COMMITTEE OF PUBLIC ACCOUNTS debate -
Tuesday, 12 Sep 2006

Minute of the Minister for Finance on the 2002 Interim Report of the Committee of Public Accounts on Transport.

Mr. J. Purcell (An tArd-Reachtaire Cúntas agus Ciste) called and examined.

Chairman

We will work from the minute of the Minister for Finance on the 2002 Interim Report of the Committee of Public Accounts on Transport. The major heading is: Department of Transport — Financial Control Weaknesses. In combination with that, we have the analysis prepared by the secretariat on what the Minister has and has not accepted. The first paragraph states that the Department of Finance will write to all Accounting Officers reminding them of the importance of financial procedures and the need to have procedures in place to signify lapses. That is an acceptance of our recommendation, so that issue is closed.

Recommendation No. 2 has been implemented, so that issue is closed. On recommendation No. 3, Accounting Officers have been informed of the committee's recommendation. The Minister notes modern financial management systems have been installed in Departments and the need for appropriately trained staff to be deployed in key financial control functions. That has also been accepted. Deputy Fleming had a particular point about employing professionally qualified accountants in these areas.

Deputy Fleming

To which point are you referring, Chairman?

Chairman

We are on recommendation No. 3, that the Department of Finance should produce guidance on the maintenance of financial control systems during periods of major structural change and during periods of transition and the implementation of new financial information systems, and then that staff retention as a key financial control function should be emphasised. I think it has met that objective.

Deputy Fleming

Yes.

Chairman

In effect, the reply to recommendation No. 4 is that while the Department of Finance does not agree with the construction of financial indicators, it accepts that the Accounting Officers put in place appropriate monitoring and control activities. Also administrative budgets enable the proper monitoring of financial management.

Mr. John Purcell

What the committee had in mind here is that Departments should be aware of the cost of employing their financial control and management systems. I think what the Minister is stating here does not take that on board completely but, as an alternative, suggests that the Department would write to all Accounting Officers to remind them of the need to ensure that the cost of financial monitoring and control activities is monitored. Further, to support that — I would tend to agree with the Minister — now that the computerised financial management systems have been implemented in all Departments and offices, such figures should be produced as a matter of course in terms of the costings of various functions and activities. That would enable an eye to be kept on the cost of the financial control function itself.

Chairman

That is reasonable.

The next recommendation relates to driving tests. Our recommendation was that the Department as a matter of urgency should bring forward proposals to improve the management of the driver testing service so that the target waiting times for a driving test can be met. The Minister for Finance, in his reply, states that the Department of Transport has brought proposals to eliminate the backlog for those waiting to do driving tests and it remains to be seen whether these measures will be successful. Incidentally, the Secretary General of the Department of Transport will attend our next meeting.

From what I saw of the recommendations brought forward, they will not do much for the driving test waiting list. While the Minister for Finance is effectively stating it remains to be seen what will happen in this area, I think he would have the same view as the committee, namely that if we wait and see we will find that there will be very long waiting lists. I do not think we have an argument with the Minister for Finance about this and we accept his reply, but we should take this up strongly with the Secretary General of the Department of Transport at our first meeting in October. Is that agreed? Agreed.

Recommendation No. 2 was that the Department and the NRA should report specifically on the value for money obtained from the new public private partnership, PPP, arrangements. The Minister states he is assured that the process employed by the Department of Transport, whereby the Department prepares a financial comparator which it compares against the most economically advantageous bid, is in accordance with the Department of Finance guidelines on the appraisal and management of capital projects and working rules for cost-benefit analysis, and that it offers the best value for money. He also points out that all documentation on evaluation of the NRA is available to the Comptroller and Auditor General.

This is a reasonable response from the point of view of the Minister for Finance but from our point of view significant tranches of public money — taxpayers' money and Exchequer borrowing — is now being used in PPPs. While we can examine the State's contribution through the Department of Transport and the National Roads Authority, we have no authority to bring in and scrutinise the private sector partner. It is true that the Comptroller and Auditor General has access to all the documentation on both sides of the PPP and we have his assurance, on individual projects as we discuss them, that nothing untoward is occurring here. However, it is accountability by remote control in that the committee cannot satisfy itself directly and give assurances to the public that the vast amounts of money being invested in PPPs are fully accountable to the parliamentary system. That is a big problem and I know the committee has views on it.

Deputy Fleming

We are dealing with this under the Department of Transport but we spoke a while ago about schools. There is a credibility issue for Parliament if we cannot have access to details of how PPP projects are being managed and whether the taxpayer is getting a proper deal. Meaning no disrespect to the Comptroller and Auditor General, it is not good enough that he or whomever else knows about it. We are discussing public accountability. We are not suggesting anything is going wrong.

I acknowledge the bidders would have difficulty releasing sensitive financial information but if there are commercial sensitivities in disclosing such information into the public arena because they will be bidding next year for further contractors and their competitors will see it, I would suggest there should be a mechanism — perhaps the Committee of Public Accounts in private session — where Members of the Parliament have full access to the information just as the Comptroller and Auditor General has. Then the committee can issue a report stating whether it is satisfied. It is not good enough to state that no Members of the Parliament should see how this money is being spent and it is not good enough to state that Mr. Purcell can see it. We should push this issue.

Chairman

We should push the issue. In other parliaments, such as the British Parliament and the US Congress, the most sensitive of security and intelligence information is communicated on a confidential basis to elected members who are bound by rules of confidentiality which they keep and one does not have leaks. Normally, one does not have leaks anyway. Under such a system there is the accountability that, even with such sensitive information, elected members have full access to the files and can give assurances to the public that everything is kosher. We should have something similar here. In private session we all would be bound by confidentiality and our committee is fairly good in that regard anyway.

We should pursue the issue. It is not good enough that significant sums of public money can be spent and elected members do not have any access to the role of the private sector partner in these projects. The amount being spent each year on PPPs is increasing. I have no objection to the policy being advanced.

Deputy Curran

The knock-on effect of this is not only on matters such as the initial awarding of the contract but also that there are levels of services to be provided over the duration of the contract and we do not have access to the private element thereof because they do not fall under our jurisdiction. The initial evaluation and selection process is one side of it, but the ongoing running of the PPP is the other.

Deputy Fleming

We should insist that once the Department hands over the file to the National Development Finance Agency, which tends to oversee the financing of these major projects and the tendering and procurement procedure, the agency should be brought before the committee in private session.

Deputy Burton

With the development of the new national development programme, which the Taoiseach has announced, it is clear that the Government has made a decision in principle that significant numbers of projects should use the PPP mechanism. We also know that many of the projects have been transferred to the NTMA and its NDFA section. If the public does not have access via the Committee of Public Accounts to some clear levels of accountability, significant amounts of national expenditure on projects worth over €30 million will, in effect, slip away from the public gaze. The ostensible reason for that is commercial sensitivity because the private sector is involved. While this is an issue for the private sector, the issue for the Dáil is that even if these moneys are spent by the private sector, they are still public moneys provided by the taxpayer. There must be a clear trail of accountability even if this involves the private sector because of the contractual position. The committee cannot let significant areas go. The NTMA will handle projects valued at more than €20 million either individually or bundled together. This involves significant public expenditure. If the committee and the Comptroller and Auditor General lost oversight, whether in public or private, up to a decade could pass before the accountability that traditionally applies to public expenditure is achieved. It is an important principle.

The other issue is that since the NTMA has been tasked by Government to handle the large PPPs over €20 million or €30 million and the bundled PPPs, the PPP section in the Department of Finance is still in place but it is difficult to know what it is doing. One of its functions should be to account to the PAC as well as having an oversight and management function on behalf of the Minister. The section is still in place and may even have expanded, even though much of its work has been transferred to the NTMA and the National Development Finance Agency, which made presentations to the committee a while ago.

Chairman

On page 4, the recommendation No. 8 is that the Department of Finance "should consider how effective parliamentary oversight of PPPs can be best secured and report on this to the Committee of Public Accounts". This was a soft enough punt as a recommendation but it was quite clear to anyone reading it what we had in mind. Under Vote 32 the Department has combined recommendations Nos. 2, 3 and 8 and is effectively saying everything is okay and there are ways to do it. The Department is not coming forward. We should take the initiative and appoint a rapporteur to cover this area to ascertain what happens in other jurisdictions and make a report to the committee so that we can make firm recommendations on this issue rather than asking the Department to do it for us. I do not want a decision on that now but I will ask the clerk to the committee to put that on the agenda for the next meeting so that we can reflect on it before discussing it.

Deputy Burton

According to the second last paragraph on page 4, the Minister expects that "authorities would respond positively to such requests addressing where relevant considerations of commercial sensitivity or confidentiality and of legal professional privilege". I do not accept that the issue of commercial sensitivity and legal privilege is the out. The Chairman's suggestion is good but the rapporteur needs to find out how this is overcome in other parliaments, otherwise the Department of Finance will say almost everything is commercially sensitive and we will hear about it in ten years.

Chairman

However, it is a valid response because much of the material is commercially sensitive and it must be borne in mind that the Comptroller and Auditor General has access to all the documentation but there is an issue for Parliament and the committee. We should not rush this. We must recognise there is a difficulty and then see whether we can bring forward proposals to circumvent the difficulty.

Deputy Fleming

A practical solution.

Deputy Boyle

It should be ensured as part of the contracting process that those tendering must guarantee some level of accountability, which is lacking in the current process.

Chairman

That is a valid point. If they enter public sector arrangements, information must be shared. Are we getting ahead of ourselves?

Mr. Purcell

No, it is important to know how vast sums are ultimately accounted for to the committee. With regard to my role, I have access to all the documents of the State authorities. The extent to which I have access to, say, contractors' records to address the issue raised by Deputy Curran regarding ongoing service commitments and how they are recorded, monitored and so on has not come up so far and, in those cases, I would tend to look for the co-operation of the contractors. In the case of the group schools project, we spoke to the bidders and such co-operation was forthcoming but that might not always be the case. The bidders acknowledged they were involved in a public process and perhaps that is why they were inclined to co-operate. By agreement, they provided co-operation.

I have some sympathy for the Department of Finance's view and I refer to the committee's experience thus far. The West Link toll bridge is a public private partnership. NTR, at the Chairman's invitation, appeared before the committee and the company was quite forthcoming in providing plenty of documentation with its submission. NTR's chief executive was forthright in his views. It can work but perhaps it is not enough that the committee should have to depend on the goodwill of the private sector partner in these matters.

Chairman

Will we proceed on the basis of an agenda item to appoint a rapporteur to examine what recommendations the committee should make to the Minister to ensure full parliamentary accountability for public expenditure? We will take it up at our next meeting.

The next issue is that the full economic cost that should be taken into account before the sponsoring Department finalises the specification of projects. The Minister meets this fully in recommendation No. 4 and, therefore, we can close that.

I refer to recommendations in special report No. 6. The first recommendation states, "There is a need for better capacity to produce more accurate costs forecasts for the roads programme" and the Minister meets that fully in page 6 of the minute. The analysis is on page 3, special report No. 6, Department of Transport. The Department of Finance has given a reasonable response. The next recommendation states, "The Department of Finance should keep the impact——

Deputy Fleming

On the issue of the contractor providing greater certainty on outturns, many of the costs are incurred before the tendering stage. At one stage acquiring the land for a number of the roads projects amounted to 5% or 10% of the overall cost. The non-construction costs, including design and other professional fees, are now greater than 50% of the overall cost of such projects, particularly in urban areas. With regard to putting in controls, two-thirds of the process is completed by the tendering stage. We need to look at the costing of these projects at a much earlier stage rather than wait until the tendering stage. We have all had motorway projects through our constituencies. Consultants involved in the design of these have told me that even when a project is being built through a bog a technical solution can be found for every problem. In other words, money is no object. There is no point in talking about the cost of a project at the tendering stage when decisions taken at an earlier stage of the process can have massive implications for the overall cost.

Mr. Purcell

That is a very good point and one with which I have much sympathy. Nowadays there is a tendency to say one cannot talk about overruns in terms of the cost estimate for developing a particular project; that the cost overrun begins from the point when the tender is accepted and only an increase on that should be referred to as a cost overrun. This has been said by many authorities on many occasions. It is not something I subscribe to. A highly professional organisation, which the National Roads Authority should be, should have the type of people who can cost different designs so that decisions can be made at an early stage as to where the optimum value can be achieved. To refer to the construction aspect can be somewhat glib because the construction cost can depend on the design, the quality of material and such constraints. They must be taken into account. That is why one needs sound cost estimates. I am not talking about outline costs on the back of an envelope. It also impacts on one's capacity to prioritise and to make the correct decisions if one has a good handle on what things are going to cost.

Deputy Fleming

The typical Irish motorway project, without recourse to the European Court, takes ten years from initiation. Only two of those are for construction. During those two years one could incur two thirds of the total project cost. This point will have to be put to the NRA and the Department of Transport representatives when they next attend the committee.

Chairman

The committee has published reports and we have made recommendations. The Minister for Finance has replied to our recommendations and we are discussing his replies. Where we agree, we will have nothing further to say. However, at the end of this process we will write back to the Minister for Finance and that letter will reflect Deputy Fleming's view. This matter is not closed and this will be incorporated in the letter to the Minister. Is that satisfactory?

Deputy Fleming

Yes.

Chairman

Recommendation No. 2 refers to the question of keeping different contracting arrangements with consultants under review. I believe this remains open.

Mr. Purcell

There are two aspects to project management and good cost control. One is the construction phase itself. The received wisdom, although this view is not universal, is that going for a fixed cost on that and transferring the risk to the contractor is the best way of getting value for money. Discussions are ongoing with the construction industry to implement that system. This was announced about a year and a half ago. The details and, as the Europeans would say, the modalities of that remain to be agreed with the construction industry.

The second aspect is the cost of fees for consultants such as engineers, architects, quantity surveyors, designers and the many professional services which are involved in a major project. I have always argued, and this is now accepted, that the State is such a major purchaser of these services that it should be able to get a better deal than the percentage of costs laid down by the professional institutes which represent these consultants. Professional fees should not merely be a certain percentage on the first number of millions and another percentage on the next. These percentages should not be relevant when one is a dominant purchaser of these services. The State should act in a commercial way and negotiate a fee for, of course, a quality service. This is happening but it has not yet been agreed with the various professional associations.

Chairman

We will make further comments on that matter when we write to the Minister.

Our next recommendation was that suitable indicators, similar to those used in other countries, should be established by the Department so as to enable evaluation indicators to take account of all the costs and benefits involved in the road programme. This also remains open. The Minister agrees with us to some extent but the recommendation has not yet been put into effect in the Department of Transport.

Recommendation No. 4 has been accepted fully by the Minister. That is closed.

We recommended that the National Roads Authority appoint an officer to liaise with the Houses of the Oireachtas. The NRA has done that. The NRA says it has appointed a dedicated liaison officer with the Houses of the Oireachtas. Does any member have further information of that?

Deputy Fleming

Who is it?

Deputy Burton

Where are they and what is their telephone number?

Chairman

Someone in an office somewhere has an instruction to look after Deputies and Senators.

Deputy Fleming

The clerk might discover the name.

Chairman

If he is as good as the official in the HSE he will be busy.

With regard to recommendation No. 6, the Minister assures us that the NRA has assigned more professionally qualified staff to the financial management function. We can question them when they attend the committee.

Deputy Fleming

We need to test that.

Chairman

In so far as we have had a reply from the Minister, the issue is closed. However, we will test it.

Recommendation No. 7 refers to the fact that many toll roads are in the areas of greatest disadvantage. For example, the tunnel under Limerick is tolled while there is no toll on the Jack Lynch tunnel. We recommended a geographically more even spread of toll roads. The NRA says it already aims for a geographical spread of toll roads. Current NRA contracts allow for buy-out clauses. In our dealings with the Minister for Finance the matter is closed but we should test it.

That completes the minute of the Minister for Finance on our transport report. We will schedule a discussion on our other reports for our next meeting.

The committee adjourned at 2 p.m. until 11 a.m. on Thursday, 5 October 2006.