COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 15 Jul 2004

Comptroller and Auditor General Special Report No. 6 — Department of Transport — National Roads Authority Primary Routes Improvement Scheme.

Ms J. O’Neill (Secretary General, Department of Transport) called and examined.

Mr. M. Tobin (Chief Executive, National Roads Authority) called and examined.

Chairman

Witnesses should be aware that they do not enjoy absolute privilege and should be apprised as follows. Members and witnesses' attention is drawn to the fact that, as and 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 identified in the course of the committee's proceedings. These rights 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 person identified in the course of proceedings who is not present may have to be made aware of these rights and provided with a transcript of the relevant part of the committee proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in the 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 of the provisions of Standing Order 156 that the committee should 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 policies.

I welcome the delegation from the Department of Transport. Perhaps Ms Julie O'Neill, Secretary General, will introduce her officials.

Ms Julie O’Neill

I thank the committee for its invitation. I am accompanied by Mr. John Murphy, assistant secretary with responsibility for road transport, and Mr. John Conroy from the road policy division of my Department.

Mr. Michael Tobin

I am accompanied by Mr. John Fleming, senior project manager with special responsibility for co-ordination at programme level, Mr. Michael Eagan, head of corporate affairs, and Mr. Tim Ahern, a senior project manager specialising in the area of contract types.

Mr. Aidan Dunning

I am an assistant secretary in the public expenditure division in the Department of Finance. I have responsibility for a number of Departments, including the Department of Transport.

Chairman

I now call the Comptroller and Auditor General, Mr. Purcell, to introduce special report No. 6, primary routes improvement scheme.

Mr. John Purcell

Billions have been spent and committed in recent years on building up the country's infrastructure. This is nowhere more evident than in the development of our road networks with particular emphasis on the strategic road corridors linking our main cities. The National Roads Authority, NRA, was established in 1994 to oversee this programme of road building commencing with a major investment injection of €1.5 billion in the period 1994 to 1999.

Towards the end of that programme, I undertook a value for money examination which focused on establishing if the systems, procedures and practices in place in the NRA were adequate to ensure the national roads development programme was carried out economically, efficiently and effectively. The results of that examination were recorded in a report published in 1999 which was considered by this committee's predecessor.

The end of that investment programme coincided with the drawing up of the national development plan which proposed investment of €5.6 billion on national roads improvement works in the period 2000 to 2006. The programme which formed the original proposal by the NRA for inclusion in the plan was based on improving stretches of road identified in the national roads needs study published in 1998. The programme was adjusted following a request from the relevant Minister to accelerate progress and improve the quality of the proposed upgrades. The NRA costed the revamped programme at €7 billion. In mid-2002 the reported estimated the cost of completing the national roads improvement programme had jumped to €15.8 billion. This committee, among others, began expressing concern at the apparent startling escalation in costs. I undertook to examine the matter, hence the report before the committee today.

Chapter 2 of the report identifies the causes of the reported escalation in the cost of the planned works from €7 billion to €15.8 billion in a two and a half year period. I will briefly outline them. In percentage terms, inflation accounted for 40% of the increase, a quarter of which was due to under-estimation of prices at the beginning of the programme. Some 16% was due to a systematic failure to cost certain elements of the schemes at the planning stage; 20% was due to changes in the scope of projects and new works, with the balance accounted for by large increases in the estimated cost of high profile projects such as the Dublin Port tunnel and the south-eastern section of the M50. As the committee will note, the lack of realistic estimates was the main problem and can be put down to the fact that at the time of adoption of the national development plan, cost estimation was not well developed in the NRA. A cost estimation function has been operating in the NRA since 2000. Gradually more meaningful estimates are being compiled, which should contribute to better financial management of the programme from now on.

Chapter 3 examines how contractual arrangements can contribute to major cost movements between tender amounts and the ultimate cost of the project. Traditionally, the main instrument for delivery of road improvement works has been the re-measurement contract under which certain key items in the tender are priced in line with notional specified quantities which are later adjusted by reference to materials used and work undertaken. Clearly this gives rise to cost uncertainty and, when coupled with the effect of scope changes, price variation clauses and claims inevitably leads to cost escalation.

We established that overall the final cost in these cases averaged out at 42% higher than the amount on which tender acceptance was based. This is not just an Irish phenomenon. They had the same kind of experience in the United Kingdom and they have moved on to a different type of contractual arrangement to try to improve matters. We have done the same. In the past month or so, the Minister for Finance announced wide-ranging changes to public sector construction contracting designed to help reduce the scale and scope of cost overruns on projects. It involves achieving greater cost certainty by getting the tenderers to include a fixed price for the identified risks they intend to manage and control. This will probably result in higher upfront tender prices. However, the idea is that the final cost should be less than under the current contract arrangements, although this may not always be the case. This initiative reflects some of the characteristics of the design and build contracts used by the NRA for some projects where greater cost certainty has been achieved. Chapter 3 also refers to the importance of route selection and the associated cost repercussions arising from archaeological excavations and land acquisition.

Chapter 4 briefly examines the overall management of the roads programme and touches on areas such as the relationship between the NRA and the local authorities in delivering the programme, including the changing role of the regional design offices. It also refers to design initiatives geared towards achieving economies and the scope for getting better value for money from professional services provided by engineering consultants on major infrastructural projects. Again, in his recent announcement, the Minister for Finance has also proposed changes in the current method of procuring these services.

The universal experience is that cost escalation on major road projects is a fact of life because of inflation, scope changes and the like. However, that is not to say that there are not ways in which the extent of that escalation can be mitigated. I do not suggest it is easy. There is no magic solution here. However, the signs are that, bit by bit, we are starting to come to grips with addressing the different elements of the problem.

Chairman

I believe Ms O'Neill's statement is quite long. Perhaps she will provide a summary of it and we can publish the overall statement.

Ms O’Neill

I am conscious that it is somewhat long. I wish to make a number of points.

I welcome the report from the Comptroller and Auditor General. It is an extremely valuable contribution towards deepening our understanding of the factors that resulted in a significant gap between the investment proposed for the programme in the national development plan and the latest Estimates. We will take its findings on board.

The main points I want to get across are the need to distinguish between the concerns the Comptroller and Auditor General has raised about inaccurate or incomplete estimation of the costs of the programme in the first instance which clearly raise issues for the forward planning, prioritisation and management of infrastructural programmes of this scale, and the wider but critically important issue of whether the significant amount of money now being spent on the roads improvement programme gives good value for money. We need to make the point that the issues are quite distinct.

I would like to comment briefly on the distinction between the role of the Department of Transport with regard to the national roads programme and the role of the NRA. I am delighted the authority is here today. The Department's role relates to the oversight, management and monitoring of the programme. Our role is to set the overall policy framework for the programme, ensure the funding is delivered for it and satisfy ourselves as to the arrangements the NRA has in place for the delivery of the programme. We are also responsible for review and ongoing reform. The NRA is here and can deal with specific questions that may be raised. We also engage in a number of independent programme evaluations over time to satisfy ourselves as to how the programme is being managed.

Investment in the national roads programme is a key priority. Roads account for 96% of passenger traffic and 93% of freight transport. Although only 6% of the total road network is comprised of national primary and secondary roads, these roads carry 46% of total traffic. As the committee knows, investment in the roads programme is now at its highest level ever at €1.28 billion in 2004. The impact of this investment is increasingly evident throughout the country.

A series of strategic policies laid out in the national development plan, the national spatial strategy, by the national competitiveness council and more recently in the enterprise strategy report make clear the importance that is attached to investment in the national roads programme. Nobody argues that the investment is in itself a bad idea. The question is rather whether we are getting good value from it.

I do not need to rehearse the reasons the Comptroller and Auditor General has already given as to why the costs increased. However, it is worth reflecting on the fact that significant scope changes were made in the programme from the time of the NDP. A number of additional projects were added to the programme. Also, significant inflation in the construction industry took place over that period. Members of the committee may remember that when I was here earlier this year, I spoke about our interpretation of the increases in costs. The Comptroller and Auditor General's findings are broadly in line with the results of other reviews of the programme carried out by or on behalf of the Department. I am glad he has acknowledged the improvements already made by the NRA in cost estimation, control and programme management.

With regard to value for money issues, the Comptroller and Auditor General's report provides a useful analysis of the factors which resulted in cost increases. However, the separate issue of whether we are getting value for the significant investment we are making must be considered. Our national road network is of critical importance to Ireland's competitiveness, to enhancing regional development and to our daily lives. This has been recognised in a range of strategic policies and endorsed by independent analysis.

The detailed appraisal procedures followed by the NRA indicate that while roads projects cost more than initially anticipated, they represent good value for money, given the significant economic and social benefits derived from addressing the deficiencies in our network. Cost-benefit analysis is carried out at various stages as each project progresses through planning so that the impact of cost increases arising from changes to project scope or design can be re-evaluated before irrevocable commitments are made. In other words, just because costs rise does not mean projects are poor value for money. One must satisfy oneself at each point that the cost-benefits stack up.

The majority of projects under construction now, particularly those being constructed under design and build contracts, are on budget and many are ahead of schedule. In the construction sector, time is money. Therefore, it is beneficial in cost-benefit terms if projects that address key bottlenecks in the road network can be brought in ahead of schedule, for example the Monasterevin, Cashel and Ashford-Rathnew bypasses.

As I mentioned previously to this committee, where scheme characteristics are suitable, public private partnership, PPP, arrangements can be undertaken. These effect risk transfer to the private partners and provide certainty regarding Exchequer funding exposure while also attracting a high level of foreign contractor interest. This is helpful and beneficial to the programme. The Kilcock-Kinnegad PPP project has been recognised as the PPP deal of the year by Project Finance International, and the standard set in that project is being applied throughout the roads PPP programme. More recently, we are benefiting from expert financial advice provided by the National Development Finance Agency, NDFA, which is now consulted by the NRA in respect of all major projects.

The Fitzpatrick report, which reviewed the programme in 2002, examined the cost of construction of a two-lane dual carriageway. The cost for that ranged from €1.1 million per kilometre to €7.4 million per kilometre in Finland while the average cost in the United Kingdom was €5.7 million per kilometre. By comparison, the Irish cost per kilometre at that time was approximately €4.5 million. These comparisons suggest that Ireland's cost base is not dramatically out of line with experience in other EU countries. Other local factors, such as the cost of land and labour and construction costs, must be taken into account.

I wish to mention some measures being taken by the Department to strengthen programme management, particularly in those areas which are not under the direct control of the NRA. The Minister for Transport and the Minister for Finance have agreed to establish a multi-annual funding framework for national road investment for the period 2004 to 2008. This provides greater certainty about resources and facilitates more cost-effective planning and implementation of the programme. It provides for total national road development investment of more than €8 billion, of which €6.9 billion is Exchequer funding and €1.1 billion will be invested by the private sector in public private partnerships, PPPs, over the period 2004 to 2008.

The NRA has been asked to submit a five-year plan to ensure that the resources being made available under the capital envelope are utilised to best effect. The envelope will be underpinned by an agreement between the Department of Transport and the Department of Finance which will incorporate provisions relating, inter alia, to the annual funding levels, contractual commitments and reporting and monitoring arrangements. In turn, these provisions will be set out in an agreement between the Department and the NRA.

Our interest in the context of multi-annual funding is to try to establish with as much certainty as is possible, given the nature of the complex area, what outputs can be achieved for a given level of investment. As part of the continuing efforts to support the NRA to improve management of the programme, a major review of arrangements for the implementation of the programme, including cost estimation and control, has recently been completed. Its recommendations are being given detailed consideration by the Department with a view to putting proposals to Government in the autumn.

Since the establishment of the Department of Transport in 2002, my colleague, Mr. John Murphy, and I have been considering how best to strengthen and harmonise arrangements for appraisal and management of capital spending across all transport programmes to facilitate comparisons across projects, programmes and modes. To this end, the Department has established a cross-cutting team on managing capital expenditure whose role is to develop a common framework for the appraisal, monitoring and evaluation of transport infrastructure and services investment. This is being done in full consultation with the NRA and the other transport agencies. In that context, we will also seek to define clearly the respective roles of the Department and its implementing agencies to strengthen management and accountability arrangements.

In recent years substantial progress has been made in ensuring the more timely and cost effective delivery of the national roads programme. Progress has been made on shortening the timescale for progressing projects through planning stage and as regards the allocation and management of risk on major roads projects. The NRA has been to the forefront in developing new forms of procurement and project management. It has pioneered a move in the direction of design and build contracts as an alternative method of procurement, which provides for improved efficiency and greater certainty of outturn by passing more risk to contractor and less adversarial relationships.

In the context of a significantly enlarged programme and seeking to enhance value for money, the NRA has also concluded that larger contracts are beneficial both in terms of economies of scale and in encouraging stiffer competition through attracting the interest of foreign contractors. The roads PPP programme is delivering deals that are internationally recognised as providing very good value. Some of the factors outside the direct control of the NRA, such as the legislation governing treatment of archaeology on major infrastructure projects, are being addressed. The Department is examining in detail any further changes in the management of the programme needed to strengthen further the capacity of the NRA to deliver agreed outputs on time and within budget with a view to submitting detailed proposals to Government shortly. I will be happy to elaborate on my statement.

Chairman

I ask Mr. Tobin to present an abbreviated version of his submission.

Mr. Tobin

If that is the Chairman's wish, I will do so. My understanding is that the entire statement will appear somewhere on the record and, that being the case, I will speak on some points from the statement.

The National Roads Authority is pleased to have this opportunity to meet the committee for the purposes of dealing with the recent report from the Comptroller and Auditor General on the cost of the national roads programme and the issues arising. As already indicated to the committee by the Comptroller and Auditor General, his report has tracked the increase in the cost of the programme since publication of the national development plan in 1999 and to set out the reasons for the changes that have occurred. To some degree, this exercise has sought to validate earlier work by Fitzpatrick Associates for the Department of Finance which identified a funding gap in respect of the national roads programme.

I express the hope that the committee's deliberations will be guided by the content of the Comptroller and Auditor General's report rather than the media coverage which it received. I hold the view that the coverage in one newspaper, which dealt with the matter in considerable length, failed to reflect the findings of the report accurately and included a series of criticisms of the authority which were neither justified nor backed up by the report's conclusions. The air of righteous indignation that coursed through much of the coverage of the newspaper concerned was notable by its absence from what the Comptroller and Auditor General has had to say.

In addition, the same newspaper made great play of the Comptroller and Auditor General's report being whistle blowing at the highest level. That might make a nice soundbite, perhaps, but it is very wide of the mark when it is recalled that many of the key issues addressed in the report were the subject of a statement I made to this committee on 20 February 2003 and a separate comprehensive report I supplied at that time to the clerk of the committee in response to his letter of 29 January 2003.

My comments on those occasions were made against the background of a report, entitled Evaluation of Investment in the Road Network, prepared by Fitzpatrick Associates for the NDP-CSF evaluation unit of the Department of Finance. That report assessed the revised cost of the programme in January 2002 prices as €15.8 billion compared with the provision of €5.6 billion included in the NDP. According to the consultants, the revised cost could be attributed to a series of cumulative factors such as initial absence of specificity and cost under-estimates, expansion of the programme and project scope and high construction inflation which peaked at an annual rate of 10% or more in both 1999 and 2000. The consultants concluded in their report:

...the NRA has a strong project management focus. Factors which are in the direct control of the NRA would appear to be well managed, and most difficulties have arisen from external factors and difficulties in managing these.

I do not wish to put words in the mouth of the Comptroller and Auditor General but I think it is a fair summation of the report to say that, by and large, he has taken a somewhat similar view to the findings of the Fitzpatrick Associates report.

The days of planning a road on the basis of the shortest route between A and B, if they ever existed, are certainly gone. The challenging nature of the process means that accurate information on even the most basic element of road planning, such as the length of the road to be constructed, cannot be determined and costed until planning is well advanced or even finally determined by An Bord Pleanála. The M3 Clonee-Kells motorway scheme illustrates the point. The road to be replaced is 47 km. long, but the corresponding length of the new route will be 59 km. The situation partly reflects the additional length of road necessitated by bringing the new road further to the east of the Hill of Tara than the existing N3 so as to minimise impacts on cultural heritage. In addition, the new scheme will include the provision of a further 51 km. of associated link roads and side roads at the various interchanges and tie-in points as well as 34 km. of access roads serving individual houses and other property. It is a case of the devil being in the detail.

When estimating road scheme costs, it might well be contended that no single figure is the correct estimate. Since its establishment, the authority has never received the same quotation from two contractors for any road scheme. There can be substantial variations between the highest and lowest amounts tendered by contractors for individual schemes. I requested an internal review of the schemes awarded under the design and build contracts. These are schemes where those bidding are involved in spending between €500,000 and €1 million in putting forward a bid. It is reasonable to assume that considerable care is being taken on their part to produce the correct figures. The variations have been up to and slightly more than 100% between the lowest and the highest bid with an average variation of 50%. One could assume that the lowest bidder in all cases was working hard to win the contract and cut his price to the bone and, if one takes the view that the highest bidder was not interested enough in winning the contract, then it was an average of 16% when both are excluded. The under-estimation of the NRA programme in 1999 was approximately 15% to 20%. That was at a time when we did not have a great deal of detail about the schemes we were costing. We can compare that to contractors who know about schemes in great detail, who are diverging from each other to the extent I have mentioned.

To a significant degree, the Comptroller and Auditor General's report represents a look back in time, with particular reference to the lead-up to the publication of the national development plan in November 1999. The report indicates that developments in the immediate aftermath of the publication of the plan have affected programme costs. It readily acknowledges that steps have been taken by the NRA in the interim, in a range of areas that have strengthened our cost estimation function. Such measures will ensure a much greater degree of convergence between tender prices and scheme construction outturn costs.

The NRA has availed of the expertise of a cost estimation specialist since 2000. The experience and knowledge of our project managers, drawing from a significantly smaller pool of road scheme work than obtains today, dictated our cost estimation practices prior to that appointment. When Fitzpatrick Associates produced a report comparing the cost of the tender awards during 2001 and 2002 with the NRA's cost estimates at that time, it found that the gap was 0.15%. Before my appearance at this meeting today, my officials examined 16 major construction projects which are under way. The estimated cost of the projects when they were tendered was €2.712 billion and we estimate that the outturn cost will be €2.936 billion. When we strip away PVC, the best current estimate of the outturn cost is approximately €45 million more than the tender price, or about 2% more than the estimate. I would like to believe that we have improved, that we are getting it right and that we are being pro-active in this area.

The NRA is closely following developments in the UK regarding earlier contractor involvement. It has already made progress in this regard, for example in respect of design-build contracts. It will, in conjunction with the Northern Ireland roads service, pilot a target price contract for the N1 between Dundalk and Newry. It is also planning to use this format on a number of other major schemes, such as the N8 projects between Cullahill and Cashel, as well as Cashel and Mitchelstown. The contracts will be awarded on the basis of a target price with a mechanism whereby the client and contractor share in any savings if the project is delivered for a lower sum. If the target price is exceeded, however, penalties will apply to a point where the scheme can cost a predetermined maximum price. The NRA has adopted fixed price contracts for its public private partnership programme schemes, resulting in absolute certainty about the costs to be borne by the Exchequer when contracts are signed.

The Comptroller and Auditor General's report mentions the fees paid to consultants. The arrangements traditionally pursued by the NRA in this regard are a modified version of those outlined in circular BC 5/87, issued by the Department of the Environment in 1987. The Comptroller and Auditor General recognises that the arrangements do not give unfettered scope for over-elaborate design, but he sees some scope for negotiation to reduce consultants' costs. The NRA has gone a long way towards addressing this matter. Its multiple framework contract includes significant elements of lump sum payments, rather than being based on a percentage of out turn costs. Its strategy in this regard has been further developed recently. It is awarding consultancy contracts on a quality and price basis under procedures whereby consultants must bid competitively, quoting lump sums for each phase of the scheme.

Chairman

Before I invite members of the committee to speak, I wish to ask Mr. Tobin a question about consultants. The NRA was operating from a 1987 document. I refer to one of the biggest developments since the foundation of the State. They were getting 4% of the final cost of the project. Was it not very expensive? Based on the Comptroller and Auditor General's figures, the consultants would get €635 million from the overall development of the plan.

Mr. Tobin

Like any other State body, the NRA is generally required to comply with the requirements of departmental circulars. It complied with them in this instance. As I said at the outset, it has long since stopped paying a percentage based on outturn. Before the most recent move, it had been fixing lump sum payments which were not affected by subsequent changes in the value of the work. Some 35% of the total payment was paid for the consultants' initial report. In the instance in question, 35% of the estimated value of the scheme was fixed as the initial fee. It did not change despite increases in the scope of the scheme, PVC or whatever. The next 35% phase brought the scheme to the point of tender. Again, 35% of the total fee was paid in that case. We have long operated an arrangement whereby that 35% was calculated on the basis of a tender price. Again, this sum does not change regardless of what happens to the outturn. It is a long-standing arrangement that the only element of the 4% fee was the remaining 30%, which was incurred during the supervision phase. To be fair to the consultants, it could be argued that it was a difficult time and they would be dealing with claims. A great deal of work was associated with it. If the scope of the scheme changed, there were additional duties for the consultants. Less than one third of the fee was moveable by reference to outturn cost. Lump sum amounts have been tendered by the consulting industry for all of our work.

Chairman

Does Mr. Tobin agree that all the changes have taken place as a consequence of Mr. Purcell's report? I refer to many changes, such as that announced today in respect of the fee arrangements. Was the 4% arrangement not applicable in certain cases before the Comptroller and Auditor General's inspection?

Mr. Tobin

No, it was not. The NRA decided long ago to fix all but the 30% element of the consultants' fees. It acknowledges the value of the Comptroller and Auditor General's report. The NRA, which has been in existence for approximately ten and a half years, has been subject to a variety of reports in the context of the various operational programmes. It was the subject of a previous value for money report by the Comptroller and Auditor General. External consultants have examined how it operates its management structures on three occasions. It has been pro-active in this regard on all occasions. It is prepared to take advantage of any advice that comes its way. Without wanting to be silly, I hope the committee will not assume that the current report led the NRA to employ a cost estimation specialist in the middle of 2000. It has been pro-active.

Chairman

Does the fact that the original cost estimate was €7 billion indicate that the NRA originally lacked expertise? People can be very cynical when a figure increases from €7 billion to €16 billion. The NRA may defend its actions at this forum by saying that it is all fine because it is based on fact, but this debate has clearly established the significant level of concern that exists. We are now talking about fixed price contracts, but the NRA was talking about re-measurement contracts, which were wide open to abuse because they meant that consultants could get 4% of an escalating cost. The problem has not gone away. This substantial report is very hard-hitting on several issues. How can Mr. Tobin defend a project that increased in cost from €7 billion to €16 billion within two years?

Mr. Tobin

The NRA accepts the validity of this report, which is good and factual. I would like to think the staff of the office of the Comptroller and Auditor General acknowledge that the staff of the NRA gave full support to the investigation, because we understood its value. As I said earlier, cost estimation is not an exact science. The Chair raised two specific issues. He said that the NRA was using a re-measureable contract. I find it hard to understand why we cannot get across to people the simple fact of life that the type of contract used by public sector bodies is prescribed by the Department of Finance. We are required to use it.

The Comptroller and Auditor General made the point that the contract, of its nature, will lead to the final cost of the project exceeding the bid price. In our case, a review has found that over a range of schemes the excess was approximately 42%, which is not unduly different to the experience of our counterparts in the United Kingdom where the figure was approximately 40%. It is in the nature of the contracts. The Department of Finance took the view that there was some validity in State or public sector bodies retaining certain of the risks inherent in contracting on the basis that if risks are realised, they are paid for and if they are not, no cost is incurred.

It is relevant to discuss the theory behind this position. With a design and build scheme or even a fixed-price contract, a contractor must account for perceived risks when pricing a project. Allowance is made whether or not a risk emerges. A contractor may make over-provision for risk in which case the State as client ends up paying more or a contractor may under-provide for risk with the result that next time a project is put to tender there is one less bidder and less competition. While design and build and fixed-price contracts have a major advantage in terms of minimising the drift between tender price and outturn price, members should be in no doubt that allowance is being made in the tender mechanism for risks. The State as client pays for risks whether or not they are realised. The jury is still out as to whether there is a net gain over the life of a programme to the State or the client. Certainly, there is a major gain in having certainty of outturn costs.

The issue of fees was raised and it seemed to be suggested that we were paying a 4% rate affected by eventual outturn costs. I repeat that we have long since ceased to pay a straightforward percentage on outturn costs. All but the last 30% of a fee is fixed. The initial 35% is fixed on the basis of the cost estimate for the project and as a lump sum is unaffected by any movement in the cost of the project subsequently while the next 35% is fixed by reference to the tender price and does not vary or change depending on project outturn. While the final 30% is not fixed, this percentage of 4% means approximately only 1% of a scheme's value is variable. Recently, we have moved beyond that procedure and are requiring the consultancy industry to bid for work. I do not wish to say at this stage how well this process will work as, while the initial results are very positive, these are very early days.

Chairman

Mr. Dunning, are you happy with the level of spend given that it is the Department of Finance which is responsible for delivering the national development plan, which is the most significant capital development since the foundation of the State? According to the figures in the Comptroller and Auditor General's report, there is massive inflation.

Mr. Dunning

Clearly, we are concerned about what has emerged given that the roads programme is a pivotal part of the national development plan. Its cost will be considerably in excess of what was initially estimated for the reasons set out in the Comptroller and Auditor General's report and also in the Fitzpatrick report which has been referred to already and which the Department of Finance commissioned. The Fitzpatrick report was published in August 2002 having been commissioned on foot of indications we had that this level of overrun was arising in the roads programme. The report was compiled with the co-operation of the Department of Transport and the National Roads Authority. On the basis of the report, we have seen improvements such as the multi-annual capital envelopes the Minister put in place in this year's budget which provide relative certainty of financial resources going forward. This certainty is very important to the management of roads and other capital programmes. On foot of the Fitzpatrick report, the Minister made significant changes in the 2004 budget, on procurement, a subject to which Mr. Tobin referred earlier. The intention was to move toward circumstances in which there is greater certainty as to outturn costs of projects as opposed to the circumstances which have emerged on the basis of the conventional form of procurement.

In reply to the Chairman, we are very concerned given the substantial amount of taxpayers' resources invested in the roads programme. It is a very important programme from the perspective of competitiveness. From an Ireland inc. point of view, more than 90% of passenger and merchandise traffic uses the roads and it is important to enhance the relevant infrastructure along the lines set out in the national development plan. As I said, when this issue came to our attention, we initiated the evaluation which has led to the improvements we are now seeing. Unfortunately, the targets we hoped would be achieved will not be achieved as soon as we would have liked. It is important to recognise, however, that by the end of 2006 while everything set out in the national development plan will not have been achieved, the roads infrastructure will have been very much enhanced. The key is to learn lessons from the Comptroller and Auditor General's report and other evaluation reports to ensure we do not face the same problems in the future.

Chairman

Is it not quite extraordinary that with such a capital development programme the Department of Finance had not removed the horses from the stable at an earlier stage? Why did it take so long become concerned?

Mr. Dunning

We commissioned the evaluation set out in the Fitzpatrick report early in 2002 on the basis of evidence we were receiving at that stage about the emerging funding deficit. In hindsight, one might say we should have acted earlier, but the problems emerged partly due to an initial under-estimation and partly to increases in the rate of inflation in the early stages of the plan. There was not a great deal we could do about these matters. Our responsibility was to address the situation as we found it which we did to the best of our ability to ensure that going forward we could put in place programme delivery and management systems and establish funding certainty. A much improved management and financial framework is in place to provide a degree of certainty which will prevent the matters referred to in the Comptroller and Auditor General's report arising again. Based on the information at our disposal, we moved as quickly as we could.

Deputy Boyle

According to the report of the Comptroller and Auditor General, the increases in costs were significantly greater than could be explained by inflation and have been attributed mainly to a combination of poor original estimates and permitting the introduction of major changes in scope of quality at the design stage of road programmes. Does Mr. Tobin consider that to represent a fair description of where the National Roads Authority has found itself in terms of delivering a roads programme?

Mr. Tobin

When, as the National Roads Authority, we were consulted on the preparation of the national development plan and asked to put forward proposals for the inclusion of a roads programme, we consulted the national roads needs study which was published in 1998. We took out the elements the needs study suggested ought to be completed in the period to 2004, priced them and put them forward. What emerged was a considerably different plan which reflected almost certainly the other influences which came to bear on the Government as well as its strategic concerns. Mainly, this involved the Government's decision to opt for a higher standard of road on four major routes. It subsequently became five when Waterford emerged as a motorway-dual carriageway following the publication of the NDP. That Government decision radically changed the scope of the programme we had put forward and also had a major influence on its cost.

Deputy Boyle

I asked if the matter to which I referred is a fair approximation of the situation in which the National Roads Authority has found itself in the recent years?

Mr. Tobin

Will you remind me what is a fair approximation of where we are?

Deputy Boyle

That the increases in costs were significantly more than could be explained by inflation and had been attributed mainly to a combination of poor original estimates and allowing the introduction of major changes in scope and quality at the design stage. Do you accept that assessment?

Mr. Tobin

I do. In so far as much of what was said relates to items that one could argue were outside the control of the NRA. At that time there was a deficiency in our ability to estimate and that is the area where the NRA has to hold up its hands. That resulted in a 16% hike over the €7 billion value of the programme in the year 1999.

If I may repeat, at that time we were estimating the value of a programme when in most instances we had little more than a vague notion of wanting a road from A to B. When the contracting industry, whose survival depends upon it, set about pricing those same projects, knowing exactly where they were going and the lengths of road to be built, they varied by over 100%. By whatever good fortune we appear to have been out by16%. While one would like to think we have a perfect world, we do not; at that time we had a deficiency in our ability to estimate or, more correctly, if one were to go back to the national roads needs study there were certain health warnings on the estimates, which we, as the National Roads Authority, failed to carry forward and put into the national development plan. We were remiss in that.

Deputy Boyle

If I may explain why I concentrated on this aspect, it does not come from the special report, it is from the value for money report released by the Comptroller and Auditor General in March 1999 before the national development plan was published. It outlines the same problems that were addressed in the Fitzpatrick report commissioned by you in 2002 and is repeated in the special report before us today, which gives rise to questions as to whether lessons have been learned and corrective action taken. We are talking about five years ago and the National Roads Authority is now ten years old. I wonder if the expertise or professionalism has developed to such an extent that we can avoid these situations in future, which is the purpose of this committee and these hearings.

Mr. Tobin

You have made a valid point. The value for money report is from 1999. The commentary in regard to the shortcomings in our estimation regarding the national development plan or our current programme also relate to 1999. We took on board a cost estimation specialist in 2000. I repeat two comments I made earlier. Fitzpatrick Associates examined all of the contract awards for the years 2001 and 2002 and compared them with the in-house estimates based on the expertise we had taken on board. The variance was 0.15%, which is not bad. We recently reviewed the 16 major projects currently running and we think our estimates are astray by 2%, that is, in a range of schemes valued in total at €2.7 billion. That is not bad. It represents progress and shows the authority has done something to improve its abilities.

Deputy Boyle

We will discover that when we get the final costs on those projects.

Mr. Tobin

Of course.

Deputy Boyle

The Fitzpatrick report referred to the initial absence of specificity and cost underestimates, which would indicate that those are problems internal to the National Roads Authority. Someone drew up the estimates which formed the basis of the Government's decisions on the national development plan. Someone must take responsibility for those estimates, the expertise on which they were based and that the decisions based on them were valid.

Mr. Tobin

Could I, in defence of the National Roads Authority, pose a question to you? When a scheme is no more than a glint in your eye, how do you reckon the extent of roads you will have to provide as accommodation works to those you impact upon when you do not know the exact line of the road, who you are going to impact upon or how you are going to sever one farmer's land as against another? Let us not try to look for miracles. We have improved a great deal in terms of management and our skills base in the intervening period.

I have given two examples and I can say with confidence that our estimates for the current crop of major projects with a value of about €2.7 million are within about 2%. Fitzpatrick Associates reviewed the awards in the years 2001 and 2002 and our estimates were within 0.15%. We are not perfect and we will be a bit astray here and there but I believe we have taken enormous strides in upskilling within the authority and taking on board the expertise that, to some extent, was signalled as necessary by the Comptroller and Auditor General's value for money report or our own experience.

Deputy Boyle

I accept that.

Mr. Tobin

I remind members that ten years is not a long time in the life of a Government body. When we started our annual spend was about one fifth of what it is now.

The Fitzpatrick report stated that the 2000-06 national roads programme represented an historic increase in the level of infrastructure investment. Getting this programme up and running and operating effectively on the ground has been a major achievement in Irish public administration terms. The contribution of the relevant Departments, the National Roads Authority, local authorities and the construction industry must be acknowledged. That was the view they took.

Deputy Boyle

We are examining two elements here; one would in the future hope that these things would not reoccur but we are also talking about a variance of €10 billion between initial estimates and what is now accepted as the cost of the roads programme. It is something of an empty boast to say that ten years down the road is not long for any State organisation and that you will get it right eventually. There is a considerable variance between what was originally envisaged, on which decisions were made and State money was allocated, and what it will eventually cost the taxpayer. I do not see anyone accepting responsibility for that variance. The reality is that even the costings we have now are at 2003 prices. By 2006 when we will only have 70% of the programme finished, that will increase again. By 2008 when 30% of the programme will still be unfinished it will be increased again and by the time the programme is eventually finished in 2010 and 2012 we could be talking of an eventual cost of €30 million.

Mr. Tobin

Presumably we will be paying——

Deputy Boyle

If we are talking about the type of rate we have had over the past five years I do not think that is unrealistic. Even the special report referred to the construction inflation costs which are significantly higher than average inflation being responsible for 40% of the overrun. There is an additional cost in terms of what the Government asked the National Roads Authority to do in the national development plan but, all told, between the inflation and the addition to the programme I cannot see more than 55% of the total cost overrun. Some 45% must be due to internal factors in terms of how the NRA managed its budget and how it constantly looked for more in terms of State expenditure. The variance is €10 billion, which is equal to two years of current expenditure on capital infrastructure in the country. It is a colossal amount of money. No State agency receives anything like that in terms of providing public infrastructure in this country.

Mr. Tobin

You mentioned the figure €10 billion.

Deputy Boyle

That is the difference in the 2003 costs compared to 1999. We are now talking about €16.4 billion. That is the 2003 cost.

Mr. Tobin

Again, I did not read all my prepared script but took it that it had been read in advance by the members. One of the key points I made is that there seems to be an assumption, not only here but among members of the public, that the sum of €5.6 billion, which is the investment the State and EU were to make under the national development plan, was the cost of the programme. Clearly, it was not. This must be recognised.

Deputy Boyle

What was it if not the cost of the programme?

Mr. Tobin

I said it was €7 billion and the Comptroller and Auditor General recognises this. One could argue that since we had under-costed by €1.4 billion and since that attracted inflation, which I hope the committee will not attribute to the NRA as a body because it has no magic wand that can stop inflation, the value for the end of 1999 would amount to €9.3 billion. The NRA was to examine whether the Waterford route should also be dual carriageway or motorway, as was the case in respect of the Dublin-Belfast route as far as the Border and the Dublin-Galway, Dublin-Cork and Dublin-Limerick routes. We so reported eventually and the route was included as one on which to have a dual carriageway or motorway. The cost of this at the time of the programme was €455 million, resulting in a programme value of €9.755 billion.

Additionally projects were added subsequent to the publication of the programme, which at the time of publication had a value of €723 million. If this is added, the figure amounts to a programme value €10.478 billion at the end of 1999.

Deputy Boyle

So Mr. Tobin found €4 billion. It is still a huge variance.

Mr. Tobin

Of course it is.

Deputy Boyle

The difference is €7 billion, bearing in mind the 2003 cost of €16.4 billion.

Mr. Tobin

There was inflation.

Deputy Boyle

The report states 40% was due to inflation. The reality, in terms of how we got into this position, is that there have been internal factors at play. The NRA has been in operation for ten years. The Minister for Transport has described the original estimates as "back of the envelope" figures. It is frightening that a Minister, in reference to a State agency, said this about the figures it supplied to the Government and which were to be the basis for a national infrastructure programme. This is on record.

If we are making decisions on capital expenditure on the basis of guesstimates that come nowhere near what the actual figure will ultimately be, what confidence can we have in future capital infrastructure programmes? Some 80% of the capital infrastructure pertains to transport and the NRA is not even living within that envelope. As a committee we have every right to ask not only what the NRA is now doing to improve this but also what lessons have been learned that do not seem to have been learned from the value for money report of 1999 or the Fitzpatrick report of 2002.

Mr. Tobin

On the Deputy's last point, it would be fair to say the value for money report would have been a major impetus in taking on board cost estimation specialists, as we did in 2000. It is not that we did not respond. We also had external consultants examining how we operate and we and our parent Department have responded to their advice. I repeat that the Fitzpatrick review examined the tenders awarded in 2001 and 2002.

On the estimates we had made in house at that time, we were within 0.15% of the actual outturn, which is not bad. On the current crop of major projects, we reckon our original estimates of outturn are within 2% of what the actual outturn will be. Again, this is indicative of progress and suggests that our position is a lot better than it was four, five or six years ago.

Can we all be realistic? Estimates are exactly that — estimates. If it were possible to somehow state on the back of an envelope or an A4 sheet the precise value of a scheme, there would be no need for cost estimation as we would all know what the cost would be. Why do we never see two contractors offering the same price for the same work?

Deputy Boyle

I do not believe Mr. Tobin understands my point.

Mr. Tobin

It is not an exact science.

Deputy Boyle

It may not be an exact science but there are cost management principles to be considered. Even in ideal circumstances, if a road from A to B is estimated to cost X amount, surely sensible planning should have contingent liabilities. Major projects——

Mr. Tobin

We do have them now.

Deputy Boyle

We will have to see how that turns out.

Mr. Tobin

I agree and certainly cannot dispute that. Only time will tell but I can say with great confidence that the cost estimation expertise we now possess has placed us in a very good position to know the likely outturn costs. We recognise the need to continue to strengthen this expertise. We are in consultation with our parent Department in this regard and considering whether there should be more staff involved. We are not sitting on our laurels but believe we have made enormous strides with our expertise. I accept the Deputy's point that only time will tell.

Deputy Boyle

I have a couple of questions for the Secretary General. On the relationship of the Department with the NRA, as alluded to in her opening statement, could it be seen to be the case that this relationship is different from that of the Department with other State agencies? Bearing in mind the responsibilities of delivering a roads programme at a certain cost and meeting the cost even if it is above that originally envisaged, in respect of bodies such as CIE much more emphasis seems to be placed on dotting "i's" and crossing "t's" and ensuring every penny is spent within a given timespan.

Ms O’Neill

As I mentioned in my opening statement, one of the steps being taken in the Department is to examine the different relationships we have with State agencies and determine the most appropriate common framework to have in place with those agencies, allowing that there are differences in their structures. For instance, CIE is a commercial State agency while the NRA is established as an authority.

We have a variety of ways in which we manage the relationship with the NRA. First, our Department is the managing authority for the economic and social infrastructure operational programme, the ESIOP, chaired by John Murphy. In that context we have twice-yearly reports from the monitoring committee and an annual review process. We also liaise regularly with the NRA and we are represented, through John Murphy, on its board and on a number of its sub-committees.

To turn to the core issue, the Department of Transport was established in 2002. When I took responsibility for it, I had to consider the different relationships with the different agencies and examine spending under the national development plan. There is no doubt that between the establishment of the national development plan and 2002, there was a significant escalation in the projected cost of the programme, fuelled largely by very significant inflation in the construction sector. Since we were playing catch-up infrastructurally, there was an extremely large investment in infrastructure and this had an impact on the levels of inflation and activity within the construction sector, not just in terms of the roads programme.

There is no doubt that, because of the very strong desire to improve significantly the road infrastructure, the mandate of the NRA during this period was to begin spending and get projects started. It quickly became apparent at that time, just before the Department of Transport was established, that we were running into this issue and that the cost was significantly greater than had been anticipated. One can take two figures, such as €5.6 million and €16.4 million, and say they represent a gap of €10 million. It is reasonable to ask how this has happened. However, it is clear that we are not talking about the same programme that was published in the NDP. It was a larger programme in terms of add-ons — around 16 projects were added on to the programme as published in the NDP — and a significant level of upgrading. It is clear that as projects progressed there were significant changes in their scope. Inflation was considerably higher and there was an issue, with which the NRA has since dealt, about the limitations in its ability to cost certain elements of the programme.

From our point of view, it is important to have an indicative cost early on and some clarity about what we want to allocate to the programme. I want to know, if we set aside a certain amount of money, what we are likely to get in terms of a return on that investment. There is no doubt that around the period of the value for money report to which the Deputy referred and the early part of the NDP, there was a significant lack in the level of expertise to scope projects. At preliminary design stage it was extremely difficult. It will probably always remain difficult to get a fix on the likely outturn cost of a project at preliminary design stage. We are now clear that we must move beyond preliminary design and try to obtain as much clarity as possible about the price of a project at pre-tender and tender stage. The real test of whether there is value for money or efficiency in project delivery is the comparison between the out turn price and the agreed tender price. Clearly, in that context, unless one has handed over the management of the risk of price to the contractor, one will always need to allow for price variation in line with construction inflation.

My first concern is to be satisfied that the NRA is managing the tender process and the outturn process effectively. I am much more satisfied now than I would have been a few years ago that the new arrangements, including the arrangements for benchmarking the costs at various stages, are giving us much more clarity and certainty. I expect that in the next week or so the Minister for Transport will publish details of the monitoring arrangements he has put in place on the costs of all major projects. This will clearly show how much better the NRA is doing now in terms of the comparison between outturn and tender prices.

Going back to the preliminary design stage, for the reasons Mr. Tobin explained it is extremely difficult to get a good fix. However, the Deputy is right to say it is important to put a contingency plan in place. One of the things with which the Department has grappled, on which the Minister has been strong in dealing with the Department of Finance, is obtaining a financial envelope for a number of years so that we can have clarity about our future budget and ensure that as we manage that financial envelope we build into it a contingency for unforeseen circumstances. No matter how sophisticated the cost estimation, there will always be unexpected developments such as the ground conditions one encounters in projects of this sort, archaeological finds, land prices and so on. Building in a contingency plan so that one is not working on a guesstimate, knowing for certain that the outturn will be far greater, is important.

To pick up on a point made by Mr. Tobin earlier, the standard remeasurement contract has caused many difficulties in terms of people's perceptions. When I came into this Department from another Department, with no background in this area, it took me a while to realise that the price tendered in a standard remeasurement contract bears no relation to the outturn price; it is often up to 40% off. That is not just because of the price variation but also the other risks the State is bearing. Getting some sense that this is one's tender price in a standard remeasurement contract, and expecting that to be the outturn, is no use unless one has factored in the variations one expects. Of course, one does not necessarily go public on that because this will affect the kind of tenders one receives. It is important to build a contingency into the framework.

To return to the Deputy's original point, I am satisfied that while the arrangements currently in place might be somewhat different among the various agencies, it is certainly not a question of asking the NRA how much it wants and promising to give it to it at the end of the year, topping up if it is running short. We have made clear not just to the NRA but to all the agencies with which we deal that as a Department, we work within our budget, which we have done since the Department of Transport was formed. We stick to that budget. We seek great clarity on the outputs that can be delivered from the budget and we seek to ensure that contingency arrangements are managed. Where there are issues with the NRA about the level of resources it needs to deliver on the programme, we will work with it to try to help make the case to the Department of Finance and others for the need to strengthen those resources so that it can further build its expertise. However, I have seen a significant development in that expertise in recent years.

Deputy Boyle

Ms O'Neill mentioned the fact that there were add-ons to the NDP quite soon after it was developed and that the NDP itself was an add-on from the road needs survey of 1998. The Government, while the Department of Transport was not in existence, had decided that the NRA should be commissioned to investigate road needs. That was added on with the publication of the plan. The Government must take responsibility for those additional costs.

Ms O’Neill

A strategic judgment was made by the Government about the programme it wanted to put in place. When considering investment in roads infrastructure, one must first ask what are the problems one is trying to address. Is it an existing capacity deficiency within the road network — a demand that is already revealed? In this case, one knows what one needs and can respond to reach a basic level of effective operation of the infrastructure. Is one aiming to provide for future demand based on current trends? Or is one trying to make a strategic shift? The N9 is an example of this. If we provide a certain type of infrastructure to a certain part of the country, will it encourage strategic development in that area?

The road needs study was important and useful work, but the Government, both in the NDP and later, had to decide the kind of infrastructure that was strategically needed, not just in terms of the overall development in productivity of the economy but also such issues as balanced regional development. It made a strategic choice to add a number of projects and also to consider the scale of certain projects and the standards to which they were being built. It recognised, in doing so, that this would have an inevitable consequence in cost terms.

There are two important points about this. As I mentioned, a robust cost-benefit analysis must be run on every project at various stages right up to final close-out stage to satisfy the NRA and the Department that the cost benefits still stand. Second, if one makes the mistake, as this country has in the past, of underproviding infrastructure, the cost of retro-fitting that infrastructure later is major. Upgrading the M50 to the standard to which we might have built it in the first instance, or upgrading sections of road to motorway standard can be extremely expensive. In this roads programme we are making significant investment in the infrastructure of this country, not for this year or next year, but for the next 50 or 100 years. That was the strategic decision the Government made. I still stand over the view that we are now obtaining value for money for that investment, particularly in the way in which contract processes have been improved and in terms of the improvement there will be to the productivity of the economy.

Deputy Fleming

I have a few observations for Mr. Tobin. The roads programme before us is approximately €16 billion. The Comptroller and Auditor General, in Appendix A of his report, gives an example of the 2004 funding to the NRA. Exchequer funding was €1.2 billion and public private partnerships provided €0.15 billion, giving a total of €1.377 billion. In the chairman's foreword to the annual report of the NRA, the chairman, Peter Malone, states that the NRA now has the capacity for expenditure of the order of €1.5 billion per annum. We are dealing with a specific report from the Comptroller and Auditor General. That is a massive financial undertaking. It compares with some of the largest public companies, having an expenditure of €1.4 billion to €1.5 billion in turnover activity. I want to focus on the management and reporting structures within the NRA because I have an inkling as to where some of the problems lie. I would like to take Mr. Tobin through the Comptroller and Auditor General's report to short-circuit proceedings. I refer to two or three sentences in paragraph 4.29 on page 44 of the report. I am trying to understand how projects are managed and how the NRA goes about its business. The report states: "Each project has a Technical Steering Committee, which meets monthly, on site. The members are the NRA, the local authority, the team in the RDO who monitor the day-to-day activities on-site and the Consultant Engineer, if there is one." That is the projects management side. Under the heading, "Management Reporting", paragraph 4.25, on the previous page of the report states:

Ten NRA Inspectors report to their Senior Project Managers, of which there are eight, on the monthly progress of their projects. The information is collated by one of the Senior Project Managers. The manager, in turn, compiles a report for the Head of Project Management and Engineering who presents the report to the Monitoring Committee and subsequently to the Board.

That appears to me, on reading the report, to be the management operating structure. There is one point of clarification that I need to understand. On the technical steering committee for each project, who is the link person in that reporting structure? Is the inspector or the senior project manager the link for the technical steering committee? I am trying to get the link.

Mr. Tobin

One or other of them would always be there. Both the inspector and the senior project manager would be in attendance. I would make one point for the sake of clarity.

Deputy Fleming

I am trying to understand the management system.

Mr. Tobin

In general the National Roads Authority is not a client to these contracts.

Deputy Fleming

It is the local authority. I understand that.

Mr. Tobin

I just make that point. It is something we are looking at. To go back to the Deputy's query about management reporting, the authority has on three occasions had external consultants review how it operates, the management structure and so on. We have, with full co-operation of our parent Department, changed and recast ourselves to take on board the advice we got. We operate a structure which was recommended to us following a severe review by external consultants.

Deputy Fleming

Was that Fitzpatricks?

Mr. Tobin

No, it was Andersen.

Deputy Fleming

When was that published or was it?

Mr. Tobin

I believe it was 1998. They were in the NRA twice. More recently we had a report from PricewaterhouseCoopers as regards how the place is managed, run and organised.

Deputy Fleming

Is that the report that is with the Minister?

Mr. Tobin

That is correct.

Deputy Fleming

I want to come back to that last report because it appears to have been prepared in parallel with this report. There is a reference to a report to the Minister that is being prepared by the NRA and is now being considered. It might have been helpful to the committee if it had seen that. Who within the NRA executive is on the monitoring committee that reports to the board? Is that Mr. Tobin or——

Mr. Tobin

I do not mean to interrupt the Deputy. The monitoring committee is comprised of members of the board only. However, I would be in attendance at their meetings, as would be the senior management of the authority.

Deputy Fleming

Who is the head of project management and engineering referred to?

Mr. Tobin

It is Mr. Eugene O'Connor.

Deputy Fleming

For the benefit of the committee, can Mr. Tobin outline the executive management structure, starting with himself as chief executive?

Mr. Tobin

I sit on the top of that pyramid.

Deputy Fleming

Who reports to Mr. Tobin?

Mr. Tobin

Reporting directly to me are Mr. Michael Eagan, who heads our corporate management, and on the engineering side, the head of product management and engineering, Mr. Eugene O'Connor.

Deputy Fleming

There are two individuals. In one line, what is meant by corporate management? It can mean many things.

Mr. Michael Eagan

The Deputy asks what I do. My job has to do with the environmental agenda and the whole procedural aspect from the viewpoint of compliance with legislation, including communications and archaeology. The programme involves liaising with the Department of Transport and the European Commission on project issues, EU aid and matters of that nature.

Deputy Fleming

What I want in a nutshell is information about the following. The NRA delivers a massive programme of up to €1.5 billion per annum. Those involved are the corporate management structure, project and local authority engineers, roads design office, consultant engineers and the man referred to previously. Where are the senior financial people in the organisation who are qualified in the finance and accounting area? The problem with the NRA, as I see it, is that those people are not visible. Every time we meet the NRA, it is people such as engineers and consultant engineers we see. We do not meet financial management people.

We are dealing here with a report from the Comptroller and Auditor General in respect of financial management. I would have expected only one person to be here other than the chief executive, namely his second in command who would have a financial or accounting background or the chief financial manager. That is the person to whom most of the questions should be directed. I have no quibble with the quality of the work, the engineering, the roads, by-roads, bridges and roundabouts. We are discussing the financial management of the NRA. I would ask Mr. Tobin to talk to me about that. At what level in the organisation is the most senior qualified financial manager or accountant?

Mr. Tobin

The qualified accountant——

Deputy Fleming

I am not dealing here with internal administration in terms of wages and salaries in the office. I am talking about the project management side.

Mr. Tobin

On the project management side, the NRA is run mainly by people with engineering qualifications.

Deputy Fleming

I believe that in a nutshell is the problem with the NRA. Leaving aside the quality of the work carried out by the NRA, with which I have no quarrel, the essential reason for it appearing before the committee is to report on the financial management of its operation. It does not have such management. I could not envisage Kerry Foods, Glanbia, Cement Roadstone Holdings, Guinness or Ryanair attending and, in the case of the last company, saying in effect that pilots run the business and that it does not have any financial people at senior level. The problem with the financial side of the NRA is that it does not exist. I am happy with the rest of its activity.

I recommend that the committee write to the chairman of the board, in case he is not aware of this hearing, to say that the most important decision he can make is to recruit some heavyweight financial people. I do not mean for this to happen at board level because they only attend weekly or monthly meetings, but as part of the executive team. It is extraordinary that such a large State agency is exposed in this way. I want to pursue this theme because I see that, in 2000, the NRA set up a cost estimation function. This is referred to on page 24 of the Comptroller and Auditor General's report. I presume the individual concerned has some subsidiary staff reporting to him or her. I am synopsising what is in the report about the cost estimation manager. According to the report, that manager has a key role in monitoring and consulting local authorities regarding the cost estimates.

As Mr. Tobin says, they are the people who sign the contracts. That is an issue to which he has referred and we will return to it. However, on page 23, paragraph 2.36 of the report of the Comptroller and Auditor General, it is stated: "The NRA further informed me that for all ten PPP projects, the costings have been developed by the respective local authorities and their engineering consultants." No local authority in Ireland has any internal expertise in the costing or management of a national roads project. It is all bought-in consultancy. Mr. Tobin referred to the engineering consultant. There has been a good emphasis on the engineering work. However, the NRA has not even been on the pitch when it has come to financial management. I am not arguing about why something might have been overestimated nor querying why something might cost so much more today than it did ten years ago. I will not argue about what was underestimated and what was a glint in somebody's eye ten years ago and has proved to be much more expensive now. For such a large organisation, the NRA has been lopsided in terms of its internal management structure. That is my criticism of the NRA in this discussion today.

I am pleased to see some new chapters in the authority's annual report. Chapter eight deals with archaeology, chapter seven with environmental protection and chapter five with public private partnerships, PPPs. I am aware that the NRA publishes its accounts separately but there is only one page in its annual report which deals with corporate governance issues and outlines some financial control inspections that have been undertaken. The NRA must perform an audit function itself instead of relying on the Comptroller and Auditor General's report, the European audit, or the departmental audit. The only schedule of financial information provided in the annual report is inside the back cover. I do not understand how this should be the case for an organisation with an annual turnover of €1.5 billion. Perhaps that information is contained elsewhere, but it is the annual report which is most widely read and one would expect to find more financial information in it.

Page 45 of the report states that the NRA has appointed consultants — I believe it is PricewaterhouseCoopers — to report to the Minister for the Environment, Heritage and Local Government regarding the future delivery of the roads programme. There are dozens of engineers employed by the NRA as well as contracted consultant engineers. These latter may bring some accounting expertise to the organisation but that is really only an addendum to how the business is done. There should be a senior financial executive with as strong a role in the organisation as the head of project management and engineering. That is the minimum required. I have no quibble with the quality of work produced by the NRA and I understand that a new chief executive will be appointed shortly. I suggest to the NRA chairman, however, that the number one person in the organisation should be a financial person because there are enough engineers to do the road building work. I say that flippantly but I shall be writing to the chairman of the NRA to exhort him in this regard. Otherwise this committee will be here in another five years having the same debate. Financial management has been merely an adjunct to the activities of the NRA and it must now be organised properly.

Mr. Tobin

There is something of a failure of communications here because the NRA is spending millions each year on financial advice regarding its PPP programme——

Deputy Fleming

The PPP programme accounts for only approximately 10% of the NRA's income and activity this year, as set out in the budget contained in appendix A of the report. The PPP programme is an insignificant element of the NRA's work and it is the other 90% of its activities with which I am more concerned. If the PPP programme continues to grow, perhaps the NRA will consult the National Development Finance Agency for advice.

Mr. Tobin

The NRA consults the agency all the time.

Deputy Fleming

That is a requirement for a contract worth more than €20 million——

Mr. Tobin

It is a requirement in law which the NRA observes with regard to the financing of its projects.

Deputy Fleming

I am concerned with financial management rather than financing. The National Development Finance Agency assists the NRA in attaining the best interest rate and so on, but it is the NRA's own job to micro-manage individual projects. The NRA does a great job but financial management is lacking from the organisation.

Mr. Tobin

Schemes are micro-managed by local authorities and not by the NRA.

Deputy Fleming

Page 45, paragraph 4.37 of the Comptroller and Auditor General's report states: "The NRA also recognises that the current NRA/local authority relationship and the management arrangements at project and programme level are seen by some as vesting responsibility with the NRA and control with the local authorities." I have studied this sentence carefully and I suspect that it represents a problem from the point of view of the NRA. I say to the Minister and to the Secretary General of his Department that control should not be given to the NRA until it has a proper financial management system in place. The thrust of the report suggests that the NRA would like more control and perhaps that is the right course of action, but only if the financial management is in place.

Mr. Tobin

I ask for Deputy Fleming's assistance. What functions does he feel the NRA has failed to perform through the lack of a financial expert, as posited by the Deputy?

Deputy Fleming

I shall give Mr. Tobin an example. I do not have the NRA's annual reports from five or six years ago but I suspect that the inclusion of information on archaeological and environmental protection issues in the 2004 report has been forced on the organisation by the courts, either in Ireland or the EU. There was quite a battle in the past and many projects were stalled over environmental issues. The NRA has correctly decided to take all those considerations on board at this stage rather than wait until the contractor is on site and a project has to be stopped while somebody marches off to court. The NRA has responded well and it now has heritage people and archaeologists on site. It has learned its lesson and is deserving of praise.

The NRA must take the same proactive approach to the matter of financial management. The authority has received some unfair criticism because its estimates have diverged so sharply from actuality, but the estimates were merely guesses and notions. One cannot really compare the final outturn of a project with what was a notion somebody might have had five or six years ago of where a road might go.

Mr. Tobin

That is correct.

Deputy Fleming

Some of these projects were no more than notions to which an indicative figure was ascribed and to which the terms "cost" or "estimate" cannot properly be applied. The NRA is being pilloried because of these notional guesses, but we are not comparing apples with apples. It is only appropriate that an organisation with a turnover of €1.5 billion should have a strong financial management section.

Deputy Noonan

This has been an interesting discussion. What criteria are applied in deciding that the NRA will fund a project directly from the public capital programme or through a PPP?

Mr. Tobin

The NRA believes that there is limited scope to fund projects through the PPP mechanism, given that there are not generally very high traffic volumes on Irish roads, which is clearly a prerequisite for any private sector investment because it is only in those cases that a return is assured. There is a major infrastructure deficit and an urgent need to upgrade that infrastructure. The Government, through State taxes and any other funds available from Brussels, has a limited amount it can add to allow that work to be done.

Deputy Noonan

Is it true that projects of high priority are generally funded directly by the State while projects of lower priority are funded through PPP schemes?

Mr. Tobin

It would be a serious mistake to undertake projects simply because they are capable of being delivered through a PPP scheme, unless they are of high priority. The system will most likely rule out low-priority projects done on the PPPs. Large traffic volumes are required for the project to be viable for private sector investment. Therefore the tendency is high volume routes and high priority locations.

Deputy Noonan

I read a report in the 1990s, possibly the national roads needs study. It contained a projection of road building until 2002 and a rough estimate of the capital required for the first four or five years of the programme until 2004. Only programmes further down the timetable, from about 2012 to 2020, were deemed suitable for PPP funding.

Mr. Tobin

No, that would not be my understanding. It does appear to be the national roads needs study which conducted an overview of the network in 1996 or 1997. It determined on a segment by segment basis roads that were capable of delivering the required level of service. Those that could not became known as backlog work which needed to be addressed. If a road did not fall into that category, the study examined at what point in the future it would be incapable of delivering the necessary level of service. These were basketed in five year tranches, phase one, two, three and four running up to 2019. I recall that from the study. However I do not know how the Deputy came by the view that work done after 2004 would be part of the PPPs.

Deputy Noonan

Is it the National Roads Authority's policy that all roads, tunnels and bridges built through the PPPs will have a hard toll levied?

Mr. Tobin

It is the intention that any PPP project will have a hard toll. Private sector investment will be remunerated in that way.

Deputy Noonan

Has the National Roads Authority moved from the idea of shadow tolling?

Mr. Tobin

We never had that idea and we are not contemplating a move towards it.

Deputy Noonan

We assume from the information given today that any road, bridge or tunnel built through PPPs will have a toll.

Mr. Tobin

That would be the present policy.

Deputy. Noonan

Is the toll negotiated at the same time as the PPP?

Mr. Tobin

No. This is one of the policy issues that the NRA has tried to deliver. We have sought to spread the tolls geographically and keep them at an affordable level. This reduces the extent of private sector contribution. It contributes on the basis of cashflow generated by the toll. However, it is not a free-for-all. It is not a case that the PPPs can build a road and the NRA does not mind if they charge a toll of €5. The rate for a motor car on the Drogheda bypass is €1.60. The Fermoy bypass has an equivalent toll. We are trying to keep it at a reasonable level that will not discourage usage.

Deputy Noonan

The representative is going ahead of me. He says that every road, tunnel and bridge funded in future by PPPs will have a hard toll levied. That is the NRA's current policy. He has now introduced the new concept of spreading tolls geographically. The only way to achieve that is if the PPPs are spread geographically. Is that also policy?

Mr. Tobin

Yes, it is the same thing. I draw the Deputy's attention to our annual reports. We have attempted to identify potential toll schemes and to include various geographical areas throughout the country.

Deputy Noonan

Anybody investing in a PPP needs to know from where their revenue will come. The issue of tolls must be raised during negotiation. What way is that structured? Is a base amount paid to the company per annum or is it based in all cases on volume? Is the company provided with an income on the basis of a set volume or is it paid per vehicle?

Mr. Tobin

Until now the deals we negotiated involved making construction subsidy payments. The successful consortium has bid on a set and known schedule of toll rates which are subject to variation by reference to the consumer price index, CPI, among other matters. The consortium knows the value of the charges. It makes certain estimates of traffic flow and resulting cashflow. The NRA requests it to bid on the basis of having that toll income for its use. We ask for its requirements, if any, by way of subsidies from the State. These can be given during constructional or operational phases or a combination of both.

Deputy Noonan

Are the subsidies offset against the tolls?

Mr. Tobin

No, they are paid by the State to the consortium in future years. The consortium makes a judgment that the toll income will sustain its investment. It has an idea of the total bill it must pay. In so far as there will be a gap, there is the option to fill it with construction subsidy payments, annual subsidy payments or a combination of both. We had instances of both.

Deputy Noonan

I understand construction subsidy payments. What I want to explore is the point at which the private company has financed, designed and constructed the project and is now managing it. Does it receive annual subventions from the NRA in addition to the income from the toll?

Mr. Tobin

In instances other than where that has been part of the deal struck with it.

Deputy Noonan

I am simply asking——

Mr. Tobin

Yes, for a limited number of years.

Deputy Noonan

Is it within the NRA's framework of policy to pay annual tranches of money to PPP companies for the ongoing management of the roads, tunnels or bridges in addition to them levying tolls? Is that the NRA's position?

Mr. Tobin

Our position is that they can apply tolls. Let us look at a situation where a road is not "self-standing", namely, the private sector does not view the toll income to be sufficient to allow it meet fully the costs of construction and ongoing maintenance and have a residual life of ten years at the end of its 30-year concession. During the bidding process, we ask the consortium what it requires from us, as a State authority, to carry out the work. The options are subsidies during construction or during operation or a mixture of both. We have economic advisers to evaluate bids in terms of what they will cost the public purse and which of the bids is best. I can think of three instances. One was a request for construction subsidies, another for construction subsidies with a limited number of payments during operation, and in the third instance there was no request for subsidies whatsoever.

Deputy Noonan

There are always tolls. What is the NRA's current policy on the parameters of these? Can it negotiate any level of tolls?

Mr. Tobin

Tolls have been pre-set. The toll scheme was put in the public domain and views were obtained from the public. The toll regime is set. It is not negotiated as part of the bid.

Deputy Noonan

In cases where traffic volume is less, the balance is made up by annual subsidies.

Mr. Tobin

No, not on an annual basis. Any payments the public sector must make are determined as part of the bid process.

Deputy Noonan

I understand that. I can understand Deputy Fleming's concern the more we explore this.

Mr. Tobin

Is the Deputy awaiting a further response?

Deputy Noonan

I am waiting for greater clarity.

Mr. Tobin

On what?

Deputy Noonan

I am trying to pin Mr. Tobin down. If a public private partnership, PPP, builds a road, how is the investor paid? Mr. Tobin says it may be this or that but he does not tell me the variables or where the negotiation points are.

Mr. Tobin

The negotiation points are on the amount of money. We are speaking about an instance where the private sector bidder perceives income from the toll as insufficient to enable it to do the job with no State subsidy. If the private sector consortium does not believe it can leverage sufficient capital or annual current spend to maintain it from the toll income, we ask it as part of the bidding process to say what subsidy for construction, operation, or a mix of both it requires. When the deal is done, it receives the payments, builds the road, operates it for 30 years and hands it back with a ten year residual life.

Deputy Noonan

Is the deal final or are there variations?

Mr. Tobin

No. It is final.

Deputy Noonan

Is the deal laid down for the following 30 years?

Mr. Tobin

Absolutely.

Deputy Noonan

I would like to take Mr. Tobin, or one of his colleagues, through the management of several projects of which I have personal experience. The Limerick city ring road was built in two phases. How did phase one result in significant compensation being paid to a contractor who did not get the tender?

Mr. Tobin

I am afraid the Deputy is mistaken.

Deputy Noonan

Am I?

Mr. Tobin

I think so. I am unaware of any compensation payments to the contractor on phase one of the southern ring road in Limerick.

Deputy Noonan

I could name the contractor who built it. There was a problem because it transpired subsequently that the contractor who built it was not the lowest tenderer. The lowest tenderer went back in. It was extensively publicised.

Mr. Tobin

I think the Deputy is talking about a different scheme.

Deputy Noonan

Which scheme is it?

Mr. Tobin

The Deputy says he is talking about phase one of the southern ring road in Limerick, but the issue to which he refers did not occur on that scheme.

Deputy Noonan

Very well, but does the case ring a bell with Mr. Tobin?

Mr. Tobin

It does.

Deputy Noonan

Will he tell us which bell it rings?

Mr. Tobin

It refers to a scheme between Adare and Limerick which was the subject of considerable debate on several occasions at this committee.

Deputy Noonan

Is the scheme between Adare and Limerick not part of the southern ring route? Maybe I have the names wrong. Will Mr. Tobin tell us what happened?

Mr. Tobin

The committee has a full record of the debates on this. In assessing the bids received in the regional design office in Mungret, an error was made in calculating the tender totals received. As a result, it appeared that one bidder was lowest and that bidder received the work. The other bidder took a case which went against us and Limerick County Council, and an arbitration procedure was put in place which led to a compensation payment in the order of £3.2 million for the bidder who ought to have been awarded the contract.

Deputy Noonan

Is that the road from Adare, bypassing Patrickswell, passing the racecourse to the roundabout and leading on to phase one of the southern ring road?

Mr. Tobin

That is right.

Deputy Noonan

Was it not all awarded in one contract with phase one to the same contractor?

Mr. Tobin

No. There were two different contractors.

Deputy Noonan

That was another phase, the second phase, which was opened recently.

Mr. Tobin

Uniform Construction was the contractor on that.

Deputy Noonan

Yes, and was that not phase two or is there another name for it?

Mr. John Fleming

That was Limerick southern ring phase one. Phase two will go around to Clare.

Deputy Noonan

All right. I am only getting the numbers wrong. Let us talk about Uniform Construction. It got the contract but at some point it was replaced by another contractor.

Mr. Tobin

I think the Deputy has in mind an issue that cropped up with that contractor on a sanitary scheme in Limerick city.

Deputy Noonan

No.

Mr. Tobin

Very well, but I am at a loss to know what the Deputy is discussing.

Deputy Noonan

I know an issue occurred in the scheme which is subject to quasi-legal proceedings, arbitration and so on.

Mr. Tobin

Is this the main drainage scheme?

Deputy Noonan

I am not asking about that. I am asking about the completed ring road. Was that completed by Uniform Construction?

Mr. Tobin

Yes.

Deputy Noonan

Did a secondary contractor come in to complete the work?

Mr. Tobin

There was some change in the company structure in the course of the work, but it had nothing to do with compensation.

Deputy Noonan

I said nothing about compensation. I simply asked whether in completing that particular road the contractor which Mr. Tobin named, Uniform Construction, was the one that completed the road.

Mr. Tim Ahern

There was a serious external investment in the company when another contractor effectively took a controlling interest in it, but Uniform Construction is still the registered company. There is an external takeover of the management because a Clare contractor invested in it when it was suffering financial difficulties, but it is still registered as Uniform Construction.

Deputy Noonan

Thank goodness we are getting answers. Could Mr. Tobin or Mr. Ahern explain the circumstances which led to the Clare contractor taking over?

Mr. Ahern

I am not sure that is our function.

Chairman

We already raised that issue with Mr. Niall Callan, Secretary General of the Department of the Environment, Heritage and Local Government.

Deputy Noonan

I raised it in passing previously but received no answer.

Mr. Ahern

We looked at it in terms of whether it undermined the contractual relationship between Limerick County Council and the contractor, and we received assurances that it did not. We did not pursue anything that happened external to that. I am sure that contractor had many contracts around the country.

Deputy Noonan

We have the Comptroller and Auditor General's report which has been well pursued by other Deputies. For various reasons, an initial estimate increased to about €16 billion, which is significant. We have received explanations for that. I am trying to follow particular projects to see what happened on them. I have not received satisfactory answers and am being stalled on the basis that I would not have the technical names for projects when everyone knows to what roads I am referring. We will move on.

Mr. Tobin

I am not sure I can be expected to answer for the way a company deals with other companies and manages its affairs. We told the committee that the company was awarded the contracts and that, during the course of that work, for whatever reason, there was a rearrangement with another contractor. We have been assured that the contractor appointed by the Limerick office was still in essence there to do the business. It has done that. The value of the contract at tender stage was just over €99 million, and we estimate the final outturn costs at €106 million, most of which is on price variation.

Deputy Noonan

I will move on to another local project. I do not have the correct name but it is the Groody bridge and the link to the Parkway roundabout. It is not very long. What was the delay in this case?

Mr. Tobin

The delay was due to a problem with the old Groody bridge. In this case, the National Roads Authority, by way of an understanding with the local authority, made a contribution to the costs of the project. However, difficulties arose with the Groody bridge during the building of a new bridge. We resisted increasing our involvement for some considerable time. That had the effect of bringing the work to a halt, notwithstanding that we had a deal with the local authority that we would make a limited contribution. Eventually it was agreed to increase the contribution which allowed matters to be finalised.

Deputy Noonan

What was the tender price on the eventual agreement?

Mr. Tobin

Our contribution to the project was short of €6 million. However, I must point out that this was not the total cost of the project. Limerick City Council would have met the balance. This deal was struck when the difficulties arose with the old Groody bridge. The National Roads Authority's involvement was of a limited contribution to the overall costs of the project.

Deputy Noonan

Was the National Roads Authority involved in the short section of road linking the N69 with the port at Foynes?

Mr. Tobin

No, but again we would have made a small contribution to costs.

Deputy Noonan

Did the National Roads Authority have any oversight in the project?

Mr. Tobin

No, we made a small contribution on the basis that the take-off point was on a national secondary road. Those costs would have been funded by a combination of local authority resources and levies from potential developers.

Deputy Noonan

Is the National Roads Authority involved in the Nenagh bypass?

Mr. Tobin

Yes.

Deputy Noonan

Why is it a single carriageway when the National Roads Authority is now suggesting in a public private partnership, PPP, that it will have to be a dual one?

Mr. Tobin

It was designed and built at a time when a single carriageway was the perceived need. With the publication of the national development plan, the Government, in its wisdom, decided that the linkages between Dublin, Belfast, Galway, Cork and Limerick were to be either high quality dual carriageway or motorway. This post-dated our building of the bypass at Nenagh. However, a dual carriageway can be shoehorned into the land available there.

Deputy Noonan

At what stage is the tunnel-river crossing at Limerick?

Mr. Fleming

The compulsory purchase order inquiry was held before Christmas and we are awaiting the decision on that. The bidding process will then begin for the PPP project.

Deputy Noonan

Is the National Roads Authority in discussions with companies on the PPPs already?

Mr. Fleming

That process has not started yet.

Deputy Noonan

Will there be pre-tender discussions?

Mr. Fleming

Yes, the process will follow the same pattern as the previous PPP schemes.

Deputy Noonan

Can a timeframe be put on this?

Mr. Fleming

The target is to have an award made by late 2005. It is estimated that it will take three years to construct.

Deputy Noonan

Does the National Roads Authority have a rule of thumb for paying for agricultural land or land with development potential?

Mr. Tobin

I would not refer to it as a rule of thumb. Clearly, when one approaches two landowners, both will not assign the same value to their lands. There is mechanism in law for determining the face value of land. However, there are also issues such as injurious affection, disturbance and severance. Arising from the arrangement between the National Roads Authority and the IFA, there is a premium payment for where non-developmental land supplements the assessed value of the land.

Deputy Noonan

Are the figures that the National Roads Authority pencils in for land purchases coming out in accordance with estimate?

Mr. Tobin

Not at all. They are very much——

Deputy Noonan

Ahead of estimate?

Mr. Tobin

In the report, we stated that in our input to the national development plan, land would have constituted 9% to 10% of project costs. Now, that figure runs at approximately 14%. The result is that, in the meantime, the cost of our payments for properties and land has gone up by approximately 65%.

Deputy Noonan

Have they increased beyond the agreement with the IFA?

Mr. Tobin

Yes, they have.

Deputy Noonan

Is there a figure for this?

Mr. Tobin

They have gone up by 65%. The impact of the IFA deal is hard to gauge because the National Roads Authority has not finalised any deals through the arbitration reconciliation mechanism under that system. The level of increase is beyond anything that could be attributed to the straightforward IFA deal.

Deputy Curran

Following on the line of questioning of Deputy Noonan on PPPs, I was interested to hear that the range of subsidies and grants varied. This means that one cannot compare a PPP in Cork with one in Dublin because the grant mechanism could be negotiated differently. I am concerned that the private element in PPPs is not subject to scrutiny. This committee cannot examine PPPs from a financial perspective or their performance over the duration of the contract. The public part, in the guise of the National Roads Authority or the Department, is scrutinised. Private companies may not wish to be scrutinised but public money is involved. This issue should be addressed in private session. PPPs will become more common in areas other than transport. The committee will have an interest in them, yet we do not have a mechanism to scrutinise them.

Chairman

Yes, but the Comptroller and Auditor General, Mr. Purcell, has compiled a report dealing with PPPs.

Deputy Curran

His report is on specific PPPs. However, I am talking about the general mechanism so that this committee would have access to the private elements of PPPs. I am referring not only to the funding aspect but also to the performance indicators. However, I agree it is a debate for another day.

Chairman

That is a good point.

Deputy Curran

I recognise the historical nature of this report and that what the National Roads Authority is now doing is considerably different. I understand about costs estimates, outturns, etc. The report was not just about the National Roads Authority producing better estimates but examined how it went about getting better value for money from fixed price contracting. This to be commended.

However, I noted that, with dual carriageways and motorways, the landbank required for the cross-section has been reduced from 36 m to 26 m. What is the potential saving to the Exchequer through this reduction?

Mr. Tobin

It is hard to gauge exactly what the savings will be. One might argue that it is a reduction of a quarter of the land used. However, it is not that simple. The base land cost element of the compensation package is what is reduced. When one is talking of compensation and agricultural holdings, one is talking of compensating the landowner for being left with that much less land. Issues then arise such as building smaller bridges. The base land value is only a small portion of the overall compensation package. Additional items regarding severance, for example, will depend very much on whether the road happens to be right along the edge of someone's property or right through the middle of it, when a different set of values comes into play. It saves us money where crossover bridges are involved and can save us a little on land acquisition, though not an enormous amount.

Deputy Curran

So the initiative was not very significant.

Mr. Tobin

Where there are bridges crossing, savings are involved.

Deputy Curran

I presume the decision was made on some sort of economic grounds. It raises again the point made by Deputy Fleming that there must have been some financial calculation and that it was more than a hunch.

Mr. Tobin

There was a view taken that we should not take land from landowners unless it was absolutely necessary. Traditionally, when we built our dual carriageways we left a central median of eight or nine metres, which looks well when one is driving along. When that median width was being determined, there was a strongly held view that with that particular median width one did not need to install a safety barrier. The median was considered to be an alternative to a safety barrier. The expectation was that a motorist could stop within that width of median and come through reasonably safely without striking anything. With the passage of time, and considering international practice, the median deemed necessary is now about 15 metres, if one is not installing safety barriers. So here we are now with our old design, our central median of eight or nine metres. We still need a median barrier, so if one has that, why have all that additional land? Why not leave it with the existing landowner? Why take it from them? That was part of the reasoning. At any point where one has crossovers, of course, the bridges mean that there are savings involved.

Deputy Curran

When the Secretary General of the Department of Transport was speaking she seemed to say that it was important to get the roads right because retro-fitting proved to be prohibitively expensive and so on. There was a news report on Monday about the sod turning, or whatever it was, on the Naas dual carriageway at Kill. Would that sort of project now be possible? Mr. Tobin is saying on the one hand that the margins of savings, involving going from 36 m. to 26 m., are not very significant. The Secretary General of the Department, however, said this is an investment in infrastructure for 50 years or, as she qualified it, for 100 years. If the cash savings involving a reduction from 36 m. to 26 m. were not all that significant, is something being built which will prohibit future expansion? I use the Naas dual carriageway as an example, where one is going from two to three lanes. Is the facility which would make such an expansion possible being cut off?

Even on the city side, the dual carriageway from the Red Cow Inn has now enough reservation to accommodate Luas in the centre, plus the additional bus lanes going in. In general terms we are talking of long-term investment, as the Secretary General noted. Mr. Tobin is saying that the money is not very significant, with the exception of bridges and so on. I want to find out exactly what criteria were used in order to reach the decision.

Mr. Tobin

I have mixed views on the matter of whether we are preventing or cutting off long-term options for further expansion of the network. Arguably we are. However, it is our understanding that if we or our local authority colleagues approach An Bord Pleanála with a compulsory purchase order on a motorway scheme or a road project, unless we can defend the need for the land take in the context of something like a 20-year horizon, we will not be successful. That is one downside.

Deputy Curran

Traditionally that is what the NRA has been doing.

Mr. Tobin

We have, but we like to think that in picking a road type now, and looking ahead to capacity, we are building for what we would perceive as saturation traffic. The population of Ireland will not continue to grow forever. We believe that at some point it will settle down, that a maximum car ownership figure will be reached, and so on. Our belief is that we are probably hitting a road type that will cater for saturation traffic. The chances are that we will be proved wrong.

Deputy Curran

I take the point that there will be saturation traffic and so on. What concerns me more is that I do not see the analysis of how the decision was arrived at. Regarding the building of motorways around the country, in strategic locations the NRA will be proven to be wrong. Mr. Tobin spoke earlier about the M50 and how we might have got it right the first time. The NRA does not know the saving to the Exchequer. It seems there was no cost benefit analysis regarding going from 36 m. to 26 m., or a consideration of what I would call future-proofing. If one looks at demographic shifts, one will see key areas of future development. It is an observation on which we will agree to differ but I cannot identify the exercise carried out in this regard.

Mr. Tobin

In fairness, I must revisit my response to the Deputy. It seems I incorrectly read his question as being about the impact on land if one reduces the area by 10 m. Information is now being placed in front of me to show that in terms of construction cost, that will probably knock about 20% off the build cost of a road, including allowing for bridges.

Deputy Curran

Is that the case even if the road is the same width?

Mr. Ahern

The road width is not exactly the same. There has been a reduction in the hard shoulder. The median area is consequentially reduced and bridge spans are significantly reduced, so there is an overall impact in terms of construction costs — not in overall costs, including land.

Deputy Curran

I understand the point about the bridges being shorter. Regarding the road lanes, be they the hard shoulders or motoring lanes, are they the same width now or are they narrower?

Mr. Ahern

There is a very slight reduction, from 7.5 m. to 7.3 m., which would not be perceptible to the motorist. There is also a narrowing of hard strips and hard shoulders on either side. In general, paved areas were looked at much more critically. Most of these roads are coming up in the mid-sections of the major interurban routes where in many cases one is looking at current traffic figures of 8,000 to 12,000. These dual carriageways will have a capacity of 45,000 to 50,000 so we are allowing for a fourfold growth in traffic.

Deputy Curran

I take that to be adequate in most cases but we have seen specifics where that has not been so. There has been significant growth over a 20-year period.

Mr. Tobin

Someone remarked on the Naas dual carriageway. It is 40 years since that road was built. We might have a difficulty in approaching An Bord Pleanála with regard to the capacity we want 40 years hence. I do not think it would take kindly to taking someone's property with a view to 40 years in the future. Can any of us be sure of what life will be like in 40 years' time?

Deputy Curran

I take the point. Regarding the change in those sizes mentioned by Mr. Ahern, are there international guidelines from a safety point of view, and are we adhering to them?

Mr. Ahern

We looked at standards across Europe at the time and our figures are well within them. In France, for example, on relatively light traffic motorways the carriageway width would be down to about 7 m. in certain locations. In the UK, 7.3 m. would be the standard. We were at the higher end of the spectrum with 7.5 m.

Deputy Curran

What is the situation with the Red Cow roundabout?

Mr. Tobin

The tender process has begun and we are finalising the statutory processes with which to approach An Bord Pleanála. We hope that a contractor will be on site by spring of next year.

Deputy Curran

How long will that project take? It is technically complicated.

Mr. Tobin

It is complicated, particularly in terms of traffic management. The project we are progressing involves an upgrade at the Red Cow roundabout and the Lucan Road, with the intermediate section going into three lanes. The duration is two years.

Deputy Dennehy

I must say this is a very informative and thought-provoking report. I accept it is always easier to write in an historical context and deal with facts and figures that have occurred rather than to project into the future. It gives us food for thought and it is good to see that there has been a response already from the NRA and the Department to the need for change.

Is it fair to say some of the information is dated, given that much has happened since the 2002 cut-off date?

Mr. Tobin

I would certainly agree with that. I suspect the Comptroller and Auditor General would, likewise. It is a valuable record which points to an issue that existed in 1999. It was addressed in terms of the previous value for money exercise. Both the current report and the one that fell in between, from Fitzpatrick's, accept that matters have moved on. I am confident now that when we put cost estimates for the outturn of the scheme before the Department, or indeed, before the board, they are close to the mark.

Mr. Dennehy

I have a few questions on aspects of NRA projects. The type of defence that the committee would expect from the Minister, the Department and the NRA is that basically the costing consisted of estimates rather than tenders. I keep referring to guesstimates. The Comptroller and Auditor General took me up on that, previously, but I did not mean it in a nasty sense. Rather I meant it in the sense of someone saying they believed something could cost so many millions of euro. I may look at other aspects such as inflation rates, etc., but would that be the major difficulty — estimates versus tenders?

Mr. Tobin

Yes, that is true. I would make two comments. We based the estimation we submitted to the NDP on the output from the national roads needs study, which was prepared by consultants. However, the estimates within that were covered by a variety of health warnings, which we as the National Roads Authority failed to transmit forward as regards the NDP. That said, I made the point earlier we were out at that time by something like 16%, which is not bad when one considers that some of the projects estimated for at the time have not yet got off the ground. It was not bad.

When one factors it up, however, and finds that what was €7 billion at the time is now in the region of €16 billion, that is an enormous amount of money. Unfortunately we have become somewhat blasé with big numbers. At times when one stands back it can be frightening.

Mr. Dennehy

I think we are very blasé, to be quite frank, and I have said that in the past. People disagreed with me. I would like to ask the Secretary General of the Department of Transport when her Department took over and when responsibility changed from the Department of the Environment and Local Government, as it then was.

Ms O’Neill

It was two years ago, in June 2002.

Mr. Dennehy

It might be an unfair question but something I have raised with Mr. Tobin previously was the inflation rate between 1999 and 2001. There are rates of 9%, 10% and 12%. Is it fair to ask whether we were ripped off, as I have suggested previously? There were rumours around Dublin for many years about planning difficulties but there was talk of cartels, etc. I would not expect the Secretary General to answer that.

Ms O’Neill

No, but——

Mr. Dennehy

How could we drop the inflation rate from an average of 10% — 31% over three years — down to 5% so quickly?

Ms O’Neill

We pulled the plug on spend. It is as simple as that. What actually happened was a significant amount of money went from the State coffers into the construction sector, not just in the roads programme. The construction sector had not had the opportunity to gear itself up fast enough to absorb the increased capacity and before many foreign contractors started to become interested in the available contracts — where the scale of the projects was such that they attracted foreign contractors. All of a sudden there was a huge amount of activity. Frankly, any builders at the time who wanted construction business could get it. Clearly, in a context such as that prices began to rise quickly. Inflation in the economy, generally, was high at that time and particularly in the construction sector. In this area it was particularly high.

What happened then, before the Department of Transport came into being, was the spend on the programme was observed to be way ahead of what had originally been forecasted. My predecessors in the Department of the Environment and Local Government found they simply did not have the money available for the coming year. They had no certainty because it was before the time of multiannual funding. Therefore, they could not give the NRA any certainty as regards what projects could get started the next year. This was not ideal from the NRA's point of view because it meant there was a stop-start approach to development.

However, it essentially meant that the NRA had to dramatically slow down the programme it had ramped up a year or two earlier. The consequence of that was that suddenly there was not as much construction business available, with the result that prices began to fall as contractors competed for the business that was available. In a sense we were part of the way in which the problem evolved at that stage. However, the decision was taken at the time by the Government in light of the serious shortfall being experienced in our transport infrastructure, to get spend under way quickly and play catch-up with the problems we had.

That was the sequence of events. I would not like to say we were being ripped off. The situation reflected market conditions and what the market could bear. The NRA, like all other players in the construction sector trying to negotiate contracts at that stage, had to deal with the consequences of inflation at the time. It was certainly in all our interests to slow down and get a steady level of spend. One of the major advantages of the multiannual approach, from our point of view, is that it allows us to give the NRA a degree of certainty about the level of spend it can expect in the future. It allows it to plan on that basis and enables the construction industry to have some sense of what is coming down the tracks in terms of spend. Frankly, even if someone waved a magic wand and trebled the money available, the Department would think long and hard before deciding to invest that money in one go because of the risk of overheating the sector.

Mr. Dennehy

The reason I asked whether the report was somewhat dated was that on page 39 there is a reference in the Comptroller and Auditor General's conclusion, at paragraph 3.46, which states, "In light of experience with remeasured contracts, where the increase between tender and final contract cost has, in recent times, been of the order of 40%, a fundamental rethink on their use is justified."

I know the Minister is running around cutting tapes, especially between Cork and Dublin, even though it did not work this morning, as we got bogged down in the backroads of Laois. This may be somewhat parochial, as Deputy Noonan has suggested, but I am told that the Bishopstown-Ballincollig bypass is supposed to be ahead of schedule and on target. I am told that Cashel is ahead of schedule and on target. At least three other projects mentioned, I am told, are within budget, whatever about timescale. Can Mr. Tobin or the Secretary General say if this is correct and whether we are comparing like with like? What has changed so much from a 40% overrun two years ago to the present situation?

Mr. Tobin

A number of factors have changed. Perhaps I could go back and add to the Secretary General's comments as regards the way construction bidding inflation went. My personal view is that a combination of factors led to the upsurge in tender prices around 1999 and 2000. Prior to that we were running a very small programme, with a type of contract which gives people a fair amount of scope to look for claims. At the time there was an ethos within the construction industry that the first rule was to get the job, so that prices were being cut to the bone on that basis. Having got the job the contractors' full-time attention had to be directed to availing of all and every opening within the contract to get additional payments. With the advent of the Celtic tiger, the formulation of a national development plan and the boom in the private sector, I suspect there was a collective sigh of relief within the construction industry and a conviction that, from its point of view, more realistic bids could now be tendered. That is what happened although the situation has now settled down.

In the meantime, significant developments included that the NRA took on board the capacity for better quality estimations, initiated improvements in its project management mechanisms and established new design criteria and specifications. The Comptroller and Auditor General recognises in his report that the NRA has taken many steps to improve its operations. More and more projects are completed ahead of time, including last year's completion of the Kildare town bypass. This year the projects at Monasterevin, Cashel, Ashford, Rathnew, Wicklow and Carrickmacross will be completed ahead of time. One can observe that the weather was good and that probably was a factor but progress was also aided because there is a sizeable known programme and contractors can see beyond their current project. There is not a desire to make the current job their life's work because they are anxious to move on to the next project. Thankfully, projects are being completed well within the budget established by the NRA and generally quite well ahead of time.

Deputy Dennehy

Does this bear any relation to the sudden change of Departments two years ago?

Mr. Tobin

Deputy Dennehy is putting me in a difficult spot by asking a question such as that.

Deputy Dennehy

I am an outsider concerned with value for money and I am struck by the dramatic change in the last two years.

Mr. Tobin

Without doubt, the new multiannual budget framework has been of significant benefit to the NRA. It did not cost us too much sleep and we made assumptions which we prayed would prove to be correct but, under the old regime, bodies like the NRA would not know until perhaps November what their budget would be for the following year. That was no way to operate a major infrastructural programme and, at last, the NRA can now see forward for five years.

Deputy Dennehy

I remember asking Mr. Tobin about any changes necessary to complete the Limerick bypass at a meeting of this committee which I chaired in the absence of the late former Chairman, Deputy Jim Mitchell.

Deputy Noonan

That is not the Limerick bypass; it is the road to Madeira.

Deputy Dennehy

Those people who were compensated for doing no work were dealt with extensively in a report three years ago.

We have been casual because of the significant sums of money that are available. It is amazing that it has taken the NRA ten years to deal with the difficulty of designing bridges and that four or five different groups were required to take part in the process.

Mr. Tobin

That would have been the case on a single project but we are moving towards standardised design features for bridges.

Deputy Dennehy

Other examples are add-ons which the NRA did not seem to take into consideration. One instance of this is the Cork South Ring Road project, for example, which runs over my back garden. There were two railway lines available for the route, the old Bandon and Macroom lines, which started together, separated by one quarter of a mile and then rejoined. As an ordinary, simple-minded backbencher, I argued against the use of the Macroom line which divided my parish and was a social and environmental disaster, particularly for my own locality of Togher which includes bog land. I put these concerns and some questions about the engineering aspect to the local authority and was reassured there was no problem. Some 169,000 tonnes of rock fill were put into one 300 yd. section of the road which was 28 ft. deep and 108 ft. wide. It was a disaster and constituted a grave error in decision making. The Bandon line which was solid rock fill around the entire route would have encircled the village and was higher up on a 100 ft. contour line.

As a result of the decision to take route A, the Macroom line, some €200 million extra has been added to the cost of the project to incorporate Sarsfield's Road and the Bandon Road. This would have been unnecessary if the Bandon line had been chosen. I lived with that project although I spent four years arguing against it. There was constant discussion of the need for flyovers and so on for the Kinsale Road roundabout at the behest of the NRA but the possibility of using the Bandon line for the South Ring Road project was never discussed. Now €200 million is being plucked from taxpayers because of the decision to go with route A. This sort of situation could be happening all over the country and these mistakes were made because the money was available and we could afford to be flathúlach with it. That is history now but it is an example of wasteful spending.

Looking to the future, is it true that there will be some bonus or financial reward for the Turkish company charged with its construction if the Ballincollig project finishes ahead of time?

Mr. Tobin

I do not believe there is a built-in mechanism for such a reward. However, it is a bonus for the company if a project is completed three months before schedule, for example, because the site costs associated with the following three months are eliminated but it is still receiving the same price for its work.

Deputy Dennehy

I believe I read somewhere that the NRA was operating a system of incentive for early or below-cost completion.

Mr. Tobin

Is Deputy Dennehy's question with regard to the Ballincollig project?

Deputy Dennehy

I asked about that project because it is an example of a project that may be completed early.

Mr. Tobin

I am sorry that I misunderstood the Deputy. The NRA is considering such incentives and an immediate example is the road between Dundalk and Newry. That project involves a target price contract whereby the value of the work is calculated and a bonus is paid to the contractor if the work can be completed at a cheaper price. The bonus absorbs part of the gap between the estimated and actual prices. Conversely, if the project cost exceeds the estimate, the payment scales reduce progressively until the point at which no more is paid.

Deputy Dennehy

This is a matter the committee should examine as it considers the issue of public private partnerships and the importance of ensuring that contracts are properly drawn up.

Mr. Tobin

Sure.

Deputy Dennehy

Deputy Fleming spoke about project control and we are coming from slightly different angles on this matter. The system of regional offices seems to have been somewhat unwieldy. The NRA was established because various counties did not have the necessary expertise to implement roads projects. There was a good engineer in Cork County Council, for example, which meant that one encountered good roads and easy driving once one got to Kilbeheny, in contrast to bad roads in County Tipperary. The NRA was established to replace this system but there was a significant element of cross-fertilisation and design offices were set up in different locations, such as the office in Limerick which signed off some €3.5 million on one occasion. Does the NRA plan to keep these regional design offices in place and is the Department involved in their operation?

Mr. Tobin

Mountrath was the first of the regional design offices and that concept was expanded so that there are currently some 11 or 12 around the country. The objective of their establishment was that they should undertake the design work necessary for the NRA's roads programme. With the advent of the Celtic tiger and the national development plan, however, the regional offices did not have the capacity to cope with the scale of operations in which the NRA was involved. Their role was modified and they are now responsible for managing outsourced design work. Notwithstanding the hiccup represented by the project between Adare and Limerick, the regional offices have done excellent work in terms of gearing up for the programme the NRA is currently running. There may be scope for improvement in the way they operate and this is examined in the PWC report. The relationship between the regional design offices and the NRA is an issue which must be addressed.

Ms O’Neill

I can perhaps address both points and link back to some of the issues raised by Deputy Fleming.

On the question of scale, ten years ago the NRA had a budget of approximately €100 million per year. This increased to approximately €300 million before the NDP. It is now €1.28 billion per year. There has been a dramatic increase in the scale of spending by the NRA without a similar increase in resources available for the NRA to carry out its work.

The NRA was established as a funding and supervisory body, not as a delivery agency. It is part of a complex chain of command between the Department of Transport which manages the ESIOP, which is the operational programme for spending in this area, the regional design offices and the local authorities, which are the contracting agencies for the roads projects.

PWC undertook a complete review of the NRA's institutional structures and relationships with the Department and local authorities. Considering its current scale of spending the Government must decide whether the NRA should be a delivery agency and not merely a supervisory body. Should the NRA be the contracting authority for major projects? The Department is examining the appropriate role of the NRA with regard to the regional design offices. Should people at these offices be directly employed by the NRA? What is its relationship with the local authorities? I do not want to pre-empt an outcome, but it is an issue which must be addressed.

If the NRA is to become a delivery agency, what resources are required? This issue has implications for its management structure and the finance function that should be available to the authority. As a result of the NRA's supervisory role, there is not the same organisational chart seen in other commercial State agencies. Much of the contracting skills and expertise has been at local authority level or at the level of the Departments of Transport and Finance.

A range of measures are required to define the role of the NRA and its relationship with local authorities and the Department of Transport. What resources are required should the NRA become a delivery agency? In that capacity seven finance people, including a finance director, would be needed to enable the authority to deliver. These are the issues the Department is examining. As soon as the Government has an opportunity to consider them I would expect the PWC report to be published. It will shed light on how to further strengthen the role and effectiveness of the NRA in future.

Deputy Dennehy

I was under the misapprehension that the NRA was established to ensure an equal standard of design throughout the country, similar to the NBA's role with regard to housing. There is duplication of effort, with which the NRA will deal.

I am sympathetic to the NRA with regard to delays, objections and challenges. In the situation of route A versus route B, I made a case but the work was on-going and it did not halt. I had to provide a viable alternative. In terms of time and cost, what is the price of these delays and objections?

Mr. Tobin

It is not easy to answer that question. The document shows what inflation does to scheme costs throughout the year. As an example, one could determine that at 9% inflation a scheme costing €100 million which is delayed for a year will have €9 million added to the cost. Such an assumption is based on having €100 million available to spend on the scheme. The NRA hopes that increased consultation will avoid the delays of the past.

Deputy Dennehy

Most of what the Comptroller and Auditor General has said in his report makes sense. Hopefully we are all working towards the same objective. I would be concerned whether anybody was in charge when there was 31% inflation over three years. Tax was paid while work was delayed. The Departments of Transport and Finance compliment those responsible for turning it around. I accept extra costs have increased up to 14%. This is an informative and useful document. I thank the witnesses for their answers.

Deputy McGuinness

Any comments regarding the NRA, other State agencies or Departments are not personal. They are made in order to establish a shared understanding of what needs to be achieved and what structures are required to achieve it.

At the time of the establishment of the NRA there was a shortfall in terms of management structure. Surely people involved at the beginning would have alerted the Department of Transport to the need to strengthen this structure and make the changes necessary to deliver Government policy. That did not happen. As a result, a perception has grown. Representatives of the NRA have explained why projects overran on time and budget and have outlined the projects that were in place. The committee understands the issues. However, the public does not understand them, particularly local communities. They have a different view of the NRA. I would like to share some of these so the NRA might understand the committee's position.

On the issue of management, I appreciate what the NRA states in the Indecon report. However, surely staff should have known there was something wrong long before the Comptroller and Auditor General began drafting his report. Staff should have recognised there was a problem with the NRA's structure and how it worked with local authorities. The NRA was not delivering value for money. Alarm bells should have rung. The structure should have been changed. In that way, the Comptroller and Auditor General's report would not have been necessary. The NRA could have avoided negative headlines about this report and its work. Why allow it to happen? I cannot understand the reason.

This also happens with other Departments and agencies who come before the committee. It is a common situation with IT projects and big-spending Departments and now roads projects. Alarm bells must ring loudly and be acknowledged in the media before action is taken. That should not be the case. I cannot behave in such a manner in my commercial activities. If I did what the NRA did I would not be in business. The business would be closed down, it would have overspent, made the wrong call, not had the right or qualified personnel. That is what happens. The NRA's annual spend started at €100 million, went to €300 million then to €1.8 billion. Over five year periods it has had management adjustments and its attention has quite rightly been drawn to its lack of financial management over those years and today. Looking at today's structures, I wonder has the NRA learned any lessons at all, has the Department learned any lessons, and where was the Department of Finance, a question that often arises at this committee. Surely as the watchdog for departmental expenditure it should have been more proactive in getting it right, from the time the budget was €100 million to now when it is €1.8 billion a year. The Department of Finance was not proactive.

I see little change in the structures. I will illustrate this but will ask for comment as I proceed. With the ending of the dual mandate we must all get accustomed to being parochial at this level. It is the only chance we get to air some of the views people put to us. The NRA is considering the construction of the Dublin-Waterford route and there is a serious problem in Dunbell, Maddockstown in County Kilkenny, where it crosses near a quarry owned by Roadstone, leased from the Department of Communications, Marine and Natural Resources. I have attended those meetings and have not encountered any financial adviser there, or anyone who could estimate the cost involved. The road was moved from line 1 to lines 2 and 3, always protecting the rights of the Department of Communications, Marine and Natural Resources, and of Roadstone. At least such is the public perception.

This is done at the expense of the rights of the private land owners, whether farmers or whoever in the area. Has the NRA received a claim from the Department of Communications, Marine and Natural Resources, or from Roadstone, in connection with that project? Is that what determines the line of that road and why, given that public officials were involved in the project, did it not know that it was running the road over a major landfill which had been closed? That emerged from public consultation in recent weeks. No one could answer questions of funding for its structure.

The NRA, not the county councils, is blamed for many of the problems. I blame it too because it should actively drive the necessary changes to ensure that it is not blamed. Why was were there no representative of the NRA or the council there with financial knowledge of the cost of the construction or of making the changes on these roads? What efforts has the NRA made within its own structure to develop people's skills at dealing with others, for example, landowners, or is it leaving everything to the engineer? The engineers are interested in straight lines, getting over the bridge but are not always skilful at dealing with people or communicating the message to the local community. At that level the structures are wrong. Why at national level does it take so long to make that change when public money is being spent? Why does it take so long to sell a road design to a local community? Why do engineers always deal with that?

Mr. Eagan

Planning roads is an involved and difficult process and the days of drawing a line from A to B are long gone, if they ever existed. The NRA takes account of all relevant factors, environment, land severance, the impact on homes, the implications for traffic in trying to devise the most appropriate route, taking account of broad environmental issues too. We have been working with Kilkenny County Council to determine the route of the N9 scheme. We did a great deal of work, aided by consultants which was part of the very broad consultation process that is a standard feature of road schemes, although the law does not require it. We try actively to involve and inform the public and keep it in the picture as the route selection process evolves.

In the course of that we consulted the Department of Communications, Marine and Natural Resources who told us of the presence of significant mineral deposits, especially a particular form of limestone, a scheduled mineral. The Department said it might seek compensation for royalties that could be foregone were the road to proceed along the intended route. Clearly, its intention was to sanitise the land take, the minerals under and close to it. Experts were appointed to look at it and a range of costs was put on the table. That figured in the assessments of the situation and the likely cost of the scheme by the NRA and Kilkenny County Council . We also faced a potentially large bill from Roadstone. If the minerals are sterilised it is not just a question of the royalty, a relatively small percentage, which ran to some millions of euros.

The line of the route continues to be assessed against that background and there is every likelihood an alternative route will be adopted. There will be public consultation. A report has been published on that. The final position will be the subject of further consultation, leading to a process in which we try to involve the public actively and keep it informed but An Bord Pleanála makes the final decision on whether the road scheme proposal is acceptable, taking account of all relevant factors. This is true of all road scheme planning. We acknowledge that people can be inconvenienced, a road can be imposed on some land owners or home owners but the case that the NRA and the local authority put forward is open to scrutiny at an oral hearing organised by Bord Pleanála, the independent body that will adjudicate on the merits and that is why we approach this and other road schemes in this way.

Mr. Tobin

We were asked why people in the system did not flash the lights at an early stage. They did and our parent Department responded. The scale of operations facing the NRA increased exponentially. Nobody could have imagined it would increase its rate of activity so quickly. As someone approaching the end of 40 years in the public service, I ask the committee members as legislators, when they next discuss a Bill to set up a body, to ask has somebody looked at the functions and the skill sets required to deliver it and what staff numbers will be provided for it. In that way five years later someone might ask if that was the right skill set, the right staff complement or what they should have been.

Deputy McGuinness

If I may I ask Mr. Tobin gently, is he saying that the National Roads Authority does not have or never had the right skills set?

Mr. Tobin

No, I am not saying that at all. When the National Roads Authority was set up, it did not have the skills set. In the context of a programme that expanded rapidly, it did not have the sufficient numbers or an appropriate skills set. To be blunt about it, it was an amalgamation of people who remained in the old environmental research unit into road safety of An Foras Forbartha with a group who previously operated in the roadwork's section of the old Department of Local Government. At the time, we would not have had all the skills sets that we would have wanted. We argued that we did not have the numbers of staff but we have progressed since then. In any organisation where the work level expands rapidly, there is always an argument with the parent Department for more staff. Without making too much of an issue, I am gently suggesting to the Deputy that if he sees a Minister establishing a body through legislation, he should ask those questions.

Deputy McGuinness

Regarding the gentle question so well put, when the manager is put in place, it is then up to him or her to turn to the powers-that-be to inform them, though they have given him or her the toolbox, that there are no tools. How many times was that question asked? When this is answered, we can point the finger at the ones who make the decisions. Like in every business, regardless of how sharp are the tools in the box, they have to be constantly sharpened. It is done in the private sector all the time but never within the public sector. As a result, a perception is created among the public. It is only when I boldly confront people before this committee that I find out where the shortfall is. Last week, we heard of legislation being put in place but no money to implement it. It is the same today — legislation, little money and little skills. I am glad Mr. Tobin has pointed me in a direction.

Ms O’Neill

Deputy McGuinness asked about my Department's stewardship of this programme. When we took over responsibility for the programme in 2002, it was after the bulk of the issues had been identified in the Comptroller and Auditor General's report had emerged. Since we took over responsibility for the programme, there has been no supplementary estimate for the roads programme and we have stuck to budget each year. There has been no further escalation in the cost of the programme, other than the escalation due to normal inflationary costs. From the time, the Department took responsibility for the programme, it has been satisfied with the control of money going into the programme and the outputs in return for the expenditure. Staffing at the National Roads Authority was reviewed between 1998 and 1999 at the time of the Andersen report. The Department recognised that in the light of the dramatic increase in expenditure and responsibility that fell on the National Roads Authority, the time was right to review whether authority, responsibility and accountability in the National Roads Authority should be properly aligned to the local authorities that work on its behalf and the Department. The Department also reviewed, as Deputy McGuinness put it so well, the tools it had to do the job that it has been asked to do. In that context, the National Roads Authority has undertaken a comprehensive review of what it believes are its requirements. The board has given the Department a set of proposals for the single most significant change that will ever have taken place in the history, structure and function of the authority. The Department is examining this closely.

Ironically, the National Roads Authority has been deemed to be a non-commercial State body in its structure because it relies on funding from the Exchequer. As a result, it is caught by the constraints in staff numbers that apply to all non-commercial State bodies and the public service. The Department of Transport will negotiate with the Department of Finance to determine what steps need to be taken to strengthen the resources available to a revamped National Roads Authority. The Minister for Transport hopes to bring these proposals to Government in the early autumn.

Mr. Dunning

Regarding Deputy McGuinness's question on the position of the Department of Finance, when the Department became aware of the scale of the problem, it commissioned its own evaluation of the roads programme. This was published in August 2002 and contained a number of recommendations to improve the situation. We have heard the evidence today of the improvements that have been made as a result of the evaluation. In so far as the Department is concerned, that the five year rolling capital envelopes have been implemented is a major improvement to the process. All agencies delivering infrastructure, whether it is in roads, housing, sanitary services or health service, will accept that this was an important initiative. The Department of Finance pushed this and the Minister for Finance announced it in last year's budget. We have also promoted changes to the procurement regime which was discussed earlier. This will help to give more certainty for outturn costs on projects. Those two initiatives are important and we are seeing the improvements that are resulting from them from the evidence from Mr. Tobin. The Department has not been found wanting in terms of action that had to be taken at macro level.

To support what the secretary general has said about the Department of Transport, there has been no overrun in the roads or the departmental budget over several years. More importantly in relation to the responsibility of the Department of Finance the management of the overall budget and overall expenditure by the Department of Finance in recent years is an exemplary one.

Deputy McGuinness

On account of the time I will not flog this horse much longer. However, I wish to flag for the National Roads Authority and the Departments of Finance and Transport that the issue of the Dunbell-Maddockstown section of that road will not go away. The report they are relying on was carried out by Roadstone. This is strange considering this company has a potential claim on that site. I also find it unusual that local people engaging with officials at county council level are not given the same right of hearing. They have asked that either the Departments of Communications, Marine and Natural Resources or Transport or the National Roads Authority conduct a private study of the size and location of the dolomite reserves. This will ensure that it is known whether the road is placed on or off the reserve. This issue needs to be addressed. Otherwise, it will go nowhere with continued public disquiet about it. The onus is on us, as public representatives, and public servants to ensure that the system is transparent and the public can engage in the process.

I have already raised the issue of the overspend on the Piltown/Fiddown by-pass at £13 million. When I inquired of the final costs, the local county council would not tell me as it had gone to arbitration and the information could not be given out. I eventually got the information from the National Roads Authority. For such a short stretch of roadway, its price doubled. Local residents are still unhappy because the road is not finished and there are outstanding issues such as fencing. There is an ever greater cost associated with that road. I am asking about this because I put a parliamentary question on the matter to the Department of Transport and was not happy with the response. It is fine to quote the rules and regulations but one must see if they work. This is the book of rules of design, or whatever. There have been four deaths on that road, one very recently. It comes back to democratic input from people representing communities. I ask the NRA to acknowledge that. I am not saying this in a confrontational manner. We are delivering this in partnership.

Public representatives make a request to have the 13 right-hand turn junctions properly signposted, lit and marked on the road. That request has been turned down. After the last person died on that road, the junction was marked. The local community is merely asking that the roads be marked. One can sometimes have one's book of rules, but common sense should play some role too. It would be common sense for the NRA, the Department of Transport, or whoever, to supply the necessary money to mark the road and finish it properly so that this particular concern can be taken out of the equation.

I asked for an inquiry into the design of that road, the spending on it, and its completion. I did not get a proper answer to my parliamentary question. There is a cost factor involved. The road cost has doubled, the road is unfinished, the local community is unhappy and the democratic call for some sort of action has been ignored by the county council and the Dáil. I again ask the Secretary General of the Department of Transport to acknowledge that there is a problem with this road and that it is not acceptable that four people have died on it. The request in terms of the cost must be addressed. I ask her to look at that in the context of the provision of the other sideline costs. I know for example that the community has asked for the school bus to be re-routed. That road goes straight down through the local community.

Ms O’Neill

I understand that the NRA is arranging a review of safety on that road.

Mr. Tobin

The Deputies are talking of tragic events on the road. There are however guidelines to which we operate, and if we do not have guidelines, where do we stand? I am prepared to take on board the request for a further safety review of the road and we will see where we can go from there.

Deputy McGuinness

Thank you. There is another safety issue relating to part of the ring road in Kilkenny. The county council and officials of the Department of Transport have been in discussions about this, as has the Minister, directly with the county council and the NRA. A decision must be taken regarding that roundabout, sooner rather than later. The ring road is built, and is short of one roundabout. This is a major safety issue. The road is deemed to be unfinished, and again it gives rise to the perception that the NRA moves swiftly through communities and delivers the project while sometimes ignoring a cry from the community. I am not saying this is accurate, but it is being said. This is just one further project which might be looked at in this context.

Could Mr. Tobin tell us about progress on the next stage of the ring road in Kilkenny? A sum of €31 million was announced for the project in May. There is also the issue of the agreement with the IFA, which involves further antagonism, disagreement and frustration among land owners. The local authority says it is an issue for the NRA while the latter says the opposite. Notices of threat and notices to enter were issued. The local land owner made his submission to the auctioneer as to the value of the land. There is a very substantial difference between the valuations. None of the dates have been met, not because the land owners are at fault, though the NRA or the county council may be at fault. All this adds further costs. When a land owner is antagonised or upset by the system, the value of the land increases in his or her eyes. This contributes to the structural problems the NRA have and adds to its costs.

I do not believe what we are seeing today is a great step towards greater efficiency on the ground. This problem relating to the agreement of the IFA and how that is dealt with by the NRA or by county councils is causing major difficulties for specific road projects such as the ring road in Kilkenny. What stage is it at? When will the arrangements with the land owners be concluded? When will the contract be asked for or put in place?

Mr. Tobin

It is hoped the extension of the ring road, involving a connection to the Castlecomer road, will go to tender some time next year. Regarding Glanbia, my understanding is that it has a premises within or on the inside of the ring, and that there is a proposition now to develop outside. The idea would be to handle traffic by means of a roundabout on it. Clearly we have some qualms about developments outside the ring road in Kilkenny. We would like to think of it as delineating the extent of the urban development there. Clearly it has the impact of diminishing the value of what in effect operates as a bypass of the urban area. As with the Piltown development, I will consider it and will make contact with the Deputy.

Regarding land acquisition, we should stand back and look at the big picture. Why are we here today? People are worried about the cost of this programme. While the programme has been going on, property acquisition costs have risen by 65%, yet we are being told that people are not getting enough money for their land. It is taxpayers' money we are spending. How much further must we go? We are trying to keep a handle of the amount of taxpayers' money going in this area, as in any other area of activity. We have with us a person who has that function within the NRA and is trying to bring some common practices to bear on the level of offers being made. The offers are reasonable. One must wonder if people's expectations of what their properties are worth have gone through the roof. Is there any good reason that should be? I do not know. When we are trying to keep a handle on the amount of taxpayers' money we spend, it is not very helpful to be castigated for it.

The NRA is a sort of pig in the middle in much of this. It is there as an overseeing agency. On a day-to-day basis the local authority is charged with the responsibility for implementing the scheme, for dealing with the local land owner and road design and for clearing matters with the NRA. One is dealing with an operation involving 90 people. If there is a view across the table that those 90 people can somehow manage every scheme from conception to completion, someone needs to think again. Through the NRA, the regional design office and the local authorities we are managing to deliver that major programme. If someone wants to say that the buck always stops with the NRA, one must look seriously at the size of that body. Ninety people cannot provide the sort of hands-on service that people seem to say the NRA should provide. We cannot do that. We have managed to work quite well without so doing. There are flaws in the system. By and large, however, it has managed to deliver us to the point we have got to, so far, using local authorities and their local knowledge and contacts with the local community and their ability to avoid pitfalls in designing and building their roads. There is a bigger question if people want to ask what the NRA is about, what its functions are and how it should operate. Should it be responsible for every nitty gritty detail? Unfortunately, if anything goes wrong, the NRA is first in line to get the rap. It is thick-skinned and does not mind that. However, it can become tiresome after a while.

Deputy McGuinness

The question I raised about the Kilkenny and the IFA agreement was not about the cost of land. There will always be a difference between the positions of the buyer and the seller. It is a question of the dates to which people must adhere. Those dates are laid down, but by and large they are being ignored. It does not help the process. Neither does it help the process today that Mr. Tobin says, for example, that this project will go to tender next year. We are being told by the county council that it will go to tender in October-November. I hoped this would be confirmed. It is not the case and perhaps Mr. Tobin could check this with the other two and come back to me on it. I am anxious to be specific.

In general, I agree with Mr. Tobin that a broader debate needs to take place on the role of the NRA and what we expect of it. If it is to deliver it must do so for every aspect of the project. In the community the NRA is getting blamed for what happens with the project. We, as public representatives, are piggies in the middle and are getting blamed, too. People are saying it is not a democratic process and that they have no input into it. It needs to be addressed properly and the Department of Transport should look at that.

Mr. Tobin

The expectation is that there will be a significant spend on construction as regards the ring road next year. That really is the bottom line. On the land acquisition arrangement I am sorry if there are instances in Kilkenny where the deadlines are not being met. We will see what can be done about that. They should be met. However, let us not get too lost on the niceties of deadlines. It is the easiest thing in the world for a local authority to make an offer within a deadline. If that is all we want, it is simple to do. However, if we want to get a meeting of minds and some agreement on a deal that will be acceptable, perhaps we should not be too concerned about those deadlines.

Deputy McGuinness

I just have to address that. I am not over concerned about anything. It annoys me, however, when a land owner or a project is left hanging out to dry for 12 months and no one makes contact with anybody. That does not do any good for relations between the people delivering the project and the person selling his or her land — or the local community waiting for the project. No one can get information and that is wrong. I understand how someone may be left waiting while the NRA attempts to size up the position as regards the cost of the land. I also understand how dates can slip by, but not to the extent that no one knows exactly what is happening and cannot get a response. I just want to clarify that because this is happening. I have experienced it in Kilkenny. I understand the big picture, but when one gets into the finer detail it is amazing where the NRA is losing out in terms of efficiency and money. That is what factors into the cost effectiveness of the overall job. This harks back to the Piltown-Fiddown bypass. It is not finished and it cost double the money. That annoys everybody. The fence might only cost €100 to put up, but it costs the NRA €26 million to deliver it.

Mr. Tobin

I have no doubt Deputy McGuinness knows who the liaison officer is within Kilkenny County Council on that project. Nobody should be left hanging there for a year. If the Deputy wants to make contact with that person or wants to talk to me and give me the details, I will contact the liaison officer. Contact is one thing, however. Meaningful dealings are a different matter.

Deputy McGuinness

They usually come out of contact.

Mr. Tobin

I agree.

Chairman

Mr. Tobin has undertaken to deal with that matter for Deputy McGuinness. I thank him.

Deputy Fleming

I will be brief, because it is late. I just want to say to the visitors that today's meeting is somewhat unusual. Normally we have guests before the committee and members probe and ask many questions. Today, quite a number of views and comments are coming from this side of the table, and not just questions. The reason is that the NRA programme is so extensive as to impinge on us, as politicians, in our individual constituencies. There are three or four hundred million euros worth of contracts to be undertaken in County Laois etc. I would advise the visitors to listen to us, too, as public representatives. What they hear from us, today, is what we are hearing from the people at local level. This is slightly different to the situation involving most other delegations to come before the committee where members are seeking answers. We have a considerable amount to say to our visitors and they should treat this in the spirit of the committee members doing their jobs as public representatives.

From what I detect, there were reports from Andersens and Fitzpatricks a few years ago. There is a PricewaterhouseCoopers report now. We have the Comptroller and Auditor General's report today and we had one a couple of years ago. I may have missed a few. My point is that almost every year — or two years, maximum — we have a consultant's or a Comptroller and Auditor General report on the NRA. That is the message I have picked up within the past few hours. Regardless of the fact that the new PricewaterhouseCoopers report is going to the Minister and that a new financial regime may be put in place, I cannot accept that an organisation with an annual turnover of €1.5 billion cannot appoint key financial people because of structures. I hate to hear debates about structures within bodies. The more these are being debated, the less likely it is that the job is being done.

Chairman

Is this not a matter for legislation?

Deputy Fleming

I do not believe there is anything in the legislation which prevents people in the NRA from having a financial background. I take the point that we must look at what the role of the NRA is, as regards a delivery agency versus a supervisory funding agency. However, I do not believe anything has prevented the NRA from finding a mechanism — perhaps not full-time staff. Apart from having read the report yesterday, the reason I have pursued this theme is, the fact that I have dealt with many projects in the NRA over the years. At the design stage in one case the consultant engineer was talking about a route going over a bog and I said that would cost a fortune. I may have the wrong title as regards "consultant engineer", but it was someone in authority who was going to make it happen. He said it was an engineering issue and "we can spend our way out of anything". This has been said to the likes of me on the ground by NRA senior design people. When I hear that as a public representative who is one of the people being attacked about queues in A & E units in local hospitals, I have a problem in defending this type of comment. This is why I maintain there is an overemphasis on the engineering side. Of course it is possible to engineer and spen' one's way out of any problem. Perhaps Mr. Tobin appreciates the point. I am sure he has often heard that comment internally in his own organisation. It sends a shiver up my back to think that money is of zero concern. It was irrelevant to the solution of that problem.

Moving on from that——

Chairman

The Deputy will make one final point.

Deputy Fleming

I will be brief. I would like to touch on construction versus pre-construction costs. Take any of these projects. The pre-construction period is normally six to eight years, while construction takes two or three. I know of projects that were spoken about in 1988 and may be going to construction in another year or two, to be completed a couple of years after that. The NRA has not got a handle on the pre-construction and design costs. It seems to be getting a handle from the tender forward. I understand some of the projects are at the pre-construction stage. The non-construction costs are actually bigger than the construction costs on some projects, especially in urban areas. That is an issue that should be looked at. I will conclude by saying, while I recognise the work done by the NRA, the emphasis has slipped in terms of its grants to the local authorities every year. I noticed, as a Deputy five or six years ago, good grants were always available for safety improvement work in the early part of the year on existing national and secondary route structures in the country. There was zero allocation for traffic route lighting on the national primary routes in Laois this year, because the money is being geared up for the new projects. This is happening in every local authority. There are unsafe junctions on the national primary route, as Deputy McGuinness has observed, and no funding is coming through because the emphasis is on the new motorway. Thousands of people will continue to use these other roads every day for the foreseeable future and I urge the NRA not to lose sight of the need to make the existing road carriageways safe.

Deputy Noonan

This has been a long meeting but it has not resolved much for me. I acknowledge that the NRA has delivered major road projects in recent years and has done some excellent work. I am a road user who drives approximately 30,000 miles a year and is familiar with the roads. From an engineering and design point of view, they seem to be of international standard, notwithstanding the odd quibble about an unsafe junction or particular stretch of road. The NRA has delivered a good product but there is a serious and continuing concern about the cost of putting its projects in place.

One of the major difficulties faced by the NRA is the lack of an accurate flow of information, even to Members of the Houses of the Oireachtas. When problems arise at local level, the local authorities are quick to blame the NRA, whether rightly or wrongly, and it seems always the fault of the NRA. It is quite difficult to obtain information and there is no routine flow of information from the NRA to the Houses in the manner of such information flow from Departments. As an agency, the NRA is not subject to the scrutiny of parliamentary questions to which Departments must subscribe so that information route is not available. Deputy Fleming has given the good advice that the NRA should beef up its financial side and I add that it should improve its routine dispersal of information. There should be a liaison officer to communicate with Deputies and Senators, for example, from whom an instant response can be obtained.

More than ten years ago, the bane of every Dáil Member was the Department of Social Welfare from which it was impossible to get information on any issue. The Dáil Order Papers were cluttered with parliamentary questions as there was no other way of obtaining information from that Department. On becoming Minister, Deputy Woods addressed the problem by establishing a unit dedicated to processing Deputies' queries and the situation was turned around quickly. The computer revolution also helped because one can now tap an RSI number into a telephone and access information instantly. Such a system would be less difficult for the NRA to establish, in contrast with the large number of social welfare recipients for whom data had to be collated for the Department's system, because the NRA does not handle a major number of projects at any one time. Following the demise of the dual mandate, Deputies and Senators are not receiving the same flow of information from local authorities regarding NRA projects so the NRA must provide a point of contact from which Members can obtain that information. That would solve many of the perception problems with which the NRA suffers. It is being beaten over the head for the sins of the past even though the situation has improved considerably.

Can Mr. Tobin explain the circumstances in which the lowest tender would not secure a contract and the considerations of the NRA in awarding contracts?

Mr. Tobin

I thank Deputy Noonan for his comments and will consider seriously his suggestion regarding the need for a point of contact for Oireachtas Members. The lowest bidder would not secure a contract if, for example, it were adjudicated that the relevant contractor did not possess the requisite expertise and so on to do the work. That is the main reason a contract would not be secured by the lowest bidder. As a general principle, a competent contractor who submits the lowest bid will secure the contract.

Deputy Noonan

I believe there are Department of Finance guidelines whereby considerations of overall economic advantage can be taken into account. How does that play in practice or are they merely theoretical considerations?

Mr. Tobin

My understanding is that the NRA sets out the basic ground rules for the bid process, one element of which is that contractors must demonstrate their ability to do the work. Once that ability is demonstrated, EU legislation stipulates that the lowest bidder must get the work. A grey area is in the matter of the assessment that is made regarding a bidder's ability to undertake a contract. In a situation where all bidders have been established as competent, the lowest bid will secure the contract.

Deputy Noonan

At the risk of offending Mr. Tobin a second time on a compensation issue, can he say whether it was Mayo County Council or the NRA which was involved in the matter discussed in reports of last week about the Knock Airport bypass?

Mr. Tobin

The bill that emerges — if one should do so — will find its way on to the table of the NRA.

Deputy Noonan

Was a firm of consultants from my part of the country involved?

Mr. Tobin

No.

Mr. Tim Ahern

No consulting engineers were involved in that scheme.

Deputy Noonan

Perhaps Mr. Ahern might give us a short summary of what happened with that scheme and the issues which arose.

Mr. Ahern

Mr. Tobin has explained that the award criteria are clear. This contract came under the terms of the EU competition legislation because it was over the limit of €5 million and subject to the relevant selection and award criteria whereby the contract must be awarded to the lowest bid providing all rules regarding the submission of tenders were adhered to. Complaints were made some years ago by contractors here that contracts were not being awarded in an open and transparent manner. The NRA then agreed rules with the legal people in the European Commission, one of which was an absolute prohibition on zero rating of any item in the bill. The instructions to tenderers are quite clear that a zero rate inserted against any item, no matter how trivial, will result in elimination from the competition. In this instance, the lowest bidder was found to have two zero rates within the bill.

Deputy Fleming

What is zero rating?

Mr. Ahern

This refers to the price per unit. Normally there is a description of each item. For example with regard to "excavate material", the unit is measured in cubic meters or square metres and so on and the price per unit is multiplied by the number of units to give the cost for that item. There is an absolute prohibition on assigning a zero cost to any work item because, no matter how trivial, every item of work will cost some money to perform. This was an issue which we debated with the Commission some six years ago. The instructions to tenderers state explicitly that a zero includes a blank, "nil" or stroke but, in this case, the contractor did not put any cost for two items and was therefore eliminated and the contract was awarded to the second lowest bidder in 2000. The disgruntled tenderer objected and the NRA reviewed the decision and found it to be correct. The bidder then initiated court proceedings and the hearing was held 18 months ago, the verdict of which was announced last Friday. One of the tenderer's arguments was that the zero rated items were of so little consequence that they should have been ignored — the de minimis argument — but this was rejected by the judge. The contractor’s second argument was that Mayo County Council had taken other factors into account when deciding who would get the job. The judge also dismissed that argument. However, he found that there had been some adjustments to the method of measurement and the specification which would have made it difficult for the contractor to price the job. No other contractor had this difficulty. The judge agreed there was ambiguity in the background documents sufficient to forgive the zero rating, and it should have been forgiven. Compensation figures are floating around in the press. These numbers merely reflect paper’s inability to refuse ink. They are not significant. The decision is fresh, it runs to 45 pages and the question of appealing it is under consideration.

Deputy Noonan

Against the background of these events, is it not becoming increasingly difficult to accept any tender other than the lowest?

Mr. Tobin

It is subject to compliance with rules. We wish only to accept the lowest tender. The projects with which the NRA deals are funded by taxpayers' money. Subject to having a competent contractor, we seek the best possible price. In the past there were disagreements about the manner of dealing with issues, what we call "tenderingship", where certain items were not priced and it was felt the contractor was pricing for elsewhere. Games were played. In order to get around that, and in consultation with the European Commission which has a role in how the NRA operates it procurement processes, we clearly laid out terms of tendering for and awarding contracts. This is how we work. The European Commission agrees with this process, the courts deem it acceptable. One might wonder why minor items in a contract might affect an award. However, the certainty these terms bring is worthwhile and the courts have accepted it as the proper manner in which to proceed. In this instance, the courts made a circuitous judgment that even though a price was not submitted perhaps it was not caught by the normal route. I would prefer not to discuss the issue too much. I think it likely that an appeal will be lodged, so the matter is still subject to the courts.

Deputy Noonan

I had my first experience of public tenders when I joined Limerick County Council in 1974. At the time there was still an issue about one-off rural houses — council cottages that were up for tender — and whether the lowest tender would be successful. Some contractors came in extremely low and went bankrupt on the job. They were stuck with it, and could not complete it. That consideration is there in big contracts also as the tenders go international.

Mr. Tobin

Yes.

Deputy Noonan

The last thing one needs is a contractor to go bankrupt halfway through a job.

Mr. Tobin

We rely on the ability of the contractor to obtain a bond. A bondsman would not bond a firm if he felt that its pricing amounted to financial suicide. We rely on that mechanism to save us from appointing a contractor who is not financially sound.

Mr. Ahern

If a tender is deemed abnormally low, we are obliged by European directives not to dismiss it immediately but to seek explanations. We have indicated to contractors that if their prices are a certain percentage below the mean figure an inquiry will be triggered automatically. We question prices that seem unsupported.

Deputy Noonan

The NRA is getting a huge range of prices. The Turkish company that has been awarded the Ennis bypass project is likely to do a great job. There was a wide spread of tenders for that job.

Mr. Tobin

In a recent group of design build contracts, the spread was 100%. For the Ennis bypass, €119 million was the lowest tender and €173 million was the highest. That project did not have the biggest spread of prices. However, we have had spreads of 100%.

Deputy Noonan

It is a significant spread.

Mr. Ahern

The three lowest tenders were close to each other. The lowest price was not incomparable.

Deputy Noonan

The highest price was local. Perhaps Deputy Dennehy knows something about this.

Mr. Ahern

Or he may have given up.

Deputy Noonan

It might be another of Deputy Dennehy's hobbyhorses.

Deputy Dennehy

We are digressing from the report. Since the two most important men in roadworks are here I will refer to two of my hobbyhorses.

On the issue of safety, great work is being done providing pedestrian islands and nibs on roads approaching villages. For four years I have requested that it be made compulsory to have reflectors on such safety measures. It is criminal that so much money is spent while there is a refusal to do anything about this. It is not a phobia. I almost hit a pedestrian island in Rathcormack at twilight one evening and I thought the system was crazy. I have been paying attention to these safety measures since and every one of them is marked by tyres and wheels. A small effort has been made in New Inn, County Tipperary. There are reflectors at ground level on the new roundabout. The footpaths seem to have lights. It costs little. Spending billions of euros without addressing these concerns is the sort of thing which attracts criticism. Almost all 32 pedestrian fatalities three years ago happened at the edge of villages and towns because the areas where drivers were meant to slow down were badly-lit.

How is it possible that the NRA cannot provide a safe location for forward warning signs? Ireland is different to every other country in the world in that our signs are being demolished. The NRA replaced four signs in Cullahill after I pointed out they had been damaged. These were battered beyond recognition, they had been hit 20, 30, 40 times. They have been replaced but the bottom of one has gone again. These are signs to warn drivers to slow down to 40 mph. I have seen similar damage to signs outside Cork University Hospital. I know local authorities have a role but designers should be able to make signs more durable and situate them in better places? Some are demolished within two months. Eight years ago I got a price of €100,000 for a forward warning on the Kinsale Road. Most of these signs are smaller. One of the last times Mr. Tobin was before the committee, there were 45 badly damaged signs between Cork and Dublin.

It has been mentioned that Mr. Tobin is to retire. Before he does, can he get rid of the quarter mile of cones on the Portlaoise by-pass, the slip-road to Cork?

Deputy Fleming

I agree with that.

Deputy Dennehy

It is unreal. People want to know why the cones are there. Year after year I explain we had a problem with a farmer and gave him an alternative entrance and that his neighbour rowed with him. However, people want to know why nothing has been done. They ask whether we have a Government or a Department of Transport. I almost had an accident there a month ago but I was lucky. I would not be allowed to design a roundabout like it. There is no excuse for having it there for five years. Apart from the danger there is a quarter of a mile of cones that could be re-used. This is a final appeal. I will not have an opportunity to meet two such important people in the near future. Perhaps one would put pressure on the other.

Chairman

I hope the committee is not prematurely retiring Mr. Tobin.

Mr. Tobin

I wish I could give the Deputy good news about Portlaoise. However, there is a serious issue as regards access towards the end of the free-flow slip. We have not managed to resolve it.

Deputy Fleming

It has been at least five years.

Mr. Tobin

I accept that but we and the local authority were almost held to ransom on this. I will see if anything has changed but my understanding is that it has not.

Deputy Dennehy has always taken a great interest in signs and I hope that signage has improved somewhat on his recent journeys from Cork.

Deputy Dennehy

It has improved but the aluminium for which we paid a large sum was affected by a fungus. That is only a silly thing. There are many serious engineering problems that cause difficulty and which I would not have allowed in my own business, for example, rounding off corners. Deputy Fleming cited a list of engineers that should be able to design anything in the country. It is serious when one sees a relatively new sign, maybe three or six months old, flattened. One assumes it was put in the wrong location. The location is more important than the quality although that should be considered too.

Mr. Tobin

The authority is reviewing this overall issue of road signage, in terms of content, siting, and similar issues but we will add location to the list.

Deputy Dennehy

What about reflective studs?

Mr. Tobin

The good news is that we are about to appoint two contractors to deal with what we call the northern side of the country, the other to deal with the southern side, to maintain our traffic calming sites. That will involve, among other things, regularly painting the surrounds.

Deputy Dennehy

I dispute the merit of painting. The painting is at a low level and mud is sprayed up so that even reflective paint goes in two months. It took years to get the right cat's eyes which are excellent. The NRA puts the green reflective ones on entrances to roads but will not put in studs. We are building large traffic islands but the studs are not put in at the time of construction. It is beyond me. Paint will be redone every couple of months. I am interested only in safety. It is a small cost. The NRA should review that, instead of painting something with luminous paint. The studs are more effective. One sees them in other countries.

Chairman

Would Mr. Purcell sum up now please?

Mr. Purcell

I am almost tempted to exercise some of my own hobbyhorses. I will confine myself to one — trees and hedges growing around road signs which is also a safety issue.

To return to the matter at hand, this report builds on the earlier VFM report and recognises the contents of the Fitzpatrick report which I tried to validate independently. There is a value in getting that independent view. I am not suggesting that any report is biased. This report broadly validates the contents of the Fitzpatrick report but it also builds on our earlier work which signalled some of these things. The Secretary General mentioned the need to align funding to physical outputs in order to evaluate value for money. That was signalled in 1999.

The estimation process can be regarded as a very academic process but it is not. The evidence we heard here this morning showed why. A couple of years ago we were in a funding hole because of the lack of accurate estimates which necessitated the slowing down of a programme and all that entailed. While it is not an exact science, it is an important tool of financial management and budgeting. The NRA has advanced significantly on its situation four or five years ago and incrementally made improvements. The establishment of the cost estimation function, the way that has been built up and the expertise that has come with it are showing results, which is positive. Contracting procedures have improved since the Minister for Finance announced different ways of contracting. There was a view that re-measurement was the only way to go. Sometimes it is but not always, just as PPP is not always the best route. I did not suggest, and it is not included in the report, that the consultants are paid at a fixed percentage of the total cost, instead of a portion at a fixed percentage. They are large consulting firms, there is a great deal of business available and they should be able to take the risk of setting fixed prices. I am delighted to hear the response to the NRA's recent initiative which is getting positive feedback in the form of better value from the consultants.

In that sense this is not a bad news story, it is an historical overview which tries to do many things. We went to the Highways Agency in Britain to confirm our view of the way its target cost contracts proceed; we spoke to people in the North to see what was happening there, and although we did not reproduce it in the report, we looked at cost comparisons. Fitzpatrick did some work and the written statement of the accounting officer referred to the differences in costs between the UK and Finland and found our costs are lower per kilometre. A Goodbody study on behalf of the Construction Industry Federation gives a different view of that. Mr. Kelleher of the CIF sent it to me and commented on my report. It is healthy that there is more dialogue, and we are trying to progress.

Something is happening now. It would be churlish to say it is belated because that would be simplistic and would not take into account some of the things Mr. Tobin told us about the establishment of the NRA and the qualitative and quantitative resources available to it in the early stages. I do not agree with one of the members who said we will be back in five years' time complaining about the same things. We may be back here in five years but on the basis of what has been done I doubt we will be complaining about the same things. We will probably have new things about which to complain.

Chairman

I thank Mr. Purcell for the very positive summary, and for his report. I thank the Secretary General and Mr. Tobin and his team. This was a long but worthwhile meeting which Mr. Purcell has summed up effectively.

Our next meeting will be next Thursday, 22 July when we will discuss the Competition Authority Accounts for 2002 and 2003, and Frank Daly will give us a progress report on the Revenue investigation of offshore accounts.

The committee adjourned at 4 p.m. until11 a.m. on Thursday 22 July 2004.