made in respect of legal expenses incurred in a High Court action taken against the Minister to challenge the constitutionality of the 1994 referendum. The issue in contention was the employment of agents at a referendum. What was that about?

It was a court action taken against the Minister. He had to defend it and pay the costs. The specific case is Shirwanv. Ireland. A sum of £89,195 was paid to the plaintiff.

We do not have to go into this.

What was the purpose of it?

The case dealt with an individual who wanted to appoint agents at a referendum and was prevented from doing so. He took an action subsequently. The plaintiff sought a declaration from the court that the provision of the Referendum Act, 1994, for appointing agents at a referendum was unconstitutional, in other words, it was an unconstitutionality claim on the Referendum Act, 1994. It was claimed that the Minister erred in deciding in 1995 at the divorce referendum that he had no power to make regulations under section 164 of the Electoral Act, 1992.

We will not go into it as we have other matters to address. We should move on.

It was a court action taken against the Minister and he had to defend it. We got the bill and we had to pay it.

Before moving on to deal with the National Roads Authority, I recently received an e-mail on the question of road taxes, excise duties and the OE tests. This correspondent says that these tests of older cars is just another money raising scheme. I do not believe that. He also says that most accidents involve newer cars, that is, 1996, 1997, 1998 and 1999 models. Are there statistics on the numbers of old or newer cars involved in road accidents?

We accept that the condition of cars is not a major factor in road accidents or deaths. The reality about this directive arises from our membership of the EU, which has introduced a provision we are obliged, by law, to implement. That said, a car or vehicle test is surely desirable in present circumstances.

I agree.

There is no question of it being a money making operation. We have privatised it and it is carried out by a private firm.

I accept that. Are there any statistics about the age of cars involved in accidents?

There are no current or up to date ones, but the view is that they do not significantly appear in road accidents. Many of the cars involved operate in local circulation and the accidents would be minor as distinct from serious.

The Department is probably treating residents of local authority flats unfairly and possibly unconstitutionally by not allowing them to buy their dwellings. It has been decided for years that there are too many complex problems involved, yet we now have the spectacle, especially in the inner city, where blocks of flats are alongside blocks of apartments. The apartments can be bought individually, yet the flats cannot. In addition, dwellings in nearby housing schemes can be bought individually. In other jurisdictions local authority flats can be purchased. Why have you not addressed this issue? It is very worrying for tenants.

I understand there are no objections at departmental or ministerial level to the principle of selling these flats, but considerable difficulties arise on the question of management, for example, of common areas. Substantial service payments are made in private apartments, where a service company is established to manage and control common areas. From a cost viewpoint it is difficult to see similar arrangements being implemented in flat complexes, except at huge cost. The difficulty is in managing, controlling and servicing the common areas. For example, who is responsible for maintaining the roof?

Many people are involved in such activities in private apartment schemes.

At huge cost.

There is high demand for them. I believe there is a mental block here. This issue presents people with a great opportunity to have a stake in their dwellings. One of the reasons so many flat complexes are run down or are the source of social problems is that there is no sense of ownership or belonging. Allowing people to buy their own flats would do a lot more than providing grants. Money has been wasted refurbishing some flat schemes only to have all the work quickly reversed because there is no sense of ownership, nor the possibility of ownership, among the residents.

I can only say it is a policy decision. It is not my style to hide under that. There is a commitment across the system that there is no objection in principle to this, but everybody who has dealt with the problem, politically or otherwise, has found it impossible to put a system in place that is workable. There are similar problems in the UK.

Given the growth of apartment blocks and apartment block management companies, has any recent consideration been given to discussing with them the possibility of running what are now local authority blocks with a view to facilitating sale to tenants?

It may happen that some flats will be let on a tenancy basis while others will be owned. There is a commitment to do this; there is no objection from anybody to the principle of selling them but, in practical terms, it is not workable and will give rise to problems on a scale that will mean the after sales situation would be far worse than the pre-sale situation.

Do I take it that there have not been any discussions with apartment block management companies to see if there are new possibilities for managing blocks and allowing sale in the new context of prosperity, employment and the culture where people are living alongside these blocks?

That factor has been taken on board. It is always recognised that management is something which can be delivered at a price. There is no doubt about that, but the general view is that the after effects would involve considerable unhappiness among a sector of the people who would live in these apartment blocks. The concern is for the people. We have pushed the principle of home ownership. I accept your concerns that flat owners are being excluded from that expectation or right. If anybody can come forward with a way of doing it which gets over the difficulties, we have no objection in principle to doing it.

Would the Department undertake to discuss this with some of these management companies or invite proposals from them to see if the problems which you think are there could be overcome? I think the problems have been overstated.

We will prepare a note for the committee if you wish.

Thank you. On the question of housing, when I started in politics many years ago the local authorities were still building starter homes for sale direct to what were then called newly-wed couples. There is an urgent need for the local authorities to get involved in that area again given the state of the housing market. One of the best ways to apply Government funding for starter homes without inflating the price of houses is for the local authorities to build the houses for sale possibly at a discounted price to these couples, who have no hope of buying a house in the Dublin area in particular. Is any consideration being given to restarting the programme by which local authorities built houses for direct sale to starter couples?

The attempt made in this area is the affordable housing scheme, which is being pushed fairly hard. I know that in terms of house prices it is difficult in some ways, but the affordable housing scheme is an attempt to deal with this issue. I do not think we can ever reach the stage where we attempt to deal with housing for newly-weds or whomsoever. That is a definition problem and we can get over that of course.

The question is specific. Is there any consideration being given to encouraging, facilitating or permitting local authorities to build houses for sale as they used to do?

It is being done under the affordable housing scheme. That is the extent of it.

May we have some details of where it is being done because it is certainly not being done in Dublin city?

We will provide you with details, Chairman.

Despite the enactment of the Litter Pollution Act, 1997, and the Waste Management Act, 1996, the streets of Dublin are dirtier than ever. The canals, the walkways and the rivers are filthy. I say this every year. Some say the people are dirty. The same people in their thousands are going to private shopping centres in Tallaght, Blanchardstown, Stillorgan, Quarryvale and Northside, every one of whom is spotless. If one goes inside the walls of these shopping centres one will see that they are spotless but the streets outside are filthy. This represents a complete failure of local authority management. Despite the enactment of the Litter Pollution Act, 1997, which was introduced because of pressure from the then Select Committee on Finance and General Affairs, there has been no improvement.

Chairman, you correctly pointed out that this is a matter which you have raised with me before. It is a matter of major concern to us. It not only involves public authorities, Departments or whomsoever, it involves society at large. We are making progress but it is very slow. That is the position. Local authorities are beginning to use their extensive management and enforcement powers more vigorously. We will continue to bring pressure to bear on them to further step up enforcement.

The reality is we are employing more litter wardens. The build up is from a terribly low, almost non-existent base but it is happening. There are some on the spot fines being imposed and prosecutions as those litter wardens come into operation.

I strongly dispute what local authority managers and you say, that this is a problem among the public. Of course there is a problem among the public and unfortunately too many people are filthy and have no civic spirit. They are not concerned about the dirtying of the streets. However, once those same people go inside private estates they do not litter. Why does their behaviour change? I put it to you, Mr. Farrelly, that there is a large management problem here. The management of the litter problem by local authorities is a failure and we should be looking elsewhere for results.

Chairman, you have hit the right button there. On the local authority system, we have established a technical group representative of the Department, involving four local authorities from Cork, Dublin, Carlow and Waterford, to draw up——

Is it a litter forum?

It is a litter pollution monitor system. We hope in that way to get a read on the extent of litter and to bring odium to bear on people to begin to perform and do better. Last May we appointed Tobin Environmental Services as a monitoring body under the national monitoring system. That is ongoing and it will bring results. It will give some sort of base line or judgment as between one authority and another. It will give a good base for moving forward.

The privatisation of the towaway service has been a dramatic success because they get paid on results. Is there not a precedent here for litter? Why not pick a couple of project areas and put them out to private contractors to see if we can get better results from private contractors than from local authorities? If it is a success, then one should build on the results. Something dramatic must be done.

This is a matter for local authorities where in the final analysis they must do it. I agree with you, Chairman. The idea of clamping cars in the towaway service in Dublin, in which I worked for years, was a question of extreme horror to many people yet we have seen it put into operation and we see it work. We do not hear many objections to it. There is a role for the private sector in the waste/litter problem. As far as the Department is concerned, anything which can be privatised using the PPP system will be explored to the fullest.

I am pleased to hear it. Will you do that? Let us see if we can get results.

It will not happen overnight, Chairman.

I would be happy if there is progress by the time you return next year.

What is the latest news on planning and housing delays? There are huge planning delays which are often caused by vexatious complaints.

I have spoken on this here before. The reality is we have legislated for a situation where vexatious appeals can be thrown out, but under the legal system it is hard to work that. The Planning and Development Bill, 1999, which we hope to enact quickly, will tighten up the system quite considerably.

I touched on the planning delays already. We have certainly told local authorities to get extra staff and we have approved whatever staff An Bord Pleanála required. In the final analysis, there is pressure out there in terms of availability. That pressure is there whether you are looking at the construction industry, planning or whatever. We are doing everything possible to try to cope with it and deal with it.

The courts system is something which is being looked at behind the scenes also. Projects can be delayed unduly through a courts system. I am not, in any way, trying to limit anybody's right to use the court system but it seems to be taking a long time to——

It is a feature of the system that frivolous and vexatious complaints - I do not refer to substantive complaints because people have a right to make them - can delay infrastructural and housing projects.

Our aim on that is not in any way to limit or remove a person's right to object. What we are saying is "For God's sake, let's move to the stage where within a specified time we achieve finality." There must be an acceptance across the system that there is a stage where finality must be achieved, rather than matters being allowed to continue indefinitely.

A final question before we turn to the general question of roads. We discussed the question of traffic fines a number of years ago with Mr. Farrelly's predecessor and we discovered that only 23% of fines had been collected. Has there been any improvement in that area?

There would be a very significant improvement. In Dublin, with the privatisation of the system, it is fairly spot on now.

Has the fines system been privatised?

Not the overall system because gardaí can still place tickets on cars. However, clamping, towing, etc., is where most real traffic enforcement in my view is happening in the Dublin area now.

If we look at it in terms of statistics - on the spot fine notices, for example - for the Garda and traffic wardens appointed by the Minister for Justice, Equality and Law Reform, fines were paid voluntarily in 62% of cases, summonses were issued in 20% of cases and notices were cancelled or otherwise and no action was taken in 18% of cases. That would be a considerable improvement on the previous position. In other words, 62% paid voluntarily and summonses were issued in 20% of cases.

Of the 20% who are summonsed, how many pay the fine?

We would not have that information, it relates to the courts.

They go to court?

They are issued with a summons and one assumes they go to court.

There seems to be a significant improvement on the previous position. We will now move on to deal with roads and I invite the Comptroller and Auditor General to introduce the value for money audit on the National Roads Authority.

With the Chairman's permission, I wish to request that those of my officials who are not directly involved with roads - that excludes myself and Niall Callan, assistant secretary - be excused.

That is fine.