COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 13 May 2004

2002 Appropriation Accounts and Report of the Comptroller and Auditor General.

Chapter 7.2 — Allocation and Prioritisation of Expenditure for School Buildings.

Chapter 7.3 — Cork School of Music Public Private Partnership Project.

Chapter 7.4 — National Educational Psychological Service.

Chairman

We are dealing with Chapter 7.2, Allocation and Prioritisation of Expenditure for School Buildings, Chapter 7.3, Cork School of Music Public Private Partnership Project, and Chapter 7.4, National Educational Psychological Service. Witnesses should be made aware that they do not enjoy absolute privilege. Members' and witnesses' attention is drawn to the fact that from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons who are identified in the course of the committee's proceedings. These include the right to give evidence; the right to produce or send documents to the committee; the right to appear before the committee, either in person or through a representative; the right to make a written and oral submission; the right to request the committee to direct the attendance of witnesses and the production of documents; and the right to cross-examine witnesses. For the most part, these rights may only be exercised with the consent of the committee. Persons invited to appear before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may have to be made aware of these rights and provided with the transcript of the relevant part of the proceedings that the committee considers appropriate in the interests of justice.

Notwithstanding this provision in legislation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House, or an official, either by name or in such a way as to make him or her identifiable. Members are also reminded that under Standing Order 156, the committee should also refrain from inquiring into the merits of a policy or policies of the Government, or a Minister of the Government, or the merits of the objectives of such policy or policies.

I acknowledge the presence in the public gallery of two officials from the Welsh National Audit Office, Gillian Body, Assistant Auditor General for Wales, and Mr. Ian Summers, who will observe part of today's proceedings. They are very welcome.

Will Mr. John Dennehy, the Secretary General, introduce his officials?

Mr. John Dennehy

I am accompanied by Martin Hanevy, Assistant Secretary General, David Gordon, principal officer, head of the PPP unit, Teresa Griffin, principal officer from the building unit, Brian Duggan, principal officer from the finance unit, Ms Lee MacCurtin, acting director of NEPS, Hubert Loftus, assistant principal officer in the building unit, and Brendan Kinsella, assistant principal officer in the PPP unit.

Chairman

I welcome the delegates from the Department of Finance.

Mr. Jim O’Brien

I am an assistant secretary in the public expenditure division of the Department of Finance. I am accompanied by John Conlon, assistant principal officer who has responsibility for the Department of Education and Science Vote.

Chairman

I thank Mr. O'Brien. We will deal with Chapters 7.2, 7.3 and 7.4 separately. Chapter 7.2 reads:

7.2 Allocation and Prioritisation of Expenditure for School Buildings

Background

Overall Allocations

Table 7.8 shows the capital allocations for Primary and Second-Level School buildings in 2002. It illustrates how the provision evolved during the course of the year, the eventual outturn and accrued expenditure at year-end.

Table 7.8 Capital Allocation for Primary and Second-Level School Buildings

	Primary	Second Level	Total
	€m	€m	€m
Revised Estimates Volume	153.64	183.73	337.37
Supplementary Estimates	19.00	(12.0)	7.00
Total provision	172.64	171.73	344.37
Vote Expenditure	172.79	171.35	344.14
Accrued Expenditure	11.49	4.92	16.41
Total Expenditure Incurred	184.28	176.27	360.55

Prioritisation of Projects

I examined the adequacy of the Department of Education's systems for planning and managing the provision of second level school accommodation in a Value for Money Report published in October 1996. One of the key issues dealt with in the report was the Prioritisation of Projects. I believe that my summary findings on the question of prioritisation are applicable to both the First and Second Level School Buildings Programmes and remain as valid today as in 1996. At that time I said:

·Since the total estimated cost of projects approved in principle exceeds the available annual funding, choices have to be made about which projects have the highest priority.

Building projects are currently recommended for funding on the basis of consensus judgments by Department officials having regard to a number of factors including the availability, adequacy and safety of existing accommodation. However, no formal set of fixed quantified criteria exists.

A list of recommended projects is submitted for senior management and ministerial approval and amendments may be made to the selection at this stage.

·Without a proper prioritisation system based on predetermined objective criteria, the Department cannot demonstrate that the building programme addresses the areas of greatest need among the many projects proposed. While this report was being finalised, the Department indicated that it had commenced the development of a formal prioritisation procedure involving a points system based on relevant factors for ranking projects.

I also noted that as far back as 1988 an interdepartmental committee had recommended that:

·.....a clearly defined order of priorities should be established for all school building projects and that no project should proceed to any stage of architectural planning or construction except by reference to the priority list. While the report acknowledged that there might be difficulties in drawing up criteria by which relative priorities would be established, it considered that such a system was absolutely essential in allocating scarce resources in an equitable way among the large number of projects on hands.

In January 2003 the Minister for Education and Science published details of criteria for prioritising largescale primary and post-primary building projects on the Department's website.

Audit Examination

Early this year the issue of how capital allocations for school buildings are prioritised and approved was the subject of much media attention. It was suggested that funding apparently earmarked for specific named projects which did not ultimately proceed, had been used inappropriately. I decided to examine the matter focusing in particular on the Primary Schools building programme.

Planned and Actual Expenditure on Primary Schools Building Programme in 2002

Planned expenditure on this programme comprises in any one-year three major components:

·Commitments under existing contracts

·A programme of major works, which are likely to extend beyond the year in question and in respect of which decisions have yet to be taken

·Provision for remediation, site acquisition and smaller scale works, which are likely to be fully paid for in the year in question.

Table 7.9 shows the planned and actual expenditure across the entire programme for first-level capitalworks for 2002.

Table 7.9 Projected and actual expenditure for building, equipment and furnishing of national schools 2002

Expenditure heading grouped by sub-programme	Proposed allocation December 2001	Approved capital programmeApril 2002*	Actual expenditure 2002
	€m	€m	€m
Committed
Contractual commitments/fees/final payments	90.7	95.5	89.5
Subtotal	90.7	95.5	89.5
2002 Major Works sub-programme
List 1 Projects	16.0		10.4
List 2 Projects	15.6		5.4
Projects not originally in December 2001 proposal	—		4.0
Subtotal	31.6	28.0	19.8
Minor and Emergency sub-programmes
Purchase of Sites	6.0	5.0	7.6
High Support (special education facilities)	3.0	3.8	3.2
Devolved Grant	2.8	5.26	5.6
Temporary Accommodation and Emergency Works	12.7	36.0	40.1
Asbestos Related Remedial Works	6.3	6.0	5.8
Inventory of Accommodation Pilot Project	0.9	0.95	0.5
Miscellaneous (Furniture etc.)	—	—	0.7
Subtotal	31.7	57.01	63.5
Total	154	180.51	172.8

The delay in launching the programme was factored into these estimates.

The Priority List in December 2001

My examination found that in December 2001 the Department had recorded the priorities assigned to applications for capital grants under the major works sub-programme, on a list-based system. Five lists reflecting the relative priority of projects were drawn up.

On the following lists, the estimated costs of individual projects that have not gone to tender as yet have not been included because to do so could compromise the competitive bidding process and potentially damage prospects of obtaining value for money on the projects 58. Similar considerations apply in two cases where work may have to be retendered 59. Therefore only aggregate totals are given for each list.

Projects which went ahead in 2002 are shaded.

List 1 — Projects that can proceed to construction in 2002 as tenders have been received (decision to go to tender taken in Autumn 2001) (10 Schools — €18.1million).

Table 7.10 List 1

School	County	€	School	County	€
G.S. Eiscair Riada	Offaly	3,480,496	An A Tadhg O Murchú	Cork	1,097,288
St Mary’s, Baldoyle	Dublin	635,000	Scoil Íosagáin CBS	Limerick	482,500
Scoil Eoin, Kilbarrack	Dublin	938,199	St Kevin’s Bray	Wicklow	1,951,110
Killashee, Naas	Kildare	1,420,977	Celbridge NKSP	Kildare	4,133,194
St Patrick’s Special	Kilkenny	3,174,345	St Bernadette’s Special	Cork	763,112
Aggregate Total for Schools which went ahead in 2002 €18,076,221

List 2 — Very Urgent High Priority projects in respect of which it is proposed to invite tenders (16 School — €20.3m).

Table 7.11 List 2

School	County	€	School	County	€
St Paul’s New	Cork	*	St Theresa’s	Longford	*
Cabbas, Ashton	Cork	1,015,790	St Joseph’s Special	Galway	*
St Killian’s	Cork	*	St Nicholas	Galway	*
Glenahulla	Cork	**	St Fergal’s Bray	Wicklow	380,921
St. Anthony’s	Mayo	2,539,476	St Mary’s Trim	Meath	888,816
St. Joseph’s/Eoin	Offaly	2,886,396	Our Lady of Fatima	Wexford	*
St. Kieran’s Glasnevin	Dublin	1,904,607	Knockconan	Monaghan	*
St. Catherine’s Donore Ave	Dublin	1,318,272	Sallins	Kildare	*
Aggregate Total €20,297,285

List 3 — Urgent projects ready for tender that can only proceed to tender and construction if substituted for projects on list 2 (17 schools — €36.7m).

Table 7.12 List 3

School	County	€	School	County	€
Gaelscoil An Mhuilinn	Westmeath	*	Scoil Treasa Donore Ave	Dublin	*
Sacred Heart, Huntstown	Dublin	*	Roxboro	Roscommon	*
Naas New School	Kildare	*	Mullinahone	Tipperary	*
Prosperous	Kildare	*	G.S. Tiobrad Árainn	Tipperary	*
Scoil Nais Mhuire	Carlow	889,633	Marino School (spec)	Wicklow	*
Holy Spirit J/S	Dublin	*	Scoil Íosagáin, Hospital	Limerick	1,440,935
St Joseph’s Special	Dublin	*	Knockea	Limerick	1,642,564
St Joseph, Coolock	Dublin	2,137,729	Cappoquinn Convent	Waterford	**
Sc N Finnin, Finglas	Dublin	*
Aggregate Total €36,700,432

List 4 — Projects that will be ready for invitation to tender in the coming months but which can only proceed to tender and construction if substituted for projects on list 2 (34 schools — €37.8million).

Table 7.13 List 4

School	County	€	School	County	€
Scoil na Mainstreach	Kildare	*	St.Edward’s Ballytivnan	Sligo	*
Ballymore Eustace	Kildare	*	S Pádraig Naofa	Wicklow	*
Roberstown	Kildare	*	SN Pádraig, Cranford	Wexford	*
Scoil Mochua	Kildare	*	Riverchapel	Wexford	*
Scoil Mhuire, Ballymany	Kildare	1,178,097	Gaelscoil Loch Garman	Wexford	*
Lucan Educate Together	Dublin	3,809,214	SN Clochar Mhuire	Wexford	*
Virgin Mary, Ballymun	Dublin	*	Flowerhill	Meath	*
St Killian’s Tallaght	Dublin	*	Réalt na Maidine	Cork	*
Lady of Con, Donnycarney	Dublin	*	Scoil Chríost Ri	Cork	*
John Bosco Navan Rd	Dublin	*	Rathpeacon	Cork	2,176,172
S Cíaráin, Donnycarney	Dublin	*	Aghina	Cork	*
Georges Hill, Smithfield	Dublin	*	Scoil an Croí Ró Naofa	Cork	1,863,231
St Vincent’s Glasnevin	Dublin	*	Tullyallen	Louth	*
St Catherine’s Dominican Convent	Dublin	332,000	Raphoe Central	Donegal	*
St Francis Senior/Junior	Dublin	*	Cnoch na Naomh Gortahork	Donegal	*
St Vincent De Paul	Dublin	*	Ardagh	Mayo	796,970
Grange	Roscommon	*	St Colman’s	Kilkenny	*
Aggregate Total €37,759,726

List 5 — Projects that are expected to be ready to proceed to tender later in 2002 but which can only proceed to tender and construction if substituted for projects on list 2 (44 schools — €64.3million).

In effect, the lists identified projects capable of being approved in the course of 2002, if funds were available. The total estimated cost of completing all projects on the lists amounted to €177million as against the €31.6million originally allocated as the projected spend on List 1 and List 2 projects.

Developments During 2002

Departmental papers indicate that in February 2002 the Minister approved the 16 projects in List 2 to proceed and instructed that a further 12 projects were to proceed to tender and construction. This increased the total projected expenditure on the 28 projects to some €31.5million. Final Ministerial clearance for the programme of expenditure was not given until April 2002.

Departmental papers show that the Minister advised the Building Unit in April 2002 that an extra €15million with a possibility of a further €4million, would become available for the Primary sector. The Dáil voted a Supplementary Estimate on 10 December 2002 providing an additional €19million for the programme. The extra funds provided for the Primary capital programme represented reallocated savings achieved elsewhere in the Education ‘envelope' of funds. €12million of the €19million came from a reduction in the provision for capital works in the Post-Primary building programme as a result of projects proceeding more slowly than anticipated.

By the end of 2002, expenditure on the 10 schools on list 1 was 65% of that planned in December 2001. Only the 8 schools highlighted in list 2 had proceeded and these had incurred only 35% of the available funding. A further 16 major projects were started and incurred some expenditure during the year. Five of these are highlighted on List 3, six on List 4, one on List 5 (Tineteriffe NS Limerick €1,065,945). The remaining four schools had not featured on any of the December 2001 lists and the contract amount relating to these are as follows:

· Star of the Sea, Cork	€401,995
· St Paul’s COPE, Cork	€443,671
· Killnasona NS, Longford	€622,071
· Gael Scoil Philib Barun, Waterford	€429,113.

Total expenditure on projects commenced in 2002 under the major works sub-programme fell short of the €31.6 earmarked by some €11.8million. In contrast to this, expenditure on the minor and emergency subprogrammes exceeded the planned level of expenditure by €31.8million.

Expenses of €11.5million relating to the programme as a whole had been incurred, but not yet paid for, by the Department at the end of the year. This accrued expenditure is made up as follows:

· Minor projects —	€3.8million
· Temporary accommodation —	€1.7million
· Expenses relating to major projects —	€6.0million
· In construction at 1/1/2002 —	€1.37million
· Projects from lists 1 and 2 —	€0.46million
· Went to construction in 2002 and not onlists 1 and 2 —	€2.39million
· Pre-construction costs —	€1.78million

Expenditure on the post-primary building programme resulted in savings of €12million which was used to provide additional funding for the primary programme. Details of the projected and actual expenditure is given in Table 7.14.

Table 7.14 Projected and actual expenditure Post Primary 2002

Expenditure heading	Proposed allocation December 2001	Actual expenditure2002
	€m	€m
Contractual commitments/Dust extraction etc.	79.1	80.0
Fees	15.0	26.0
Prefabs	3.8	4.8
Furniture and Equipment	9.0	11.0
Remediation Programmes	3.3	9.5
Large-scale Projects (including sites)	56.3	25.6
Small-scale Projects (including sites)	14.2	14.5
Contingency	3	—
Total	183.7	171.4

The Department's Response

Prioritisation System

In response to my enquiries regarding the prioritisation system currently in operation the Accounting Officer said there is a tension between getting maximum impact from the funding allocated and remaining within budget in the absence of ring fenced multi-annual allocations. Furthermore the annual building programme has a number of elements or sub-programmes to be prioritised before a preliminary allocation is made for the major works sub-programme. The process is not set in stone at the outset, as emergency demands particularly within the smaller scale works sub-programme, are difficult to predict.

The major works sub-programme is the multi-annual component of the programme, while minor and emergency works are, by and large, approved on the basis that they will be paid for within the current year's budget. While the major works programme has a higher public profile, judgments on allocations for items such as emergency health and safety works can weigh heavily in the initial prioritisation of the budget allocation.

Background to existing prioritisation system

The Accounting Officer said that following my VFM report his Department had engaged an international expert and consulted widely on the most appropriate prioritisation scheme to adopt. While all of theparties consulted during the preparation of the expert's report endorsed the need for a more transparent system based on the application of objective criteria, many considered that it would be unlikely that a points system (as referred to in the VFM report) would be appropriate for the education sector. Many of the parties recognised that, no matter how objective and scientific the criteria were, there would be a need for decision makers to exercise their professional and/or technical judgment at some point in the process. The expert, in the event, did not recommend a points-based system. The expert's report, delivered in 1999, formed the basis of the prioritisation system that has been put in place.

Overview of the existing prioritisation system

These criteria are:

·The rationale underpinning the project

·The scale of project in terms of area (square metres) and pupils benefiting

·The extent of recent prior investment in the school

·The target date for completion of the project

·The cost of the project

·An analysis of technical considerations, if any, presenting.

In the context of limited resources, clearly only those projects that command the highest priority banding within their respective categories can fall to be considered for inclusion in the expenditure plans for any particular year. Where a number of projects from within the same category and all carrying the same priority band are competing for inclusion the senior management staff within the Planning and Building Unit are required to make professional judgments based on all known facts and having regard to the published criteria.

In an effort to establish the possible usefulness of a points based system the criteria for post primary projects were assigned numerical values on a pilot basis as an exercise to effectively shadow and potentially support the broader banding system. While the experiment illustrated that points could be an aid to the overall management process, the creation of a points system per se would not or could not obviate the need to exercise sound judgment cognizant of all relevant factors and based on past experiences of managing an annual programme.

Changing priorities

In response to my questions as to how projects could acquire a higher priority status the Accounting Officer stated that a range of circumstances and conditions can induce such a change. Key considerations would be the emergence of:

·New or additional information concerning the proposed scope of the project

·New conditions or circumstances in the school, for example, enrolments growing more rapidly than had been forecast.

He considered that, logically, it would be expected that a project would move to a higher priority band as the time scale for its completion nears.

Confidence in the new systems

I also asked him how his Department can be confident that the existing prioritisation systems are:

·Demonstrably transparent and

·Target funding to schools most in need.

In his reply he stated that he believed that it was reasonable to say that the broad welcome afforded to the publication (on the website) by his Department of the criteria and lists of projects in 2003 reflected a high degree of confidence among school communities and education partners in the system. Publication represents a significant measure to assuage any disquiet that may have existed regarding prioritization within the programme. Furthermore the current Minister for Education and Science has stated publicly, in unequivocal terms, that the programme would be managed in a totally fair and objective manner.

He pointed out that a key challenge facing the Planning and Building Unit of his Department, was how to adapt the existing banding system to respond to the ever-changing educational landscape. In the seven or so years since the VFM study, the rights of parents, on behalf of their children, to access nondenominational education and education delivered exclusively through the medium of the Irish language are now underpinned by statute. The concept of providing for diversity/choice, and not simply on the basis of available places regardless of ethos/ characteristic/ spirit, is now an unequivocal feature of the school planning landscape. This provokes tensions in prioritisation and requires judgment calls about how to balance, for example, the needs of a recently recognised school (the overwhelming majority of recently recognised primary schools are under the patronage of Educate Together or follow the ethos/ tradition of Gaelscoileanna) against the refurbishment needs, say, of a long-established school under church patronage.

A 20% increase in primary teacher numbers over the past few years has increased dramatically the basic accommodation deficit in schools that are otherwise structurally sound and has added further to the complexity of the task of prioritisation. The expansion of the further education sector through the delivery of PLC courses and right of access to second chance education also contribute to demands for school places, accommodation and equipment. Attention must also be given to the changing role of the church in relation to trusteeship, and the impetus for rationalisation, particularly at post-primary level. All of these issues present an ongoing challenge for the Department to make consistent, and as rational as possible, decisions in the most transparent manner.

The Accounting Officer stated that the prioritisation system currently in use works to ensure that, in respect of all identified applications, funding is targeted at those most in need. He pointed out however, the reality that the system is historically a reactive application-based one and by definition, cannot ensure that those in greatest need are targeted. A further day-to-day concern for those attempting to prioritise fairly is to ensure that, where a project becomes the subject of a concerted media campaign due to proactivity on the part of stakeholders, it does not supplant a more valid project.

The entire organisation and structures of the Planning and Building Unit are being re-focused to permit more proactive planning by disaggregating to a much greater extent the planning function from the operational or delivery function. This will permit the planners to plan in a more coherent and strategic manner, drawing together first and second-level needs. The ultimate aim is to provide for each county or region an educational development plan that will identify and map the future strategic shape of the educational landscape, thus informing critical investment decisions in a demonstrably public way.

The Accounting Officer felt it was worth pointing out that an inventory of accommodation has been piloted in County Kildare and has amassed an extensive range of information concerning the state of schools in the county. This has already proven to be an immense aid to decision making. The Department has just completed an evaluation of the pilot phase. The second phase of the inventory is about to commence and when completed, should prove equally effective in guiding decisions relating to the targeting of resources.

Primary major works programme

I had asked why certain primary schools projects published on lists 3, 4 and 5 on the Department's website in April 2002 and some not listed, had progressed to construction ahead of others on list 2.

The Accounting Officer said that the identified projects were "ready for tender", "would be ready for tender" and "expected to be ready for tender" respectively in 2002 and, accordingly, were at an advanced stage. He pointed out that for projects to advance to construction in 2002, the architectural planning stages would have needed to have been at a very advanced stage and that it would not be possible to significantly fast track individual projects. He further stated that ultimately, the level of funding available was the critical limiting factor for progressing all projects.

In regard to the specific underspends on lists 1 and 2, the Accounting Officer pointed out that the draft programme for the year 2002 was prepared in December 2001. However, the programme was not cleared until late in April 2002. The loss of these 4 months in approving projects resulted in an actual spend in the year on new works projects of €19.8million compared to €31.6million originally estimated. However, €10.4million was spent on these projects in the first four months of 2003.

He further stated that the total cost of projects was accurately estimated. The 30 projects that proceeded from lists 1 to 5 had an estimated cost of €50.41million. The actual cost of these projects was €49.63million.

Temporary accommodation and emergency works

In regard to the significant increase in expenditure on the temporary accommodation and emergency works programmes he pointed out that these programmes are demand driven. Applications for such funding are typically made after the estimates have been prepared and accordingly it is difficult to be absolutely accurate in forecasting demand. The Building Unit has to rely on the experience/trends of previous years when estimating likely demand.

The demand for temporary accommodation arises mainly from factors such as:

·Increasing enrolments

·Establishment of special units attached to mainstream schools

·Provision of additional teachers (mainstream, remedial, resource etc.) in mainstream schools

·Expansion of recently established Gaelscoileanna and Multi-denominational schools.

The allocations of additional teachers to schools is not known when estimates for temporary accommodation are being prepared .

The Accounting Officer provided details of the number of grant sanctions in respect of temporary accommodation and minor grants and costs arising therefrom for the years 2000 to 15 August 2003. It can be seen that the number of sanctions for temporary accommodation was significantly higher in 2002 than for the previous two years and would have been impossible to anticipate.

Table 7.15 Grants for Temporary Accommodation and Emergency Works

	Temporary accommodation	Minor Grants
Year	No. of Grants	€m	No. of Grants	€m
2000	15	1.3	731	43.5
2001	158	5.5	1247	49.9
2002	296	17.3	1474	46.7
2003 (to 15/8)	112	12.8	545	21.4

Correspondence Issues

In response to my queries about the issue of letters to school authorities advising them of the inclusion of their project in the 2002 programme, the Accounting Officer said that the Department contacts schools advising them of the progress of their individual projects. He confirmed that the objective of the letters was to advise that the projects would be included in the 2002 Building Programme. Some of these projects were to proceed to tender and construction in early 2002 and others were scheduled to proceed to tender in late 2002. He stated, however, that it became clear in late 2002 that the 2003 funding allocation was insufficient to allow all projects to proceed to tender and construction.

In late 2002/early 2003, the school building programme was reviewed in the context of the 2003 funding allocation. This process led to the 2003 school building programme which was published in January 2003. Projects could only be allowed to advance where the funding was available to meet the consequential costs. This meant that some projects, originally intended to go to tender and construction in late 2002/early 2003, could not be included in the 2003 programme.

Post Primary Specific issues

Analysis of under spend in post primary projects

The Accounting Officer provided an analysis of the reasons which gave rise to an underspend on the projects originally provided for in the Vote for Second Level and Further Education projects.

He informed me that approval for the large-scale projects on the 2002 programme of works came later in the year than would have been preferred, with large-scale projects in particular not being approved until the end of the first quarter.

The time gap between allowing a major project to go to tender and funding being disbursed in respect of the project has become rather protracted for post primary projects in recent years.

Inevitably, in the course of implementing a capital programme, projects fall away. Projects may have to be deferred pending more in-depth planning because detailed analysis of the scope of works may vary relative to the preliminary assessment.

He stated, however, that he expected that these difficulties could be eliminated by procuring a four to five-year envelope of funding.

Temporary accommodation

The Accounting Officer stated that the current Minister for Education and Science had made it clear that, schools in poor quality accommodation or requiring additional accommodation would have to accept Departmental offers of temporary accommodation. These views were prompted by evidence that some schools, having refused offers of temporary accommodation, were orchestrating high-profile media campaigns to pressurise the Department into providing improved permanent facilities without reference to the prioritisation system. He further stated that there is clear evidence that schools are now accepting offers of temporary accommodation, thus increasing the level of expenditure in this area.

Timeframe for delivery of projects

The Accounting Officer pointed out that the absence of ring fenced multi-annual funding is a significant obstacle to providing any school managerial authority with an indicative timeframe for the delivery of accommodation. He went on to list the factors which impact on the timeliness of completing projects

Site acquisition: Identification of suitable sites, price negotiation, conveyancing delays, the pre-planning consultative process and agreement of planning charges with local authorities,

Agreeing the brief: Drafting schedules of overall accommodation, assessing the extent to which existing accommodation can be rendered suitable for future use and drafting schedules of any residual accommodation. Affording school managerial authorities the opportunity to consider and debate the proposed scope of works against proposals emanating from the Department.

Appointment of a design team: The necessity to advertise for a design team pursuant to EU public procurement procedures,

Architectural planning: The architectural planning process can and does vary widely. It is easiest in a green-field site, but is more time-consuming in the case of extending an existing property or where matters relating to the integration with existing school buildings are involved. Listed status of some buildings has added to the complexity.

Planning permission issues: Third-party objections, appeals of planning decisions to An Bord Pleanála (including by the Department over unacceptable capital contributions demanded by local authorities).

Fire Officer's Certificate: Usually takes two to three months to obtain.

Tendering: The tendering process can take a number of months, with added delays for the production by the contractor of bonds, insurances and mandatory contract guarantees and notice to local authorities of intent to go on site.

There is inherent difficulty in predicting accurately the speed with which a project will proceed through the planning stages. To provide a school management authority with even an indicative time frame that could be seriously eroded through circumstances and conditions completely outside of the control of the Department is considered to be imprudent.

He instanced that two projects of equal band rating could commence architectural planning on the same day but one of them might have slowed so significantly that it would not be ready for inclusion in a particular year's major works programme alongside the other. It could be the case that a project of lesser priority might proceed more quickly and take its place.

Mr. John Purcell

The inclusion of Chapter 7.2 in my report was prompted by some parliamentary and public disquiet about the manner in which capital allocations for the school building programme were prioritised and approved in 2002. Apart altogether from reports in the media, I also took account of correspondence I received from school authorities that seemed to suggest that some schools slipped down the priority list despite having been notified of approval for the works in question.

We would all recognise that where there is a defined annual level of State funding available, which is inevitably insufficient to meet all the demands for capital expenditure on schools, it is always going to be difficult to manage the expectation of the various interests involved. That said, my examination of the operation of the 2002 programme found that a lot of confusion had been caused by the issue of letters containing qualified or ambiguous commitments to proposed projects and that, overall, there had been a lack of transparency surrounding the relative priorities and timeframes assigned to projects.

I am glad to say things have changed dramatically for the better in 2003, with the publication on the Department's website of the criteria for prioritising school building projects and giving details of the priority status of the individual projects. This approach has been further developed in 2004 and the comprehensive information presented on the website enables all interested parties to easily locate the status of each project. The Department is to be commended for this initiative in transparency, which has done much to allay people's concern about the equitable use of resources in this important area.

I suppose the ultimate test of a prioritisation system is that the available funding is targeted and assigned to those projects where the need is greatest. Historically, the Department has operated a reactive application-based system which, by definition, cannot guarantee such an outcome. However, the committee will note — this is on top of page 109 of the report — that the accounting officer informed me that the entire organisation and structures of the planning and building unit in the Department are being refocused to permit a more pro-active approach to facilitate planning in a more coherent and strategic manner, drawing together first and second level needs. The ultimate aim is to provide for each county or region an educational development plan that will identify and map the future strategic shape of the educational landscape, thus informing critical investment decisions in a demonstratively public way.

A related manifestation of the Department's new approach has been the piloting of an inventory of school accommodation in County Kildare. This approach should also aid decision-making. No doubt the accounting officer will be able to bring members up to date on developments. In the broader context of managing the capital budget for schools, the advent of multi-annual capital envelopes will enable greater certainty on funding commitments which should lead to smoother management of the building programme in future. Overall, there have been a number of positive developments which largely address the concerns expressed in this and earlier reports of mine on this subject.

Mr. Dennehy

The auditor's report focuses in the main on two particular aspects of the programme of expenditure for primary school buildings in 2002. These are the project prioritisation and approval process and the relationship between planned and actual expenditure. In regard to the issue of prioritisation, I wish to make one key contextual point, namely, that there is a major historical deficit in respect of the adequacy of primary school accommodation. The State is playing catch-up and not just in upgrading old buildings but also in respect of providing accommodation to match the dramatic increase in teacher numbers over the past six years and the formation of new schools providing for diversity, such as all-Irish and multi-denominational schools and so on. This means there are legitimate and real needs to be met in most primary schools across the country.

At one level, each and every one of these is a priority in its own right. For any one school community, an accommodation deficit is a priority. The challenge for the Department, however, is to mediate competing priorities within funding constraints. Given the scale of demands which exist and will continue to exist while we continue in a period of redressing a significant deficit, it is nearly inevitable that the judgment calls which have to be made between individual projects will operate along very fine lines and at times will be quite marginal.

The criteria we are using at present, as the Comptroller and Auditor General stated, is in the public domain. However, a careful examination of them demonstrates my point about how narrow the distinction can be, however relative categories of need we put in place. What is important is that the criteria are publicised and that the ranking of projects is made public. Achieving a robust and acceptable prioritisation scheme is a difficult challenge. In recent months, we have sought to further improve the position by engaging with the education partners on possible modifications of the existing criteria to see if we could make some of the distinctions between the bands clearer and more specific. The revisions under consideration on foot of these consultations will help in that regard but very narrow distinctions will continue to have to be made between what will make the cut for inclusion in any one year's programme.

The potential list of projects put forward by Department officials for inclusion in 2002 was no different. Those put forward as highest priority were a best call on all known facts at the time. In putting forward a number of lists, officials in the building unit were attempting to demonstrate for the Minister the funding challenge which had to be met if the Minister was minded to include more projects. Ultimately, the Minister was able to allocate €19 million in additional funding to the primary building programme. I wish to clarify at this point that the decision to make the additional allocation was not predicated on any reduction in funding for the post-primary programme. Rather, the Minister at the time decided to reallocate €10 million from third level capital and it was the understanding at that point that savings across a number of other Departments would contribute the balance of the Supplementary Estimate which would be required at the year end.

The fact that it took until April to clarify the funding position and obtain agreement for a Supplementary Estimate meant that the announcement of the programme was delayed. This in turn had the critical impact of ultimately slowing the expenditure flow on approved projects with a knock-on consequence of a larger carry-over of contractual liabilities into 2003. This contributed in large part to the reported difference between the original expenditure profile within the programme elements and the eventual outturn.

The key factor impacting on the rate of progress on announced projects as 2002 progressed was the emerging budgetary position for 2003. It became clear in the latter half of 2002 that the funding allocation for 2003 would be less than anticipated. This culminated in the publication of the Estimates in November of 2002, detailing the 2003 funding allocation of €147.7 million for primary capital projects. This came down from a level of €172 million in 2002 and reversed the upward trend in allocation for primary building which had obtained. On that basis, it was prudent not to proceed in the autumn of 2002 with projects intended to go to tender and construction and to defer consideration of these projects until funding for 2003 was certain.

Subsequently, €20 million was reallocated from within the overall departmental budget to increase the funding available for 2003 to €167.7 million. Of the 59 large scale primary projects on the 2002 programme, 24 did not proceed to tender and construction in 2002 and 19 of these have since progressed or are progressing as part of the 2004 programme. The announcement in the last budget in respect of multi-annual capital envelopes will greatly assist the Department in addressing school accommodation needs in a programmed and systematic way into the future.

Chairman

Thank you, Mr, Dennehy. May we publish your statement?

Mr. Dennehy

Yes.

Chairman

Some €12 million was allocated for prefabs in 2002, yet a total of €40 million was spent. In that context, does Mr. Dennehy feel that if the money was divested to management boards for small initiatives, the Department would get far better value for money? In other words, if work was subcontracted to local contractors, the management board could price it independently with a local developer and it could well be half the price of that estimated by the Department's architects and quantity surveyors — as is my experience in a number of cases. It is a pity that €40 million is spent on the provision of prefabs when it could be divested to management boards. The boards could be given autonomy at local level and, in certain circumstances, the accommodation provided could be permanent rather than temporary and could cost half the amount of money. Does Mr. Dennehy agree that we are wasting a huge amount of money building prefabs? Can he explain the inability of the Department to delegate responsibility to management boards to build one classroom and is instead waiting twice the length time to erect a prefab?

Mr. Dennehy

The point the Chairman makes is a good one and the Department is now going down that road. Among the recent proactive initiatives undertaken by the building unit is the devolved delivery of small scale projects and the introduction of the small schools initiative. The small schools initiative was introduced as a pilot programme in 2003 to allow small primary school building and modernisation works on a totally devolved basis. A total of 20 schools were included in it in 2003 and a further 50 will be in 2004. We are undertaking an analysis of the project, which is published on the Internet and the feedback is extremely positive. As the Chairman suggests, it is a good way to move forward. The grants range from €100,000 to €350,000 and are applied to schools in the categories of one to four classrooms — the smaller schools. In addition, in 2003 we introduced a new scheme on a pilot basis to allow primary schools to undertake a permanent solution to their building problem. Rather than waiting for the planning process and for prefabs to be erected, we give them a grant in lieu of a prefab. Some 20 schools were included in that project in 2003 and it has expanded to include more than 40 in 2004. Feedback from this has been very positive and we are considering it closely at present.

These projects can be viewed on the Internet. We are giving €100,000 per classroom to schools and €50,000 in the case of a resource or learning support room. The school can then make its own arrangements locally, which results in things being done more quickly, more cheaply and just as efficiently.

Chairman

For one school the Department submitted a cost of more than €400,000, while an independent assessment showed that the same accommodation could be provided for €150,000. The board of management was concerned that the Department was paying up to 12% architectural fees on two different plans. A large amount of money was being wasted on departmental architects when this service can be provided at a fraction of the price locally through the partnership of the community, the board of management and the parents. Instead of providing €40 million for temporary accommodation nationally, the Department could solve these problems straight away.

Mr. Dennehy

This is what we are trying to do with these two initiatives. There is always tension between obtaining value for money and ensuring we have proper, well constructed buildings that will last into the future. We do not want buildings that are put up overnight and will fall down in five or six years. We must take this into account when devolving authority to the schools on these issues and trusting the school to do the right thing, with some supervision from our building unit. That is what we are doing in these two pilot initiatives. We will have a larger number under both of those headings to gain experience from this year, but experience to date accords with what the Chairman is saying.

Chairman

Perhaps Mr. Dennehy will brief the committee on the findings of the pilot studies.

Mr. Dennehy

We will do so.

Deputy Noonan

I thank Mr. Dennehy for his clear explanation. One section of the Comptroller and Auditor General's report deals with confidence in the new system. It states: "I also asked him how his Department can be confident that the existing prioritisation systems are: demonstrably transparent and target funding to schools most in need." Is Mr. Dennehy confident about this in the new system?

Mr. Dennehy

I am extremely confident, within the parameters I set out in my opening statement. There is often a fine line to be kept to when officials in the building unit consider a range of projects. Which projects are more deserving than others? In the matter of the band ratings we have set out, which are still in use, I am confident, as the Accounting Officer, that this is being done as openly and transparently as possible and that we are as accurate as possible in setting out the priorities.

To try to obtain advice from others about our prioritisation list, over the last number of months we asked the partners in education — unions, parents, management groups and so on — to consider our prioritisation list and band system and suggest improvements. As a result, we are now ready to publish a revised set of bands, which are along the lines of the existing ones but a little more refined. In the building unit we will continue to address this question on an annual basis.

Deputy Noonan

Would Mr. Dennehy agree that until these changes were made in 2003, there was widespread public concern that the system was not demonstrably transparent and was unfair and that quite frequently funding did not target the schools that were most in need?

Mr. Dennehy

I would not agree that funding did not target the schools that were most in need or that the system was not fair, but it did need to be improved. It needed to be made more transparent, open and accessible, providing as much information as we could make available to people on our website, for example. The way in which the list of schools is now published gives people confidence that the system is not being tampered with — that it is open, transparent, and as fair as possible.

Deputy Noonan

Does Mr. Dennehy agree that there was widespread concern that the list was being tampered with?

Mr. Dennehy

Much concern was expressed over a couple of years, in 2002 in particular. However, I do not agree that it was. Some of the criticism was wrong and unfair.

Deputy Noonan

Does Mr. Dennehy think it was simply that there was more demand and the resources were available?

Mr. Dennehy

Yes.

Deputy Noonan

The note on page 105 of the report states: "The total estimated costs of completing all the projects on the lists amounted to €177 million as against the €31.6 million originally allocated." That sets the context — there was six times as much demand as resources.

Mr. Dennehy

It always sets the context. If I go back to the context in which I put it at the beginning, there is no doubt that a few years ago the vast majority of schools, particularly primary schools, needed work done, whether to a smaller or larger extent. We are always concerned that we do not receive enough money and we always do our best to secure as much as we possibly can in the Estimates campaign. There will be far more certainty in the future because of multi-annual budgets. At least we will be able to plan in an open and transparent manner for three, four or five years ahead.

Deputy Noonan

Does the Department receive many representations on this issue?

Mr. Dennehy

Yes, a huge number.

Deputy Noonan

Are these from schools or public representatives?

Mr. Dennehy

They come from both. We receive representations from individual schools and also from public representations in the form of parliamentary questions and other correspondence.

Deputy Noonan

So the Department is under a lot of pressure in this area.

Mr. Dennehy

The building unit receives much correspondence, although it may have been reduced. I understand that since we have gone public with our information the number of representations has dropped considerably. For example, we no longer have deputations to the Department on almost a daily basis, which was traditionally the case.

Deputy Noonan

It must have received many representations in the election year, 2002.

Mr. Dennehy

We always receive many representations whether it is an election year or not.

Deputy Noonan

They probably would have peaked around 17 May 2002 and fallen off dramatically after that.

Mr. Dennehy

I am sure the Deputy is right.

Deputy Noonan

Could we have a look at the list? Page 104 of the report states: "Projects that went ahead in 2002 are shaded." When I read this first I thought it said that the projects that went ahead in 2002 were shady. I do not see any shading so I want to go through the list. List 1 consists of high priority projects for which tenders had been received. Did they all go ahead in 2002?

Mr. Dennehy

They did not. I will need to call in the experts on this, but to my knowledge——

Deputy Noonan

The note says that list 1 consists of "projects that can proceed to construction in 2002 as tenders have been received."

Mr. Dennehy

I will call in the people who deal with this, with the Chairman's permission.

Mr. Hubert Loftus

All the projects on list 1 proceeded to construction in 2002.

Deputy Noonan

I missed that as I was being given a shaded version.

Mr. Loftus

All the projects on list 1 went ahead in 2002.

Deputy Noonan

List 2 details urgent projects in respect of which it is proposed to invite tenders and 16 schools were included.

Mr. Loftus

Eight of those are shaded so eight of the 16 went ahead in 2002 and a further six have since gone ahead as part of the school building programme in either 2003 or 2004.

Deputy Noonan

From my point of view, this is the crucial list. The notes for lists 3 and 4 state that they are urgent projects that can only proceed to tender if substituted for projects on list 2, while list 5 contains projects that are expected to be ready to proceed to tender later in 2002 but which can only proceed to tender and construction if substituted for projects on list 2. Any progress in the three subsequent lists is contingent on displacing a project on list 2. Were those projects that did not go ahead displaced by other projects that were upgraded from the other lists?

Mr. Loftus

It is important to bear in mind that those lists were prepared as part of the draft 2002 programme and they were prepared in December 2001. An additional €19 million was allocated towards the primary school building programme in April 2002 so that had an impact on the range and extent of projects that could proceed.

Deputy Noonan

I understand that but that is not what I am asking. We have five lists and list 1 went ahead. List 2 is crucial because projects on the third and fourth lists can only go ahead if they displace a project on list 2. We have established that half of the projects on list 2 did not go ahead and I am asking what projects were lifted from the other lists to displace them.

Mr. Dennehy

To my knowledge no school from lists 3, 4 or 5 displaced a school on list 2. During the summer and into the autumn of 2002, it became obvious that funding would be a serious issue in 2003 and that the level of funding that would be allocated to us for 2003 would be far less than anticipated. On that basis the staff in the building unit advised that it would be prudent not to proceed in late 2002 with some of the projects on the list 2 that were intended to go to tender and construction. The problem would have arisen in 2003 where we would not have had the finance to allow those projects to continue to completion.

Deputy Noonan

I understand the financial constraints but there are three notes here that clearly state that schools on the three lists can only proceed if they displace projects on list 2.

Mr. Dennehy

Correct.

Deputy Noonan

Of the schools on list 3, Scoil Náis Mhuire, County Carlow, St. Joseph's in Coolock, Dublin, Scoil Íosagáin and Knockea National School in Hospital in County Limerick and Cappoquin Convent in Waterford all went ahead. On list 4, Scoil Mhuire, in Ballymany, County Kildare, Lucan Educate Together School, Dublin, St. Catherine's Dominican Convent, Dublin, Scoil Naomh Mhuire, Rathpeacon, County Cork, Scoil an Chroí Ró Naofa in Cork and Adagh National School, County Mayo, went ahead. The note states that these projects could only go ahead if they displaced projects on the list 2.

Mr. Dennehy

That was the position in 2002. I will ask Mr. Hanevy, the assistant secretary, who was dealing closely with the lists in 2002-04, to help you with this issue.

Mr. Martin Hanevy

The lists which the Comptroller and Auditor General has in his report were the lists that were generated internally, the primary purpose of which was to demonstrate to the Minister that highly critical projects were ready to go to tender. These were projects that would be ready. There was then a slightly lower tier. Given the known funding and the way in which it was being profiled, it could not all be done. In view of this, if a project was to be accelerated it had to be substituted or more money would have to be provided.

In April, €19 million was allocated in a Supplementary Estimate. This document was then replaced by the list the Minister published that included these projects and the first and second lists merged. They were all projects that in April 2002 both the Minister and the Administration believed would be delivered.

As the Secretary General explained, as the latter part of 2002 unfolded, there were two dynamics in play. The first was the fact that because it was April before the list got final affirmation on foot of the Supplementary Estimate decision, the spending profile for the individual projects was now pushed out further into 2003. The second dynamic was that we were discovering into the autumn of 2003, as the 2003 budgetary process was being brought into play, that instead of an anticipation of even the same funding, we were going to face a reduction.

Deputy Noonan

We agreed there were two dynamics in play but many of us think there was a third dynamic as well — there was a general election and a political agenda was superimposed on the lists. Schools in the Minister's constituency and in the constituencies of the Ministers of State and in marginal constituencies were prioritised for electoral purposes and given the go ahead before the election. In the second half of the year there was a fall-off and the money for 2003 was reduced so the commitments entered could not be carried out in 2003 because the budgetary position had deteriorated. That is my concern.

Mr. Hanevy

The proof of the pudding is that as the funding flow improved again, the prioritisation sequence on these projects was delivered into 2003 and 2004, with one or two exceptions due to reasons such as site acquisition.

Deputy Noonan

I fully agree with everything you have said and I am not arguing. I agree that every school nominated on every list needs the work outlined to be done. That is not the issue. I am talking about a narrow period of time from December 2001 until May 2002 when there is a widespread public belief that there was a third dynamic in play. It is, however, unfair to ask you to comment on that.

Chairman

As a political element, I would not expect witnesses to answer that. If there was a policy issue, we are excluded from it.

Deputy Noonan

Can I establish if there was a policy priority without going into it?

Mr. Hanevy

We put forward lists of projects, all of which we regarded as important. The distinction between some of them was that some were more ready than others for the speed at which construction could begin. We identified that the adequacy of funding for them was constrained. More money was provided and that led to a published list of projects. As officials we were happy that this list could be delivered within budget and was drawn from what we had identified, with list 1 being delivered in its entirety, list 2 and some of the others. Ultimately, and for a range of reasons, the pace at which those got to site differed from the intent as of April 2002 but they are being delivered.

Deputy Noonan

There was, however, a change in priority from the list that was drawn up in December 2001 to the sequence in which they were delivered in the course of 2002 and then on to 2003 when additional money became available.

Mr. Dennehy

It is important to state that while we had a number of lists containing those ready to go to tender, those that were almost ready and so on, we did not have a prioritised list. In other words, we made the point that the needs of several were so similar that regardless of whether one went ahead before another——

Deputy Noonan

It would not worry an official.

Mr. Dennehy

Not particularly. When the list was published I spoke in detail to the buildings officials, as I always do. They assured me that they were happy they could sign off to me as Accounting Officer, that everything was above board and they were satisfied with the list being published and the works receiving the go ahead.

Deputy Noonan

I accept that Mr. Dennehy and his staff acted ethically in this matter. There is a note on list 5, but list 5 is not published here. The note states: "Projects that are expected to be ready to proceed to tender later in 2002 but which can only proceed to tender and construction if substituted for projects on list 2." Are there schools on list 5 which were commenced in 2002 and if so what are they?

Mr. Dennehy

That refers to the projects expected to be ready to proceed to tender later in 2002 but which can only proceed if substituted. The list contains 44 schools.

Deputy Noonan

Did any of them go ahead?

Mr. Loftus

Tineteriffe national school in Limerick.

Deputy Noonan

It was opened last Sunday. I hope the officials had a nice day in Cappaghmore.

Mr. Purcell

At that point I was dealing with long lists and that is why I did not list 44 names but as Mr. Loftus said, one on list 5 went ahead. There were also four schools which did not feature on any of the December 2001 lists that went ahead as well and they are named on p.106.

Deputy Noonan

Star of the Sea, Cork; St. Paul's, Cork; Killnasona national school, Longford, and Gael Scoil Philib Barun, Waterford. Are they the four?

Mr. Dennehy

Yes.

Deputy Noonan

Two from Leinster and two marginals.

Deputy Dennehy

Were they special needs schools?

Mr. Dennehy

In the case of Star of the Sea, the project comprised temporary accommodation resulting from an amalgamation in which one of the original schools was considered a health hazard and had to be closed immediately. The OPW had been looking for a site for an amalgamated school and in the meantime we had to put temporary accommodation on the site. The project at St. Paul's comprised urgently needed temporary accommodation for children with severe profound learning difficulties, two classrooms, a sensory room, dining room, staff room and toilets. The school at Killnasona, Longford, was a two-classroom school and the project had been ready to go to tender in March 2002 and was included in the 2002 programme but the problem became urgent when the roof began to fall in. The gaelscoil in Waterford was in rented accommodation and was being evicted. I received a note to the effect that the file clearly shows that officials, not the Minister, put forward the names of the four schools.

Deputy Fleming

I thank the Secretary General for clarifying that because there was a pejorative comment made about Ministers and I do not see any connection between the four schools concerned. It is important that there would always be the flexibility to deal with urgent cases. Perhaps that was not made clear.

Lists 1 to 4 were produced in December 2001 which was two and a half years ago. I understand that these lists were combined when the Department received its estimates figure in 2002, and lists 1 and 2 merged. Am I right in thinking that lists 1 and 2 as presented here are not the lists on which the Department worked during 2002?

Mr. Dennehy

Yes and not going into 2003. The lists were amalgamated.

Deputy Fleming

Those lists are part of a 2001 document and were not the Department's working lists for 2002, the year under review and whose accounts we are discussing here.

Mr. Dennehy

That was a draft working list produced in December 2001 by the officials in the buildings unit and information on schools changed as the circumstances within the schools changed. The financial agenda changed and we had to revisit those lists. New buildings are coming on stream all the time, some more urgent than those already on the list.

Deputy Fleming

That is life, circumstances change and a 2001 list cannot be static for a couple of years. There must be movement. We would be very critical if the Department was adhering to a 2001 list. Did the Department provide a more comprehensive updated list to the Comptroller and Auditor General during the course of the 2002 audit or are these the final lists as provided to him?

Mr. Dennehy

We had better check that with the Comptroller.

Deputy Fleming

Some people are making an issue of these lists. Now we are being told they were not the real working lists during 2002. I was not too concerned until an issue was made of them.

Mr. Purcell

That was not the issue. A Department planning its programme for the following year must do so in December of the previous year to coincide with the estimates process. That was how the list came about. My problem is not whether a school should be on a list or not. We recognise that there are dynamics involved and that is incorporated in the body of the report. My general concern is that where there are many deserving cases but not enough money for them, one must try to achieve the fairest system possible because as the Accounting Officer said, there are very thin lines between the degrees of need. While the system was fair and there is no suggestion that it was not——

Deputy Fleming

Not on the part of the Comptroller and Auditor General but it was suggested here this morning.

Mr. Purcell

There was public disquiet, parliamentary questions and media reports. I also received correspondence from Members of the Oireachtas and from schools. Part of the problem may centre on political issues. There were letters sent from different parts of the Department to individual schools. It led to some confusion which was unnecessary and prompted many representations and calls as no doubt individual Deputies could attest to. The Department is adopting my suggestion that instead of reacting to representations from school authorities it tries to assess the needs objectively by taking account of demographic trends and so forth. I appreciate that there are always surprise cases, such as a roof falling in or flooding caused by heavy rain. However, now with the promise of money in the years ahead, the Department is able to act in a more pro-active way.

Mr. Dennehy

The Department, in providing the most information it can, published the band ratings for the first time in 2003. In addition, a quarterly update on tendering in relevant projects is now published on the departmental website which will be further refined. Though the 2002 list was not published until May 2002, due to attempts to secure additional funding and the 2003 list was only published in January 2003, the 2004 list was published in December 2003. This was to help the school buildings programme and to take account of lead-in times for getting buildings up and running. In addition to these innovative methods, the Minister is introducing innovative measures for small school projects, such as the devolved grant and the summer work scheme. This means grants are provided to enable remedial and repair work during the summer, such as on boilers and windows, rather than providing money throughout the year. We have not got it fully right yet but we are getting there.

Deputy Fleming

I am happy with the improvements in transparency. Public representatives have informed the Minister on the positive aspect of the devolved small schools scheme. However, as a Deputy who visited schools that needed an additional classroom, I always felt the Department was too ambitious in some of its designs. Many schools simply wanted an additional classroom but the Department's architects often convinced them of the need for an additional purpose room, separate toilets for teachers and wider corridors. As a result these schools were placed on the schools building list. If they had simply received €150,000 three years ago, the Department would not have heard from them for the next 20 years. However, now they are included in the small schools initiative from which they will receive €200,000. While the designs were excellent, they caused problems and unnecessary additional costs. I hope there is an appreciation in the Department that once a building is constructed to a proper standard, it can be improved through these new schemes. I am sure those services will be delivered faster and more economically.

The building lists are often a reaction to calls for new school extensions or improvements. Has the Department completed any pilot studies on demographics so as to enable objective planning for future needs? I am concerned by the sudden population increase in many towns. Five hundred houses built in a town will see future demands on schools in the area. What flexibility will be shown in dealing with such rapidly growing towns? Is future planning now done from a national perspective rather than as a response to whoever puts on the pressure?

Mr. Dennehy

Our decision to publish an annual school building programme has reinforced the need to make this transparent and pro-active rather than reactive to local needs. We have commenced publishing area development plans. In this regard, the schools, trustees, parents, sponsors of prospective schools, interested local parties and teachers will have the opportunity to have their voices heard. On a pilot basis, the area development plan is being introduced which will set out a blueprint for school development in local areas in the future. This new model will be piloted in the coming school year in five areas, including Laois, south Dublin, north Kerry and Mayo. The draft development plan for the Mountmellick-Mountrath area was published in April and is available from the departmental website.

The commission on school accommodation, working with the Department, is conducting a public engagement exercise with all interested areas. It is another innovative development which was possible due to the major reorganisation of the planning and building unit in the Department. We have tried to separate future planning from the day-to-day dealings with individual building projects. Under the leadership of Mr. Martin Hanevy, the Department's building and planning unit has recently been restructured. This will assist the Department to be more proactive in its work.

Mr. Hanevy

The cornerstone of the Minister's policy is transparency, in which the area development plans are rooted. There is a wider issue than demographic profiles and the impact of Dublin city's sprawl on hinterland counties. It is about consulting the public under the auspices of the school accommodation commission as to what the area will be like in ten years time. This consultation process goes down to what type of schools would be needed in the area. This is participatory and the decisions are made in an open way with submissions made by any party open to view for other interested parties. Some of the decisions that led to historic controversies are now made in a public way.

Over a year ago I pointed out to the Oireachtas Joint Committee on Education and Science that on the question of planning, the largest dynamic behind the building programme has been the significant increase in teaching numbers at primary level. Since 1998, and the automatic response to special needs, approximately 5,000 teachers are in the primary system. That is an increase of more than 23%. The inventory and accommodation in Kildare, where we did the pilot test, revealed that the key deficit in many of these schools is the additional space required for the visiting resource teacher, the psychologist and so on. The improvements on the human resource side have been made, along with underlying improvements throughout the 1990s on the staffing schedule. The traditional three-teacher school served the country well for decades. It used to be a school with three classrooms, cloakroom and toilets, with no space for a principal to meet a parent. The school of today probably has four teachers as of right under the improved staffing schedule, if not perhaps a fifth teacher, along with supports for special needs students.

We are playing catch-up in a big way. In terms of human resources, this is a success story, but the capital must follow. It would have been very difficult ten years ago to anticipate what was going to happen, that there would be an increase of more than 20% in the number of teachers.

Deputy Fleming

Notwithstanding the accommodation difficulties we are now experiencing as a result of employing the additional resource teachers, remedial teachers and special needs assistants, the Department took the correct approach. Its first task several years ago was to get teachers into the classrooms to teach the children and to provide the extra resources, then follow on with the accommodation. We would all have liked everything to have been available from the start. From the point of view of the children's education it would have been worse to spend the money first on the capital structure and then to attempt to find teachers. The sequence was rightly chosen.

Mr. Hanevy might explain how expanding areas are being dealt with. The population is mushrooming. One can drive down a road and see 500 houses in what was a green field a year earlier. How is the Department coping with this situation?

Mr. Hanevy

Looking at this year's programme, the need in many instances is very obvious. We have used different approaches. We have used a design and build solution, and we are using our own standard planning templates in an effort to reduce the level of design fees. We have produced in-house a prototype of a particular model of school which can be rolled out in terms of eight, 12, 16 and 24 classrooms, and which maximises the use of site space, because that has been an additional cost driver. These buildings can be delivered quickly, because the design phase is narrowed, particularly in the design and build model. These are being put in place in two locations this year, in Griffeen Valley in Lucan, and at the Archbishop Ryan school in Lucan.

Currently we are working closely with Fingal County Council to promote mutually beneficial projects in areas from Donabate to Skerries to the far side of Blanchardstown. We are also working on projects in Cork, Limerick, Carlow, Laois and the midlands. Most of the studies of those five-yearly development plans are appropriate to a county but an unusual one focuses on the route of the M4. It has regard to an area from Leixlip to Kilbeggan, on both sides of the road. The study is considering the impact in that area.

Deputy Boyle

With regard to new school builds, I believe there are eight stages, or possibly ten, between approval and completion. Could Mr. Dennehy tell us the average time period for building a new school, from approval to completion, and if he has the knowledge or experience, give us examples of the quickest time in which a school project has gone through all those stages? He might also tell us the longest time such a project has taken.

Mr. Dennehy

The longest time could be very long, but the average time is about two years. There may be better examples, but the best in terms of time is probably our bundle of five PPP projects at post-primary level, where the schools, or certainly four of them, were up and running ahead of time. The bundle of projects was completed in less than a year.

Mr. Loftus

Many projects have their stages combined. The early stages of architectural planning, stages one to three, are combined for many projects, as are the advanced stages four and five. This is done to speed up the delivery of a project through those stages. For the Griffeen Valley project in Lucan, where there was an urgent need to deliver a 16-classroom school, the design was completed over some seven or eight months. The school is currently under construction and will be ready for opening in September 2004.

Deputy Boyle

Is that a PPP project?

Mr. Loftus

No. It is a design and build project.

Deputy Boyle

Would that be the quickest example under the conventional funding?

Mr. Loftus

Yes, it would.

Deputy Boyle

I take into account the fact that the Comptroller and Auditor General had no role in assessing what was on the list, and why, but it is not pejorative to point out that even traditionally, many of the schools on this list, a preponderance of them, can be linked to the political bailiwick of the existing Minister or the preceding Minister. It is acknowledged in Irish political culture as something of an expectation that projects are thus awarded. I do not expect the Department officials to comment on this, but traditionally, this is the way such lists have been prepared in the past. The hope is that the new system is more open and transparent, and that the preponderance I noted will not exist in the future. I speak as one who lives in and represents an area which would have benefited from that preponderance over a certain time.

The problem is that when such a golden era exists in a part of the country, it is very often addressing past frustrations, and when the era passes, it causes further frustrations because the change of head of Department is often accompanied by half-made and half-realised decisions that are subsequently put on the back burner. There are examples in my constituency. Ballygarvan national school for instance would have been progressing very well, and then come to a sudden stop because of political changes. I do not expect the Department officials to comment on that.

There is another change which has less to do with politics than with policies, or the way a change of policy can alter the running order of new building and maintenance work. There are two examples. One school in my constituency, Coláiste Críost Rí, was progressing very well in terms of its expectations for a physical education hall. A policy then came into being——

Chairman

The Deputy should put a question.

Deputy Boyle

I am framing the question. It relates to the policy of PE schools being given priority in RAPID areas. That is a coherent policy with which I have no problems. The problem is that the new policy seems to have a retrospective effect, in that decisions previously made are creating a knock-on effect. I would like to know how and why that happens.

The second area involves remedial works in school maintenance. There was an announcement last year about doubling the number of schools which would benefit from this programme. However, Coláiste Spioraid Naomh in Bishopstown for example, a school which had approval for the replacement of all its windows, was subsequently funded for the replacement of only half the windows. It seems twice the number of schools were to benefit under the programme only by having some rather than all remedial work done.

Mr. Dennehy

I shall answer a few of the Deputy's questions and then pass matters on to one of the officials more familiar with the detail. Regarding PE halls, there is a relatively simple explanation. In late 2001 and early 2002, when it looked as if we would continue to have an increasing amount of capital for capital projects during 2003 and 2004, PE halls were very high on our agenda. In late 2002, however, when it became obvious that money would to be very tight, classrooms became the priority. Obviously, the building of PE halls was considerably slowed. We are now getting back on track regarding funding, moving into the next period of multiannual budgeting. We will be able to address this issue as we move forward.

Deputy Boyle

What about the remedial programme?

Ms Teresa Griffin

I am not familiar with Coláiste Críostaí, but I know that for smaller capital works, quite often schools come in and say what they need done. In this case, it might concern windows. That would cost approximately €30,000 to €50,000. When we give them the go-ahead, we will allocate a certain amount of money we think appropriate. When the final tender comes in, it could be €150,000 to €180,000, and one must cut back to stay within the amount of money available. I do not know the individual details of the school but that is the principle. If we gave the go-ahead for a project, that would have been one of the reasons for it to be cut back. However, under the summer works scheme, schools accompany their application with a consultant's report, which should give very firm costings of what is available. If the school reaches the top priority listing and funding is allocated, that is done on the basis of what the project should cost.

Deputy Boyle

Is it not a false economy to undertake partial works on a school? If the other part of the work has to be done eventually anyway, one is re-engaging contractors and losing economies of scale.

Ms Griffin

Absolutely, but unfortunately we must live within the annual budgetary allocation that we have been given. It would make perfect sense to do everything right first time, but sometimes the limitations of the funding available to us mean that only the most essential works can be undertaken. While the other works are needed, the fact there are other schools with work that must be done and that we have a finite amount of funding available to us limits what can be done in any one school. That is unfortunate, but one hopes that the multiannual funding that we now have will enable us to prioritise better in future.

Deputy Boyle

I want to ask a question about changing demographics and how that impacts on the capital programme of the Department. There will be situations where, in isolated communities, there will be reductions in the number of teachers and presumably as a consequence, a reduction in the space being used. There might be classrooms that are no longer necessary or become used for other purposes. In some cases there are decisions to close schools. What formal record does the Department keep of the number of schools downgraded because of loss of position during the year, as well as the number closed? Is there any subsequent capital benefit to the Department regarding the investments that have gone into all those schools?

Mr. Dennehy

Unfortunately, very often there is not. Schools that close are often small, rural schools that have been in existence for many years. The amount of capital benefit accruing to the Department is not very substantial in any given year. We have records of closures and schools that have been downgraded or reduced in size over the year. We are looking to the area development plans I mentioned as a way forward within given localities. The Department does not make the decision. It is made collectively by those living in the area in conjunction with the professionals and the Department. They plan not just for the current year but for a period of five, ten or 15 years ahead. I am very hopeful that, when expanded right across the country, they will enable us to consider such issues in a far more structured and organised way.

Deputy Boyle

I can accept what Mr. Dennehy is saying about area development plans but can he see the need for a national audit that would balance the closure of schools with new schools for changing population patterns? That exercise does not seem to be happening there. We are investing a great deal in new buildings while other schools are closing.

Mr. Dennehy

That exists.

Mr. Hanevy

Unfortunately, the reality is that in some of the areas where schools are closing, the population is falling. It has been displaced and that brings us to bigger issues of spatial planning. Dublin is a case in point. In the north-east part of Dublin, we have surplus places. Deputies have already discussed the impact on the whole perimeter of Dublin. Bussing primary school pupils enormous distances is not a tenable policy. In many instances the State does not own the buildings. We have systems in place for recovery of the State's investment regarding any capital put in should a school close and the property be disposed of. It goes to the heart of the restructuring that we have undertaken. By joining up first and second level, we were trying to plug a gap in our own system. We felt that one could have a situation in a town where, at primary level, we would be looking at something, and something would be happening at second level of which we were not conscious. We now have a whole-town approach to our needs determination. Perhaps, if there is surplus accommodation somewhere, even if we do not own it, we can attempt to secure access.

Deputy Curran

I had a particular line of questioning in mind, but I shall change it in light of what Deputy Boyle said. I do not know if I understood him correctly. He did not put this as a question, so the witnesses were not obliged to answer. He seemed to suggest that whether a school made progress on the list was as a direct result of political influence. For 2002, and the line of questioning pursued and explanations given, the Comptroller and Auditor General specifically said the system was fair and there had been no evidence to support Deputy Boyle's allegation. It would be inappropriate for that conclusion to be drawn. Mr. Purcell suggested there were problems with transparency but that the system was fair. I do not want to be associated with that remark. In particular, the officials here today specifically said of the four schools accommodated in 2002 not originally on the list that they joined it on the recommendation of officials in the Department because of urgent needs that arose. The impression given does not reflect what I have heard today. I want to be very straight and put that on the record. I hope I have not left Mr. Purcell in an awkward position. That is what I understood his finding to be. He said the system was fair but went on to talk about the lack of transparency, further saying that matters had greatly improved since.

Mr. Purcell

That is a succinct explanation of my position. I might add that there was some confusion at one time with letters going out, but I do not know what would have happened previously. The most important thing was that there was transparency. It would have been mentioned in another forum, perhaps in the House, if schools were being jumped up the list for no good reason. I will not say those schools were the four most deserving cases since I do not know. I accept totally what the Accounting Officer said and the specific justification he gave for those schools. There could have been 44 others with a similar justification but I do not know. However, I was not in any way making an assertion that anything that happened was not justifiable on an official level.

Deputy Curran

Having made that comment, I will move away from it. I am from a part of the city that is expanding rapidly. For all my life, it has been a question of playing catch up with the population. The witnesses have spoken of better planning and identifying areas. One area with which I have a real issue is that land is rezoned and new houses are built. The Department ends up having to buy land for schools at exorbitant residential rates. Is there any system in place to deal with such situations? I have seen it in particular with the Adamstown site where a strategic overview of a new town was effectively taken and there are various responsibilities on developers. Is a closer relationship required with the local authorities? Perhaps the reservations for schools might be made before vast tracts of land are rezoned.

Mr. Dennehy

That is a good point and one that has been made by the present Minister time and again. To that end we are currently meeting the local authorities on a systematic basis and discussing this issue with them. It is outrageous that enormous sums of public money often go to pay for a site in an area and sometimes the costs are exorbitant. We are looking critically at that. We are in discussion with the city and county managers on that issue.

Deputy Dennehy

We are still on chapter 7.2. I will make three brief points. The first relates to page 106 and I agree with Deputy Fleming's point on the four schools involved. I am aware of the history of two of them, which are special needs schools. In fairness, there are four schools. It might have been helpful if there was a footnote to explain the reason. It is only a suspicion, but a politician might pick them out and there could be a tendency to conclude that these were treated differently. It is a small point.

The second one is about site acquisition, which has been referred to by Deputy Curran and others. I am unhappy about our record on that. I am referring to the school mentioned by Deputy Boyle, Ballygarvan, as a classic example. In 1999 or 2000 I put down a parliamentary question and the answer was a fairly standard one of about three lines, referring to "investigating, discussions and progress" etc. Last month's response was exactly the same. What has happened in Ballygarvan is that the local authority has quadrupled the potential population of the village, yet while it was accepted in 1999 that a new school was needed, a site for it has still to be purchased. I do not expect Mr. Dennehy to have the facts available, but given this example of bad planning or procurement, site acquisition is an area to which the Department of Education and Science needs to give much more attention. I am told there may have been difficulties in Ballygarvan because of multiple owners.

As regards the final point, in fairness to the current Minister, I do not believe any other politician in history would have been content to remove, what Deputy Boyle was referring to, the traditional input by Ministers. Could Mr. Dennehy say if the Minister has removed that by putting every school on the website and letting principals, teachers, union representatives etc. read what is there? He mentioned that the number of parliamentary questions has dropped since that happened. Would he accept that this initiative has removed what was presumed to be a political input? Deputy Noonan referred to it. As a former member of the Cabinet, he would be aware of the nuances and pressures a Minister can bring to bear in this situation. I did not have that privilege, but I felt everyone had a finger in the pie. Would it be fair to say this Minister has removed all of that or the perception of it and is the system totally transparent, even if politically people felt it might be foolish for any Minister to intervene, in his or her own interest?

Deputy Noonan

On a point of clarification I am somewhat confused at the line of questioning. Deputy Dennehy said, first of all, that there was no political interference. Now he is asking if the practice has stopped. I cannot see where it is going.

Deputy Dennehy

It is a matter of perception. In no way could I accuse a former Minister of interference. Deputy Noonan was clear, in spelling out the time span involved. He was specific in documenting the months of the year. I am asking whether that has been removed by this initiative. It is important that all potential sources of influence who might have access to the Minister, the Secretary General of the Department or anyone else should be dealt with on the basis of equal needs. Does Mr. Dennehy believe that is happening?

Mr. Dennehy

Over the years, for as long as I have been Secretary General, and long before that, people have sought to influence all sorts of decisions made within the Department. However, the new system of openness and transparency as regards the whole building programme eliminates any possibility of interference with the way projects progress, particularly as we move into multi-annual budgeting as a range of projects will be set out over a period of years. The present Minister is meticulous about this and has insisted on openness, transparency and so on as regards the building programme, since the first day he came into the Department.

Another issue mentioned by the Deputy at the beginning had to do with site acquisitions. We feel quite strongly in the Department of Education and Science that when planning is taking place within a local authority area, from the outset a school will be required and cognisance should be taken of the need to have a site made available. In practice we are holding discussions with some of the city and country managers in that regard. There is an enormous tension between site acquisition and the building of classrooms. They all come out of the same pot of money. If large sums are paid for sites that automatically reduces the amount left to build new classrooms or refurbish old ones.

Deputy Dennehy

I do not want to dwell too much on the example I gave, but it is classic. I did not believe the development applied for would proceed. The local authority, Cork County Council, would have received development charges and the Department did not appear to be putting anything into providing a site. To return to the list system, I believe it was a courageous decision by the Minister, not just because he is a party colleague. The other side of that equation was the customers. There was disquiet at the time. We were all contacted by school principals whose schools were not high enough on the list. Has that now settled down and is there a certain acceptance among principals and in schools and organisations that the system is now working? Are they satisfied with it?

Mr. Dennehy

It has settled down to an extent and people will accept that as long as matters are dealt with in an open, fair and transparent way, all that is then needed is more money. However, having said that, every individual principal and chairman of a board of management who has a school that is inadequate or in need of refurbishment, will continue to exercise a certain amount of pressure and so on.

Deputy Dennehy

That is understandable, particularly on health and safety grounds. I have seen examples that indicate we may be behind in some respects. I was worried that the creaking hinge was getting the oil all the time, people with the loudest say, rather than that there was a fair system.

Mr. Dennehy

There could have been a danger of that.

Chairman

Before we conclude, has Mr. Purcell anything further to say on this chapter?

Mr. Purcell

No, most of what has been said illustrates that we have come a long way. That is good to report to the committee. Matters have moved along. I have reported on and covered many of the issues raised today by Deputies including the acquisition of sites, and the time frame involved in the provision of a school from beginning to end. I raised these matters, as mentioned here, in October 1996, in a value for money report on planning for second level school accommodation. These concerns apply equally to the primary sector. In that sense I had not gone away. I am glad to see that matters are moving along — it would be begrudging to say, belatedly. Much positive work has been done in the past two years to meet the kind of problems that were endemic in the system for a long time.

Chairman

As we have finished chapter 7.2, I ask Mr. Purcell to discuss chapter 7.3 on the Cork School of Music public private partnership project. Chapter 7.3 reads:

7.3 Cork School of Music Public Private Partnership Project

On 1 June 1999, the Government approved a pilot programme of Public Private Partnership (PPP) projects, including projects in the education sector. On foot of this decision the Department of Education and Science (the Department) sought and received the approval of the Department of Finance for the provision of five post primary schools and the extension of the Cork School of Music under PPP arrangements. The extension of Cork School of Music was estimated at that time to cost €12.7 million.

The Cork School of Music project was recommended by the Cork Institute of Technology

(CIT) following a report prepared by a Review Group established in 1999 to examine the existing and future needs of the School. The School at that time was operating from its main building and sixteen other premises in the city and the project was intended to remedy this. The original estimated cost of the CIT proposal was €13.33 million.

The Cork School of Music PPP project was launched in July 2000. The announcement in the Official Journal of the European Communities (OJEC) and the Outline Memorandum specifically referred to an extension/refurbishment project. Three proposals were short-listed. Each recommended the demolition of the existing 1954-constructed building and its replacement by a purpose built modern facility. Following further evaluation of the three short-listed bidders the Project Board appointed by the Department selected one as the preferred bidder.

The selection of the preferred bidder was approved by the Minister for Education and Science on 13 March 2001. Approval to proceed to preferred bidder stage was subsequently given by the Minister for Finance, this approval was conveyed to the Department of Education and science on 16 March 2001. The company was notified on 22 March 2001 that it had been chosen as the preferred bidder and the Department entered into negotiations with the company to bring about financial and commercial close based on the submitted bid costs. On 26 July 2001 the Department sought the approval of the Department of Finance to award the contract for the project to the company. The Department of Finance replied on 30 July with concerns and in particular asking that the Value for Money Comparator (VFMC) be recalculated. The anticipated cost, at this time, of the project to design, build, maintain and operate the School over a 25-year term was €200 million or a net present value of approximately €100 million (in unitary payment terms, 25 annual payments of €8.2 million over the project lifetime). A second VFMC was sent to the Department of Finance in April 2002 following a meeting between the Departments on 19 December 2001 to discuss the Department of Finance's preferred structure for the VFMC.

The Department of Finance, in a letter dated 25 July 2002, indicated that it could not recommend to the Minister for Finance that the project should be approved. The project has not been approved to date. In the event that the project does not proceed, a possible financial exposure for the Exchequer may arise in relation to costs incurred by the preferred bidder on the project.

In July 2001, in anticipation of construction commencing shortly thereafter, CIT, at the request and with the approval of the Department, vacated the main building and relocated to a former hotel nearby. A leasing agreement with the owner of the former hotel was concluded for an initial two year term at a quarterly rental of €200,000.

Additional upgrading costs totalling €80,000 approximately were incurred in relocating to the rented premises. The lease was renewed in July 2003 for a further two years at a quarterly rental of €202,000.

As I was concerned that a fully costed business case for the development may not have been conducted in advance of the launch of the project in July 2000, I sought the views of the Accounting Officer. I also sought his opinion on whether, in the light of the on-going impasse, there was adequate coordination between the different branches of his Department and the Department of Finance on this project.

In view of the central role exercised by the Department of Finance in authorising capital projects generally and its particular involvement in this project, I also sought the observations of its Accounting Officer on the issues raised.

The Response of the Accounting Officer — Department of Education and Science

In his response, the Accounting Officer pointed out that the Government has not finally determined the matter and that the best indications are that this will not happen until later in the autumn. The Government has requested that the matter should be re-submitted to it following engagement between the Ministers for Education and Science, Health and Finance in relation to the possible options. The Accounting Officer said that in the circumstances it is only possible at this point to speculate rather than be in any way definitive on the final outcome.

In response to my query on the co-ordination of this project the Accounting Officer informed me that the PPP Unit of his Department led the process. In doing so it ensured a co-ordinated and cohesive approach through regular contact with and involvement of relevant officials in other divisions, notably the Planning and Building Unit. Engagement with the Department of Finance in relation to the project was essentially through the PPP Unit. Contact was either with its Central PPP Unit or the Public Expenditure Division.

His Department considered the relationship with the Department of Finance, through its Central PPP policy unit, to be commensurate with what was viewed as a shared mission to advance the Government's policy in relation to PPP procurement and that the education projects were leading the way in that regard. In general, he believed that the work on the pilot education projects of the respective PPP Units proceeded on a partnership basis. This was reflected in the involvement of the Department of Finance on the project board since October 1999. He considered that the nature of contact and working relationships should be viewed in a context where both organisations were on a learning curve in relation to this approach to procurement. These were pilot projects intended to inform future policy through testing not just the method, but also the procedures employed and the relationship of existing approval procedures to the PPP process. The experience gained has informed the development of the Central PPP Unit Interim Guidelines on PPP recently published by the Department of Finance.

As regards his Department's engagement with the Department of Finance in relation to formal project approval, he believes that the records of contact demonstrate his Department's understanding of the requirements for formal Department of Finance approval and the distinction between formal approval by the Minister for Finance and that Department's role on the project board.

The Accounting Officer's view is that the decision of his Minister to sanction the company as the preferred bidder was for the project as proposed by it and at a capital cost that did not vary significantly subsequently. His Department had therefore, in good faith, moved to bring about financial and commercial close on the submitted bid costs.

It was open to the Department of Finance not to grant its approval at that time (March 2001) on the grounds of scope of project or likely final cost just as those issues were subsequently raised in July 2002. He was satisfied that his Department had fully co-operated through the balance of 2001 and into 2002 on dealing with specific queries raised by the Department of Finance including its request for a value for money comparator.

He pointed out that he was not disputing the entitlement of the Department of Finance to advance the argument first put in July 2002 in relation to affordability and crystallised ultimately as the basic concern in Minister for Finance's letter of 17 October 2002. A difference of view clearly existed between Ministers and Departments about affordability, and the matter was put to Cabinet. The Minister for Finance's articulation of the affordability issue put affordability in the context of the then present and prospective budgetary position. The Accounting Officer's view is that it is of course legitimate to argue that affordability must be related to circumstances. However, in any such argument it needs to be acknowledged that affordability can be a function of timing. In the case of this project it can be contended that earlier, more benign circumstances may have created a different perspective all round on what was affordable.

On the question of development of a business case he pointed out that the CIT sponsored review highlighted the accommodation deficit and was the genesis of the project. Critically it meant that the School of Music was a readily identifiable candidate project for inclusion in the pilot PPP initiative. Essentially there was a confluence of needs? The need to deal with the school's requirements and the need to widen the testing of the PPP model by including a suitable third level sector project and to move the pilot PPP programme along swiftly. The Department's validation of the business case thereafter was integral to the PPP process and occurred specifically in the context of determining the output specification that was developed in consultation with CIT and the Department's external advisers.

In regard to the scope of the project he indicated that both the OJEC Notice and the Outline Memorandum specifically referred to an extension/refurbishment project but critically that did not constrain the bidders to deliver an extension which by definition would be new build and refurbishment of existing build. This is because a PPP is not the same as traditional procurement where a set of inputs, building design and specification, is provided. In the case of PPP procurement, output requirements are provided requiring the bidders to decide how to deliver these in the most cost effective and efficient manner. In this case, the bidders separately and in competition with each other proposed a new build solution to meeting the outputs. A key factor influencing their decision was the condition of the existing premises.

The cost of refurbishing the existing building would be in excess of 60% of its replacement cost. In addition, the existing building would not "blend" with an extension making it difficult, if not impossible, for the future Operator to meet the service requirements. The Project Board accepted that the proposal to rebuild was the best solution going forward based on the output specification provided and the approval of the Ministers for Education and Science and Finance was obtained in relation to the preferred bidder and that bidder's proposals.

The Accounting Officer stated that the existing school was vacated before a definitive approval was given to proceed with the project because the existing premises of the Cork School of Music were and are clearly deficient and would inevitably have had to be evacuated by the school. Information brought into focus during assessment of the bids concerning the structure, roof condition and in particular the level of asbestos in the building re-enforced the desirability of vacating the building. Suitable accommodation in terms of size, location and adaptability for a school of music is hard to find. Therefore it was necessary to obtain and adapt premises in advance of the project commencing. It should be borne in mind that the project called for a tight schedule and therefore it was necessary to have the preliminary steps in place before construction was ready to commence. He pointed out that temporary accommodation was always going to have to be utilised even if the project had proceeded to the planned timelines.

When no decision regarding the future of the project had been taken by May 2002 the PPP Unit advised CIT to enter into negotiations to extend the existing rental agreement on the former hotel to ensure accommodation would continue to be available. A more suitable agreement with no additional increase in rental charges up to August 2005 was negotiated.

Observations of the Department of Finance

The Department of Finance confirmed that a final Government decision on the CSM project had not yet been taken pending further consideration of the issues involved.

Two sections of the Department have been mainly involved in this project to date: the Central Public Private Partnership (PPP) Unit, and the Education and Science Vote Section. Both are part of the Public Expenditure Division. The Central PPP Unit was represented on the project team for this project.

The Department of Finance pointed out that the primary responsibility for any capital project, including PPP projects, rests with the sponsoring Department. In this case his Department's role on the project team was one of learning and advising, as appropriate, having regard to the fact that professional advisers had been appointed, with particular terms of reference, to assist the Department of Education and Science on the project. For example, the appointment of the professional advisers to assist the Department on this project was made on the basis of a majority decision of the project team and the Department of Finance did not hold or exercise a veto. The Vote Section is the relevant sanctioning/approval section and was not represented on the project team. In general, he considered that it would not be appropriate or feasible for a Vote Section to get involved in the detailed examination of capital projects.

He indicated that while there was ongoing communication between the Central PPP Unit and the Vote Section on this project the early indicative cost of the project was not a cause of concern to his Department. However, as the project proceeded the cost did become a cause of major concern. In particular, in December 2000 when the Central PPP Unit became aware that the potential cost of the project was likely to be much more significant than envisaged earlier. They brought that information to the attention of the Vote Section.

The bids were at that time thought likely to be in the region of €30 million, but possibly up to €48 million. When the evaluation of the three bids in February 2001 indicated that the best bid had a comparable capital cost of €58.8 million concerns regarding cost were brought to the attention of his Minister. The view of Public Expenditure Division was that a review of the project was appropriate, rather than proceeding as proposed. Concerns centred on the scale, cost and specification of the project. The Minister shared the concern about the cost escalation of the project and asked that the reason for that happening be examined with a view to incorporating any lessons arising in draft PPP guidelines. In the event, and having regard to this being a pilot PPP project, approval to proceed to preferred bidder stage was given by the Minister. The Minister's approval was conveyed to the Department of Education and Science on 16 March 2001.

At that stage, a final contract had to be negotiated and a Value for Money Comparator (VFMC) completed. He pointed out that a decision on the contract could not be made until the VFMC had been completed to the satisfaction of his Department. VFMCs for both the Cork School of Music and other schools' project had been sent to his Department on 23 July 2001 along with a request from Department of Education and Science for their approval. His Department asked that the VFMCs be recalculated for both projects, as it was unhappy with certain aspects of them. The Department of Education and Science advised his Department on 21 August 2001 that the recalculation of the Cork School of Music VFMC would be provided as soon as possible but an appeal to An Bord Pleanála of the decision to grant planning permission for the project appears to have contributed to the delay in its completion. On 17 April 2002 a second VFMC for the Cork School of Music was submitted to the Department of Finance. This followed a meeting on 19 December 2001 during which the Department of Finance outlined its preferred structure for a VFMC.

The Department of Finance pointed to another development in the period between the move to the preferred bidder stage in March 2001 and its Department's letter of 25 July 2002 to the Department of Education and Science. Discussions with the Central Statistics Office (CSO) were leading to the conclusion that the full capital cost of the bundle of five schools PPP project would have to be counted in the General Government Balance (GGB) figures and treated as Gross Fixed Capital Formation of general government spread across the period of construction. Eurostat confirmed this conclusion in October 2002 in respect of the bundle of five schools PPP project.

The implication of this decision for the Cork School of Music project is that it will have to be treated similarly for GGB purposes. This means that instead of the cost being spread over the longer period of the contract (twenty five years), it had to be taken into account for GGB purposes over the period of construction (approximately two years). Adding to these difficulties was the fact that the overall budgetary and economic situation had changed, very significantly, since the preferred bidder was selected.

These considerations contributed to the reassessment of the project and resulted in his Department's letter of July 2002 and his Minister's letter to the Minister for Education and Science on 17 October 2002. Both letters point out that the overall resource position could not be ignored.

While PPP projects were, at all stages, subject to the 1994 Capital Appraisal Guidelines no specific detailed guidelines for managing them existed when the pilot projects started. One of the reasons for having the Department of Finance's Central PPP Unit represented on project teams was to enable the experience gained to be used in drawing up guidelines that would deal with the specific and very complex aspects of PPP projects. These included the setting up of an Affordability Cap and the drawing up of comprehensive Public Sector Benchmarks and Value for Money Comparisons at the appropriate stages in the process.

An Interdepartmental Working Group (IDG) on PPPs was established at the outset of the process to facilitate coordination, provide a forum to share views and information, to monitor progress on PPP projects generally and to help develop guidelines to assist the process. The Department of Education and Science as one of the sponsoring Departments critically involved in the actual delivery of PPP pilot projects at that time had an important role in the evolution of the guidelines and the lessons to be learned from the pilot projects.

The Department of Finance pointed to the "Interim Guidelines for the Provision of Infrastructure and Capital Investments through Public Private Partnerships: Procedures for the Assessment Approval, Audit and Procurement of Projects" issued by his Department on 7 July 2003.

These clarify the requirement to have a comprehensive Public Sector Benchmark, separate from the Value for Money Comparison, completed before tenders are invited.

The guidelines also provide advice on the appropriate stage for completing the Value for Money Comparison and set out the roles of the relevant participants in the procurement of PPP projects. Under the guidelines the sponsoring agency continues to have overall responsibility for the planning and management of PPP projects and is responsible for all aspects of the appraisal and assessment of projects and for following national and EU procurement procedures. Approval points, and audit procedures, are now an integral part of the procurement steps in PPP projects of this scale. For projects that are likely to exceed €20 million a Process Auditor must be appointed to certify that the procurement of the project complies with all regulatory and administrative procedures and that certificates of compliance are made available to the sanctioning authority on request. The relative roles of the Central PPP Unit and the Vote section are also spelled out in the Interim Guidelines.

As regards the adequacy of coordination, he believed that the level of contact and involvement between both Departments and between the Sections within his Department was good. One of the lessons learned relates to the importance of having as much clarity as possible as to the respective roles and responsibilities of the various players in a project such as this. The Interim Guidelines are very clear on that point.

Mr. Purcell

The background to the project to update the Cork School of Music dates back to 1999, when a review group recommended an extension to the premises to provide extra space. At the time the school was operating out of the main building and 16 other premises in the city.

Coupled with anticipated future demands, this represented a strong case for the extension. The estimated capital costs of the extension at the time came to circa €13 million. Around the same time the Government approved a pilot programme of public private partnerships, including projects in the education sector.

The Cork School of Music was put forward and approved as one of the projects to be undertaken in this way. The request for proposals to the market specifically referred to an extension and refurbishment project, but it soon became clear the only viable option for the bidders was the demolition of the existing building and its replacement by a purpose built facility.

This option came at a cost greatly in excess of what had been originally envisaged. The full life-time cost tendered by the preferred bidder to design, finance, build, maintain and operate the school came to just over €200 million. That represents 25 annual payments of €8.2 million or about €100 million in net present value terms. To disaggregate that figure, the capital cost of the proposed building was around €63 million. Notwithstanding the escalation in cost, the Department of Education and Science, with approval from the Department of Finance, selected a preferred bidder and moved towards concluding a contract with the firm.

It was at that stage in July 2001 that the Department of Finance called a halt to the process and demanded that a revised value for money analysis be carried out. The revised computations were submitted to the Department of Finance in April 2002 but by that stage the issue of affordability was to the fore. Some months later, EUROSTAT confirmed that the full capital costs would be counted towards the general Government balance in public private projects of this sort. This resulted in the project being put on hold until seven weeks ago, when the Government authorised the Department to enter into negotiations with the preferred bidder with a view to reaching financial closure on the project. This was to be based on a revision of the 2001 bid proposal. The final terms of any agreement must be submitted to the Government for approval. The Government also authorised the extension of the Department's contract with its specialist advisers.

A side effect of anticipating the deal going ahead as originally scheduled, was that the main school building was vacated in July 2001. A former hotel was rented to accommodate the displaced activities at a cost of €800,000 per annum. Around €2.5 million has been expended since July 2001 on rented premises, when upgrading and other costs are taken into account. I had some concerns about the way the project has been managed. I appreciate that it was a pilot project and that lessons would be learned that would inform the approach to later public private partnership projects. However, they have been expensive lessons, especially the failure to critically examine affordability and the value for money aspect of the proposed deal until after the preferred bidder had been selected. This left the State open to claims for compensation if a decision was made not to go ahead with the project. Despite what the Accounting Officer states in the report, the way things panned out suggest that the synergy of the joint approach by the two Departments, and the synergy within the Department of Finance itself, left something to be desired.

Bearing in mind that affordability became the dominant factor in considering the case for the new building, it might have been worthwhile to run some kind of a shadow competition with an expenditure cap in parallel with the main public private partnership competition. The original projection by the Department of Finance of around €30 million might have been put to the market to find out what could be done with such an amount. As this was a pilot project, I imagine that such an idea might have been acceptable.

Mr. Dennehy

Before dealing with developments regarding this project that have occurred subsequent to the audit report I want to set out the Department's overall perspective on the project.

At first sight the cost of this project seems very substantial, particularly if it is judged against the initial cost estimate referred to in the report. I am concerned that the difference could give an impression that there was a huge cost overrun. However the project is a radically different one than that initially considered in the Hardiman report which was for a limited extension to the existing building.

The project as it now stands deals in a comprehensive manner with the current and prospective needs of the school of music consistent with its role and mission in both the educational and cultural life of Cork. The project subsumes three distinct accommodation problems that existed for the Cork School of Music into one highly modern and high quality solution. First, it deals with the accommodation deficit that existed on the original site. Second, it replaces the substandard building that existed and, critically, it eliminates the huge amount of rented accommodation held by the school of music.

The Government announced on 25 March 2004 that the Department of Education and Science had been given the go ahead to enter into negotiations with a view to reaching closure on the building of the new Cork School of Music on a public private partnership basis. As the committee is aware, the decision to proceed with the Cork School of Music project was delayed on two main grounds; the possible effect of the project on the general Government balance and on grounds of affordability. By late autumn 2003, it became clear that EUROSTAT was to make an announcement on the treatment of public private partnerships in Government accounts and that the ruling was likely to be positive. As expected, the ruling issued on 11 February 2004 was positive and has removed the uncertainty surrounding the treatment of public private partnerships.

On 15 December 2003, the Taoiseach, together with the Minister for Education and Science, met the managing director of Jarvis projects Limited. The question of affordability of the Cork School of Music project was discussed. Jarvis undertook to look at the project costings and to see if savings could be achieved. It was agreed that the re-examination of the project should have taken the following into account: the unitary payment not exceeding the 2001 unitary payment of €8.205 million; any changes proposed not impacting on the existing planning permission; any changes not being of such significance that a new EU-wide procurement process would be necessary; any changes not impacting significantly on the operational phase of the public private partnership project over the 25 year contract.

Following the review process by Jarvis, in consultation with senior management of Cork Institute of Technology and the Cork School of Music, the company is satisfied that the necessary change to the building required to reduce costs can be achieved without the requirement to seek further planning permission. It reports further that this will not affect the operational phase of the contract. On this basis, the Government decided, on 23 March 2004, to authorise the Department to enter into negotiations with Jarvis with a view to reaching commercial and financial closure on the project. This process has commenced and is ongoing. As the Comptroller and Auditor General already stated, the Department will have to come back to the Government with proposals before finalising the project.

Chairman

In June 1999 the project was estimated to cost €12.7 million but the Department of Finance estimated in December 2000 that it would cost between €30 million to €48 million. In February 2001, the lowest bid was €58.8 million. There was a long-term lease which the Comptroller and Auditor General has identified as costing the State €2.5 million. Dr. Somers of the National Treasury Management Agency was before the committee last week and indicated the agency had a considerable fund, of up to €200 million, for PPPs. There was no application to that fund. Are we not paying a huge price given the contract was signed for €60 million, which would be €100 million at current values? When one considers that Jarvis got a return of €205 million for an investment of just €60 million, would Mr. Dennehy not agree that this is a very expensive way of progressing?

Mr. Dennehy

Not necessarily, because the two projects are very different. The premises when built would require to be equipped, maintained and operated in terms of cleaning, security and estate management, and would need pianos and other musical instruments installed and replaced over the 25 year period. All such matters would be covered in a PPP contract, and the company concerned would take on all the risks. If, for example, during the 25 years, there was a major building difficulty such as a roof collapse, that difficulty would have to be rectified and the students would have to be housed elsewhere, all at the expense of Jarvis rather than the State.

To return to the Chairman's first point about the project being originally costed at approximately €13 million, an extension of 5,400 square metres to the current building was all that was included in the original estimate. It did not, for example, include the refurbishment of the current building or the move of staff and students from 16 other locations around the city into one site. The PPP project as currently envisaged will cater for an extension, the elimination of the substandard accommodation students and staff have had to use and will mean that the other 16 locations will no longer be needed.

The move by students and staff from the previous premises to Moore's Hotel and Connolly Hall, the two temporary accommodation locations, would have happened in any case, regardless of whether we were going down this road. When an investigation was carried out into the quality of the building previously occupied, it became clear that it was in a dangerous condition and contained an extraordinarily high level of asbestos.

To find alternative accommodation for a school of music is very difficult. For a considerable period, the Department and the Cork Institute of Technology sought accommodation which would suit the activities of a school of music. At that time, the only reasonably suitable premises they found was the temporary premises the school now occupies.

Chairman

Public private partnerships are quite new here and there is uncertainty as to how they might work. Did the Department look outside the box and consider the position in the UK where Jarvis has developed many schools? There were concerns in the Department of Finance throughout this development as to the contractual arrangement signed with Jarvis. Mr. Dennehy referred to pianos and the other ancillary services to be provided. How reassured can we be that the contract is watertight? Has the Department had due diligence on the contract from a legal expert?

Mr. Dennehy

Absolutely, but we will not have a final contract with Jarvis until we have closed on this particular project, a matter on which we are working at present. We will have to return to Government with this. Legal experts are working on it and I will ask Mr. Gordon, the head of our PPP unit, to support that point. We will also have the advice of the Attorney General and, obviously, the National Development Finance Agency will have a role in regard to the financial aspects of this project. However, it might be helpful to the committee if Mr. Gordon elaborated on some of the issues.

Chairman

I am interested in hearing about the legal contract.

Mr. Dennehy

Mr. Gordon deals directly with this area daily.

Mr. David Gordon

Our legal advisers, A& L Goodbody, had a team of legal experts working on this which had previously carried out quite an amount of PPP work in the UK, Northern Ireland and other parts of the world. The contract is watertight and covers all aspects of the operation of the project over the 25 years. It specifies the work that must be done by the contractor and the obligations of the Department etc.

Chairman

The Department of Finance had concerns for a considerable period of time and would not sign off on this contract. Is it now reassured?

Mr. Jim O’Brien

There have been different stages to this project and decisions must be made at the different stages. The Department had concerns about the cost and specification scope of the project. We were feeding one viewpoint into the analysis before decisions were made at various points. July 2002 was one of the critical periods when the Department had concerns as to the affordability and the prioritisation of the project, in particular. When that happens, the information and analyses from the Departments of Education and Science and Finance would have to go to ministerial level and, ultimately, to Government. I am not in a position to comment on the merits of policy as decided by Government. There was a Government decision to proceed with the project, subject to the negotiations being finalised in regard to contract terms.

The project began as a refurbishment project with an estimated cost of €12.7 million. However, when the full lifetime costs of the project were considered, apart from the capital construction costs, the advice from the market was that the only solution to the problem was to have a new construction. At that point, particular cost information was available, based on the best bid to emerge from the competition. The job of the Department of Finance was to consider this and to ascertain, with the benefit of the information available, whether there were concerns in regard to the scope of the project, for example, in regard to the number of full-time students to be accommodated. We are not education experts and do not have the expertise to make a judgment on such matters. However, we had concerns regarding part of the specification in the context of the proposed accommodation of 400 full-time pupils.

A music college is a very specialised building which needs careful construction in regard to acoustics, size of rooms etc. Our analysis brought out questions as to whether these were appropriate. Ultimately, what one is talking about is a decision made having regard to the advice from the Department of Education and Science, which is the expert on educational matters, the advice from the advisers that Department would have engaged and waiting for a decision at ministerial and political level. We were not confident enough as officials to recommend the project for approval. There are different stages and different decision points.

Deputy Noonan

Perhaps I can continue to question Mr. O'Brien about the Department of Finance. He has covered a good deal of the ground in which I was interested but will he summarise why the Department of Finance held up the project for five years? What has changed that he has felt free to proceed with it since 25 March?

Mr. O’Brien

I would not accept that the Department of Finance held up the project for five years. If one looks at the sequence of events starting with the need for something to happen in the Cork School of Music, there was a need to do something. That brings us back to a report carried out by Mr. Hardiman. There was also the initiative to develop the public private partnership process. We would have been encouraging Departments to contribute projects to help us learn as we moved forward with the development of the process.

This brings us into 1999 when it was agreed the Cork School of Music could be a potential project. Subsequent to that, obviously work would have been required to develop the output specification for that project which would have taken it into 2000. A competition would have been held, to which responses would have been received in February 2001. We quickly came to the point where we had to assess and give advice to our Minister in respect of that project because a decision had to be made whether to proceed at a point of preferred bidder. Having cleared it with the Minister, the decision was conveyed to the Department of Education and Science to proceed. The next step was to carry out a detailed value for money comparison.

One of the lessons we have learned from this pilot project, and the Comptroller and Auditor General has alluded to this, is that if in future we were doing a project of this nature, we would have all that work done in advance. The Department would estimate what it would cost to do the project traditionally. We call that the public sector benchmark. The bids would be submitted and we would choose the best of those, assuming they are valid. That would be compared against the public sector benchmark and then a decision would be made on appointing the preferred bidder. The appointment of the preferred bidder does not mean one has to sign a contract. It is just moving it to the next stage. It is important to remember that either side can walk away from the project at that point before contracts are signed.

What happened after March and the development of the work on the comparator — as part of our learning process this is a complicated technical exercise which is very detailed in terms of financial modelling and, in future, the expertise of the National Development Finance Agency will be of great assistance — was that as a Department we had various questions in regard to what was contained in the value for money comparator while, at the same time, there was a planning appeal. The emphasis would have been to make progress on the bundle of five schools which were travelling in parallel, and the planning appeal was not concluded until towards the end of that year. That had nothing to do with the Department of Finance. The engagement between the two Departments continued and the value for money comparator was completed in April 2002. The work on assessing all the information available at that time had to be completed within the Department.

In July 2002, having considered this carefully at various levels in the Department, it was felt we were not in a position at official level to recommend the project for approval. That meant the matter moved to ministerial level, as it rightly should, because there were factors to be considered in terms of the public private partnership process generally, and broader issues other than looking at the project in isolation. From that point onwards, one was into matters of policy in terms of whether a project of this nature should proceed. Critically, around July, the issue of affordability was becoming a big issue because information was becoming available on the budgetary and economic front.

Deputy Noonan

When?

Mr. O’Brien

In July 2002. Information was becoming available which showed that the budgetary position was not as we would have liked it. The prioritisation and affordability issues started to move up the agenda more so than before. Obviously, there are policy decisions to be made when one is considering the allocation of resources in that context. Ministers had decisions to make and the Government had decisions to make. That culminated in the recent decision by the Government to proceed, and it benefited from clarity on how this project will be treated for GGB purposes having had clarity in February of the EUROSTAT rules. I hope that helps explain it was not the Department of Finance that decided or tried to delay a project such as this. A process was taking place and various decisions had to be made. The Department of Finance was just one player feeding into that process.

Deputy Noonan

Mr. O'Brien said he had no expertise on colleges of music, matters of acoustics or the requirements and the specifications necessary for an adequate college of music. Was that expertise bought in?

Mr. Gordon

From the Department which was dealing with it.

Mr. O’Brien

From the Department of Finance point of view, we would rely very much on the experts in this area who would be the Department of Education and Science and its advisers.

Deputy Noonan

That is the reason I asked the question, because I would have thought the expertise was available to the Department from the Department of Education and Science and yet it identified it as one of the reasons for delay.

Mr. Gordon

Even for my Department, a school of music is not something we do on a regular basis. This is the first specialist school of music to be built. We recognised during the procurement process that, on the issue of acoustics, for example, we did not have the expertise and we needed to assess the bids that came in that dealt with the acoustic question. Obviously, for a school of music, acoustics is an important issue. It is a box type of thing and extends the size of the building. We contacted Niall Jordan who is an acoustics expertto support us and to review the bids.

Deputy Noonan

When was that done?

Mr. Gordon

During the bidding process.

Deputy Noonan

What was the date?

Mr. Gordon

As the bids were due in February 2001, it would have been during the period from February 2001 to March 2001.

Deputy Noonan

Given that this is May 2004, that would not explain the last three years.

Mr. Gordon

No, but I would have to agree with my colleague. The matter of the GGB was a huge issue in the sense of how these projects should be dealt with. PPPs were new to Ireland. We are the first Department that has done a project and finished it in the five schools. The difference between the two projects is that we have plenty of experience of building schools and we could evaluate and compare. We had no experience of building a school of music. It was a completely different project. The GGB and the affordability issues were huge and had to be dealt with. EUROSTAT produced its ruling only this year.

Deputy Noonan

In 2003?

Mr. Gordon

Yes.

Deputy Noonan

I understand that. Mr. O'Brien raised the issue of the number of full-time students as against the cost of the project. I gather from that he thinks the per capita cost per student is probably excessive. Does he have comparative figures on the per capita cost per student in other third level institutions?

Mr. O’Brien

I do not have those figures with me but I am sure they are available. The main point I was making in that connection is that the original Cork School of Music had approximately just over 60 full-time students. There was a proposal which would accommodate 400 full-time students in addition to part-time students. Our role in the Department of Finance is to ask questions as to whether that proposal is justified.

Also, the Deputy is right in terms of the capital cost or the net present value of the full cost of this project. If one divides that figure by the number of full-time students, it is considerably higher than the cost of a project that would not incur those large costs. I can get information on this for the Deputy or perhaps my colleagues in the Department of Education and Science can assist me on this. In the case of a specialised college where a good deal of money needs to spent on acoustics and fitting it out, that will drive up the average cost per student in any event. All we were doing was highlighting the fact that there is an issue which is worth looking at here rather than just simply ignoring it. We would have had concerns.

Deputy Noonan

Is it a fact that the Department of Finance was still opposed to the project, as outlined, right up to 23 March and, in effect, was brought on side by a Cabinet decision rather than by any change of opinion within the Department?

Mr. O’Brien

We are moving more towards a policy decision where other factors have to bear on the decision. From the Department's perspective, the public expenditure division of the Department would have to give its advice, and our advice is that in March 2001, assuming it is March 2001 to which the Deputy is referring——

Deputy Noonan

No, I am talking about March 2004 when the decision was taken to re-enter negotiations with Jarvis and proceed with the project, which was only six weeks ago.

Mr. O’Brien

The Department would have made its views known in the submission to Government, but our views would be only one factor that would have to be taken into account. We would raise the issue of affordability, prioritisation and also issues in regard to the specification. We would point out all these issues, but the decision to proceed is not ours.

Deputy Noonan

I understand that and I know Mr. O'Brien cannot tell me what the Department of Finance's submission was on the memorandum to Government. I put it to him that the Department had not been able to agree with the Department of Education and Science on a bilateral basis and it needed a policy decision to move the project forward.

Mr. O’Brien

It needed a policy decision because there were factors other than the narrow ones we would look at in terms of the cost and specification of an individual project. Obviously, when there are other factors to be considered, our input into a decision is only one input. We recognise that. We are not always in a position where we can approve projects. Large projects in respect of which major decisions have to be made have to be referred to either ministerial level or Government level.

Deputy Noonan

I understand, but there was an original decision to proceed with the Cork School of Music project by way of a public private partnership. That was a policy decision. In normal circumstances, if the Department was able to agree with the Department of Education and Science on a bilateral basis, the matter would not necessarily have gone back to Government, but because it did, it shows there was disagreement on it between the two Departments.

Mr. O’Brien

No. Even when we are in agreement with Departments on projects and even when there is agreement at official level, a major project or one that requires a policy decision would often still have to be referred to ministerial level and, perhaps, to Government level. That happens. It is not always the case that projects would have to be referred to Government simply because there is a disagreement.

Deputy Noonan

I understand. When does Mr. O'Brien expect that the negotiations with Jarvis will be completed?

Mr. O’Brien

The Department of Finance is not involved in the negotiations. That is a matter for the Department of Education and Science.

Deputy Noonan

So, the Department is out of it.

Mr. O’Brien

Obviously we will keep an eye on this and it will come back to Government for a final decision when the conclusions of those negotiations are available. However, in respect of any project, we would not normally be engaged in the detailed negotiations on contracts.

Deputy Noonan

Presumably Mr. Gordon will reply to the other questions I have. Mr. Dennehy's statement indicates that the scope for the negotiation is quite circumscribed. The Department does not want to apply for further planning permission. Those of us who have come up through local authorities are familiar with planning permission requirements. That would indicate that there will be marginal structural changes in the project.

Mr. Gordon

The changes proposed are internal.

Deputy Noonan

They are internal as in a change of use.

Mr. Gordon

On the top floor of the original proposal there was provision for plant and machinery. That is now to be dropped down to a floor below and there are consequential changes to the number of rooms down through the building to reduce the cost of it. There are some changes to the original equipment list. All the changes are internal. There are no external changes.

Deputy Noonan

The Department will also want to avoid going back on a new EU-wide procurement process.

Mr. Gordon

Absolutely.

Deputy Noonan

Again, that suggests there will be marginal changes.

Mr. Gordon

The road we went down was the negotiated process in the first place, which allows us to do that. There is no difficulty there. We have sought a legal opinion on that just to make sure that is the case.

Deputy Noonan

The agreement was to finance, design, construct, maintain and operate the school.

Mr. Gordon

Over a 25 year period.

Deputy Noonan

For 25 years. The Department will pay €8.205 million for that on an annual straight line basis.

Mr. Gordon

That is right.

Deputy Noonan

Are any reviews of payment built into the contract?

Mr. Gordon

There are some inflationary provisions built in, particularly for the service elements because one could not expect the cost of services such as cleaning and catering to remain static for the 25 year period. The contract allows for all that, which is standard.

Deputy Noonan

The €8.2 million figure would not be a final one.

Mr. Gordon

Basically, it would be, except for inflationary changes. The figure could fall because we could get cheaper finance aid through the EIB, in respect of which we also have an option built in. It is also unusual — even though it is the first PPP that has been done — in that we have brought in a provision in the school's project where we could buy out the debt if the State at any stage should decide to do that.

Deputy Noonan

I understand that. What I am trying to get at is whether the figure given by the Comptroller and Auditor General the final one.

Mr. Gordon

Basically, it is.

Deputy Noonan

The gross figure is something in excess of €200 million.

Mr. Gordon

That is the €8 million figure over the 25 year period.

Deputy Noonan

The inflator will not change that substantially.

Mr. Gordon

Not substantially, no.

Deputy Noonan

Obviously, the bulk of the money has gone into construction and design. In respect of the commitment to operate the school, obviously that does not cover paying the music teachers.

Mr. Gordon

No, the academic side of it is completely independent. The agreement covers purely the operation, design and running of the building.

Deputy Noonan

What is involved in the operation of it? What will the contractor concerned pay to operate the building?

Mr. Gordon

Obviously, it will cover the routine maintenance of the building for the 25 years. The operation of the building includes the cleaning, security and upkeep of the building — all of those services that have to be provided in respect of any major building. There are service levels that the contractor concerned has to reach, and if it does not reach them, it can be penalised as part of the unitary payment. That is the incentive to make it reach the various service levels.

Deputy Noonan

What about the administration and clerical back-up? Which side of the line does that fall on?

Mr. Gordon

That is provided by the Cork Institute of Technology There is no change in that.

Deputy Noonan

Of the €8 million approximately, how much is the Department allocating per annum for the operational costs?

Mr. Gordon

I do not have that figure, but I could get it for the Deputy.

Deputy Noonan

Does Mr. Gordon not have a break down of the €8 million figure?

Mr. Gordon

I have a breakdown of it which I can supply to the Deputy, but I do not have it with me.

Deputy Noonan

How much of the €8 million figure is allocation to maintenance costs?

Mr. Gordon

Rather than give a figure that is incorrect, I admit I cannot give the precise allocation. There is a figure built into the overall unitary payment for each of the different elements.

Deputy Noonan

It is not possible for somebody like me to form a view of whether the figure represents value for money without a breakdown of it. Does Mr. Gordon understand that?

Mr. Gordon

I understand that. One of the difficulties with assessing the value for money of a contract over a 25 year period, is that there are performance-related payment mechanisms built in, a matter that must also be considered in a value for money assessment. In regard to accepting the €8 million figure as representing value for money, as the Secretary General said, if major difficulties arose and the building could not operate because of structural or other difficulties, it is the covering of that type of risk for which we are paying.

Deputy Noonan

I know that, but Mr. Gordon's colleague in the Department of Finance said that one would need a complex financial projection. I agree with that and it applies to all PPPs. I am not an expert, but it is possible to form a view on whether a project represents value for money. If one strips out the annual cost of operation and maintenance, one is down to the cost of design and construction and one can come to a view of what interest rate would service a loan of €60 million. Then one can check how much above the going rate the contractor is getting. Without the figures for which I have asked Mr. Gordon, I cannot form a view on that.

Mr. Gordon

I can get a breakdown of those for the Deputy. The construction rate is around the €60 million mark. The net present value figure of the project is €100 million. Those figures show the difference in terms of the contract for a 25 year period in terms of the services and all the other work that has to be done. At the end of the 25 year period, Jarvis cannot walk away from this project without ensuring we will get back a well-maintained 25 year old building. Built into the service schedule is periodic upgrading of electrical equipment and other such maintenance.

Deputy Noonan

I understand all that, it is quite complex and I agree with it. Can Mr. Gordon give us any steer on what Jarvis's return is on the €60 million it is putting in up front? If he could give me that figure, I could relate it to an interest rate. Will it get a return of 7% or 4%?

Mr. Gordon

The internal rate of return in the Jarvis model is around 11.5%.

Deputy Noonan

A return of 11.5%?

Mr. Gordon

Yes.

Deputy Noonan

That is before we go down the road of the maintenance and operation of the building?

Mr. Gordon

No, that includes everything. That is its rate of return. That is what it expects it to be. That return figure is also dependent on Jarvis performing under the contract. That is the incentive for it to ensure that it performs its role in servicing and maintaining the building.

Deputy Noonan

The figure appears to be high. I am aware of commercial projects in respect of which people are borrowing money at the rate of 2.5%, certainly less than 3% and sometimes as low as 2% for very large projects.

Mr. Gordon

Is that rate to cover only the building of a project but not its maintenance and operation?

Deputy Noonan

No, this comes back to my first question. How much of the 11.5% return figure is for maintaining and running the building? I will not pursue this because I cannot take it any further. There are Deputies from Cork present who have a strong interest in this matter.

Deputy Dennehy

Deputy Fleming asked me if I would substitute for him in regard to this issue and I will be a little parochial about it. Will Mr. Dennehy clarify the current state of play in regard to the school? We have been given the cost of the project. When can we expect it to be completed? Cork will be the capital of culture in 2005, but will any of the pianos in the school be played before the end of 2005?

Mr. Dennehy

If the Deputy asked me to guess the answer to that, I guess it would be probably "no". There will be no delay from our point of view. As soon as the discussions with Jarvis are concluded, we hope to return to Government as quickly as possible on this issue.

Mr. Gordon

There is a two year building programme for the project.

Deputy Dennehy

That is disappointing. I wish to ask the officials from the Department of Finance a brief question. I remember the Minister, Deputy McCreevy having a major row with EUROSTAT about three years ago. He was castigated for that. As Mr. O'Brien said, since March we have had clarity on the EUROSTAT rules. Was the Minister, Deputy McCreevy, arguing about the same topic three years ago or seeking a change in the rules?

Mr. O’Brien

That has been an ongoing debate about how public private partnership projects will be treated in respect of the general government accounts. The bundle of five schools was the first type of project involving unitary payments by the Exchequer going forward. That project was looked at by the Central Statistics Office in terms of the rules that existed at that time and was adjudicated on by EUROSTAT. That would have been a few years ago and the ruling from EUROSTAT was that we would have to take account of the effect of such a project on our general government balance up front over the period of construction. There were different views as to whether that was a ruling that would encourage PPPs or was it the right way to deal with such projects, but they were the rules at the time and they were clear.

The debate led to greater consideration of how PPP projects work and there was more evidence in terms of information available from PPP projects which would have been helpful to EUROSTAT. Early this year, I think, in February, EUROSTAT reviewed the rules and the key to its change of view was the allocation of risk. There was always clarity where a project was remunerated by user charges rather than by Exchequer payments. They were always projects that did not affect the general government balance.

In respect of projects to be funded by the Exchequer through unitary payments, the ruling in February this year clarified the position regarding where there are risks in regard to availability and demand for a project. I refer to where one would consider a project in terms of whether classrooms will be available at a certain day and whether one would pass the risk associated with that to the private sector or the public sector. The structure is that if classrooms are not provided within the time frame set, the contractor does not get paid for that period in terms of the maintenance contract. One passes the risk to the contractor to make sure the schools continue to meet certain levels. The clarity in that regard from EUROSTAT was that those type of projects would affect the GGB over the life time of the project rather than affect it up front over the period of construction. Having such clarity is helpful in terms of PPPs. It does not change the issue in regard to the prioritisation of a project relative to other projects or in regard to value for money or any of those issues. They still have to be dealt with, but that decision brings more clarity as to how they will be treated in accounting terms for general government purposes. That was the significance of the decision in February. It was only one factor in helping to clarify how this project would be treated going forward.

Deputy Dennehy

If the existing rule, whereby the funding for all projects had to be put on the books up front, had continued to apply, it would have, effectively, killed off half the national development programme. That would have meant we would have been limited in what could have been spent and what projects could be started.

Mr. O’Brien

The ruling affects a country where it has general government balances that are in difficulty. However, our economic situation in terms of the measure of general government balance is quite good. What influences whether projects funded by the Exchequer proceed is a decision on what is an approximate amount of the resources available to the Government to spend in a particular year. This is from where comes a figure of 5% of GNP, as an appropriate figure, for investment by the Exchequer in any particular year. That is a decision which is subject to review at budget time. It is a rolling figure. The capital envelopes and the capital investment framework referred to earlier derives from that. The 5% figure is about twice the European average and, in an Irish context, would allow a considerable amount of investment to take place. If we were right up at the border of what is acceptable in European terms, it could be significant as to whether something is on or off the balance sheet.

Deputy Dennehy

I favour the concept of PPPs as one of the options available to us. We have had the two extremes of total State ownership run companies or private sector service companies, but a PPP is an in between option. There are certain requirements that need to be laid out, one of which is that the public need to know how we intend to protect our interests, what value projects will yield and other such matters. Is there a figure for the previous rental that was paid for the 16 premises used in place of the school building?

Mr. Dennehy

I do not have that figure.

Deputy Dennehy

Would it have been fairly substantial?

Mr. Dennehy

Those 16 buildings are still being used. As I understand it, the current temporary location, Moore's Hotel with Connolly Hall, is only accommodating people from the existing school of music that has been evacuated.

Deputy Dennehy

We still effectively have outside buildings?

Mr. Dennehy

They are still there but they will not be there when the new building comes.

Deputy Dennehy

That is what I am saying. The last matter we referred to concerned the temporary courts in Cork. We certainly seem to have done a far better deal with Moore's Hotel than what was done with the temporary courts, but that is an aside. If we are going to save the cost of renting 16 premises ad infinitum, there should be a figure that can be presented to the public.

Mr. Dennehy

We can get that figure for the Deputy, no problem.

Deputy Dennehy

It would be good to get that. The public is confused about this project. The sum of €12.5 million was mentioned for the original project.

Mr. Dennehy

To put it in context, third level accommodation does not come cheaply, and that is regardless of whether it is a school of music, which is probably at the ultimate extreme because of acoustics. We are examining other projects so I will give indicative figures, for example. They are not accurate figures. The new information technology wing at UCC will ultimately cost in the region of €60 million. The sum of money being talked about for the new engineering block in NUI Galway is about €53 million. The maritime college, which is being built as a public private partnership at the moment, will cost approximately €52 million. Therefore, high quality, up-to-date, third level accommodation does not come cheaply.

Deputy Dennehy

I accept that but I was talking about the public perception where initial figures are published and then escalate. I am glad that Mr. Dennehy included Galway in the equation. Otherwise people might think that every development was taking place in Cork. There is public disquiet because, up to now, the only experience they have had in this field is the question of tolls. People read in the newspapers about the annual return on tolls, which seems like daylight robbery. It must be explained to the public what we are getting for this. I welcome the report of the Comptroller and Auditor General as well as Mr. Dennehy's speaking note on that matter. If we had not taken the PPP route, would we have ended up with a slap-dash, refurbished, newly kitted out effort, or was that out of the equation?

Mr. Dennehy

If we had gone ahead with the original proposal, we would have ended up with a bit of an extension added on to a totally inadequate building at the moment, with 16 temporary locations still around the city. However it is built at the end of the day — whether it is by PPP or a conventional type of build — the advice we received from every source was that the only real solution for building a quality school of music for Cork was a totally new build that would deal with three issues: the inadequate building in which it was located, the need for an extension, and the need to pull back the staff and students from the 16 other locations.

Deputy Dennehy

Is there an evaluation being undertaken of the school at Charleville — Ballincollig and the other four?

Mr. Dennehy

There is.

Deputy Dennehy

Have we the expertise to make such an evaluation? Mr. Gordon was very upfront and fair about this. I would have doubts about whether we have the necessary in-house expertise at any level of any Department to indulge in PPPs currently, or to look 25 years ahead. It is because of our system and the fact that the public sector will avoid risk at all costs, within reason, whereas the private sector must gamble at times. Have we the necessary expertise? I have been told that the contract writing for any project is the most crucial element.

Mr. Dennehy

I can help the Deputy with one dimension of it. The crucial role the National Development Finance Agency will play in this issue in future is absolutely vital. That is why the NDFA was established.

Deputy Dennehy

I presume that every Department will have to submit every project to the NDFA.

Mr. Gordon

Every project over €20 million must go to the NDFA.

Deputy Dennehy

We have bandied around the terms "risk evaluation" and "expertise", to which we keep referring.

Mr. Gordon

Yes.

Deputy Dennehy

I do not believe we have the expertise. We would have been wasting some of that talent if we had people in.

Mr. Gordon

These were pilot projects for people to develop their expertise.

Deputy Dennehy

I accept that.

Mr. Gordon

The maritime college would have been done completely differently. The experience from the schools and the school of music flowed well into the national maritime college. All the things that my colleague from the Department of Finance, Mr. O'Brien, spoke about, including public benchmarking and the business case, were undertaken prior to taking that route. Where one had a figure of around €30 million originally, without being costed properly for a PPP, when we did this for the maritime college, it showed the true figure to be around €53 million, and the bid came in at just below that figure. We have developed the expertise.

Mr. O’Brien

In terms of expertise, clearly, a public private partnership is complex but, by its nature, it is a partnership between the public and private sectors. We are trying to learn from the experiences and we have learned lessons. We will continue to learn, I suspect, as in other countries, because we are still at an early stage in Ireland. One of the lessons to which my colleague referred, was in financial risk evaluation. It was decided that the establishment of a specialised agency, the National Development Finance Agency, was essential. Under the legislation that was passed establishing the NDFA, it is a requirement of every Department and agency that with projects costing over €20 million that they must take advise and use the NDFA. For projects under €20 million and not just PPPs, they can also ask for the NDFA's advice.

The Department of Finance's central PPP unit has a role in developing guidance to assist Departments, for example, as regards the development of a public sector benchmark and the value for money comparator. Typically, in a public private partnership project, a consortium will be involved on the private sector side assisting them to put their bid together and, particularly when there is private finance involved, to make sure they have thought of everything that could possibly happen. On the public side, the requirement is that they have to develop what it would cost conventionally, while examining the life-time costs and the risks so one can make a valid comparison. That expertise is there to assist Departments, for example, on quantity surveying or architectural issues. We are evolving that process and, while we continue to learn, we are trying to make progress by building up the expertise.

Deputy Dennehy

I am aware that our Chairman is most anxious for the committee to participate rather than, in an historical context, look back in four or five years' time to see whether or not there was an overrun. We should play a part in the process because there have been good and bad experiences worldwide with PPPs. Five or six major countries have had mixed experiences of the PPP system. The traditional reason for having such projects was to defer payment. It was a simplistic approach but they are much more complicated now. It would probably be against all Mr. O'Brien's training and natural inclination to get involved in risk areas. That is why we need discussions.

Deputy Boyle

That is of concern, as cautious as the Department of Finance is.

Deputy Dennehy

It would not be part of his nature to gamble. Even the Comptroller and Auditor General would not want anything that was not copperfastened and nailed down. It is part of the role of the Department of Finance. We are entering a new era so we need to share the risks involved. Deputy Noonan asked about the turnover for Jarvis. We need to ensure that those involved will get a just reward, but also that they are not ripping us off. We must get that balance right. It comes back to risk evaluation but, as of now, we do not have the expertise. Our natural training runs counter to that, so we need to work on it. I hope that, even though it has been delayed, the school of music will be a successful pilot project and that people in Cork can be proud of it. It must be frustrating for the people involved. There is a great deal of technical information on which I will not comment now but we would hope to produce a paper under the Chairman's guidance which will deal with matters from our side. We are concerned about value for money and performance but we cannot deal with matters of policy. However, we have a great deal to offer.

I again welcome the fact that matters are proceeding. There is still a great deal of confusion among members of the public. I hope that the report of today's proceedings will help clear that up and point to where we are going.

Chairman

I thank Deputy Dennehy for raising an important point. Lessons have been learned at this early stage from this public private partnership pilot scheme. The Deputy clearly expressed a view with which I would strongly agree, namely, that there must be a clear evaluation of the level of risk taken on by the private partner. It is important that information on what is learned from this project should be circulated to every other Department. Our guests may not have those commentaries with them today but I certainly expect them to provide their observations about what went wrong. I am certain that the recommendation should be sent to the NDFA, even though it is only considering projects worth more than €20 million, because it could also learn from this. We do not want to have to return to this matter in a year's time and have people say that things would have been different if only they had been aware of particular information. Perhaps Mr. O'Brien will send a commentary to the committee regarding the learning curve in respect of this matter. As Deputy Dennehy said, that would be important.

Deputy Dennehy

We have learned elsewhere that there is a voluntary effort between the State and the private sector. Voluntary bodies are carrying out assessments of PPPs to see how they are proceeding. Are there proposals to involve the private sector in evaluating overall projects to see how the State is living up to its responsibility in encouraging the use of PPPs? That is being done elsewhere.

Mr. O’Brien

As regards the Chairman's point, the lessons that have been learned from this are important and have already been incorporated into our interim guidelines on PPPs in terms of the stages at which projects should be——

Chairman

What were the main lessons learned?

Mr. O’Brien

First, and most important, the public sector benchmark, which is the cost of conventionally procuring this on our full lifetime risk adjusted basis, must be met first before setting an affordability cap. Second, one invites bids from the market and then assesses the best bid in terms of one's comparator against one's benchmark. A decision is then made with regard to whether to proceed. That, in essence, is the main finding and we have incorporated it into our interim guidelines. We will continue to look at the lessons to be learned as we move forward in this process and see about incorporating them.

Chairman

What Mr. O'Brien is saying, in effect, is that those critical lessons were not implemented in this development.

Mr. O’Brien

If we were doing this development again they would have been done before——

Chairman

The critical assessment would have been carried out in the first instance.

Mr. O’Brien

Correct.

Deputy Boyle

My first question is to Mr. Dennehy. Is it true that the decision made by the Government on 23 March was to the effect that the school of music project could proceed but that there had yet to be a decision that it would proceed because it was dependent on the ongoing negotiations and the various contingencies he mentioned about the unitary payment not exceeding what was already agreed, the need for no further planning permission, the need for no changes in EU procurement processes and the operational phase of the PPP not being impacted upon significantly?

Mr. Dennehy

The Government decision authorised the Department to enter into negotiations with Jarvis with a view to reaching financial and commercial close on this project on the basis that the final terms of the agreement would be submitted to the Government. We are going down that road at present. At this stage, we do not foresee any difficulty in terms of bringing this project to financial and commercial close in a way that will be totally acceptable to the Government. That is the advice I have received.

Deputy Boyle

So the Department is favourably disposed to completing the contract. However, the potential still exists that this contract might not come into being.

Mr. Dennehy

It will come into being.

Deputy Boyle

The potential exists that it might not.

Mr. Dennehy

While it is under negotiation, the chances are very slim——

Mr. Gordon

There is another party to this, namely, the private sector interest which is obliged to borrow money. The latter must make sure it obtains financial and legal due diligence from its funders, etc. Obviously there are riding instructions such as meeting the unitary payment. The instruction about the planning permission is fine, as it appears it refers to the EU-wide procurement process. There will have to be negotiations regarding the contract because of developments since the 2001 contract was signed. We will have to consider things that have developed in the PPP market between 2001 and 2004 and see if they have had an impact on the State or the operator. A major change during that period would have been the cost of insurance following the 11 September attacks. Matters of that nature must be considered but the commitment is there to close the project commercially and financially but all parties have to be able to do so.

Deputy Boyle

I want clarity on that issue. If it is the case that matters are progressing and it is hoped that a timeframe, including the two year build period, can be established as soon as possible — I accept that a 2005 completion date is out of the question — when is it hoped to commence construction work? Will it be 2004, 2005 or 2006?

Mr. Gordon

The period of dealing with the commercial and financial close normally takes approximately three months in respect of a contract of this nature. This instance is slightly different because of the background to it, the existence of the 2001 contract, etc. If everything goes according to plan, I would expect to see the contractor on site by late summer. We are talking about three months or so but I cannot be exact.

Deputy Boyle

Mr. Dennehy referred to the general Government balance as a factor that had to be taken into account in making this decision. Is it not the case that the Government balance was never affected by a decision of this scale, that Ireland, in terms of its budget balance, is nowhere near breaching the Maastricht treaty criteria and that it was the policy decision that this project should be the subject of a PPP rather than standard Exchequer funding which has caused the delay?

Mr. Dennehy

There is also, within the context of the GGB, the question of affordability and the amount of money that would have to be paid upfront in any given year. If, for example, it was affected and we were obliged to pay €50 million, €60 million or whatever in any given year——

Deputy Boyle

It is €30 million to the build period.

Mr. Dennehy

——that would create an enormous hole in our third level capital potential for that year. It would be an important issue for us, particularly in the context of affordability and other competing projects.

Deputy Boyle

The problem was the ratio of the Department's budget to the resources for which it was competing with other Departments in terms of general capital——

Mr. Dennehy

My understanding is that I do not believe we would obtain Government approval on this pending clarification in respect of the EUROSTAT position and ruling. This applies not only to our project but to all PPP projects in which the Government might——

Deputy Boyle

I am not talking about the EUROSTAT decision. If it is Exchequer funding and if it was €30 million coming out of the Department's budget every year, the EUROSTAT decision does not affect that.

Mr. Dennehy

Regardless of the amount of money involved, I doubt that we would have obtained Government permission to proceed with the project until clarification——

Deputy Boyle

I accept that it was a political decision. There is no doubt about that. However, the policy decision to opt for a PPP rather than using standard Exchequer funding was the delaying factor because the Department was waiting for EUROSTAT to decide on the PPP funding.

Mr. Gordon

Irrespective of the Exchequer funding, if it was a 25 year contract the construction element would have had to been paid upfront in any event.

Deputy Boyle

And more in any given year. I am aware of that.

Mr. Gordon

We were also proceeding with the national maritime college. There was not just one project within our Estimate.

Deputy Boyle

If a policy decision was made, if the resources were made available and if the funding was of a standard Exchequer nature, there would have been no need to wait for EUROSTAT to make a decision because the latter would have been immaterial in terms of the decision that needed to be made. Is that not true?

Mr. Hanevy

As the report of the Comptroller and Auditor General indicates and as Mr. O'Brien asserted, there was a confluence of a number of issues involved. EUROSTAT was an element of the affordability issue for a number of Departments. Ultimately Government decided this in the round and EUROSTAT was part of the jigsaw. The thesis is correct if we were not part of the public-private partnership process. There could still have been an affordability issue which could have changed as the financial landscape changed. In theory we could have been running a Cork School of Music model on a particular financial amount under conventional procurement. We could have come to the same difficult choices, with the deterioration of the economy's tax take, and said that regardless of value for money we could not afford to proceed at present as other issues are higher in the queue. The same issues would have applied.

Deputy Boyle

Of course, and they always will.

Mr. Hanevy

However, the Deputy is right. The EUROSTAT ruling would not have been an issue if——

Deputy Boyle

The basic statement I am making is that it was a policy decision to make this a public-private partnership project. The delay that ensued was a result of awaiting the EUROSTAT decision, which only happened because it was a PPP.

Mr. Hanevy

However, the EUROSTAT dimension only emerged as part of the evolution of this when the five-school bundle came up to be tested against EUROSTAT. Originally EUROSTAT was not part of the landscape; it only came up when we tested the five-school bundle with EUROSTAT. That was Ireland's first test of this kind and EUROSTAT has moved its position and it seems these projects are treated differently. Mr. O'Brien has explained how availability and demand are treated.

Deputy Boyle

We have heard about the learning process involved with the PPP but as of now we only have six projects constructed by your Department using this method, using two companies. The experience we have gained with two companies cannot be vast. Surely much more has to be done to inform ourselves about the value of this process before making more far-reaching decisions.

Mr. Dennehy

All we can do is benefit from the experience we have of particular projects, namely the bundle of five schools, the Cork School of Music and the Maritime College project. I assume from our discussions that other Departments will be using this method for different projects.

Deputy Boyle

I want to be careful about couching my next point. I know the Department's experience of Jarvis, arising from the bundle of five schools, has been largely positive, but that company's track record in educational provision in Britain has not been as positive. I would like clarification of the contract negotiations, particularly the public liability issue which was alluded to. In Britain the Jarvis company, through PPPs, was involved in rail infrastructure and the Potters Bar incident. There were prolonged difficulties in that case with accepting public liability. Are you satisfied that their experience in that case can be properly translated into our context so that the poor management that caused that accident does not occur here?

Mr. Dennehy

It is very important that we do not comment on what the Deputy said about Jarvis's experience outside the country. We can only comment on our experience; as the Chairman pointed out, Deputies have privilege and we do not. We can comment on our experience of Jarvis Ireland, the bundling of schools and the Cork School of Music.

Deputy Boyle

I will rephrase the question because it relates to public liability, which is my concern. We are entering a process whereby the State is providing capital and is responsible for the overall management of facilities. We are moving into a new area where people other than the State are providing capital and management. Where does the Department stand on public liability costs that might ensue after accidents? That does not have to involve this company but might involve future developments. What controls are in place?

Mr. Dennehy

Mr. Gordon can address the specifics of the question, but it is worth noting that the State only takes public liability for community and comprehensive schools. Voluntary secondary schools, other schools, primary schools etc., insure with private commercial insurance firms.

Mr. Gordon

Public-private partnership contracts would be no different. Part of our negotiations with our legal team would be to ensure the necessary insurance is in place for public liability, even for the construction of the premises. It is not a case of letting the company go and do it. We check to ensure it has insurance cover and all of that is covered in our contracts with the company.

Chairman

I presume you have automatically taken into consideration the company's external development outside the State.

Mr. Gordon

There would be due diligence done on any of the bidders by our financial and legal advisers. That would be the extent to which they should act.

Chairman

So you are totally satisfied.

Mr. Gordon

Absolutely.

Mr. Purcell

I have some observations.

The grouped schools project was mentioned several times. The learning exercise for my office has been on the grouped schools project rather than the Cork School of Music, which came up here as a result of concerns expressed in the committee and other fora. I have promised this to the committee for some time and we are nearly ready. The accounting officer and Mr. O'Brien are nodding, so hopefully it is a question of formally signing off and we will not be waiting for Godot much longer.

Chairman

Is this a special report?

Mr. Purcell

Yes. Part of the difficulty was that this was a learning exercise for us all, including my staff. Part of the difficulty was the complexity Deputy Noonan mentioned of the financial models and of making sure of the validity of one's assumptions about those financial models. Rather than going head to head here across the table it is better to sort out possible difficulties before they come to the committee. That is almost complete.

The Minister for Finance announced new arrangements yesterday for public procurement contracts and sometimes the debate about PPPs and public procurement is about different ends of the spectrum, but it does not have to be. There can be an element of transferring risk in public procurement undertaken in the traditional way, something I alluded to in a report on the roads programme which will come before the committee after it has gone to the Dáil. It is wrong to talk in polarised terms about PPP and non-PPP. That is a welcome development also.

Regarding the review group which initially studied the requirements of the Cork School of Music, it seems it would have been totally inappropriate to have acted on that group's recommendations, as we would have merely extended an already dangerous building. I refer to asbestos and so forth, so that is one of the positives that came out of the PPP programme.

I will deal with a point Deputy Dennehy made. I do not want to encourage or reinforce a risk-averse approach among public servants, particularly in areas like this where hard-won gains can be attained. A certain amount of pain has to be undergone as well, as in this case. I know the Chairman and the committee share my view that we should not be critical of appropriate risk-taking. The difficulty is often in establishing what is appropriate risk taking. Anybody who carries out business in an up front transparent way and who makes reasonable decisions, should be in a position to defend those decisions later, if necessary, both to me and to the committee. I hope this message gets across to people.

Mr. Dennehy

We have found the Comptroller and Auditor General's office extremely helpful on these two issues, particularly on the prioritisation allocation. It is also helpful to this committee in developing our way forward and our processes.

Chairman

I thank Mr. Purcell and everybody who has contributed. Is it agreed that we dispose of Chapter 7.3? Agreed.

Due to time constraints we will not take Chapter 7.4 today. The agenda for next week will be the VFM report, No. 47 — on television licence fee collection.

The committee adjourned at 2.45 p.m. until 11 a.m. on Thursday, 20 May 2004.