COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 21 Apr 2005

Value for Money Report No. 48 — Grouped Schools Pilot Partnership Project.

Ms B. McManus (Secretary General, Department of Education and Science) called and examined.

Chairman

Witnesses should be aware they do not enjoy absolute privilege in the evidence they give to the committee. 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 who are 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 being invited before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may have to be made aware of these rights and provided with a transcript of the relevant part of the committee's 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 shall also refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policy or policies.

I welcome Ms Brigid McManus, Secretary General of the Department of Education and Science, and her officials. I also welcome the officials from the Department of Finance. In particular, I congratulate Ms McManus on her recent appointment as Secretary General of the Department of Education and Science. It is perhaps a little soon to be brought in before the Committee of Public Accounts, but that is the price of fame.

Ms Brigid McManus

Thank you.

Chairman

Perhaps Ms McManus might introduce her officials.

Ms McManus

Mr. Martin Hanevy is the Assistant Secretary General in the Department, dealing with finance and buildings. Mr. Brian Duggan is the principal officer dealing with the finance unit, and Mr. Martin Heffernan is the manager of the building unit. Mr. David Gordon is the principal in the public private partnership unit, and Mr. Brendan Kinsella is the assistant principal working with him.

Chairman

Perhaps the officials from the Department of Finance might also introduce themselves.

Ms Ann Nolan

I am the principal officer in the Education Vote section, where Ms Emer Hogan also works. We are accompanied by Ms Stephanie O'Donnell, principal officer at the public private partnership unit, where Mr. Jim Deane is also employed.

Chairman

The Comptroller and Auditor General, Mr. Purcell, may now introduce value for money report No. 48, the group schools pilot partnership project.

Mr. John Purcell

In 1998, the Government established an interdepartmental group to consider how public private partnerships should be developed in the Irish context. Following recommendations in a consultancy report prepared for the group, the Government decided to approve a pilot programme of PPP projects, with the aim of identifying issues and problems encountered during the implementation of the projects and using the information and learning to develop PPP policy and enhance the process.

One of the projects included in the pilot programme was the building of five new second level schools. That was the first of the pilot projects to come to contract agreement stage and subsequently to begin operating. I felt that it would be useful to examine the process with a view to identifying lessons that could be applied in the development of other major projects. That was the thrust of the examination rather than any assessment of the merits of the PPP approach per se.

PPPs in their various forms are part of a wide range of options for procuring infrastructure and public services. Experience elsewhere has shown that PPPs have the potential to deliver good value for the taxpayer in appropriate circumstances but that they do not necessarily represent the right approach for all projects. The choice about using the PPP approach for any project should focus primarily on whether it is likely to deliver the best value for money in procuring the required facilities or services. In the context of capital projects, value for money is a combination of whole-life cost and quality to meet the user's requirement and does not always means choosing the lowest price.

The group schools deal required Jarvis Projects Limited — the selected private sector partner — to secure the finance and build and equip the schools on State-owned green-field sites and then to maintain and manage the school facilities over a 25-year period. In return, the Department committed itself to making payments over the contract life, totalling an estimated €283 million, which is approximately €150 million in net present-value terms. That was on condition that Jarvis met the agreed availability and service levels. The form of the project forced the Department to take a life-cycle costing approach to the assessment of the procurement options. Previously, the Department had been primarily concerned with the capital costs of construction. Signing up for the PPP deal also involved a fixed commitment to proper maintenance of the school facilities over the long term.

The group schools project could have implications for the schools capital programme regarding school size, design, and maintenance, with attendant cost repercussions. While the improved designs should have a beneficial effect on running costs over time, the provision of school buildings that were approximately 15% bigger in floor area than those traditionally provided by the Department and the transfer of responsibility for services and maintenance will cause pressure to follow suit elsewhere.

The examination looked in detail at how the Department had compared the cost of providing the planned schools under the PPP deal with what it would have cost to provide similar schools — including the additional floor area — in the conventional manner. There were shortcomings in the Department's analysis, which concluded that the PPP approach would be the cheaper option. Our work found that was not the case. We estimate that, over the life of the contract, the deal with Jarvis could be between 8% and 13% more expensive than providing and running the schools to the same standard using conventional procurement when everything is taken into account. While I am happy with the rigour of our analysis, I would say that financial modelling is not an exact science, and I suggest in the report that the Department should undertake an evaluation of the cost, after perhaps five years, of constructing and maintaining the pilot schools with a comparative group of schools subject to the conventional regime. That would help inform the Department's consideration of the appropriate forms of provision for the purposes of the schools capital programme.

One of the main problems that I had with the Department's management of the project was that it did not set a spending limit for the project at any stage. As a result, it had no reliable benchmark against which to judge the affordability of what the bidders were offering, including the provision of bigger schools. I am glad to record that the Department of Finance has since issued guidelines that require the setting of such affordability limits for all proposed PPP projects before the tender competitions are launched. The affordability cap is closely related to the estimated cost of direct public service provision. Moreover, we now have the National Development Finance Agency as a source of expertise to assist public sector bodies in evaluating options and assessing deals.

In conclusion, we now have a much sounder basis for proceeding down the PPP path, and the learning experience that we have all, including my own office, gleaned from the group schools project has been an important input to the current arrangements.

Ms McManus

As a Department that has been at the forefront of PPP development in this country, we welcome this report by the Comptroller and Auditor General on the first completed and fully operational pilot PPP. We all had much to learn from the pilot process, and this report is a valuable addition to the knowledge bank being developed to inform our future approach.

In June 1998, the Government decided to undertake a pilot programme to test public private partnership procurement. The decision followed a consultancy report that identified PPPs as having the potential to help address Ireland's infrastructure deficit and recommended that a pilot programme be undertaken. At that time, PPPs were already being used in other European countries, particularly in the United Kingdom.

Initially, it was not intended that the Department of Education and Science should participate in the pilot scheme. However, as our colleagues in the Department of Finance explored the process, it became clear that, by their nature, education projects are less likely to encounter planning difficulties and are quicker in their delivery than larger-scale projects such as roads. Consequently, education projects were seen as offering the opportunity to test the market and establish a learning process. Accordingly, the school bundle was included as part of the pilot programme the Government approved in 1999. As a Department that spends millions of euro each year on providing new schools and colleges, there was a strong strategic interest on our part in being part of the pilot to allow us to examine new and different ways of providing such facilities.

It is important to stress that, in giving the go-ahead for the first bundle of schools, the Government wanted to explore and test this procurement model with a view to further and wider use. However, it was recognised that a "learning by doing" approach was the most appropriate way forward. It should also be recognised that this procurement model is an extremely complex process — far more so than traditional procurement. I am aware that the Comptroller and Auditor General has already acknowledged that point to the committee.

The "learning by doing" approach is of no use unless the structures develop to allow new insights and information to be shared and lessons learnt to be noted for future application across the public sector. To that end, the Department worked in close co-operation with the central PPP unit in the Department of Finance at all times throughout this seminal project. Unlike with traditional procurement, the Department was seeking a private sector partner to provide more than just five school buildings. It wanted to allocate the development risk to the party best able to manage it and transfer responsibility for long-term repair, maintenance and asset-related support services to those responsible for the design and construction of the schools. By keeping those responsible for the design and construction of the new schools on the hook for a period well into the anticipated lifespan of the facilities, the Department considered it would avoid time and cost overruns in the short term and maintain quality facilities and value for money over the longer term. We also wanted to test and learn from private sector competencies in managerial, technical, financial and innovation aspects.

The Department's enthusiasm for participating in the PPP pilot programme arose primarily for a number of reasons: to take school principals away from managing buildings which would allow them to concentrate on their core educational management functions; to test value for money of school provision over a longer period than just the construction time; and to acquire new ideas for school designs through an output based competitive approach. The latter is the principle of giving the private sector the task of coming up with a solution for the design, operation and maintenance of the building and therefore taking the appropriate risk that it meets these outputs. Another reason was to see better usage of buildings outside school hours. The Comptroller and Auditor General, in his report, points out that it is too early in the life of the contract to carry out a value for money assessment but signals that formal evaluation of the project should take place after about five years of operation. The Department fully accepts and agrees with this position and will undertake a formal evaluation of the project at that time.

In terms of the overarching objective, we achieved what we set out to do and delivered five excellent schools: Ballincollig community school, Maria Immaculata community college in Dunmanway, Largy College in Clones, St. Attracta's community school in Tubbercurry and St. Caimin's community school in Shannon. These schools serve more than 3,500 students daily. The schools meet the Government's high level objectives for undertaking the pilots — speedy delivery and handover at the agreed contract price. Just as importantly, as a result of the experience gained in developing the pilot school bundle project, we were able to apply the lessons learned in the procurement process to the subsequent National Maritime College of Ireland PPP project. The key lessons taken on board in that project, from the experience gained in the schools pilot project include the fact that a detailed business case was undertaken and approval was sought from the sanctioning authority before the procurement process commenced. A full life-cycle analysis of the costs of providing the project outputs through conventional means was conducted. The result of this analysis was a public sector benchmark for the project which was used to set an affordability cap for the project before formal procurement commenced. The cap may be set in terms of capital cost, unitary cost and the associated net present value, NPV.

These intermediate steps in the process were clearly identified by the Department as being of significant importance in the procurement process. These points were subsequently included in the interim guidelines for PPP procurement issued by the Department of Finance in respect of all such projects in the public service. Before PPP procurement was tested, selection and procurement of school buildings was carried out by the Department's planning and building unit. The unit identified the needs and procured the necessary buildings when budget constraints permitted. PPPs add a significant new element to the process. Greater analysis is required in the selection of how the procurement is structured and in other issues such as the location, bundling and size of projects, which are all important factors in deciding on the use of PPPs.

PPPs generate a large volume of legal, financial, design and technical documentation in comparison with traditional procurement. Proper record keeping and version control are central to the smooth functioning of the procurement process. The report pointed out deficiencies in this aspect of the pilot project which arose in this specific instance due to transfer of ownership of one of the companies acting as advisers to the Department. The Department has taken action to rectify these deficiencies in dealing with future projects. Improvements to this aspect of project management were made in the National Maritime College project.

The report raised the issue, to which the Comptroller and Auditor General referred, of the output specification regarding design and school size in the pilot project. The Department at the time took the view that the pilot project provided an opportunity to examine new ideas in education provision from outside the education sector. The output specification for the project stated that innovation in design would be one of the criteria for selection of the preferred bidder. The Department recognised at the outset that there would be a price for this innovation. However, as the principal provider of education and education facilities in the State, we have an obligation to test alternatives in the delivery of facilities such as these.

The five schools delivered under the first PPP project are about 15% larger than similar schools built through traditional procurement. This is primarily in respect of circulation and social areas. Additionally, the schools are built to a higher standard of both design and finish. Bearing in mind that the operator, Jarvis, will be responsible for the upkeep of the schools for the 25 years of the concession period and that if the schools, even in part, should become unavailable, the operator will suffer financial penalties, the upfront investment in construction is acknowledged to be greater than in traditional school procurement. The high quality of the schools reflects the "spend to save" approach to the project.

The challenge facing the Department now and in the future is how best to use this resource and acquired knowledge to maximise the benefits to our teaching and student population and to the State as a whole. Among the issues to be decided are those highlighted in the Comptroller and Auditor General's report, including the size and quality of schools. It is also necessary to examine the lessons in this bundled schools project for the design and construction of traditionally built schools. These questions are under active consideration in the Department.

While it is recognised that a full value for money examination of the project can only be undertaken at a later stage, the Department intends to use the PPP process further. We are anxious, therefore, to obtain as much information and feedback from the pilot phase as quickly as possible. As the first Department to implement a full design, build, finance and operate PPP, the experience gained during the operation phase will be invaluable in informing the overall process in other sectors as well.

For this reason we commenced a rolling review and evaluation process from the early days of the operation phase. This was undertaken in a number of ways: regular meetings with the school principals as a group and individually; regular meetings with Jarvis personnel; a questionnaire to 50 teachers and 100 students seeking their reactions to the new schools; a detailed review of the monthly reports for each school provided by Jarvis as required under the project agreement; an interim evaluation report on each of the five schools to evaluate the operation of the contract and to report on any issues of concern with the process; the examination by the Department's professional staff within the planning and building unit of the pilot schools as built to determine what lessons, if any, might be applied to future PPPs and, equally importantly, to traditionally procured school buildings; and in terms of educational impact, the inclusion of the schools in the rolling programme of whole-school evaluation, WSE, in the coming years with one of them to be subject to such evaluation this autumn.

The interim evaluation report is being carried out by Mr. Sean Slowey, the retired principal of the Ballincollig PPP school. Mr. Slowey's selection to undertake this review is significant as he has the appropriate knowledge of the PPP process and, importantly, the experience of running that school for its first year of PPP operation. In undertaking an interim examination of the schools, which will include visits and interviews with the principals, staff and Jarvis, the Department wants to see how well the service requirements set out in the project agreement are being achieved. However, we will also seek to determine how well the Department's other aims are being achieved. In particular, the interim evaluation report will look at whether the principals of the schools are able to concentrate more on their managerial and academic functions and less on issues to do with the fabric and maintenance of the school building. The report will also concentrate on the following areas: the appropriateness of the existing project contract and whether amendments are required for future projects; third party use of schools and why some of the schools are being utilised more effectively than others outside core school time; operation of canteen and vending facilities; information and communications technology issues within the schools; and lessons to be learned from the procurement and operation of the project.

From the Department's monitoring of the contract to date, we are happy that the output and service requirements contained in the project agreement are being complied with. That is not to say that there were not initial problems with the operation of the contract in the early days, particularly around the delivery and quality of some equipment for specialist classrooms. However, these have been ironed out through dialogue between the Department, schools and the operator. Additionally, in traditional projects the principals and staff became directly involved in overseeing all the duties involved in maintaining a building, from cleaning a floor to replacing damaged fittings, moving furniture and after-school use of facilities. Under PPP, this now simply requires a telephone call to the centrally operated helpdesk. Nevertheless, it should be noted that the principals no longer have direct control over caretaker and janitorial staff. This initially led to some frustration on occasion in the early days. However, a communications strategy between the schools and the operator was put in place by the Department which improved this situation. Again, such issues as arose were seen as part of the learning process and would have been difficult to foresee during procurement.

Active intervention by the Department and a clear communications strategy has alleviated the initial teething problems. We are looking forward to receiving Mr. Slowey's report on the current position. While I accept fully some of the shortcomings of the process detailed in the Comptroller and Auditor General's report, the pilot has been proven to be successful. In addition, I consider the Government's decision to extend the potential of the PPP programme for school provision by providing a capital envelope of €555 million in the next five years is further confirmation of the distance we have come in developing a PPP model based on our experiences of this project and that of the National Maritime College. I am happy for this opportunity to outline for the committee the Department's position on this report and to discuss with the members issues they wish to raise.

Chairman

I thank Ms McManus. May the committee publish her opening statement?

Ms McManus

It may.

Deputy McGuinness

I join the Chairman in welcoming the witnesses. I compliment both Departments on the achievement of a good gender balance this morning. Can Ms McManus give the committee some idea of the work undertaken by the Department of Education and Science on setting the model in place for the PPP project?

Ms McManus

We started identifying the schools at the very beginning. A decision was taken that the schools concerned should be greenfield sites and that we should not be dealing with refurbishment. There were initial decisions on the selection criteria for the schools. The schools would already have been identified through our normal process as needing new schools for educational reasons. They would have been already prioritised by the planning and building unit of the Department.

The next step was to decide which of those schools was suitable for the PPP project. It was decided that the schools would be on greenfield sites rather than undergo any refurbishment process. The selection of any of the schools had to be with the agreement of the schools concerned. There was a discussion with the schools on whether they were prepared to be involved in the project. All schools agreed to be involved. They had the option of going the PPP route or staying with the traditional procurement method. The private sector comparison was not done at that stage, which would be the case under the current system.

Deputy McGuinness

The Department was building a model to be used that would be modified as it went along. The Minister stated that the PPP mechanism would be examined for the construction of 20 secondary schools and that 15% of capital projects would be delivered under PPP by 2008. It is a substantial investment by the State, yet it seems that the Department did not carry out its homework, even though it was looking at a fresh way of doing things. The size of the schools was changed by 15%, but the model used to determine cost analysis was proven to be incorrect when the Comptroller and Auditor General examined it. The Department looked at it in the context of saving 6% overall on PPP projects, whereas the figures in the report show that it cost 8% to 15% more to deliver the PPP projects in comparison with the conventional way of delivering the schools. There is a fundamental issue in the Department's analysis. The number of schools involved went from three to five and went from a normal-sized school to a school 15% larger.

In the analysis undertaken by the Comptroller and Auditor General, we find that the file relating to the selection process was not made available or was missing. Certain important pieces of information were not available in the analysis carried out by the Comptroller and Auditor General. Can Ms McManus comment on these issues?

Ms McManus

At the time, we procured schools at a size 18% bigger than average. That has risen to about 24%. In going out to tender, we indicated that we were prepared to look at bigger schools. The Comptroller and Auditor General raises issues about the implications of that policy, but the Department's decision was deliberate because we felt that there might be advantages in testing different designs of schools. It was explicitly accepted that we should have circulation areas that were larger and the figure increased to 31%. We made a deliberate decision to test how we might get on with schools with a different circulation space. The same issue arises in other specifications. For example, some of the gymnasium areas have equipment that would not be in a standard PE hall. As we found that there was a greater usage by female students in the senior cycle of gyms that have that kind of equipment, we introduced that as a standard for PE halls attached to new schools. In going out to tender, a decision was made to be flexible about the design and to accept that the design would be greater in cost and would provide more than a traditionally procured school.

Deputy McGuinness

Having made that decision, has Ms McManus created a demand in the Department where other schools will look at the PPP process and ask for larger buildings with more equipment? Having tested the process, is she happy with it? Will it be applied as a norm in planning and equipping schools?

Ms McManus

In some areas, we are prepared to apply it such as in gym equipment. We are still looking at the issue of circulation space. At any stage, the Department must examine the minimum standard provided. There is always a tension between what we can afford in delivering the maximum number of schools on a limited budget and the educational benefits of any improvement in the standards. That is an issue that needs to be examined in regard to the circulation space. The circulation space was about 18% in a conventionally procured school and that moved to 24%. There are strong arguments for having more circulation space as it can improve the education experience and reduce discipline problems. On the other hand, we are looking at whether we can afford to have that as a general standard. The cost benefit analysis is still under considera

Undoubtedly there is always pressure within the school system to have better provision. The same applies to the number of computers per student, and in the PPP schools, this number is higher than the average. We are also examining this issue. A deliberate choice was made to test that and there are undoubted benefits to it. In some cases we will decide that the benefits are worth it and should be adapted to the general model. In other cases we may feel that there is a priority to build more schools and that we cannot go as far we did with some of the design features. The jury is still out on that.

Deputy McGuinness

How did the Department arrive at its analysis on cost?

Ms McManus

This is an issue raised by the Comptroller and Auditor General whereby we changed our process for the National Maritime College. The comparator was employed at the point at which the decision was taken by the Government to proceed with the bundle of projects rather than before tendering. At that stage, the main difference between the Comptroller and Auditor General's figures and our own related to the residual value of the schools. We assumed a longer life for the schools that were procured under the public private partnership methodology than for those procured using our traditional process.

The guidelines from the Department of Finance for future projects indicate that bodies should utilise a public sector comparator based on the same effective life cycle. However, there is a case to be made for the manner in which we undertook this. Two of the schools being replaced in this bundle were schools which did not last 25 years. It may be argued, therefore, that traditionally procured schools do not have the same life cycle. For the public sector comparator, however, there is no doubt it eases the comparison if it is undertaken on the basis of like with like. This is the main area in which there was a difference between us and the Comptroller and Auditor General.

We do not contend this was the best way of doing it. It was not necessarily the incorrect approach at the time but we have now learned there are better ways of proceeding. In regard to the 8% to 13% difference referred to by the Comptroller and Auditor General, it might be perfectly acceptable to reach a policy decision that there could be an agreed leeway of 10% either way in respect of the public sector comparator in setting an affordability cap on a project. This may be the best approach in the context of the sensitivities of the financial modelling and risk assessment process, as referred to by the Comptroller and Auditor General.

For the National Maritime College, for example, we would have accepted a tender that came in above the affordability cap that was set. As it happened, two tenders came in above the cap and one below and it was the latter we accepted. However, our agreement with the Department of Finance meant we could have accepted an offer in the region of 5% above the affordability cap. The difference identified in the Comptroller and Auditor General's figures does not necessarily indicate we should not have proceeded with the project. The decision to proceed was taken by the Government in the knowledge of a number of associated advantages and disadvantages. I accept, however, that in the future we should undertake the public sector comparator on the same life cycle of the building.

Deputy McGuinness

Has the number of students attending each of the schools reached the expected level?

Ms McManus

Ballincollig has fallen quite far short with fewer than 600 students compared with a forecasted figure of 1,000. Numbers for the other schools tally more or less with expectations.

Deputy McGuinness

Achieving value at the end of a life cycle depends on the wear and tear to the schools and how Jarvis responds to the contract of maintenance and so on. A school with a high level of wear and tear will be at a disadvantage in terms of its value. Some of the reports on Jarvis's performance in the UK indicate there have been issues with its response to the need for major repairs in schools. A school in Scotland which suffered extensive damage, for example, experienced significant difficulties. There have also been issues with Jarvis in respect of its activities outside schools. Has the company been properly tested in the context of its maintenance programme and can we be certain of the quality of its response to issues arising in schools?

Ms McManus

As schools have only been open for two years, we are relying on a short-tern perspective. There was a major difficulty with the drainage system in Clones, for example, which was a builder issue but was nevertheless handled by Jarvis although it was not directly responsible. One must take into account that in the case of a school we had built ourselves, we would have had to haggle with the builder about who was responsible for the drainage and who must bear the cost of repair. This represents a significant risk for the State. The Ballincollig school had a situation whereby a large bubble appeared in the floor of the domestic economy room. Jarvis rectified this problem very quickly during a holiday break.

The experience in respect of any of the serious maintenance issues that have so far arisen has been positive. The complaints usually relate to minor issues such as a broken window, in which case the school authorities have telephoned the helpline in Dublin and endured some delay rather than securing the services of a local person who could get the job done faster. Significant financial penalties are included in the contract in the event that Jarvis does not deliver on its service obligations. In a situation where the return is 13.7% over the entire life of the project, the company will lose out very badly if significant penalties are imposed because of its failure to deliver on maintenance commitments. Jarvis is underwritten by Barclays Bank and it is the bank which is effectively carrying that risk and providing guarantees in that area.

It is not the case that no problems can arise but we have tried to minimise that possibility through our contracts and assessments. The Department owns the schools and we have utilised non-recourse loan financing. Ultimately, therefore, if Jarvis does not perform, we will have the schools but the company will not receive its unitary payments from us. It is difficult to make a judgment after only two years but we are quite well covered in this area.

Deputy McGuinness

The Comptroller and Auditor General mentions in his report that the formal record file of the bid evaluation process documents is not available. Is it the case that these documents were not available at the time but are available now? If not, where are they?

Ms McManus

Most of the documents were provided by the Department or our advisers to the Comptroller and Auditor General. Given the limited resources available in our public private partnership unit, advisers were employed to provide a secretarial service for the project rather than doing it in-house. There was some difficulty with regard to the version control system for project documents. This arose because during the procurement process, one of the consultancy firms, Chesterton, which is based in Northern Ireland, was taken over by Farrell Grant Sparks. Documents transferred to that company and we later found that some of them were not available. This is a difficulty that may arise when employing external advisers and we must ensure the problem does not recur.

Deputy McGuinness

Is it the case that one set of documents is still missing?

Mr. David Gordon

As the Secretary General outlined, Chesterton was taken over by Farrell Grant Sparks. However, it was only the Northern Ireland branch of this company that was affected and Chesterton UK continued as an independent entity. Much of the company's information technology equipment was returned from the North to the UK and some of the files relating to our projects were considered the property of Chesterton UK rather than Farrell Grant Sparks.

The complexity of these projects in regard to both financial and legal issues means that the different versions of the various documents are constantly reviewed before the final version is produced. The amount of documentation was enormous. The Department had not done a PPP before and we were astounded by the level of documentation involved because of financial and legal agreements. That is one of the issues which has emerged from the guidelines whereby a process auditor must be appointed to report on projects directly to the Secretary General to ensure that everything is done accordingly and the documentation is in order. The Department fell short with regard to this issue, but it was not deliberate.

Ms McManus

The Deputy asked how many papers were involved. There was one set of minutes.

Mr. Gordon

There was a set of minutes as well as financial evaluation documents, of which there were different versions held by the two Departments. There was an issue with regard to version control whereby people had the wrong version or had not updated their file.

Deputy McGuinness

I would like to discuss the criteria around establishing what constituted the best bid. The Department set down four criteria and each of these was weighted.

Ms McManus

The four sets had equal weighting.

Deputy McGuinness

Were the four sets fully used in the context of selecting the best bid?

Ms McManus

Yes, they were.

Mr. Gordon

I can explain the process and how it happened. The four criteria related to design, financial, legal and service issues. Each bidder received the criteria for selection before submitting its bid. Once submitted, we established evaluation groups for each criterion using the different advice that we had received. Each separate criterion was evaluated and the bidders had to pass with regard to all four. If they passed three but failed with regard to one, their bid was not accepted. Once the evaluation groups completed their work, they came back to the central project board and the process to select the overall bid began. Each of the three bids was evaluated by separate groups with regard to the four criteria.

Ms McManus

This is what happened to the three final bids.

Mr. Gordon

There were 12 expressions of interest at the beginning of the project and we narrowed the number down to three.

Deputy McGuinness

Would the Department make any changes to the risk element of the contract?

Mr. Gordon

No. The Comptroller and Auditor General would accept that the transferred risks were appropriate for the type of project and similar to PPPs in the UK. The main risks which the operator took on were those associated with construction and availability. One of the main issues in any major capital project is the construction risk in that the project must come in on time.

Ms McManus

If we were to do it again, we would consider whether to transfer some of the structure of the contract in the exact same way. Would we necessarily include the maintenance of computers, vending machines and canteen facilities? Would we transfer maintenance in the same way? We would certainly consider, in terms of a contract, what to transfer to the operator in future PPPs.

With regard to whether we are happy that we transferred an adequate amount of risk, the Comptroller and Auditor General's report found it to be broadly in line with that transferred in similar UK projects.

Deputy McGuinness

On the issue of the payment of VAT at the beginning, was that not established in the course of discussions? When Jarvis or the contractor looked at the site, was there an issue in terms of what the company expected to find?

Ms McManus

The Department took a certain amount of risk with regard to the condition of the site.

Deputy McGuinness

The payment of VAT became an issue but surely everybody knew it was part and parcel of the contract.

Mr Gordon

This is a matter on which our colleagues in the Department of Finance may wish to comment. The issue of tax treatment of PPPs was not resolved until a later stage in the process. Once the bids were submitted, there was discussion and correspondence with Revenue to establish the appropriate tax treatment. This covered all issues, including how the process would be taxed and whether matters were treated as capital or current. There was also discussion regarding the treatment of unitary payments and the transfer of the capital asset. Perhaps the issue should have been resolved earlier but that did not happen until later in the process.

Deputy McGuinness

Was there an issue with regard to how——

Chairman

The Deputy has run over his time.

Mr. Gordon

With regard to the issue of VAT, a decision was taken to exclude the payment. We did not include VAT in the overall bid because the Department of Finance quite rightly informed us that we should not borrow on the basis of more than a 25-year deal for something that is a circular payment back to the State. That is why the Department of Education and Science decided to pay up front and get it out of the way rather than have it financed over 25 years.

One of the factors with regard to PPPs is the extremely high cost of bids, and one must always be conscious of this. If three bidders pitch for a project, two will be unsuccessful and must fund the costs themselves.

Deputy McGuinness

What sort of costs would they incur?

Mr. Gordon

The costs could be €4 million or €5 million.

Deputy McGuinness

It could cost €5 million to make a bid.

Mr. Gordon

It might not get to that, because one has much work to do at the invitation to tender stage. However, the costs would be significant and possibly €2 million or €3 million because a whole team is brought on board to put a building together. It is not just about design but also services, maintenance and operation. Legal costs can also be significant.

To keep down the cost of bids, the Department paid for the sites to be tested and gave the final report to each of the bidders rather than having them carry out and pay for independent site tests. In that way, they all had the same information to work with. Unfortunately, follow-up visits could not happen because of the foot and mouth disease crisis and people could not complete the site investigations. Assumptions were built into the bid by all bidders, not only by Jarvis. The same would have occurred in a traditionally procured project and the same costs would have been met.

Deputy McGuinness

Does this mean that the original report on the sites was not accurate?

Mr. Gordon

We did not have a site report.

Deputy McGuinness

Does this mean there was no site report?

Mr. Gordon

We could not complete it because the foot and mouth disease crisis meant we could not allow people to return to the site. They therefore had to assume certain site conditions. For example, the Clones site was extremely wet but it was the only one that the VEC could obtain.

Deputy McGuinness

Did they all eventually have an extra cost?

Mr. Gordon

Absolutely.

Deputy McGuinness

The report was available on each site, but the site did not measure up and therefore resulted in extra cost to the project.

Mr. Gordon

It did not happen with all sites, but in the case of three.

Deputy McGuinness

They were found not to be favourable in all aspects.

Mr. Gordon

The Clones site was very wet so piling was required which was not built into the cost. Any of the other bidders would have experienced the same problem. Each might have taken different views as to what to do. Mr. Heffernan would have a more technical viewpoint. However, on any building project, a site investigation is an important element of ensuring that what one builds stays up. That was the major issue.

Ms McManus

It is fair to say that in a normal situation, in the absence of a foot and mouth disease crisis, we would have been in a position to give the site investigation reports to the bidders in order that their bids would have reflected whatever those costs were. In this instance, the bidders could not do so and were not prepared to take the risk. We had to be prepared to adjust the tender price to take that on board.

Mr. Gordon

When Jarvis submitted its site costs for the project, we procured independent advisers to go through and measure them. They took up some issues and different ways of planning the particular changes to the site were adopted, which reduced the cost. The Comptroller and Auditor General comments that our negotiation process was fairly good at that time.

Chairman

As Deputy Rabbitte has been delayed, I will ask some questions and then move on to Deputies Curran, Michael Smith and Boyle who have indicated that they wish to contribute. We will switch from Government Deputies to Opposition Deputies as we go. I found the report very interesting, as all reports on a value for money mandate from the Comptroller and Auditor General are. The major benefit is that five schools are up and running and providing education. They are good, well designed schools and I know some of them. It is also true to say that the Department of Finance and its PPP unit have learned from the experience. To that extent, the experiment, if that is not too loose a word, as a pilot PPP was justified because procedures have changed as a result.

However, a number of things are of concern to me. From a lay perspective, it seems that if one were running a pilot project on PPPs, one should organise it so that one could make a strict comparison between building five schools through PPPs and doing so in the traditional Department of Education and Science manner. I believe the modern phrase is "public sector comparator". To do so, it would be important that the Department's proposition to the private investors would be exactly in line with its traditional methodological practices. The Department began with a pilot project of three schools, the total cost of which seemed sufficient to be a pilot project. It then increased the project size to five schools. The Department does not appear to have performed a projection of the costs under the PPP for the maintenance and running of the schools. Moreover, in the construction of the schools, it did not compare like with like because, significantly, it allowed an increase in the number of square metres per pupil. The Department ended up with schools that were significantly larger than it would have built itself with its traditional methods.

All these decisions can be justified in terms of providing a school. However, if the primary objective is to run a pilot study, then one should first ascertain how things are done traditionally and then measure whether there are advantages in doing it differently. To control the experiment, one must keep the specifications the same, and the Department did not. From day one, it could not have worked as a pilot project as the Department had mixed objectives. This is where the failure lies. There was no reason for increasing the project size to five schools except that there was a demand for two extra schools. The Department probably did not have the capital allocation to finance them traditionally, so it thought this was a good way of delivering a school in Ballincollig and replacing a derelict school in Shannon. I believe they were the two additional schools. As soon as the Department did that, the objectives of running the project as a pilot shifted. Its thinking was that the schools were needed and that they should be provided in this way because it could not be done with traditional methods. Is this fair?

Ms McManus

Perhaps I can take the two elements. The issue of building five schools rather than three schools does not fundamentally affect the merits of the pilot scheme. It is an issue of scale. Given what we now know about PPPs, having a bigger critical mass probably made it a better pilot scheme. When one considers the experience in other areas, the sort of market that exists in terms of the scale of the project and the costs referred to earlier, one could speculate that we may have got better value with a bigger project.

Chairman

That might also expose the Department to additional risk. In terms of a pilot, the Department wanted a scale large enough to test the model and small enough not to expose it to risk. Does Ms McManus see the argument?

Ms McManus

I see the argument but although I defer to my colleagues who were in the Department at the time, the three were not chosen particularly scientifically. At the time the project was analysed, we felt that only three schools could fit our criteria. We subsequently discovered that five schools could do so. The Comptroller and Auditor General's report states that the Department needed a minimum of 20 schools. It is true that the Department required a minimum number to proceed, but it did not start off by specifying that it only wished to do this for three schools. As I understand it, the Department started by specifying which schools would be suitable for inclusion in a PPP project.

We began with three that appeared suitable and then discovered two others that seemed suitable. They met our criteria of being greenfield sites with principals and boards of management who were willing to go that route and also were fully State owned, that is, community colleges or community schools. Perhaps we should have looked at the pilot project in the manner outlined by the Chairman. However, our approach to the new process was to ensure that enough schools were included to make it a viable process. We asked how many schools met the criteria. Initially we had three. Then two more came on the horizon and we added them. That is all.

Chairman

That is fair enough.

Ms McManus

If one looks at the issue of mixed objectives, there were differing objectives. We had a number of objectives while doing this and we were explicit about them. These were to experiment on the design and to ascertain if the entire life cycle and operate approach and the other factors produced a better product in terms of educational delivery over the period. There were also issues pertaining to the educational aspect. The Department had a number of objectives. Did having different objectives mean that one objective compromised the others? This is the question the Chairman asks. The Government did this as a pilot scheme, not in the almost scientific sense the Chairman outlined, but in the sense of establishing if there was a benefit in doing these things this way.

We learned about the benefit of using this method from a number of our objectives. I accept that it made comparisons more difficult. However, as has been done in this report, one can come up with comparators that adjust for the size of the schools. It is true that having differing objectives makes it more difficult to measure one's achievements against each objective. At the time, however, we were reluctant not to take the opportunity to try to deal with many of our objectives. We saw PPPs as an opportunity to deal with a number of them.

On the design issue, one thing must be borne in mind. Unlike conventional procurement, we did not specify the design that should be selected. We were fundamentally changing the design process by stating that these were the outputs and asking people the best way they could deliver them. It was a form of output-based design that was not as precise as before. In that context, we would have been less prescriptive regarding the design of the school. It would have been designed in terms of delivery issue.

Chairman

I understand how it occurred. All the objectives are very worthy but in terms of testing this as a pilot, there was one primary objective, which was to see whether the new system gave better value for money. To test that properly, it would be necessary to keep all other conditions as they were. The Department of Education and Science fell at the first fence in terms of a pilot project. It positioned itself in such a way that from the beginning of the pilot project, it was no longer comparing a new system with the existing system. The design of the school changed and the size of the school changed in terms of square metres per pupil. This was done for very worthy reasons. It is a very good idea to have things like more social space and the traditional model should also move in that direction. However, in terms of testing it, the Department has ended up with a situation where the pilot study is not convincing because in September 2001, the Department estimated that there would be a saving of approximately 6% and on the best case scenario, there is an overrun on the new scheme of 8% to 13%, allowing for the increase in size. On that basis, the pilot project falls down. Much of the failure is because there were too many variables. It is very difficult then to say that the pilot project has been running, the Department of Education and Science has had discussions with the Department of Finance, the Department of Education and Science is monitoring the project and the PPP unit, the Department of Education and Science is introducing new regulations and even though the cost will be 8% to 13% higher over the 25 year period than the traditional merit, the Department of Education and Science will build another 18 to 20 schools, which were announced recently, on the PPP system rather than on the old system.

Ms McManus

If one is looking for value for money in the longer term, that can only be tested afterwards. This is because, on some of the things, it may well be that apart from the educational value of bigger space, there is a maintenance benefit in terms of reduced cost as a result of things like wider corridors. Much of what the Department of Education and Science is examining relates to matters like the availability of the buildings over a period. In terms of the differing sizes of schools, if one is making a comparison or were to benchmark the pilot project school against the smaller school, over a period, one might find that the pilot project school was better value for money because of the other benefits delivered.

Chairman

That is a very loose approach to the learning by doing system which Ms McManus mentioned was the basis for the pilot project. I use the learning by doing approach when I cook but I do not think Ms McManus would come to my dinner party. It is not sufficient to use a learning by doing approach. I can see that the Department of Education and Science can learn through experience but it has to be within well defined parameters.

Why did the Department not produce any financial model on maintenance and management since these were crucial parts of the proposals that three bidders would make? While the Department had comparisons, at least on one level, with regard to the capital cost, it did not appear to have any comparison on what the maintenance of schools cost as opposed to the traditional method of capitation and grants. Did I misread it?

Ms McManus

At the time, the information was not readily available, if the Chair is talking about factual information about what the Department was spending or what schools were spending on maintenance.

Chairman

That might be true of the voluntary secondary school sector because there is a considerable amount of money going into some schools from things like parents' contributions. However, there must have been hard and fast figures about the cost of maintenance in VECs.

Ms McManus

We did not have this information about the community schools.

Mr. Gordon

They were on budgets. It does not necessarily mean that because they run on budgets it is the same amount of money.

Chairman

I do not wish to belabour the point but it appears that the Department set out on a pilot project and wished to compare the existing method with a new one. Regarding what the capital cost will be, the Department varies the size and the design. Therefore, it cannot get an exact comparison but it could do an analysis to work back to cost per square metre. However, when it comes to a 25 year lease, which is the large component and the second major risk transfer because Jarvis will be responsible for the schools for 25 years, the Department did not develop any model to compare the cost of the Jarvis tender with the traditional model.

Ms McManus

The issue is whether we did it at the right time. We did it before the contract was signed.

Chairman

The price had been agreed at that stage.

Ms McManus

There is no commitment until a contract is signed. The Government could still have decided not to proceed with the project.

Chairman

In the real world, this would not have happened because there was no affordability cap included. If an affordability cap had been included and that was breached, it would have gone back to the Government. Once the initial Government decision was taken, the Department effectively had carte blanche to run this project.

Ms McManus

Before the contracts were signed, the Government specifically considered the schools bundle project. At that stage, a comparitor had been carried out. The Comptroller and Auditor General raised certain issues about the way the comparitor was carried out. The comparitor built in figures for maintenance. While I fully accept that, in process terms, that work should have been carried out earlier, that it would have been desirable to set an affordability cap as we did subsequently with the maritime college and that we did that work too late in the process, it was carried out before the finance sanction issued, before the Government-considered decision to proceed with the bundle of projects was made and before any contracts were signed.

Chairman

When the Department did that particular model, did it include Ballincollig at 2,000 pupils or at 680 pupils?

Ms McManus

We included Ballincollig at 2,000 pupils.

Chairman

If the Department was comparing it to, say, capitation systems for financing the maintenance and management of schools, the actual figures would have been less than 600.

Ms McManus

We assumed at that stage that we would have a school with 1,000 pupils. I suppose that raises the issue of where the risks in the transfer of risks model are transferred. While we transferred the design risk and the operational risk, the demand risk stayed with the State. Effectively, there is a risk to the State if pupil numbers halved in the next five to ten years in one of the schools that currently has full numbers. If, as happens in many schools, the schools managed to accommodate an extra 50 or 100 pupils, there would be a benefit to the State. In this PPP process, the State has not transferred the demand risk. The general view in the Department, based on our knowledge of the system in the UK, is that if one was to try and transfer the demand risk to a private sector promoter, it would make it a very expensive process. The demand risk is not readily transferable in the private market. Clearly, there is a risk. The Department probably receives more complaints about lack of school places than about schools with excess capacity. The Department is more often wrong in not meeting demand quickly than in overestimating demand. There are housing estates in Ballincollig being built on the old barracks site. This process has been delayed but the school has had increased numbers. The school's number of new entrants has been higher than its number of departing students at sixth year. Numbers are increasing and we will reach our target over the period. We would have assumed we would have met the full——

Chairman

It is a fine school that is very well run and it will have 1,000 pupils before too long. I have a general notion of the area and believe the figures will come around. I am drawing attention to this matter because it shows there were mixed objectives. The Department would not have made the mistake estimating how many pupils would enter the school if this had been among the original three. Another objective was that the Department thought this would be a good way to build Ballincollig because it did not have the capital finances to do so. Rather than being essential to the pilot, it was added on to provide a school and not everything was assessed fully. Is that right?

Ms McManus

No. I can ask someone from the planning side but the Department rightly or wrongly believed at the time it would be a school of 1,000 pupils. If the operation had proceeded by conventional procurement, the Department would have been happy to build a school for 1,000 pupils.

Chairman

That answers the question.

Ms McManus

I cannot say whether the Department was right or how we might have got it wrong, but that was the way——

Chairman

That answers the point. On page 40, paragraph 4.39, the report states:

The Department of Education and Science failed to note that the estimated cost of construction of €71.6 million underlying the Jarvis proposal did not include VAT, while the estimate of cost of construction by traditional means was VAT inclusive. As a result, they were not comparing like with like.

How did this happen? This VAT was at 21%.

Ms McManus

It was probably——

Chairman

It made a significant difference in the figures. If one compares the traditional cost with the PPP cost but does not include VAT on the PPP side, it makes nonsense of the comparison. Am I missing something?

Ms McManus

We excluded it because there was VAT on the unitary payments as well as on the construction cost. The normal way of dealing with these in terms of comparison is to exclude VAT.

Mr. Gordon

There is an issue of how the tax matter is dealt with for the PPPs. We were with the Revenue Commissioners on a number of occasions, during which time they tried to help us. It was new for them also. There is no doubt that VAT should have been included for a comparison with the traditional costs but it had to do with the difficulties we experienced in dealing with the VAT and other taxation issues rather than anything deliberate.

Chairman

What type of return would be reasonable for investors in PPPs in general? Are there parameters or caps? The return cited here is 13.7%, which seems a decent return for an investor.

Ms Stephanie O’Donnell

The principle of the PPPs is that there is a risk and reward mechanism at work. We ask the private sector to take on risks and they receive a reward in return. We do not have parameters regarding risk. The report deals with this issue and gives a figure for the return. It is the return for the investors who invest 11% of the funding for the project whereas 89% is borrowing. On 11% of the project the return for investors, was 13.7%. That was not out of line with the UK's norm of a return of approximately 14%. It is part of the arrangement that the investors receive returns as they are putting their capital at risk.

Chairman

We all know that investors will not invest unless there is a return but this is not the issue. When the Department of Finance is negotiating with the private sector, is there a rule of thumb or set of parameters by which it tests the return and is this one of the Department's indicators of whether good or bad value for money is received?

Ms O’Donnell

The National Development Finance Agency acts as a specialist adviser on the projects. It tests the options to determine the optimum deal for the State. Part of its consideration is that the returns would be acceptable and commensurate with the risk the private sector takes on. It is a specialist advisory job.

Chairman

I am not asking for specialist information. As the supervising Department, will it go ahead with the project if it sees a return for investors of 25%? If the Department of Finance sees a return of 8%, will it believe this to be a mistake, that the amount is too small? Is there a guideline in the Department's model for the returns to investors?

I ask this because I saw information three years ago that said that for the private sector coming into PPPs their gearing was normally in or around 80% bank borrowing or borrowing from whatever source, and up to 20% private investment and that they were expecting 13.5% to 14% on the investment side and 2 points above the euro rate for the borrowing, or above what the NTMA could borrow it for. Is the Department of Finance still working within these parameters? On the basis of the return here, it appears that the Department is working within these parameters. One would require many advantages in running and maintenance to argue in favour of a PPP because the NTMA could get money much cheaper than this. There is much money available now.

Ms Nolan

We do not have a rule of thumb but we have ideas of how this should be structured. This proposal did not have 20%, but only 11% of subordinated debt and equity, which is effectively where the return to investors is. The remainder is debt finance that is at slightly above the euro rate but not significantly so.

Chairman

Is it by two points?

Ms Nolan

It is relatively little. The other 11% is where the risk lies and investors expect to get a return from this. The Department does not have a rule of thumb and each project must be examined. It is not the return to investors that should be the deciding factor in whether a project goes ahead but the return to the State.

Chairman

I am not suggesting that. I know the Department must examine many factors when deciding.

Ms Nolan

Exactly. These are the factors we would examine.

Chairman

It is an alternative. Does one decide on the traditional method or does one use PPP? Does the Department have criteria on the return to investors? Does it say "go" when the return is acceptable or "do not go" when the return is too high or too low because they might not be able to cover their risks?

Ms Nolan

We do not have criteria in the sense that we do not have an absolute amount. The entire deal must be examined. One could have 1% equity and no subordinated debt and the return might be 20% rather than 13%, which might be better value for money for the State, but this is an unlikely scenario in this type of deal. Nonetheless, we must examine the whole of the project and how it is structured. We cannot say that it is bad value if it is above a certain percentage or good value if it is below that percentage.

Neither can we look at the financing purely. This is a design, build, operate and finance project. One cannot assume that if the financing were removed, the design-build-operate facet would stand in its current form. It would be bid on a different basis. One can only examine these deals as a whole.

I agree that the rate of return to investors is one of the criteria to be used, but the overriding factor is the public sector comparator. If we can have schools built on this basis, giving us better value for money, it is better value than doing it ourselves. While other people are also profiting, it does not mean we are not getting better value for money. If they can design and structure their package and organise their building in such a way that is better value than our way, this is something we wish to derive from public private partnerships.

Chairman

I understand that. One of the committee's difficulties is that its members are not given full information on PPPs. Deputy Curran made a good proposal to bring the private partner to address the committee alongside the Department of Finance and the parent Department.

While these answers are interesting, I have been given generalities rather than precise information. I accept that these generalities are accurate but we know all of this already.

We are still not getting precise answers to precise questions. I will move on because a number of other Deputies wish to contribute. I have one specific question for Ms McManus on one of the schools. It has been brought to my attention that the contract does not cover the testing of software or the installation of software on computers. It costs €100 per software test and, more seriously, the cost of installing software on computers is €20 per computer. In the school brought to my attention, there are 300 machines and at €20 each that is €6,000. A technician is employed on a one day a week basis by the facility management but, to put it at its mildest, he is underemployed on the day he is there because it is not within his remit either to test or install the software. Students and teachers who have the capacity to install the software, because it is not a major job, cannot do so because it would interfere with the Jarvis machines. Is Ms McManus aware of this?

Ms McManus

I visited Ballincollig school and this was an issue there.

Chairman

It sounds like it.

Ms McManus

I suspect that perhaps——

Chairman

Before Ms McManus answers can I ask if these schools get any other grants or capitation now. Is it all Jarvis?

Ms McManus

They do not get approximately one third — there is a reduction of approximately €450,000 across all community schools and colleges on what we would otherwise be paying. They would have been on a budget-type basis.

Chairman

On capitation.

Ms McManus

We estimate they are not getting approximately €450,000 that they would otherwise get. We are still paying two thirds of what schools would normally get. Schools pay their own electricity bills and telephone bills. Jarvis would not pay those. The reduction is because running costs of the schools are not transferred. On the question regarding computers, there are two issues, namely, whether people should be allowed put material on the machines and if the price is reasonable.

I am not a computer expert, but one will find that if someone has a maintenance contract and is taking the risk on the machines being operational, he or she will want some control over the software put on those machines. From our own organisations we all know the problems that can be caused by people putting materials on machines. That control is necessary if one has a computer contract.

I have heard that schools view the costs as expensive. While testing costs are considered reasonable, installation costs are not in that the charge is per machine and schools believe the technician could install software on all machines simultaneously without having to physically go to each one.

Perhaps we did get this issue wrong. It is matter that we see in Seán Slowey's report. As the computer element of the contract is only for the first three years, we do not have to continue with it after that. There is a valid issue as to how we should handle computers in future PPP projects. The English experience is that the entire ICT area is not suitable. It is in a somewhat different context as it is a totality of an ICT project for 25 years. I listed it as one of the issues we are examining for the future. On the positive side, the same school making a complaint on that matter found the maintenance of, for instance, the firewall compared very favourably with some schools paying privately for maintenance contracts and firewalls. We may find positives and negatives in the feedback. From my own unknowledgeable perspective there does seem to be a problem with the software, particularly for adult education.

Chairman

I would say Ms McManus knows much more about it than I do. I thank her for her answers.

Deputy Curran

I find myself agreeing with the Chairman. As a pilot programme this was not set out in a manner to make direct comparisons with alternatives easy. That is disappointing as the purpose of a pilot is to have a control model for comparison. The more I examine this, the more difficult it is to make a comparison.

Public private partnership is about transferring the risk and a number of options could have been examined. From the outset it does not seem that much risk was transferred. I was surprised initially when I heard of the concept of a school falling into the PPP category, as some areas of risk are borne by the Department, such as the number of students.

When it was decided to do a PPP, did Ms McManus always intend that it would include full maintenance over a 25 year period or could other models have been examined for construction and building? The NRA engages in road construction where there is a design and build but no maintenance element in the contract. Was that aspect examined at the beginning or was maintenance always tied in?

Ms McManus

In the context of the PPP we always looked at design, build and operate. Whether it would also have the finance element was considered at a later stage in the planning. More generally in the capital programme we are examining more options on getting value for schools' budgets. At primary level we have the generic design and we have a design and build contract which has worked very well and which we are examining expanding to post-primary level. That would deal with some of the construction risks Deputy Curran mentioned but clearly it would not be a PPP. If one examines what will qualify as a PPP there must be a sufficient risk transfer.

Deputy Curran

I am finding it hard to see the risk.

Ms McManus

I have a certain sympathy with Deputy Curran in terms of coming newly to the education scene when one does not stop to consider such things but when one does consider it one sees there are very significant risks such as in construction. There may be other ways of dealing with it but if one examines one of the schools mentioned in the Comptroller and Auditor General's report, where a certain figure was used as a base cost, one sees that it is now running at €700,000 more than it was at the time the report was done. That was a traditionally procured project. We have a procurement risk.

Deputy Curran

That risk can be handled in different ways in its own right.

Ms McManus

We are doing that. We are not saying that PPPs are the be-all and end-all. There are many different ways of doing things and we are seeing what we can learn from them.

The availability risk is a significant risk in schools that I would not have thought of, either as a parent or in any of the other ways in which I engage with the school system. For example, in a case such as that involving a school in Shannon, where there was fungus in the roof and people had to move out immediately, the PPP provider will have an obligation to provide a functioning school. That is a risk the State is transferring. If the central heating system breaks down and there is a major problem with it and an expensive job to be done, temporary accommodation has to be supplied by the promoter. I would not underestimate the extent to which availability is a risk.

On the issue of projects being on budget, one of the interesting things in the UK experience — the UK National Audit Office conducted a study — is that most of the public private partnership projects came in on time and on budget. However, when the audit office examined the public projects, the conventionally procured school projects, it found that only 30% of these came in on time and on budget. That is, therefore, a real risk.

The availability issue is important in terms of transfer of risk. There is also a benefit that is not in the risk transfer that is worth mentioning and it is a criticism one could make of the way we conventionally examine traditional procurement. We think in terms of the capital costs and how to obtain maximum value. This has led to situations where schools with maintenance problems had shorter lives. The PPP process has been good for our organisation because it has forced us to think about the whole life-cycle aspect of the issue in a way that we should have been doing in the conventional process anyway. That is one benefit to us as an organisation, as well as the design and build models and standard procurement models. These benefits have nothing to do with transfer of risk but are about making the organisation consider the implications of different design features across the whole life cycle of a school.

Deputy Curran

One of the aspects of this is that the maintenance is included by Jarvis. When it put the package together, transfer of risk was discussed and a particular figure is attributed to each service and each transfer of risk. What figure is attributed to the current maintenance of the schools? Ms McManus mentioned that a school, for example, is losing the equivalent of one third of its capitation. Is the element of the outgoings to Jarvis for maintenance higher than that estimate of one third?

Ms McManus

Yes.

Deputy Curran

How much more?

Ms McManus

It is not directly comparable, in that there is a sinking fund element in the current payment which would not be in the capitation. This is a depreciation charge. If one takes the facilities management payment, which is just over €1 million and if one operates on the assumption that we are saving €450,000, then we are actually ——

Deputy Curran

Providing another €500,000.

Ms McManus

It is not directly comparable, but yes, one can make that assertion.

Deputy Curran

No, but as an observation, there are five new schools getting an extra €500,000, or €100,000 each per year, for maintenance. While it is an ongoing, 25 year programme, it is the type of issue with PPP that I would like to see addressed. I would like us to know what we are actually spending and saving. I agree with the Chairman that it was very difficult to tease out this issue as dealt with in the report. The difficulty is, as Ms McManus has stated, that we are not comparing like with like. I understand that the organisation is open to new suggestions on design issues.

Another aspect that is not often referred to is the fact that schools are used outside of core school hours. There is a return to Jarvis on that and to the school itself. Is that correct?

Ms McManus

Yes.

Deputy Curran

What level of usage is being generated?

Ms McManus

It is lower than we would like. It is good in some respects, for example, we kept 350 hours per annum of the out-of-hours usage for the school itself. The school in Ballincollig, for instance, has a very extensive adult education programme. However, it is fair to say that our expectations regarding the renting out of school buildings, sports facilities, gyms and so on, have not been realised.

Deputy Curran

Is Ms McManus disappointed?

Ms McManus

It is lower that we would have expected. Although Shannon ——

Mr. Gordon

Shannon has a fully operational gym and that is well used outside core school hours. That has a lot to do with its location, whereas the school at Tubercurry is outside the town and as a result has access and usage problems.

Deputy Curran

Is it the responsibility of Jarvis to promote out-of-hours usage?

Mr. Gordon

Yes.

Deputy Curran

It is not the responsibility of the school principals.

Mr. Gordon

No. That is covered in the report we are drawing up with Mr. Slowey. We are examining usage levels to ascertain why they are relatively low. We have asked Mr. Slowey to focus on that issue.

Deputy Curran

They may be side issues, but it would be important to know the out-of-hours usage in comparison to other schools.

Mr. Gordon

As that is part of our criteria going into the process, we want to find out what is happening under those criteria. The research we conducted on the PPP process in the UK indicated that there is a large amount of third-party usage of schools. It is much wider than anything in Ireland. Schools in the UK are used for weddings, for example, which probably would not happen here.

Ms McManus

There was a wedding in Ballincollig, believe it or not. It was held in the sports hall.

Deputy Curran

I agree with Mr. Purcell that it will be a long time before we know, ultimately, how this PPP process has fared. However, because the whole area of maintenance is dealt with, the principals and the management boards are freed. Have they used that extra time to develop any other projects or services, or do they simply have an easier life? I sit on a board of management and I can assure everyone that in an older school, maintenance is an ongoing problem.

Ms McManus

We hope the school evaluation, which will take place in one of the schools in the autumn, will allow us assess management time and its use. The feedback from four of the five principals is that they are in a position to put more time into management of programmes such as special education, which are often very time-consuming. Initially, there was a learning period for the principals, in terms of managing the new situation. In general, however, the feedback is positive in terms of people having more time to focus on the educational aspects of their jobs, but without a proper whole-school evaluation and inspection, it is hard to judge.

Mr. Gordon

We did wonder if we would be replacing one form of work for the principal with another, namely, that of monitoring a contract. That was one of our worries and that is another issue that we will examine more closely. However, the indications are that the majority of principals have been freed to carry out their core duties.

Deputy Curran

They have and I do not want to appear too critical, but we are paying a price and we want to see the benefits. We want to be able to quantify the benefits. I look forward to seeing the evaluation in the autumn because I appreciate, from the school management point of view, that not having to look after maintenance is very beneficial.

Deputy Boyle

Will Ms McManus accept that if the trend is to continue of an 8% to 13% differential between PPP construction of schools and conventional construction, then in reality, we will not have the ability to build one new school in every 12 at the lower end of the scale and one new school in every eight at the higher end? The differential is important and decisions must be made regarding the effectiveness of the financing mechanism.

The specifications for the PPP schools have been changed — the area size has been increased by 15%. It was stated earlier that this was largely to allow for circulation and social areas. Does this mean that despite the 15% increase in space, no extra classrooms or extra educational facilities were provided in these schools? I ask that question because experience has shown, in the UK and the United States, that greater circulation and social areas are put in place to make the sale of such spaces viable. Space is often sold for access to vending machines. Many schools in the UK and US, through the management companies, sell franchises for the vending machines that may exist on the school premises. In many cases, those are exclusive franchises, so that the drinks are provided by Coca-Cola and the sweets are provided by Nestlé, for example. In the franchising of the open space, decisions are being made that could run contrary to other aspects of Government policy on the health of young people in educational institutions. Ms McManus might wish to comment on that. Those are my initial questions; I would like to ask some more specific questions later.

Ms McManus

The Deputy's first question was on the extra cost of the space. We did not say that we felt that, as a policy, PPPs should be better designed than our standard school model. We said that we were trying out different things to see if we could adopt them into our general standard. If we increased the space allowed in all schools, and if the same issue arose about some of the other features provided, would there be a sufficient educational benefit, commensurate with the fact that our Department exists in an environment where there are a huge number of priorities to build into our budget? We take such design decisions continually, although I would not say that it is quite every day, and they arise for things other than PPP issues. We now build PE halls in all schools as standard. That would not have been the case in the past.

There is an educational benefit and there is a cost. How can those be balanced? That is a general issue across the school programme in many areas. If the Deputy is asking whether the issue of circulation space in PPP schools came up because of commercial reasons, I would say that I do not think so. There is a huge amount of pressure on us from non-PPP schools and from educational interests to believe that there is a benefit to having wider circulation spaces. There is a building argument to that, on which we can comment specifically. There is an argument based on maintenance and wear and tear, and there is also a discipline issue because of the movement of people, the volume of students——

Deputy Boyle

There are no restrictions on vending machines in this context. Technically, Jarvis can put in as many vending machines as it likes.

Ms McManus

I will perhaps deal with the vending machines issue as a later point. On the circulation space issue, we have already increased our allowance for that space from 18% to 24%. The PPPs had a figure of about 30%. Irrespective of the vending machine issue, there is a valid point here that we have to address. I think that most people would say that there is a benefit in going to a 30% allowance. Our problem is about whether the benefit of doing that is worth the addition of that 30% to the budget and the reduction in the number of schools that we can build. Leaving the vending machine aspect to one side, the Department has a policy issue on PPP that we must address, which is about how we proceed on the standard specs for schools.

Turning now to the vending machine issue, there are generally no vending machines in most schools apart from in canteen areas and in the area near the sports facilities. By and large, most wider corridors do not have vending machines in them. Agreements connected with healthy eating have been worked out in a number of schools, for reasons of school organisation in some cases. For example, the machines might have time locks on them so that they cannot be accessed by students moving between classes. The one besides the sports hall might only have juice in it. Issues in this area have been negotiated with the various schools to deal with issues schools identified on the availability of fizzy drinks and chocolate in vending machines in particular. I get the odd complaint on my desk from parents about this. A private school can install vending machines if its board of management so wishes.

On PPPs, we will be examining canteen facilities in general and the question of whether to allow operators to take care of vending machines in future. In practice, schools have managed to sort out the issues that have arisen. The problem with children drinking fizzy drinks goes wider than the issue of vending machines in schools. Children will purchase them outside school anyway. There has been particular success in Clones, where there has been a programme of healthy eating in the canteen, in which the local health board has been involved. That takes things onto a different level from simply trying to introduce vegetable wraps, for instance, without any such support.

Deputy Boyle

A school's relationship with the wider community is important, as are the relationships that exist within the school community itself. One criticism of PPP is that there is a disengagement from that sort of relationship. Within the school, the principal might not have a direct relationship with the cleaning staff or maintenance staff. There are effectively two sets of staff in the one building: a teaching staff and a management staff. As regards the relationship with the wider community, Ms McManus describes schools being built on greenfield sites. Ballincollig Community School was built on a brownfield site. There was a school there before, which was demolished. There was also a stand-alone gymnasium, which was perfectly adequate and which had wide community usage on a grace and favour basis. The board of management took decisions on that, and the principal could make decisions at any time. With the construction of a new school came an insistence on building a new separate gymnasium, which brought up a whole range of community issues about the use of what was now no longer a community facility but a commercial facility. I would be anxious to know the Department's view on that and whether it is thinking of changing the use of PPP contracts in future to avoid that disconnection with the local community and to avoid a move towards commercial operations.

Ms McManus

There are two issues there. Deputy Boyle raised the specific issue of the gymnasium at Ballincollig. My apologies, but I should have referred earlier to new building rather than to a refurbishment. An architect's report was commissioned for that school. There were several problems with the sports hall that was there before. There was damp, and there were problems with the concrete frame. Each bidder was asked to examine the building and ascertain whether it would be worth retaining and repairing as part of the new project. However, no bidder included it in its project. I think there was a particular problem with the sports hall.

The Deputy's wider question was on whether school facilities should be rented out at a commercial rate or at a lesser rate, and he was asking about the relationship issues around that. Personally, I do not see any reason existing facilities should not be rented out at a commercial rate. I do not see why that should not be a valid position for a school to take regarding its sporting facilities. We could also consider the possibilities for adult education or other services that schools can provide. A big bank of hours is available to schools. A school can use that time for either its own purposes, adult education purposes or community usage. That time amounts to 350 hours per year, which is a fairly significant block of hours.

Deputy Boyle

One hour per day.

Ms McManus

If one operates on the basis that school is for 33 hours per week, in terms of the normal school usage it is a fair amount. We do not think that most of the schools are using their 350 hours and it is one of the issues at which we are looking. The schools told us they did not need 350 hours. They said they wanted 100, or 200 hours at most, which was the highest for any school. Given that we were conscious of the need to ensure a usage for good education and other purposes, we upped it in the tender to 350 hours. We will have to look at the whole issue of the outside hours use of the school and whether it is working. There may be issues to do with acclimatising people. One of the issues that has been mentioned to us on a feedback basis rather than on scientific basis is that people have to telephone a help desk in Dublin to book the facility rather than drop in to the school to the school principal, which is a barrier. I do not know if that is a real barrier or just a matter of people getting used to a different way of doing things.

There is an issue about the usage that we will have to look at and see why there is not as much usage as we would wish. I do not think that is a problem with a public private partnership but it may be a problem with the particular location of some of our PPPs or the way the management of the PPP is structured. It may be an issue of pricing relative to other prices locally. I do not know until we look at the issue. There is no inherent reason in terms of a PPP as to why having a private operator will mean less usage out of hours. The UK experience has been that there is more usage out of hours.

The issue of the caretaker maintenance staff has not proved to be a particular problem in terms of the relationship with the principal. The caretaker is in the same building as the principal and the personal relations appear to work well. We are not aware of any problems in our schools or of that being a particular problem in the English schools.

Mr. Gordon

There were problems initially but they were of a cultural nature. The principals had the responsibility for staff and were able to give directions as to what he or she wanted done. Certainly, at the beginning of the process, even though everybody was aware that staff would transfer over and come under the operator, it has not come up as an issue and it does not appear to be an issue.

Deputy Boyle

I move on to the selection process and the continued relationship with the companies that were successful here and chosen for other projects, for example, Jarvis plc. To what extent did the Department carry out an ongoing assessment of the forward viability of the company, given that it has since run into difficulties? To what extent did it anticipate how such difficulties might be overcome because in terms the Cork School of Music, the company attempted to sell it to two other consortia and there is still a great deal of confusion as to who is taking responsibility for that project. To what extent did the Department look at the experience in the UK? The experience there has been quoted quite favourably today but the public audit commission report that I have seen on the public finance initiatives was quite damning and the experience of Jarvis in the UK is far from perfect. It has had several dozen contracts taken away from it by local education authorities in Britain. Has the Department monitored how many of those contracts have been taken away from the company and for what reason, and are lessons being learned from that, not only in regard to this specific company but to PPP projects in general? There are important lessons to be learned.

What is the position with the Cork School of Music? In October Jarvis announced it was selling it to a French company called Vinci Developments and the Minister and the Department were not even informed by Jarvis that it was in financial difficulties and that it was selling it on to a third party company. In December that turned out to be a fourth company, a German company called Hochtief, and still there is no development and a great deal of uncertainty as to how it will progress. Seemingly it was a project that was done on the same basis as this group's schools project where the potential loss to the State will be similar to what it would have been if we had chosen to do it by conventional means.

Ms McManus

I will start first with the Cork School of Music. In that case some of the difficulties to which the Deputy referred arose because we did not have a contract signed at the time. In regard to the decision to proceed with the contract, the basic issue is that we have to be satisfied, because of the general EU procurement rules and because Hochtief has replaced Jarvis as a member of the bidding consortium, that had it applied under the terms of the original PPP advertised in 2000 it would have prequalified for the project. Given the due diligence issue, the two companies reached an agreement on the Cork School of Music on 3 December 2004. Our special advisers are looking at the financial and legal due diligence issues to ensure we do not run into a difficulty from a new EU procurement position. Part of the due diligence process includes discussions with the EU Commission in terms of clarification and advice on the procurement issue to ensure we do not run into problems. We are optimistic that we will have that process out of the way within the next few weeks, at which point we will have to commence formal negotiations with Hochtief to complete the contract details, in other words, the remaining stage of what we would have had to do with Jarvis to sign it up. We do not expect that to take a huge amount of time. We see it as approximately eight weeks' work.

Deputy Boyle

Is it the intention that because of this delay and dealing with a new party the original amount of €60 million will be exceeded?

Ms McManus

No. The Government's clearance to go ahead with the project was on the basis that the cost would remain the same and Hochtief has confirmed it will remain the same.

Mr. Gordon

It has been confirmed that when Jarvis decided to sell on the bid, Vinci left the bid because other bids in which it was interested fell through, so it was not interested and was seeking a package. When we met Hochtief and Vinci, while we could not give guarantees until we had seen a proposal, we made it clear that if either of them was to come into the bid they would have to meet certain criteria. One of those was that the price would not change and that there would be no change to planning permission. When the Government took the decision to sign the deal with Jarvis last July there were two criteria, the main one being that a full financial due diligence exercise would be done on Jarvis because at that stage the financial issues were being raised. We had to do that and there was no possibility of signing any deal with Jarvis and obviously that proved right.

Deputy Boyle

This is the contract that was signed in July 2004.

Ms McManus

No, it was not signed.

Mr. Gordon

No contract was signed.

Deputy Boyle

It was agreed in July 2004.

Mr. Gordon

Yes.

Deputy Boyle

In October, Jarvis said it was having difficulties with its parent group and was prepared to sell it on to the French company. Why was that information not available?

Mr. Gordon

It was only the previous summer that Jarvis's financial position had become known. I am talking about days or weeks before and that is why the Government insisted on a full financial due diligence exercise. That is what has happened.

Deputy Boyle

How does this affect the capacity of Jarvis to fulfil its contract with the group schools project?

Ms McManus

The Deputy made the point earlier about Jarvis and a due diligence exercise. Our financial advisers would have done a due diligence study of Jarvis. Obviously, that would have included learning from some of the experiences in the United Kingdom. In terms of some of the legal contracts, we would have drawn on some of the UK experience, although no more than for the next round, when we will draw on our own experience, but, given that we did not have experience, much of the input both from our advisers and ourselves was based on the UK experience.

We would not have had this issue with Hochtief and having to go through this process if we had signed a contract because the risk would have transferred. In terms of the issue the Deputy is raising, if Jarvis decides to sell its management of the schools project to Hochtief or somebody else, as far as we are concerned, effectively the bank is underpinning this for us. As long as we are happy that the bank is underwriting that it can be delivered, or that there is a substantial financial guarantee——

Deputy Boyle

Surely you knew before July 2004 that Jarvis was either being removed or was withdrawing from projects in the UK.

Mr. Gordon

No. It was still the preferred bidder on quite a number of projects in the UK up to November or December 2004.

Deputy Boyle

I have seen reports dated 2003 on Jarvis and the contracts it was losing in the UK as regards non-performance of the original contracts.

Mr. Gordon

It had difficulty with contracts, particularly those to do with projects, but it took on existing schools. It must be remembered that the process is very different in the UK in that a local authority may hand out 100 or 200 schools to be maintained and operated. The difficulties Jarvis encountered arose because it had underbid for the amount of work that had to be done on the existing premises to meet the new-build type standards. That was its main difficulty.

Deputy Boyle

That sounds like the opposite problem to ours in that we set new standards and the rest of our schools have to catch up.

Mr. Gordon

We are probably in a stronger position. It is peculiar but when we compare the school of music and the schools with Jarvis, we see that we were actually in a stronger position with the schools in terms of Jarvis's financial position because if it had collapsed, the banks would have intervened and put a new operator into the schools. There are termination clauses etc. in the contract but because we had no deal with Jarvis for the school of music we have to make sure that the procurement process is absolutely correct, with a new bidder coming into it.

Deputy M. Smith

I welcome the representatives. I am in a slightly different position because I welcome Departments being innovative. I am happy to uproot some of what we call the traditional methods that are sacrosanct and are constantly compared to everything new. I was one of those who played a part in introducing a pilot scheme for primary school building extensions and new schools. I support that innovation. The chairman and my colleagues dealt adequately with the faults, and we must wait a little longer to evaluate all the various outcomes.

My question is simple. What have we learned from the PPPs that we will now apply in the traditional procurement systems? What changes will we make to them in the light of the design and build experience and all the various exchanges we have had with PPPs? I am not giving them a carte blanche or anything like that but we must continue to make significant changes in our traditional methods, bearing in mind that a huge proportion of the school building programme will still lie in that area.

Ms McManus

On some issues we are still trying to decide what we have learned in terms of the design but the biggest issue, and it is one I referred to earlier, is that of the life-cycle costings, particularly in relation to various building elements. My understanding — and perhaps I could ask one of my colleagues who is more familiar on the design aspect to mention it — is that regarding building fabric, finishes and building ability issues, we are looking at what we can learn from the PPP design process and bringing that into our traditional design approach to try to get a longer lifespan for those buildings. On the design side, our design team believes it has learned much from the PPP process.

On the more general procurement issue, we are probably learning as much from aspects such as generic repeat designs. It is on some of our design and build issues that we are probably learning the most lessons, so to speak, in terms of what we could do on the non-PPP element because some of the complexities of the whole PPP procurement context, in pure procurement terms, relate very much to the transfer of risk element and the structure of the PPP complex. There is a wider issue for the Department as well, as the Comptroller and Auditor General said, concerning the maintenance versus construction issue that we will have to think about but with your permission, Chairman, I will ask Mr. Heffernan to comment on some of the lessons we have learned and that we are adapting into our traditional building.

Mr. Martin Heffernan

We would have procured many schools in recent years and demanded a certain level of quality from our various design teams. I suppose we are regarded in the industry as being quite mean about what we allow. Our area norms are quite specific and we would have examined areas in consultation with the educationalists who were on board with us regarding what we could deliver in terms of quality, space and behavioural issues and how that would impact on educational outcomes in the longer term. It is early days but we believe we have delivered a very good product and I hope the outcomes will become apparent in educational terms.

The major factor that struck us in examining the DBFO model was the sustainabilily agenda. Its sustainability is underpinned in Government policy on architecture. As an architect I would examine this quite regularly. Design teams coming to us continually talk of the sustainability agenda. It is all very well to talk about it but delivering it is another matter.

The DBFO model was very much focused on that. Individual materials were examined in terms of how they were put together, the effect they would have on the long-term viability of the end product and the replacement values. At stages 1, 2 and 3, which are the early pre-lodging for planning permission stages, we now critically examine the various materials that go into the building. We always examined them in the past but there was a financial element to the choices in the PPP model. The pallet of materials could differ. Even within a fixed basic building cost we now try to push the sustainability agenda as far as we can. The most important aspects we now apply are the elements of the sustainability agenda at the early design stages because we are moving towards a situation where we are becoming deeply involved in the initial stages of a project. A criticism levelled at the Department in past years would have been that it took too long to get a project through the stages because they were almost checked to death, so to speak. It was a very slow process, over and back.

Our focus in going forward will be on the early design phases — fixing the architecture, the brief, the areas and the cost — and then allowing the school to be delivered. The sustainability agenda will feature highly. I personally have learned a significant amount in that area of the PPP process.

Deputy M. Smith

I welcome those comments because it seems that PPPs will play a lesser part in the future. I do not want to use the term "traditional system" because I like to think in terms of updating it and calling it a modern system, which I am sure Mr. Heffernan does as well. It is clear that we can borrow the money for the State nowadays, although we were not always able to do so. The NTMA can do it as well if not better — most of the time better — than anybody else.

How can we put the package together in order that it takes us out of all these legal niceties? Having listened to the debate, a huge amount of time is spent in contact with the Department of Finance, the Revenue Commissioners and everybody else, not to mention the ensuing difficulties that can arise. I see that as a smaller element in the total programme, but the critical lessons must be learned from what we have been doing in the various stages. One would want to be in politics for a long time — luckily I have been — to see some of the projects through to fruition. I am extremely interested in choosing the elements of experience that will play a bigger part in hastening the way in which we do the majority of our work.

The afternoon has gone on and we have kept people here for a long time. There are other things I would like to mention but I will leave it at that. I look forward to some more announcements such as those we had this week relating to north Tipperary. If Deputy Boyle can get the school of music out of this, I will knock a few schools out of it in north Tipperary, too.

Ms McManus

Earlier this month, the Minister for Finance emphasised the need to try to get things into perspective, even within the PPP area. I take the point about learning from the best elements of the PPP and bringing them elsewhere. Hopefully the NDFA will help to reduce the work load. Much of the work we had was because it was the first time. One hopes standard contracts and procedural models can be developed, which is the objective of the Minister for Finance on PPPs.

Chairman

Does Mr. Purcell wish to comment?

Mr. Purcell

Last week, I spoke at the Irish public and private partnerships forum, which was also addressed by the Minister for Finance, on the topic of achieving value for money from PPPs. I will not rehearse what was said there. Everyone should recognise, however, that PPPs do not represent the panacea for all the ills of construction and design, or that they are the only way of achieving value for money. Reading some of the commercial features in newspapers at the time, one would have imagined that was the case. Depending on the nature of the projects and the deal one can do, PPPs are suitable in certain circumstances at certain times because a competitive market is basic to the achievement of value for money. As Deputy Michael Smith said, it does not have to include a financial element, although there is obviously an attraction in having that from a commercial viewpoint. It is not necessary, however, and, therefore, they can work without that and still incorporate a substantial transfer of risk.

Reverting to something the Chairman took up earlier with the representatives of the Department of Finance, I have some sympathy for the Department of Finance in this — just to show my human face.

Deputy M. Smith

We were not aware of that.

Mr. Purcell

It is not the whole case to talk about the percentage return for investors on the subordinated debt. One must examine that in the context of the quantum of risk that is transferred and the nature of that risk. One should get a better return for the greater amount of risk one takes, which is a fair rule of investors generally. I suppose it cannot be looked at in isolation.

As Deputy Michael Smith said, it is getting late and I have probably said enough. The report was not meant to be a bashing job on the Department of Education and Science or the Department of Finance, in the way this was handled. It was done in a rigorous way and on the other side of the fence they may say it was done in an over-rigorous way. However, in doing it that way — in subjecting all elements to the kinds of rigours that we did, and it took a fair amount of time to do it — there is a benefit accruing to all of us. It has achieved much.

Chairman

Are the guidelines for PPPs still the ones Ms O'Donnell circulated to the committee some time ago, or have they been updated?

Ms O’Donnell

We have concluded a stakeholder consultation document which we sent to the Comptroller and Auditor General last week. We can send it on to the committee. It was concluded in January. They are guidelines for consulting stakeholders in the projects, mainly employees who may be affected by a PPP. We have the guidelines which have been approved by the interdepartmental group and the informal advisory group.

Chairman

Can Ms O'Donnell forward it to the secretariat for circulation to the members?

Ms O’Donnell

I will. There are a few more pieces of guidance in progress at the moment.

Chairman

May we dispose of report No. 48? Agreed.

The witnesses withdrew.

Chairman

Is there any other business? The agenda for the meeting on Thursday, 28 April 2005 is as follows: Comptroller and Auditor General, special report No. 7, health sector audits.

The committee adjourned at 2.45 p.m. until 11.15 a.m. on Thursday, 28 April 2005.