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.