COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 1 May 2008

Special Report No. 61: Ballymun Regeneration.

Ms Geraldine Tallon (Secretary General, Department of the Environment, Heritage and Local Government) called and examined.

Chairman

The committee will first consider Special Report No. 61 before proceeding to examine the contract termination costs.

Witnesses should be aware that they do not enjoy absolute privilege. Their attention and that of members is drawn to the fact that, as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons identified in the course of the committee's proceedings. These rights include: the right to give evidence; the right to produce or send documents to the committee; the right to appear before the committee, either in person or through a representative; the right to make a written and oral submission; the right to request the committee to direct the attendance of witnesses and the production of documents; and the right to cross-examine witnesses. For the most part, these rights may be exercised only with the consent of the committee. Persons invited to appear before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may have to be made aware of them and provided with the 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 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. They are also reminded of the provisions within Standing Order 158 that the committee shall 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 wish to record the committee's appreciation of the efforts of Mr. Ciaran Murray and his team in Ballymun to brief members yesterday. The visit we paid to the project was extremely helpful to me and the members of the committee who were present. I thank Mr. Murray and his team for their assistance and co-operation.

I welcome Ms Geraldine Tallon, Secretary General at the Department of the Environment, Heritage and Local Government. Perhaps she will introduce her officials.

Ms Geraldine Tallon

For this part of the committee's proceedings I am accompanied by Mr. John McCarthy and Mr. David Costello from our housing division and Mr. Peter McCann, the Department's finance officer.

Mr. Ciaran Murray

I am joined by my chairman, Mr. Ronan King, and Ms SheenaMcAmbley, senior planner, Ballymun Regeneration Limited.

Mr. Jimmy Doyle

I am from the Department of Finance.

Chairman

I ask the Comptroller and Auditor General to introduce chapter 6.1 and special report No. 61. The full text of the chapter can be found in the annual report of the Comptroller and Auditor General or on the website of the Comptroller and Auditor General at www.audgen.gov.ie.

Mr. John Purcell

In 1997 the Government approved a proposal for the redevelopment of Ballymun. Following on from this, Dublin City Council established a company called Ballymun Regeneration Limited to implement the regeneration programme. The bulk of the funding for the programme is provided by the Exchequer through the Department of the Environment, Heritage and Local Government. It is a major programme in terms of its infrastructural, social and economic objectives and involves a considerable investment by the State. With this in mind, I felt it was important at this stage of the development to review what progress had been made to see what lessons could be learned for the future management of the programme and, on a wider scale, other proposed regeneration initiatives.

My examination looked at the outturn to date in terms of time, cost, delivery, progress in economic and social aspects and the challenges that remained for the successful completion of the programme. Like the Chairman, I acknowledge the good work and tremendous commitment of Mr. Murray and his team and what they have achieved in Ballymun to date and echo his sentiments about the co-operation we received in carrying out this difficult study. It was of immense help to us in finalising our report.

The master plan developed in 1998 set a target date of 2006 for completion of the demolition and building work but it is estimated this will not be achieved until 2012. A considerable amount of demolition work must still be done. Work is yet to start on tearing down the last of the seven tower blocks, 15 of the eight-storey blocks and three of the four-storey blocks.

On the construction side, the development of the main street has been substantially completed, except for the shopping centre, but at the time of my report, only 52% of the planned public housing and 39% of private housing had been completed. It is clear at this stage that the original target was optimistic in the light of the constraints and logistics involved in undertaking extensive redevelopment in an existing inhabited community but better planning and risk management could have helped to overcome at least some of the problems encountered. In this context, my report recommends that a risk analysis of the remaining stages of the programme be carried out to help ensure revised deadlines can be met.

A budget of €442 million was approved in 1999 for the measures set out in the master plan. We estimate the final cost of the programme will be in the region of €942 million at 2006 prices, taking account of additional civic and community works and scope variations. We reckon €290 million of the increase can be put down to inflation in the period up to 2006. How the balance of the increase in the final estimated cost can be accounted for is set out on page 24 of the report. Some estimation deficiencies are evident. I hope the experience gained from this programme will assist the Department in the development of more evidence-based estimations when planning other major urban regeneration projects. The cost escalation has created a potential funding gap which can only partly be met from property and land sales by the company or the council. Tight financial management of the programme and a reduction in the risk of future scope creep must be prioritised if excessive recourse to the Exchequer is to be avoided.

I refer to the social and economic outcomes. The area has become much more attractive from an investment perspective but it is hard to establish how much of this is down to the regeneration programme, bearing in mind Ballymun's prime location vis-à-vis the airport and major arterial routes. The impact on employment has been limited but perhaps this is understandable in the light of the socially disadvantaged base of a significant proportion of the local populace. The same could be said for education and tackling these two areas could be key to the ultimate success of the so-called softer objectives of the programme. Other critical success factors include minimising crime and anti-social behaviour but Ballymun is not alone in facing these challenges in an urban environment and it has probably made more progress than most through its implementation of a three-year strategy to counter such activity.

The report records some dissatisfaction with the level of community consultation and involvement but I have sympathy for the company in the light of the myriad diverse organisations in the area which must be dealt with. The achievement of a balanced tenure mix is also a key element in the long-term social cohesion of the community. However, much of the private housing constructed under the programme is physically separate from the public housing and may work against the achievement of that objective, although I understand the reason private housing was concentrated initially around the main street to act as an incentive for people to purchase houses in the area. Future construction plans should take this factor into account. Early consideration should be given to achieving a workable consensus on how risks to the long-term sustainability of the regeneration can best be managed.

Ms Geraldine Tallon

I thank the committee for the opportunity to discuss the special report prepared by the Comptroller and Auditor General on the regeneration of Ballymun. I also thank the Comptroller and Auditor General and his team for the extensive examination of the project which they have undertaken and presented in this special report. In essence, the report points to significant achievements in the past decade since the publication of the master plan for the new Ballymun in March 1998. It also highlights lessons to be learned from the experience to date that can be applied to the remainder of the Ballymun project and more widely in other regeneration projects across the State and identifies a number of risks to be managed to ensure the transformation of Ballymun to a sustainable community is to be successfully completed.

It is worth reminding ourselves of the situation in Ballymun ten years ago which the regeneration programme has sought to address. In the 30 years since the Ballymun estate was constructed, no private housing was built in the area and no further private investment was made in the town after the original shopping centre and industrial estate were completed, and these facilities were in serious decline. Ballymun was not the choice of many households seeking to be housed by Dublin City Council. At times in the 1990s there were hundreds of vacant flats in Ballymun because people did not want to be housed there, which is telling in itself. Community facilities in Ballymun either were not available or were of poor quality and those that were available were not accessible to all. There was no market for land or property in Ballymun and Dublin City Council had to cope with the enormous maintenance costs constantly arising to keep the tower blocks in operation for residents. It was clear, however, that the residents who had lived in Ballymun during the years had built up a strong affinity with the area and, despite all the downsides in the surrounding area, there was a strong community spirit.

In the mid-1990s Dublin City Council examined the future viability of the existing housing structures in Ballymun and various possibilities were examined as to whether the flats could be renovated as they stood. The conclusion reached was that this was not a viable solution for both financial reasons and in the interest of long-term sustainability. The decision to demolish the flats and replace them with low rise housing was agreed by the Government. The framework master plan envisaged the physical regeneration being completed within eight years, but the complexities of demolishing structures and rebuilding houses contemporaneously in a living community of over 16,000 people proved to be more demanding than originally envisaged. There were a variety of reasons for this. That said, it is evident that considerable progress has been made in the achievement of the master pIan's objectives. In that context, I acknowledge the work which all those involved in Ballymun Regeneration Limited, BRL, have been doing in delivering on the major regeneration programme, under the leadership of the managing director, Mr. Ciaran Murray and the board of BRL. Among the key provisions of the master plan was a commitment to delivering quality homes with a good social mix. The evidence is there for everyone to see as the quality of design and layout of the new houses is extremely impressive.

A snapshot of the current position in Ballymun shows that six of the seven landmark towers have been demolished. In total, close to half of the 2,800 flats are either already demolished or under contract to be demolished in 2008, which is scheduled to see the largest programme of demolitions. Over 1,300 new replacement local authority homes have been completed and occupied and a further 466 homes are under construction. Together with the 230 replacement houses projected to start this year, this means that by year end, some 87% of the programme of replacement homes will be completed or under construction.

In addition to these replacement homes, over 1,300 new private homes and almost 100 voluntary and co-operative homes have been built to date under the regeneration programme. The result of this level of construction is that Ballymun is now evolving into a mixed tenure community, moving from a cycle of dependency to a sustainable community in its own right. The ultimate aim is to achieve a much stronger housing tenure mix, in stark contrast to the situation which existed in 1998 where home ownership in the Ballymun area was running at only 20%, largely a product of the tenant purchase of former local authority houses. The demolition of the remaining flats will free up sites for the construction of additional private housing and further community and recreational facilities, in line with the objectives of the tenure diversity strategy.

A crucial commitment within the masterplan centred on building identifiable neighbourhoods with relevant community facilities. The progress which has been made in delivering on this commitment is in marked contrast to the initial development of Ballymun in the 1960s. Recognising that sustainable communities are about more than just housing, strong emphasis has been placed on delivering the supporting community and economic infrastructure in tandem with the programme of new home construction. The new neighbourhood centres in Shangan, Coultry and Poppintree constitute real evidence of this. These will be joined by the Sillogue centre, currently under way, and the fifth neighbourhood centre due to commence construction shortly. These complement progress achieved in building new community facilities including the Axis Arts Centre, the sports and leisure centre, the civic offices providing a range of public services, a soon to be completed new Garda station and an office for the Department of Social and Family Affairs.

In addition, significant progress has been achieved on delivering on the masterplan aspiration of well defined parks with appropriate recreation facilities. Visitors to Ballymun cannot but be impressed at the quality of the two new district parks in Coultry and Balcurris. Coultry Park's award in the Tidy Towns competition is a clear reflection not just of the quality achieved in its design and development, but also the ongoing pride of the local community in their new facilities.

Apart from the residential sector, much has also been achieved on the wider programme of regeneration activities necessary to underpin the economic renewal of Ballymun. In particular, the regeneration programme has contributed significantly to the development of a land market in the area, generating revenues which Dublin City Council is reinvesting in the regeneration programme. In addition, the successful attraction of IKEA to Ballymun is a significant achievement. This facility, currently under construction close to the M50, delivers on the master plan ambition of delivering a flagship project of regional or national significance. The opening of the IKEA store will bring much needed employment to the Ballymun area and IKEA is working as a partner with BRL to champion employment opportunities for local residents.

Overall, the significant programme of public and private sector investment involved has delivered real progress on the master plan's objectives to develop a vibrant town centre with a variety of commercial activity; to foster economic development with sustainable local employment opportunities; and to achieve effective local administration.

The Comptroller and Auditor General's report addresses the significant increase in the projected expenditure on the regeneration project from that envisaged in the initial Government decision in 1999. The report sets out clearly the factors behind this. The Comptroller and Auditor General already referred to the fact that inflation accounts for over half of the additional costs. The remainder is attributable to variations from the original master plan, largely arising from the operating environment in Ballymun, as well as the provision of additional community and civic projects.

Much of the expenditure on additional community and civic projects is being met from the commitment of Dublin City Council to reinvest the proceeds of property and land sales in the regeneration project. In light of the Comptroller and Auditor General's report, and follow-up on the issues raised, including with BRL and Dublin City Council, the Minister will be bringing proposals to Government to reaffirm the commitment to the completion of the regeneration programme in Ballymun.

The Department, Dublin City Council and BRL are fully cognisant of the importance of achieving value for money from the State's investment in the regeneration of Ballymun. The Comptroller and Auditor General's report presents a useful opportunity to stand back and reflect on what has been achieved and on the lessons to be learned. The Department, working with both BRL and the council, will ensure that the recommendations made by the Comptroller and Auditor General are fully implemented in taking forward the remainder of the project. Key issues in that context are the carrying out of a risk assessment of the remaining stages of the programme, including the wider economic and social elements, and steps to ensure that the major investment in the regeneration programme is adequately protected for the longer term.

Given the extent to which regeneration is a feature of the Government's housing policy statement, Delivering Homes, Sustaining Communities, it is of vital importance that the lessons learned from Ballymun are applied more generally to other regeneration initiatives across the country. In line with new Government procedures, the Department has already updated its processes for initiating and approving regeneration projects in line with best practice for managing capital projects. We will ensure that the Comptroller and Auditor General's report is brought to the attention of local authorities and relevant agencies in order to ensure that its recommendations are applied to regeneration programmes more generally. The preparation of this special report is particularly welcome at this time because the Department is very much focused on balancing our housing construction programmes between new build and the regeneration of older housing for existing communities.

In conclusion, it is worth noting that prior to the regeneration programme, 90% of traffic on the main street was simply passing through. Ten years on, Ballymun is moving from being a through route to being a destination in its own right. The achievements to date, combined with the implementation of the recommendations set out in the Comptroller and Auditor General's report, provide the basis for ensuring that the State secures value for money for its investment and that the residents and businesses in the area can grasp the opportunities denied to previous generations, yielding a strong, vibrant and, ultimately, sustainable Ballymun.

Chairman

Can we publish the report?

Ms Geraldine Tallon

Yes.

Chairman

Thank you.

Mr. Ciaran Murray

I thank the Comptroller and Auditor General and his staff for the significant time and effort they invested in understanding the scale and complexity of the project from the time their work commenced in October 2005 until the report was published in March this year.

I will explain the background to the redevelopment proposals. The Ballymun high-rise estate was built in the 1960s as an emergency response to the housing crisis in Dublin at the time. The area never attained its planned status as a self-contained town. Unemployment, increasing dependence on social welfare and the nature of the flats complex were factors which led to the estate's economic and social decline. In the 1980s, primarily through the Ballymun Community Coalition and subsequently through the Ballymun housing task force, the local community campaigned to have the estate redeveloped. A pilot improvement scheme in one tower block and two spine blocks was completed in 1993 under the then Department of the Environment's remedial works scheme at a cost of approximately £7 million. Following an evaluation of this pilot scheme and subsequent technical investigations of the structural condition of the blocks, it was concluded that refurbishment on the scale needed to improve the complex was not an economic option. The Government subsequently announced a major redevelopment of Ballymun on 11 March 1997.

Commenting on the redevelopment proposals, Deputy Brendan Howlin, then Minister for the Environment, and Deputy Liz McManus, then Minister of State with responsibility for housing and urban renewal, said:

This is a new beginning for Ballymun. It is widely agreed that a comprehensive new approach is needed to improve the living circumstances of the residents of the Ballymun estate and that this must be done in a way which will bring lasting benefits to the area as a whole. The aim of this major social project is to get Ballymun working as a town which caters for all local needs, attracts public and private investment, provides employment and secures a better mix of housing in a rejuvenated physical environment. Housing-based policies alone will not achieve this strategic aim but can act as a catalyst which will improve Ballymun for the people who live there, and those who will live and work there in the future.

The very challenging programme to create a sustainable town was, therefore, established from the outset, with the Ministers going on to state, "It is now proposed to demolish the tower and spine blocks progressively over eight years, alongside the construction of the new housing to replace the flats".

In response to the Government's announcement Dublin City Council, then known as Dublin Corporation, established Ballymun Regeneration Limited in July 1997 to act as its agent in planning and implementing the physical, social and economic regeneration brief outlined in the Government's announcement. Ballymun Regeneration Limited subsequently took on this enormous challenge and following six months of extensive consultation published the master plan for the new Ballymun in March 1998.

Before commenting on the specific findings in the Comptroller and Auditor General's report, Ballymun Regeneration Limited considers it important to emphasis the following points in order to set the context for many of the issues which have arisen. The commitment to rehousing for all was a very radical departure from normal practice and almost unknown anywhere else in Europe. In this regard, it should be noted that there was no template or script to follow and inevitably the learning curve was always going to be immense. The master plan for which the original estimates were based is similar to a local area plan. Therefore, the original estimates were based on a high level feasibility study rather than a detailed design, as would apply in conventional projects. Unlike conventional capital projects such as a major motorway scheme or a single major piece of infrastructure, this project involved numerous complex and interrelated developments, all of which had the risk of causing a domino effect throughout the entire programme. Unlike conventional capital projects which normally have one design, one planning and one procurement process, this project consisted of a rolling programme of works involving multiple separate design, planning and procurement processes, with obvious increased exposure to delay and cost risks. Unlike conventional projects where vacant possession is available once the planning phase is completed, this project had to proceed with the existing 17,000 population in situ. The original estimates were prepared on a conventional unit cost basis which did not permit the inclusion of a contingency figure for abnormals which were a standard occurrence under the old form of GDLA contract.

The regeneration project to date has in the main taken place during the height of the economic boom, which made it very difficult to achieve competitive tendering. Each and every individual master plan funded scheme was subject to individual Department of the Environment, Heritage and Local Government approval at cost plan and tender stage, thereby ensuring best practice cost control within the limitations of the public procurement process. The Comptroller and Auditor General's examination concentrated mainly on the arrangements for the delivery of the measures set out in the master plan and focused on the outturn to date in terms of time, cost and delivery; progress in the areas of economic and social renewal; and the challenges that remained from the viewpoint of the successful completion of the programme.

Ballymun Regeneration Limited welcomes the findings in the report which acknowledge the following: the complex and interconnected nature of the project; the high standard of physical redevelopment achieved to date; the success of the main street in attracting public and private investment; the fall in the unemployment rate by 30%; the increases in land values relative to the rest of the city since 1998; the arrival of IKEA as a major employment creation opportunity; the initiatives in place to tackle crime and anti-social problems; the management of the community and voluntary sector through service level agreements; and the progress being made in establishing performance indicators to measure the success of the project.

The main findings highlighted in the report relate to time and cost overruns which the report recognises were caused by a number of complex and interrelated matters as follows: the time taken to complete the planning process, including appeals and High Court challenges; lack of mapping of existing utility services and delays in the provision of services by some utility companies; changes in methods of demolition arising from the discovery of asbestos in wall-ceiling coatings and adhesives in the high rise flats; scope changes in infrastructure and some housing schemes; the time taken to complete the consultation process with tenants and owner-occupiers, as well as the community and voluntary sector; delays in decanting, meaning that in some cases not all tenants from a flat block could be moved together as one scheme may not have accommodated them all and tenants were reluctant to move to temporary accommodation pending completion of their new homes — this has resulted in partially occupied flat blocks which delays demolitions; procurement problems, for example, having to retender projects when the initial tenders were considered too high; liquidation of a number of contracted companies which involved delays while replacements were sourced; health and safety issues which led to temporary closure of construction sites; the impact of an industrial dispute on housing construction work at Balcurris; and the fact that delays which occurred in one project area often had knock-on effects on other project areas.

Ballymun Regeneration Limited fully accepts that initial estimates could have been more robust had a more evidence-based approach been adopted to their preparation. However, such an approach would certainly have delayed the project significantly and such delays would have severely undermined community confidence. Such an approach would not have saved money. Ballymun Regeneration Limited has fully taken on board all the recommendations contained in the report in so far as they relate to its activities and is already in the process of taking action on all the recommended measures.

Ballymun Regeneration Limited thanks the Chairman and members of the committee for taking time out of their busy schedule to visit Ballymun yesterday and see at first hand the progress made to date and the scale and complexity of the undertaking.

Chairman

I thank Mr. Murray. Can we publish his statement?

Mr. Ciaran Murray

Yes.

Chairman

Is that agreed? Agreed.

Deputy John Curran

I want to say a word or two before I ask a question. I thank Mr. Murray and Mr. King for showing us around Ballymun. I visited Ballymun as a young clerical officer with Dublin Corporation in the early 1980s. I have been there on many occasions over the years. Until yesterday, I had not been there for a number of years, however.

Chairman

Why did the Deputy have to visit Ballymun in the 1980s?

Deputy John Curran

I will not go into that story as to do so would get me into deep water. The Chairman heard the story yesterday.

Chairman

Yes.

Deputy John Curran

It is not going on the record.

Deputy Róisín Shortall

It had something to do with "Into the West".

Deputy John Curran

Absolutely. I smiled when a particular point was made during the presentation. I was pleasantly surprised yesterday to observe the changes for the better which have taken place. I was very impressed. I am not prejudicing the answers to my questions about budgets and timeframes, etc., when I say that the Ballymun regeneration programme seems to be working on the ground. It is having a positive effect on the lives of those who live in Ballymun. When programmes of this nature are pursued, it is too often decided to build housing before doing anything else. The promises to provide other community facilities may or may not be met at the end of such programmes. I compliment those involved in the Ballymun project on ensuring that this development is not proceeding in such a manner. Community facilities are being provided in tandem with housing. The swimming pool and the theatre, etc., were put in place at an early stage. I was impressed with what I saw. It would be remiss of me not to put on the record, before I ask some challenging questions, that the Ballymun project has delivered substantial benefits to the communities it serves. The questions asked by members of this committee about financial issues too often ignore other important matters. The masterplan for the Ballymun programme was launched a decade ago. The project should have been finished a couple of years ago. It has over-run substantially. A considerable period of time remains before it will be completed. Was anyone aware, before the Comptroller and Auditor General completed his review, that there was a significant time delay? When did the delay come to light?

Ms Geraldine Tallon

I would like to put the Ballymun project in context. The nature and scale of what we embarked on in Ballymun was without precedent in Ireland.

Chairman

I would like to save time by pointing out that we are familiar with the context, having listened to the opening statements. Perhaps Ms Tallon can focus on the question that was asked. I do not mean to be unkind. We do not want to repeat ourselves.

Ms Geraldine Tallon

The normal approach that is taken, in an Irish context, involves starting with small-scale projects, learning from such projects and then tackling larger and more challenging projects. That logic was turned on its head somewhat when it became clear that the scale of the original decline in Ballymun demanded urgent attention. It was decided that it was extremely important to draw up a comprehensive masterplan. Such a plan was subsequently put in place. We found it difficult, initially, to determine the right timescale and to strike a balance between the ambition that was needed in Ballymun and the realism that needs to be a feature of any project of such unprecedented size and scale. The timeframes have been criticised for being over-ambitious but, at the same time, one could argue that the project is open to criticism for not moving ahead quickly enough. We are caught in a slight dilemma. We should not be over-critical of the timescale that was agreed at the outset. It should not be judged out of context.

Deputy John Curran

I want to put this in context. We are not necessarily being critical. We are trying to understand why it is now a 12-year or 14-year project rather than an eight-year project. At what point did the Department realise that the project would not be completed within eight years? How far into the project was the Department when that became evident?

Ms Geraldine Tallon

I suppose we would have been conscious of it when we started the masterplan in 1998. Our intention at that time was to submit a comprehensive review of our progress with the Ballymun project, and the future outlook for the project, to the Government in 2005.

Deputy John Curran

I will stop Ms Tallon there.

Ms Geraldine Tallon

We were——

Deputy John Curran

No. I must be missing this altogether. The project was due to be completed in 2006. If the plan was to undertake the programme between 1998 and 2006, surely it must have been intended to monitor the progress being made with the timelines during that period. I suggest that 2005 would have been a late date on which to realise that the plan would not be finished by 2006.

Ms Geraldine Tallon

We would have known fairly early on, as issues were arising, that problems were emerging with a regeneration project of the scale of the Ballymun project. It is fair to say that a number of those problems were not amenable to quick solutions. At the time when we were ramping up progress in Ballymun, the construction sector was operating at stretched capacity. Issues arose in relation to planning and judicial reviews. There were difficulties with the mapping of services. The discovery of asbestos, in particular, caused problems. We took action as quickly as we could along the line, where possible. For example, a health and safety team was put in place to deal with complex health and safety issues that arose in the regeneration area. The capital appraisal guidelines which were issued by the Department of Finance in 2005 recommended that projects of over five years in duration should be reviewed. We intended to act on those guidelines until we became aware that the Comptroller and Auditor General planned to conduct a special examination of the regeneration project. We took the view at that stage that it was appropriate to facilitate an independent assessment of that nature.

Deputy John Curran

The criticism I would make is that by 2005, when the Comptroller and Auditor General decided to compile a report, the Department should have been well aware that it was missing its target by a mile. It is a question of risk analysis, which the Comptroller and Auditor General mentioned. Having visited Ballymun yesterday, I am acutely aware of the specific and detailed issues which arose to delay the project. When the Department, having started work on the project, encountered some of these difficulties, it should have undertaken a risk analysis for the remainder of the project. That should have happened a couple of years into the programme — perhaps in 2001. It seems to have continued its work apace until the Comptroller and Auditor General produced his report. It did not come up with the new plan that was needed on foot of the obstacles which had been encountered.

Chairman

Ms Tallon has said that there were problems with utility mapping and asbestos. I do not understand how such problems could have arisen, given that her Department initially managed the construction of Ballymun. I am not holding her personally responsible. Is Ms Tallon suggesting that there was no utility mapping in the Department, or no record of the use of asbestos in the construction of the original project? Surely all of these things were known in 1997.

Ms Geraldine Tallon

Ballymun was built in the 1960s at a time of acute housing shortages in Dublin. At that time, there was no knowledge of the problems later associated with the use of asbestos. We were not aware of the existence of asbestos in the flats until surveys were conducted during the process of preparing for demolition. It was not something that was known to be a problem when the Ballymun flats were originally constructed.

Chairman

Was it known to be a problem in 1997?

Ms Geraldine Tallon

It was not specifically recorded as being one of the construction materials. The presence of that latent problem within the construction was not known. It did not become known until more detailed work was done. The original masterplan was drawn up as part of a framework exercise. It was not as detailed as the masterplans for each of the subsequent projects. Ballymun Regeneration Limited has details of the numbers of procurements involved overall in the Ballymun regeneration. There was a range of projects at different times. Asbestos became a significant problem during the demolition phase but could not have been anticipated.

Utilities mapping is and was a deficiency. This is unfortunate but a reality that created a considerable degree of complexity in demolition and reconstruction. We knew there was slippage but at the same time we were very focused on maintaining momentum in the Ballymun regeneration and maintaining a programme of investment, construction and demolition. One could say now that it might have been a good idea to review the situation earlier than we did. We certainly take on board the recommendation the Comptroller and Auditor General has made in relation to risk analysis for the remainder of the project. We will undertake this analysis and build this recommendation more clearly into the earlier phases of other regeneration projects.

Deputy John Curran

I will discuss the issue of money but, first, I welcome the Secretary General's statement that the Department will act on the recommendation on risk analysis and, specifically, that risk analysis for the remainder of the project will be based on the factual evidence and experiences of what has been done to date.

I will raise with the Comptroller and Auditor General a point made by Ballymun Regeneration Limited. It informed me that the original expectation that redevelopment would take place quickly — eight years for public housing and associated elements of the programme — was optimistic in the light of the constraints, logistics and international experience of similar undertakings. I am curious to determine the reason international experience of similar undertakings was not evaluated at the outset.

Ms Geraldine Tallon

The international experience would have been much more limited than the scale of what we were talking about in Ballymun. The other factor that adds particularly unusual complexity to Ballymun is that one has a population of approximately 16,000 people and one is completely regenerating and rebuilding within the context of a living community. For this reason, the regeneration project had to take place in a manner which allowed for construction of new housing, progressive movement of people from existing accommodation into new housing, demolition of the vacated premises and creation of sites for further development. It became much more complex than could ever have been envisaged in advance, both due to the overall scale and because one could not simply de-tenant the whole complex and move people to a greenfield site or another area for a period of time. The intent was to manage the entire programme within a living, continuing and developing community.

Deputy John Curran

Please allow me to finish the point. It was Ballymun Regeneration Limited which made reference to international experience. Is the Secretary General indicating that Ballymun is unique and there are no international comparisons? Would that be a fairer way of putting it?

Ms Geraldine Tallon

Ballymun Regeneration Limited may have a view on that matter. I am not aware of any international comparisons that are of the same scale and complexity.

Mr. Ciaran Murray

In the presentation yesterday I quoted Dr. Anne Power who said it was almost unknown throughout Europe to carry out a regeneration project with the existing population in situ. While there are some similar undertakings in the United Kingdom and elsewhere in Europe, none of them retains the existing population in situ.

Deputy John Curran

Let me examine the figures. We will keep the discussion simple. Figure 2.2 on page 24 of the report of the Comptroller and Auditor General illustrates how the cost increased from €442 million to €942 million, allowing for inflation, cost overruns and other factors. The figure for salaries and administration does not appear to be accounted for initially and was introduced somewhere along the way. If I am not misreading it, it was a variation, rather than an original cost.

Mr. John Purcell

The Deputy is not misreading the figure. The administration costs were not factored into the initial estimated cost.

Deputy John Curran

It is a large figure. Why was it not included? The 1999 value of €58 million increased, with inflation, to €86 million in 2006. However, it did not feature as an original cost. What changed or where and how was this figure introduced?

Ms Geraldine Tallon

As we stated, the master plan was set out very much as a framework within which the physical regeneration of Ballymun would be advanced. As the Comptroller and Auditor General and Deputy Curran pointed out, the administrative costs were not included or explicitly indicated in the initial project because the initial €442 million projection was largely focused on the cost of the physical elements of the programme. The staffing in Ballymun Regeneration Limited has evolved during the ten year period since the master plan was published and reflects both the scale of the programme and the complexity and range of issues which arose over the course of the programme.

As I said, we put in a seven person health and safety team to deal with the complexity of the health and safety matters which had arisen in the regeneration area. The staffing arrangements reflected an acknowledgement and growing understanding as the project proceeded that the success of the regeneration was dependent on much more than the physical programme of works being carried out. There are critically important social and economic dimensions to the regeneration and Ballymun Regeneration Limited had to target staff resources towards them in order that one could have, if one likes, multiple strands of regeneration — physical, social and economic — advanced in parallel. We have tended to find during the experience of regeneration that the softer skills on the social and economic sides can be more complex and resource dependent.

In 2005 a former manager of Fingal County Council was asked to carry out a full review of staffing arrangements in Ballymun Regeneration Limited. That report was completed in 2005 and recommended some restructuring of staffing arrangements and an overall staff complement for the regeneration of 103. I understand 97 people are employed by Ballymun Regeneration Limited.

Deputy John Curran

Let me clarify one issue. Given that the 1999 budget did not include a figure for salaries and administration, was it originally planned to have this work done by existing staff in Dublin City Council?

Ms Geraldine Tallon

In reality, the answer is yes. The initial intent was that staff were to be seconded from Dublin City Council but, as I said——

Deputy John Curran

That was to be done as the project evolved.

Ms Geraldine Tallon

As the project evolved and the framework of the master plan was filled in, if one likes, by specific projects and a growing understanding of the need to develop social, economic and community initiatives alongside the physical regeneration, the scale and cost of administration became more apparent.

Chairman

Was the limited company not set up in 1999, in which year no allocation was made for the administration of staffing? Surely the fact that the limited company was being established in that year meant there would have to be independent staffing structures and administrations. What Ms Tallon is saying might not be totally correct.

Ms Geraldine Tallon

We would have been working initially on the basis of secondments by Dublin City Council. Perhaps I should outline the broader context in which we normally operate in terms of staffing costs associated with housing constructions. Ordinarily, we would make an allowance towards the cost of technical staff associated with significant housing construction projects. The projected salary and administration costs in Ballymun are €86 million, which is approximately 9% of the total outturn on the project. If one takes account of the overheads in health and safety terms, social sustainability, community consultation needs and the various operational difficulties we have already identified, one will note that they may not be unreasonable for a project of the scale of that in Ballymun.

Deputy John Curran

I am not questioning whether 9% is reasonable. I am concerned that the original plan made no budget provision for the range of services required. The real concern is that the Department was some way into the project before it realised the required level of backup and service.

Ms Geraldine Tallon

The Deputy is absolutely correct; this is a learning experience. The reality is that these costs were not provided for initially. The assumption was made that this would be dealt with through secondment by Dublin City Council but the scale and complexity expanded. As I said, the master plan was initially a framework and was not a fully fledged projection.

Deputy John Curran

The figure for public housing was initially €316 million but it looks as if it is now €460 million, the bulk of which increase is accounted for by inflation. Paragraph 2.46 on page 32 explains that while the cost is mainly associated with inflation, the original number of housing units dropped by 532. The document states that seven public housing projects reviewed during the examination showed an average post-tender cost increase of 18%, which is significantly higher than the average increase of 7% for nine projects completed elsewhere in the greater Dublin area in the same period. Why was the increase in the Ballymun area significantly higher?

Ms Geraldine Tallon

In Ballymun, costs were higher because we were essentially working in a built-up area. The Comptroller and Auditor General acknowledges in the report that the Ballymun regeneration project is not on a greenfield site and that this has cost implications.

Deputy John Curran

I am not arguing that point and want to get to the nub of this. The post-tender cost increase in Ballymun was 18% while it was 7% in other areas in the greater Dublin area. Surely by the time the project went to tender, the tendering process should have included all the other factors Ms Tallon is talking about, including services. The difficult planning process would have been gone through, as would the processes of relocation and demolition. I am not arguing that the cost was higher but that the post-tender figure was 18% higher than anticipated. On other projects in Dublin, the increase was 7%. My real concern is that the margin is significantly different, which points to the identification of the risks at the point of tendering. Was the tender process accurate and well designed?

We used to have cost overruns in respect of every road project but now we do not because we have a different design and build process. The circumstances in Ballymun are significantly different from those in other areas and the tender price should have reflected this.

Ms Geraldine Tallon

I have already referred to the particular difficulties associated with health and safety in Ballymun and with the discovery of asbestos. The Comptroller and Auditor General acknowledges in page 26 of the report Ballymun Regeneration Limited's reflection that up to 11% of the post-tender increase of 18% can be attributed to a combination of items, which we have already cited. These include the fact that the site is not a greenfield site, difficulties with mapping, etc. Up to 11% of the post-tender increase can be attributed to a combination of these matters and health and safety closures. The remaining 7% cost uplift is broadly comparable with that for the nine comparators.

Chairman

The Comptroller and Auditor General reports the Department as saying that.

Ms Geraldine Tallon

He acknowledges BRL's assertion in that regard, which he does not contradict. More importantly, I would want to acknowledge the new form of contract now in existence which provides for more complete identification and estimation of design costs in advance of tendering. There is undoubtedly a learning curve in terms of the kind of experience we have had and it will be reflected in contracting and tendering practice for the future.

Deputy John Curran

My specific concern is that the margin is quite substantial. I take on board and accept fully all the other issues raised. The risks I have identified should be analysed in advance of tendering so the outcome will be closer to the tender price.

My final question is for Mr. Murray or Mr. King. I was fascinated yesterday by some of the projects. As with everything else concerning public accounts, money is always very important. The delegates referred to the fact that when the likes of IKEA are up and running, they will make a contribution in the form of a local rate, as do other businesses. The delegates stated money accruing from the other businesses renting units in the area is ring-fenced for services within the Ballymun regeneration area. I was very impressed with this and it is a great model. What are the targets in this regard? Have the delegates identified the community-based and social activities that are to benefit from the ring-fenced funding?

Mr. Ciaran Murray

There were two innovative long-term sustainability funding initiatives, one of which concerned the neighbourhood centres. We essentially designed a scheme for a row of shops with apartments overhead. We gave the speculative opportunity of developing the apartments to the private sector developer in return for developing the shell and core of the retail units on our behalf, which we retained. In retaining the retail units, we let them on conventional commercial 35 year leases with five-year annual reviews. Those six or eight retail units each have a potential in the neighbourhood centres to generate a local income of somewhere between €150,000 to €250,000, which we have ring-fenced for that neighbourhood to help subvent services such as child care, the running and maintenance of the community hall, the maintenance of playgrounds and so on. That is a sustainable strategy. It recognises that the community and each of the five residential neighbourhoods will ultimately have populations of 5,000 to 7,000 inhabitants. The number of retail units has been based on a retail analysis of the local needs and they are located within a few minutes walking distance. If people support these businesses and they thrive, they will continue to pay that rent. That will generate the local fund that is available to subsidise a range of facilities in the area.

The other initiative I mentioned is that in each of the commercial leases, whether hotels locating on the main street, the redevelopment of the shopping centre or IKEA, we have developed a strategy where we have a town centre facilities management fund which will generate an ongoing income stream. When each of the businesses is fully up and running it will contribute on an annual basis. I gave the example that IKEA will contribute an index-linked amount which is based on the square footage of the enterprise. That funding will be available to provide for items such as CCTV. We are in the process of installing a very sophisticated townwide CCTV system which will have a significant ongoing cost in maintenance, monitoring and replacement.

Deputy John Curran

What is the expected level of funding?

Mr. Ciaran Murray

We expect that when the whole project is ultimately completed, it could be in the region of €4 million.

Deputy John Curran

I appreciate that. That money will obviously do a lot more than just maintain CCTV. What other areas will it cover?

Mr. Ciaran Murray

It will subsidise the arts centre and perhaps subsidise the ongoing range of other community facilities.

Deputy John Curran

Is there a specific plan for that funding at this stage or is the plan being worked on?

Mr. Ciaran Murray

It is being developed. We must look at the whole range. It is like a service charge. It will be related to our ability to deliver extra quality of service in the main street and throughout the community facilities. An entire schedule of work and initiatives must be worked out, for example, public art will be properly maintained in the town centre. The arts centre which requires a very substantial subvention can be subvented from this money. There is also an embryonic community council which was recognised in the original Government decision to act as the umbrella group for representing the community interest in the public consultation process. That is a significant cost and as it evolves it will be funded from the receipts.

Deputy John Curran

Who will eventually control that fund?

Mr. Ciaran Murray

The intention is that there will be a facility management structure. One concept is that when Ballymun Regeneration Limited scales down its activity in designing and project managing, it may turn into some other type of vehicle for looking at those issues. This is a concept that must be further developed.

Deputy John Curran

I may have further questions.

Chairman

Deputy Curran raised the issue of the M50 lands, and I understand that Ballymun Regeneration Limited was involved in a joint venture company with a property developer. Is this relationship ongoing or has it been dissolved? If it has been dissolved were there cost implications for BRL?

In his opening statement Mr. Murray described IKEA as a flagship project for the area. How firm is that project? Are BRL, IKEA and the NRA working towards the smooth development of the project? During our on-site visit yesterday, Mr. Murray mentioned that the NRA roadworks are not progressing in tandem with the development of IKEA and there may be a period of up to 12 months during which IKEA may be finished but unusable because of the delay in developing the support facilities? Will Mr. Murray flesh out that point?

Mr. Ciaran Murray

In regard to the joint venture with the property developer, we underwent the public procurement process to find a joint venture partner to develop the business park lands. The development proposal for the business park was for high density office development. Unfortunately it coincided with the collapse, almost, of the out-of-town office market and the consolidation and concentration on inner city office development. We were unfortunate that the out-of-town business estates had reached the end in that wave of development. We aborted the joint venture and repaid the developer the cost of those lands.

The original procurement agreement required the developer to bring some lands within 5 km of Ballymun that could be used to replace the playing pitches, which we were developing. Those playing fields served a far wider catchment area than Ballymun and teams from as far away as Ashbourne used them for football. We obtained an asset in dissolving the joint venture, which will realise a profit for us.

Chairman

How much?

Mr. Ciaran Murray

We paid €3 million for the replacement lands and there were certain planning fees in developing the original design for the business park, which were shared jointly. They are not fully lost, because in reaching agreement we obtained the rights to reuse them and much of the original professional fees for investigations and so on have been transferred to us.

Chairman

What was the cost of that?

Mr. Ciaran Murray

The cost of fees was €750,000.

Chairman

What is the state of the relationship with the NRA?

Mr. Ciaran Murray

The IKEA store is well under construction. One of the terms of its planning permission is that IKEA cannot open the store until the Ballymun interchange section of the M50 upgrade is completed. IKEA is taking the risk, but is hoping the NRA will achieve the completion of the Ballymun section ahead of schedule and that it will be brought forward in the programme. IKEA has lobbied actively to achieve that. The NRA states it cannot put constraints on the contractor as the contractor has the right to decide on the elements of the contract and when they will be available. We do not know at this stage, but there is a concern that there could be a significant time delay.

Chairman

Mr. Murray mentioned 12 months.

Mr. Ciaran Murray

That is possible.

Chairman

Has the land bank which was earmarked for the business park now been incorporated in the IKEA site?

Mr. Ciaran Murray

IKEA is one element of an economic development strategy for those lands. We went through a process to create a template to match the needs of Ballymun and the objectives of the master plan. IKEA satisfied the economic objective of bringing local, relevant jobs in the short term to Ballymun. We recognise that having high-end jobs would not be a match with the local skills. We needed to have a balanced strategy that would put in place jobs like those in IKEA that would be accessible to the local community through pretty limited training programmes. Within the projected 500 jobs for IKEA, there is a wide range of jobs including storekeepers, catering staff, creche staff, salespersons, interior design staff, management and accounting staff.

Our strategy also recognised we needed flagship projects like IKEA to make Ballymun a destination. The balance of the land could have potential for further, higher-end uses. We are in discussions with DCU on this issue, as it has established itself as a leader in nanotechnology and biotechnology. We would like to see the Government's investment in research and development for technology being located close to DCU on our lands. DCU has a number of on-campus companies that are ready to go on to the next phase of expanding and developing, but they are landlocked on the campus. We are in a very good location for that.

We have a further balanced strategy to match the research and development requirements of the State with some private medicine by putting in place quick diagnostic testing facilities for hospitals. We are in the catchment area for the Mater, Blanchardstown and Beaumont hospitals. One of the big logjams in the health service is the ability to turnaround test results quickly. We see ourselves as being ideally located for that. The balanced strategy in place looks at the traffic generated, local employment needs and the local capacity of DCU and other objectives.

Ms Geraldine Tallon

Without wanting to get into the detail, I would like to make an observation. The point raised by the Chairman about interagency interaction is very important. I am conscious of the fact that Comptroller and Auditor General's report recommended that while other agencies have worked well with BRL, co-ordination could be strengthened by a more formal involvement and interaction in setting strategy and implementing initiatives. Some of the challenges can be pursued on a bilateral basis between Departments and agencies, but it would be very beneficial to establish a forum within which to develop cross-cutting social, economic and community issues in Ballymun. We will be making a request to Dublin City Council for the future in establishing a structure for better interagency co-operation.

Chairman

What interaction has the Department had with the NRA regarding the delay in the development in the infrastructure to facilitate the opening of IKEA? Mr. Murray said that there were difficulties within the NRA in getting its contractor to speed up the project.

Ms Geraldine Tallon

We would not have specific contact at that detailed level with the NRA. We would have to respect the fact that IKEA and the NRA are operating within the conditions of the planning decision set by An Bord Pleanála. It is not an area in which the Department would become directly involved.

Chairman

I am not concerned with IKEA, but it was described as a flagship project for the area. As a State agency involved in the process, I would have expected that there would be greater interaction between the Department and the NRA to do everything to speed up the development of the lands.

Mr. Ronan King

I did have a conversation with the chairman of the NRA, as it is a matter of concern. It is a contractual matter. The contract has been awarded and the programme is in place, and any variation to that contract would potentially involve significant additional costs to the NRA. The chairman promised to review the situation when I expressed the concern of BRL about the importance of the IKEA project. We have opened the discussion, but it is currently subject to contract and is in the hands of the contractors. If they can deliver the project faster, then we may get an earlier date. We are working towards that.

Chairman

When was the contract awarded?

Mr. Ronan King

I cannot say exactly.

Chairman

Nobody knows.

Deputy Róisín Shortall

I thank Ms Tallon and Mr. Murray for their presentations. Ms Tallon said earlier that this was the first major regeneration programme, and that there is a steep learning curve involved. Since the project in Ballymun started, we have had others in Fatima, O'Devaney Gardens, Moyross and elsewhere. What are the main lessons learned from the Ballymun experience?

Ms Geraldine Tallon

We have learned a great deal from the master planning process. At our request, BRL produced a master plan that was a framework document for the regeneration of Ballymun. The framework was to be filled out subsequently at project level. It is evident from the new conditions of contract that more detailed, advanced work at the master planning stage would be helpful. We will be looking very closely at the master planning exercise for Moyross to ensure that it is a detailed as possible at the earliest possible stage.

All regeneration proposals should include the best possible evidence-based estimation, and the costs of ownership transfer strategies should be included in the overall cost proposals. To a great extent, we were feeling our way in the earlier stages of the Ballymun regeneration project. We will be taking the Comptroller and Auditor General's recommendation on risk analysis into account. We have learned that risk analysis should be built in from the outset and should be part of the initial regeneration framework. It was evident from the discussion between Deputy Curran and I that this was not as well done as early as it could have been.

Deputy Róisín Shortall

With regard to risk analysis, what mechanism has the Department, or what mechanism will it put in place, to ensure this area is improved?

Ms Geraldine Tallon

We have established a series of formal procedures for the management and approval of any regeneration project. For all regeneration projects for the future, we would put in place first, a written proposal to the Department outlining the scope of the project submitted for approval and, second, a full-scale feasibility study, including preparation of briefs for consultants to be undertaken and submitted for approval to the Department, with the costs of that study to be borne by the local authority. Then, the authority must develop and submit to us a regeneration framework with in-depth financial, social and economic appraisal of the regeneration scheme. That is a much more detailed advance planning approach than would have applied in the case of Ballymun. The initial in-depth appraisal should include a clear plan and a timeframe for implementation of the project, overall funding requirements, potential sources of funding, not just Exchequer funding but also assessment of potential sources of, for example, private financing, and should also outline the expected outputs and outcomes of the project.

There are a number of conditions that have to be met as part of the framework document. It would have to take account of the broader planning context for an area, such as a city or county development plan, the national spatial strategy and relevant Government policies, including policies on architecture——-

Deputy Róisín Shortall

It is the financial area in which I was particularly interested. Will Ms Tallon explain what financial management expertise is available to her in the Department to oversee those obligations?

Ms Geraldine Tallon

Within our Department, we have a cohort of architects and quantity surveyors who assess all of the proposals which come to us. We also have significant civil engineering competence within the Department, so we can draw together complementary supports. We would have significant architectural support but we can draw together appropriate teams to support the architectural and quantity surveying competence within the housing division. Projects that are of a larger scale go to the NDFA with regard to formal areas of assessment and approval.

Deputy Róisín Shortall

In respect of the Ballymun project, the Comptroller and Auditor General said that risk analysis of the remaining stages of the programme should be undertaken to assist in managing the programme over the remaining years, and that it should be ensured that a revised target is set. Has the Department a role in doing this or will it be handled by Ballymun Regeneration Limited, BRL?

Ms Geraldine Tallon

We have asked BRL to put the wheels in motion for a risk analysis to be carried out independently. We would expect to see that when it is complete and to assess it as part of our overall oversight of the contract.

Deputy Róisín Shortall

I ask Mr. Murray whether any steps have been taken in that regard.

Mr. Ciaran Murray

We are developing the brief to go to the market to get a professional company to carry out the risk assessment. The Deputy will have heard that even in the past few weeks issues have arisen, such as pyrite and an injunction in regard to a demolition where adverse possession is being claimed. Both of those issues are unusually complex and I am not sure how any risk assessment would deal with or predict the ultimate outcome of them. Both may be played out in court and could be protracted.

Deputy Róisín Shortall

With regard to the housing strategy and the mix of public and private, as a local Deputy for the Ballymun area I am aware there was some disappointment that there was not a greater level of affordable housing involved in the regeneration programme. It seemed the pressure was on in terms of the disposal of sites to private developers. There is a recognition locally that this was not necessarily the best way to go. The potential difficulties in having a high number of private apartments, which would invariably be let to a large number of people on rent supplement, was something that was recognised when the rent supplement ban was introduced. In hindsight, does Mr. Murray believe it would have been better to have a higher number of affordable houses as part of the programme rather than developing the private rented sector to the extent it has been developed?

Mr. Ciaran Murray

I will ask Ms McCambley to deal with the tenure diversity policy and general housing policy.

Ms Sheena McCambley

The Deputy may be aware that we have a tenure diversity report which was drawn up last year and reflected on all the development that had taken place over the past years. This has been adopted by the board of BRL and the north west area committee of Dublin City Council, so it has very broad public acceptability. The important point is that it recognised that much of the initial private housing was located on the main street and that this in many ways was a reflection of the fact that the people who were in the existing flats in Ballymun wanted their housing to be completed as quickly as possible.

We have made provision for both co-operative and affordable priced housing in the area. When phase 4 of the housing is completed, the need for social housing from within Ballymun will basically be met. In the future phases of development, which we would call phase 5, we would be able to provide both affordable and more family-orientated housing throughout the neighbourhoods of Ballymun.

Deputy Róisín Shortall

Ms McCambley says that at the end of the programme the need for social housing will have been met. I presume she means that the replacement houses will have been provided.

Ms Sheena McCambley

Yes.

Deputy Róisín Shortall

However, there is an ongoing need for social housing for the sons and daughters of families living in Ballymun. My view is that more could be done to cater for those people in terms of affordable housing rather than developing the private rented sector.

Ms Sheena McCambley

That is what the tenure diversity strategy advocates. The report was accepted and endorsed by the board and by the north west area committee because it recognised that in a numbers game at the end of phase 4, there would be a small number of surplus units which could be used for social housing rented units, affordable housing would be integrated into any future private developments and we would work further with the Affordable Homes Partnership to consider initiatives in that area. We very much recognised the need to introduce family-style housing into future developments in the neighbourhoods of Ballymun. We will pay particular attention to size and environmental features in an effort to attract families who wish to stay in the area.

Deputy Róisín Shortall

I accept what Ms McCambley says. In terms of future regeneration programmes, however, a sizeable number of affordable units should be factored in from the beginning. It is not enough to replace existing poor quality housing. Instead, we should aim to meet ongoing demand, particularly in terms of the provision of affordable housing.

The explosion in the number of apartment developments has highlighted the lack of regulation of private management companies. Problems are evident in Ballymun and elsewhere in this regard, particularly at the lower end of the market. What steps is the Department taking to intervene in this area and to bring forward legislation to deal with it?

Ms Geraldine Tallon

I will comment briefly on that. We are conscious of concerns in regard to the regulation of management companies. This issue is currently the subject of study by the Law Reform Commission. There is a recognition of the lack of regulation and an expectation at Government level that the Department of Justice, Equality and Law Reform will bring forward legislative proposals. We will work with that Department in so far as issues within our area of responsibility arise.

I ask my colleague, Mr. John McCarthy, who leads the housing division, to comment on the issues Deputy Shortall raised in regard to tenure and affordability in Ballymun. We in the Department have a perspective on these issues, as does Ballymun Regeneration Limited.

Chairman

Will Mr. McCarthy also comment on the situation in the private housing sector? Is the Department achieving its target of 20% of private sector developments being given over to social and affordable housing? How is the Department extracting that 20%? Is it generally taking the form of housing units, whether affordable or social, or is it in the form of payment?

Mr. John McCarthy

From a housing policy point of view, we recognise affordable housing as a key element within the overall mix of tenures we seek to achieve to ensure the development of balanced, sustainable communities. Part V of the planning and development legislation is one instrument of this policy. I will come back to the Chairman's particular query presently. Part V provides a mechanism through which housing developments on private lands can be used to leverage either social or affordable housing or a mix of both, at up to 20% of the total development.

Deputy Róisín Shortall

However, this is not so in the case of Ballymun.

Mr. John McCarthy

That is a matter for the local authority to decide as part of its housing strategy.

In regard to affordable housing, members should bear in mind that shared ownership has been available for some time as a vehicle through which people can access housing in an affordable way. I recognise that this has been declining as a relevant instrument, but we are looking at proposals through which we may be able to introduce a new and more relevant shared equity type of arrangement. A public consultation process was launched last week following the publication of a consultants' report on this issue.

The key issue from our perspective in terms of tenure diversity in Ballymun and elsewhere is to ensure we ultimately attain a sustainable situation. There is much debate about how we phase the various stages of operation in getting from where we were in Ballymun to where we want to be and in terms of the mix of tenure that we achieve. In Ballymun, the key issue was the extent to which new social housing had to be provided to allow for the decanting to take place. Mr. Murray referred to a domino effect of a different type. This will facilitate the decanting and demolition which, in turn, will allow further lands to be freed up on which greater elements of private and affordable housing can be delivered.

Deputy Róisín Shortall

My point is that not only is the Department not providing additional social housing units, it is providing 500 fewer than originally existed. Mr. McCarthy does not seem to grasp my point about the ongoing demand for social housing in this area. It is not just a question of replacing existing poor quality housing.

Mr. John McCarthy

I accept that point. However, we should bear in mind that even when we get to the end of the Ballymun project, it will still include a relatively high proportion of social housing. In terms of achieving sustainable communities, one must take a——

Deputy Róisín Shortall

However, it is also about funding. The pressure was on Ballymun Regeneration Limited to raise funds through the sale of sites to the private sector.

Mr. John McCarthy

We were anxious that there be an element of reinvestment of proceeds from property in the area. However, the analysis done by the Comptroller and Auditor General shows that the vast bulk of project funding has come from the Exchequer.

On the Chairman's question, Part V was slow to kick in because the vast bulk of housing development that took place in the period after its implementation was on foot of planning permissions granted prior to that implementation. The curve has increased significantly in the last three years. In 2005 and 2006, for example, it increased by 60%, and the final figures for last year will show a further increase of 45% in the number of houses delivered. Up to the end of 2007, we have achieved some 7,500 social and affordable housing units nationally.

Our estimation suggests that housing units and land account for some 85% of the delivery under Part V, which means some 15% has come in the form of cash payments.

Deputy Róisín Shortall

What is the position in this regard in Ballymun?

Mr. John McCarthy

I do not have that level of detail.

Chairman

Does it not defeat the entire purpose of the Part V provisions if 15% has come in the form of cash payments?

Mr. John McCarthy

Some 15% of the total take is in the form of cash, with the remaining 85% in the form of units and land. It is important to remember that this 15% is legislatively ring-fenced for social and affordable housing purposes. It cannot go into a general pot of funds.

Deputy Róisín Shortall

I often wonder who is keeping track of that within the Department. However, that is a matter for another day. The 20% provision does not apply within Ballymun because of the social mix. How is that dealt with from a financial point of view? Is it factored into the cost of the site? How do the developers meet their obligations?

Mr. John McCarthy

Is the Deputy asking how the Part V obligations are met?

Deputy Róisín Shortall

Yes.

Mr. John McCarthy

They are met on the basis of the framework set out in the legislation. The Part V units are remunerated at construction cost and a certain amount of profit. Fundamentally, however, the Part V dividend comes in the form of the land on which the units are built, which comes at existing use value rather than market value.

Deputy Róisín Shortall

I know. My question relates to Ballymun. How does the Department handle the developer's obligations under Part V?

Mr. Ciaran Murray

I wish to make some observations. In regard to Part V, the city council's housing strategy recognises that the electoral wards within Ballymun already have a preponderance of social housing. It is therefore written into the strategy that there is no requirement for additional social housing. This ties in with our overall strategy of achieving tenure diversity. In the 1960s, the area comprised 100% local authority housing, incorporating some 5,000 units. In 1997, that figure remained high at 80%.

Our strategy is to try to move it to a point where it will be 60% private and 40% public. Depending on the subsequent take-up of the sales scheme, this could be further significantly improved. The master plan and the city's housing strategy recognise the need to create a balanced community and to achieve diversity of tenure. Interestingly, through the development of local co-operatives in Ballymun and in respect of the provision of neighbourhood centres, we have provided a fairly significant number of affordable opportunities and at certain times, the list in Ballymun of those seeking affordable accommodation from within Ballymun was exhausted. At present, the north-west area of the city has the lowest number of people on the city council's list seeking affordable accommodation because there have been so many significant opportunities there.

The private rented sector was driven by the tax incentives under the urban renewal scheme and they were mixed use developments. Had the developer not been given the opportunity to put in private sector apartments, we would not have got the hotels and the ancillary retail developments etc. along the main street. We would now be in a position in which we may have had more social housing but certainly would not have the economic infrastructure that is providing jobs and improving the area as a destination, etc. Our overall strategy was balanced and recognised that we wanted the private rented sector to be involved.

Unfortunately, and this is a developing issue throughout Ireland, the management of the private rented sector has been problematic and as the departmental representatives noted, the Law Reform Commission and other bodies are examining it. In Ballymun, we provide ongoing support to the management companies of two of the private sector blocks to help them to deal with the problems that are arising. We have made significant progress through this and through our Safer Ballymun strategy, which recently was recognised by receiving a reward from the Taoiseach for public service excellence. It is a partnership arrangement between the community, the Garda, Dublin City Council and Ballymun Regeneration Limited that is considering those very issues that are arising. The section 23 provision was of great benefit in respect of putting in place other mixed use developments. It had a limited lifespan and a limited number of units that could be provided on the designated sites and those limited number of units fit into the overall tenure balance we are trying to achieve.

Chairman

I thank Mr. Murray. We will try to conclude in approximately five minutes' time.

Deputy Róisín Shortall

I will make two further points. The Comptroller and Auditor General's report discussed the low level of education standards in Ballymun and everyone is highly conscious of this. He cited a survey from 2004, which found that only 26% of pupils in Ballymun had passed the leaving certificate, compared with a national rate of 74%. The recommendation was that targets should be set to improve education standards. It is very difficult for an organisation such as BRL to do so because it has no control of education inputs from the Department. Have the witnesses done any work in respect of setting targets?

I refer to the Secretary General's remarks on the importance of interagency interaction. Education is, or should be, a key player in regeneration programmes. Poor education standards constitute a highly significant factor in areas of disadvantage. In my experience, education is not playing its part in the regeneration of disadvantaged areas. Has Ms Tallon taken up this matter at Secretary General level with the Department of Education and Science to try to impress on that Department the importance of playing a full part in the regeneration of an area, if one is to be serious about social, as well as economic, regeneration?

Ms Geraldine Tallon

That is a very important point for the future. Our overarching approach to regeneration in run-down areas is to achieve long-term sustainability. A highly important element of so doing is to draw in all the other agencies that have an active role to play in respect of different aspects of long-term sustainability. Education and educational attainment constitutes a highly significant part of this.

The Department of the Environment, Heritage and Local Government has been in contact with the Department of Education and Science arising from the Comptroller and Auditor General's report and has received indications that the Department of Education and Science is interested in engaging with us and working with us on this issue. I am conscious of this issue in the context of my earlier comments on the need for a more formal structure for interagency co-operation and engagement in the future. I take the point made by the Deputy and assure her that we will engage on it, both interdepartmentally and in respect of the structure we will recommend that Dublin City Council should put in place for future interagency——

Deputy Róisín Shortall

May I ask——

Chairman

As we have agreed a timescale, we must try to conclude.

Deputy Róisín Shortall

I wish to ask about local employment opportunities. In the initial stages of the regeneration, it is fair to state that the involvement of people in employment was somewhat disappointing. I accept that much of this was to do with the manner in which private contractors now operate in the construction industry. Has progress been made in securing additional apprenticeships, particularly in respect of construction jobs? Moreover, what work has been done to ensure that local young people will be prepared and ready to avail of the jobs that will come on-stream with the arrival of IKEA?

Deputy Thomas P. Broughan

As an addendum to Deputy Shortall's question, why did BRL bring in a least one foreign company, which was Turkish, to carry out some of the works on the regeneration when Irish bricklayers, apprentices and so on simply were being turned away?

Mr. Ciaran Murray

I will start with Deputy Broughan's question. It is an issue of public procurement. We must observe the laws of public procurement and the contractor came in with a highly competitive bid and in accordance with the criteria.

Deputy Thomas P. Broughan

However, BRL knew that Gama would have its own workforce.

Mr. Ciaran Murray

We did not know at the time. It was the first time it had developed a housing scheme in Ireland. We did not know from where it would source its labour.

As for employment in general, I will ask Ms Sheena McCambley to come in.

Chairman

This reply should be brief because the committee has a timetable to which its members agreed beforehand.

Mr. Ciaran Murray

IKEA offers the principal job opportunities that are on the horizon and we already have very extensive contact with it. The local jobs centre and FÁS have visited IKEA in Belfast and there have been return visits. We are developing the training programmes jointly with IKEA. We are setting up various dates on which to have launches and to attract people to partake in the training opportunities. I ask Ms McCambley to comment further.

Ms Sheena McCambley

IKEA is deeply involved in that process and I will provide a snapshot. While I acknowledge that not all the jobs created have gone to local people, it is important to emphasise that with job creation, bringing more money into an area also is highly important to maintain local jobs in retail and so on. There have been 1,400 jobs created since the initial period, not including the 500 IKEA jobs or the jobs that would be generated in the shopping centre and in respect of the M50 lands.

Deputy Thomas P. Broughan

I apologise for missing the discussion as I was obliged to be present in the House for the debate on the Electricity Regulation (Amendment) (EirGrid) Bill. I will ask three brief questions and must declare that I was a director of Regeneration of Urban North Dublin Limited, a community company in which Ballymun Regeneration Limited also was involved. We were involved in the regeneration of Darndale-north, Coolock and Ballymun and a project in Finglas. It was funded by the EU urban fund. I represented the city council. City council estates were built before Ballymun, going back to the 1940s and 1930s, and after Ballymun close by in my constituency in the northside, which adjoins that of Deputy Shortall. In general terms, there were social problems but 99% of those estates are probably owned by families, including new families coming in. They settled down after perhaps a generation or so.

What is the common factor in respect of Ballymun? The bill is not €1 billion. It is many billions of euro in terms of the suffering and problems people had to endure over the decades in respect of issues associated with the area. The common factor seems to be design. The high density design was a failure.

Chairman

We have been through that.

Deputy Thomas P. Broughan

I know that.

Chairman

Let us try to be sensible. We agreed a timetable earlier.

Deputy Thomas P. Broughan

I accept that.

Chairman

The questions asked by Deputy Broughan were dealt with in his absence and were put in the context of the opening statements.

Deputy Thomas P. Broughan

The Chairman has not even listened to the question I was going to ask.

Chairman

I am listening now.

Deputy Thomas P. Broughan

It is my own constituency about which the Chairman knows nothing. We have also spent something like €50 million.

Chairman

Hold on a second. The Deputy was absent for most of the proceedings.

Deputy Thomas P. Broughan

I was on Dáil business.

Chairman

We have covered all of this. The opening statements covered the context of the regeneration programme and now we are going over ground we have explored in the Deputy's absence. Time is running out. Other people from different parts of the country are here in respect of a hearing beginning at 12.30 p.m and we must consider those people. The Deputy should just ask the question.

Deputy Thomas P. Broughan

Given that we have spent €50 million rebuilding Darndale in my constituency and have more money to spend on it, how do we know we are not making the same mistake again, for example, in the north and west fringes of this city? Are we possibly making the same mistake again in design terms?

Chairman

We have already dealt with risk analysis. The Comptroller and Auditor General made a recommendation about risk analysis of future development in that area. Mr. Murray has addressed that issue.

Deputy Thomas P. Broughan

I am asking about that and a related question. To what extent did Ballymun Regeneration Limited liaise with the developers of adjoining places like Northwood and Charlestown? In respect of the timeframe, in a project in the Belmayne area in the north fringe, something like 800 units of housing, including high density housing, were erected in about a year and a half. I know it is a greenfield site but approximately 800 units were erected in about a year and a half. Why is public sector regeneration and reconstruction so incredibly slow?

Chairman

With all due respect, we also dealt with that. Mr. Murray explained that the development had to comply and deal with people on site. There were health and safety issues and other issues that were addressed earlier. We are just going over old ground again.

Deputy Thomas P. Broughan

Greenfield sites. Why is it so slow?

Chairman

We have already dealt with that.

Deputy Thomas P. Broughan

Can I get an answer in respect of current and future high density design? I would appreciate that.

Ms Geraldine Tallon

With the Chairman's permission, if the Deputy wishes to get the briefest response to his comments, I will provide it. There will be no more sprawling greenfield sites in the future. That is very important. Our emphasis is on redesign and regeneration within existing areas but there will be no new greenfield sprawl.

The distinction in respect of Ballymun is around whether one is talking about high rise or high density. Ballymun was high rise but low density, which gave rise to all sorts of difficulties. For the future, we will have higher density but not high rise.

In respect of it being incredibly slow, I hope that is not the universal judgment in terms of the kind of progress we make.

Deputy Thomas P. Broughan

In my own constituency, Darndale began in 1988. I think it was your former leader, Garret FitzGerald, who initiated the funding for it.

Chairman

Whose former leader?

Deputy Thomas P. Broughan

The former leader of Fine Gael, Garret FitzGerald.

Chairman

Is the Deputy addressing me?

Deputy Thomas P. Broughan

Garret FitzGerald visited Darndale and initiated the funding. It is now 19 years later and the Darndale redesign, as Ms Tallon knows because she has the documents in front of her, is still not finished.

Chairman

We are not dealing with Darndale today.

Deputy Thomas P. Broughan

I know but it is a regeneration project.

Chairman

I am finishing now.

Deputy Thomas P. Broughan

It was the first regeneration project.

Chairman

We are not dealing with Darndale.

Deputy Thomas P. Broughan

The Secretary General wanted to finish.

Ms Geraldine Tallon

We have our policy statement from early last year on building sustainable communities. Alongside that, we published new quality design guidelines to guide us for the future. They mark a significant change in terms of the design of housing for the future.

I explained earlier that in looking at our housing construction budget now and for the future, we are taking a much more balanced approach to the provision of funding for new construction and regeneration of older areas. There may be more of a balance in the funding from that point of view than would have been the case ten, 15 or 20 years ago. It is always the case that regeneration projects work around living communities and, by their nature, are more complex and slower and involve many——

Deputy Thomas P. Broughan

Is Ms Tallon sure that in 20 years' time, when our successors are sitting in this room or a similar room, they will not be calling in the Department and regeneration companies to explain what happened in the north and west fringes, Limerick or Cork in 2008? Is she sure that there will be no further problems like these?

Ms Geraldine Tallon

I do not have a crystal ball.

Chairman

I thank the Secretary General. Yesterday, we visited the place. I am averse to conducted tours but I took part in a visit two weeks ago just to walk around there one evening. I met some locals who have great pride in the area. There is great excitement in the area about what is going on. I know that there are a number of operational problems but, generally speaking, people are excited about what is happening.

It was a social scar in this country for many years. Despite some of the questions that must be answered, the fact that this major investment could take place in what was a major social error decades ago is an exciting product of the economic well-being of the country. I am as excited as the people out there and the delegation about what is happening in Ballymun. Questions must be asked and we have asked them today. Great credit is due to the people who, first of all, decided to run with the regeneration and the people administering it. I compliment the delegation on its work and ask it to keep up the good work. However, it should listen to the Comptroller and Auditor General in respect of his risk assessment mentioned in his report in November. I am disappointed that no real progress has been made in respect of carrying out the recommended risk assessment. Does Mr. Purcell have anything to contribute?

Mr. John Purcell

In light of the Chairman's admonition earlier about the time, I have nothing useful to add to what was already said.

Chairman

I thank Mr. Purcell. Is it agreed that the committee dispose of Special Report No. 61: Ballymun Regeneration? Agreed. The committee will go into private session for about ten minutes before we examine in public session the contract termination costs associated with the Limerick drainage scheme.

The committee went into private session at 12.30 p.m. and resumed in public session at 12.50 p.m.

Chairman

I welcome Ms Tallon, her officials and Mr. Doyle of the Department of Finance. We are resuming on the termination of contract 4.2 of the Limerick drainage scheme. Members will recall that we examined this issue at our meeting on 14 February when we sought access to the relevant papers associated with this issue, including the reports of the conciliator and the arbitrator, the Considine report and the High Court judgment. All documents have been supplied by the committee, for which I thank Ms Tallon.

I wish to make our new witnesses aware that they do not enjoy absolute privilege. I draw members' and witnesses' attention to the fact that, as of 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons identified in the course of the committee's proceedings, including the right to give evidence, to produce or send documents to the committee, to appear before the committee either in person or through a representative, to make a written and-or oral submission, to request the committee to direct the attendance of witnesses and their production of documents and 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 need to be made aware of these rights and provided with a transcript of the relevant parts 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 by name or in such a way as to make him or her identifiable. Members are also reminded of the provisions of Standing Order 158 to that effect that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister or the merits of the objectives of such policies. I ask Mr. Purcell to re-open proceedings by making a statement to the committee.

Mr. John Purcell

I will be brief because I do not want to go into the material covered previously. The committee considered this chapter in some detail on 14 February when I suggested that to fully comprehend the issues in this case and to reach an informed opinion on how matters were handled by the State and its agents, the committee might wish to see additional material, including a report by a former Secretary General of the Department of Finance, Mr. Tom Considine, and reports of the appointed conciliator and arbitrator. The clerk has reviewed all of the material furnished by the Department and has prepared a brief to help the committee with its further inquiries.

It is not necessary to rehearse what was stated previously, but I will give a quick reminder of the sums involved. The damages awarded amounted to €32 million, the legal and other costs are expected to amount to approximately €17 million, the payments under the original contract amounted to €7 million and the cost of the replacement contract was €27 million, a total of approximately €83 million against an original contract sum of €9.57 million.

It is fair to say that lessons have been learned from this bad experience for the State. For example, the revised State contract for civil and building works provides the employer with the option of referring for expedited conciliation the question of whether a right to termination for default has arisen. Under the new form of contract, in similar circumstances the scope for compensation would be limited. A more rigorous system of risk assessment, including assessment by those who are not involved in the contract dispute procedure, has been introduced as a standard practice in such cases. I will gladly elaborate further on these issues if the committee so wishes during the course of proceedings.

Chairman

I welcome Ms Tallon again. Will she introduce her officials?

Ms Geraldine Tallon

I am accompanied by Mr. Peter McCann, finance officer, Mr. Gerry Galvin and Mr. Terry Allen from water services.

Mr. Jimmy Doyle

I am Jimmy Doyle of the Department of Finance.

Chairman

Is there anybody present who was involved in the project at the time?

Ms Geraldine Tallon

Yes.

Chairman

Who would that be?

Ms Geraldine Tallon

Both Mr. Gerry Galvin and Mr. Terry Allen would have been involved in the project at the time.

Chairman

That is good. I thank Ms Tallon and I invite her to make her opening statement.

Ms Geraldine Tallon

I thank the Chairman. I will speak briefly on this occasion because as the Comptroller and Auditor General has said the issues were considered in some detail at the committee's previous session.

The dispute with the contractor on contract 4.2 arose from slow progress, which the contractor claimed was due to ground conditions. Limerick City Council had listed more than 120 instances where it believed the contractor was in breach of the contract. Following continuous contacts between the parties, a series of warnings, including two formal notices which did not bring the work back on track, culminating in a failed attempt to resume tunnelling, the contractor was dismissed in late 2001, on the advice of the city's consulting engineers who themselves had engaged a leading legal firm in construction and contract law.

In 2003, a conciliator found that the termination was wrongful, principally on the grounds that it could not be held that the contractor was failing to proceed with due diligence at the time of the termination. Limerick City Council, supported by technical and legal advice, rejected the conciliator's recommendations and the case then went to arbitration.

In June 2005, an arbitrator ruled in principle in favour of the contractor. Limerick City Council referred the arbitrator's finding to the High Court, which found, in November 2005, that, since there was an arguable case on both sides, any error could not be said to be so obvious or fundamental as to warrant the court's intervention.

In response to claims that increased from €38.6 million in September 2003 to over €84 million two years later, the arbitrator awarded damages of €32.1 million to the contractor in September 2006. In a finding that he had not previously signalled, the arbitrator ruled that losses the contractor claimed to have incurred on two separate major road projects were predominantly as a result of the termination. This unprecedented finding accounted for €17.4 million, or more than half the award.

At four key stages in the case, risk assessments were undertaken by Limerick City Council with the support of professional engineering, legal and specialist financial input to analyse and assess the legal and contractual strength of the contractor's claim. The actions taken by the council were at all times informed by these risk assessments.

After the arbitration process had been completed, Limerick City Council appointed independent legal and technical experts to review the case. The independent review found that the decision to terminate the contract was reasonable and that the council's subsequent conduct of the case was well-founded, thorough, robust, well-thought-out and more than competent.

A subsequent independent examination of the Department's role in the case commissioned by the Minister also concluded that the available evidence suggested that the decision to reject the settlement terms offered by the contractor and to go to arbitration was made carefully after the risks were assessed; the arguments made at the time in support of going to arbitration were reasonable and based on an evaluation of the evidence available; and on the basis of the available evidence and the contract management structures in place at the time, it was not evident that there were other options that should reasonably have been pursued.

I acknowledged when I last appeared before the committee that despite the best advice, coupled with careful and considered analysis of all the circumstances of the case, it did result in significant unforeseeable Exchequer costs. We have learned from the experience and a number of important changes have been made to the contracting environment.

New conditions of contract have been introduced by the Minister for Finance that specifically respond to what happened. Nowadays, a contract termination subsequently found by an arbitrator to have been wrongful no longer entitles a contractor to consequential damages, which represented over half the award in this case. Ground condition risks are also transferred to the contractor.

My own Department has issued instructions to local authorities requiring them to avail of the conciliation option in the new conditions of contract and to carry out independent risk assessments in advance of any decision to terminate a contract. The Department has also recommended that local authorities use restricted tendering for contracts requiring specialist expertise, including tunnelling. We will continue to closely monitor individual contracts to ensure that any further corrective measures needed to safeguard the Exchequer are promptly put in place.

Since my previous appearance I have provided the committee with the range of documents requested. I hope these documents will have helped to shed further light on the complexities of the case and on the background to the actions of Limerick City Council and my Department in the matter.

Chairman

Can we publish the statement?

Ms Geraldine Tallon

Yes.

Deputy Deirdre Clune

Ms Tallon has come before the committee previously and I do not intend to go over old ground. The real headline in this issue is that while the original contract was approximately €9 million it is ending up costing about €84 million. The additional information provided to the committee in recent weeks will ascertain exactly what went wrong and how things got so out of control. Hindsight can be a wonderful thing. At many stages along the process, the point of termination of contract, the conciliator's report, the arbitrator's report, the decision to go to the High Court at which time advice was sought from the Attorney General, information became available to suggest that right was on the contractor's side. While we have the benefit of hindsight now we also had much information along the route whereby decisions other than those taken could have been made. Ms Tallon said the case resulted in significant unforeseeable Exchequer costs. In fact, the conciliator's report would have predicted the arbitrator's findings. At various stages there were foreseeable costs.

I wish to focus on the various risk assessments taken. Were those risk assessments carried out by the same people at all stages? Did they, at any stage, provide different information or would the information have changed along the way? There is a criticism that the people who were involved in this risk assessment were involved with the project and that it was not quite independent. Perhaps Ms Tallon would comment on that and give the committee information on the various risk assessments and their recommendations?

Chairman

In dealing with Deputy Clune's questions, one document we did not get was the Attorney General's advice. We got all sorts of reports but not the Attorney General's advice. Is Ms Tallon at liberty to let the committee know what the Attorney General advised?

Ms Geraldine Tallon

I have been advised that the Attorney General's advise is not releasable. I can give the committee some sense of the views expressed by the Attorney General but I am not at liberty to release the Attorney General's advice.

Chairman

Will Ms Tallon give us a sense of that in responding to Deputy Clune's other questions, please?

Ms Geraldine Tallon

In responding to Deputy Clune, of course, contract termination, by reason of default or non-performance, is a rare occurrence in water services projects. There were other contract terminations as a result of liquidation or receivership but as a result of termination these are rare. There was not, therefore, any prescribed format for evaluation of risks in relation to the termination of civil works contracts but, as the Deputy said, detailed risk assessments were carried out at four stages in the case. A risk assessment of financial consequences of contract termination was carried out by Limerick City Council's legal and engineering advisers immediately prior to the termination. This addressed both the principle of the contractor's claim and the quantum of claim. At this stage, we were satisfied that the rationale being used was appropriate and the findings were supported by necessary analysis of the risks involved. Further risk assessments were undertaken after the conciliator's recommendations were received, at the beginning of the arbitration proceedings and after the arbitrator's interim award was received.

The Department was satisfied on all occasions that the risk assessment findings were supported by appropriate analysis. However, as I stated, risk assessment methodologies suitable for application in this type of dispute were not readily available at the time. One of the recommendations from the Considine report is to develop risk assessment methodology more fully and provide worked examples of how risk assessment methodologies should be applied. We are in the process of doing this.

I wish to emphasise that at all stages the Department maintains an independent perspective on work carried out by a local authority or consultants.

Deputy Deirdre Clune

I wish to ask a question about the risk assessment. Did the individual reports vary or did they all state the same thing? Did alarm bells ring at any stage of the process?

Ms Geraldine Tallon

They did. The reports considered carefully at each stage the risks identified with the initial findings from the conciliation and arbitration. They identified specific risk factors and provided measurements. The measurement of risk varied in some respects. We were satisfied at all stages that these risk assessments provided a robust basis for the approach being taken.

Deputy Deirdre Clune

This was despite the fact that no guidelines existed and that it was new territory for everybody. On the other hand, a conciliator's report and an arbitrator's report upheld the contractor's claim. Decisions were taken based on risk assessments which were new territory and carried out by people previously involved and so were not independent. Although two opposing views existed, Limerick City Council and the Department were happy to go with a risk assessment from an unestablished process through which they were feeling their way.

Ms Geraldine Tallon

At the same time, we felt on every occasion that the risk assessment was robust and detailed. I will turn to the issue of the legal advice which was raised by Deputy Clune and the Chairman. We sought legal advice from the Office of the Attorney General. An issue was raised with regard to the quantum of damages and the basis upon which damages were sought. The advice we had from the Office of the Attorney General expressed some surprise at the matters which remained to be decided by the arbitrator after the interim award. It indicated the damages sought appeared to be too remote to be included in a claim arising directly from the contract. The advice we had was that the level of damages and heads of damages sought did not appear to be a proper matter for arbitration in this case. Armed with quite a firm view from the Office of the Attorney General, independent of the legal advice supplied to Limerick City Council by its consultancy team, we felt clear and sound in our rejection of the findings being put forward.

Deputy Deirdre Clune

Was this the Attorney General's advice?

Ms Geraldine Tallon

Yes.

Deputy Deirdre Clune

This was the advice given prior to the decision being taken to go to the High Court, despite the fact that the High Court generally upholds arbitrators' recommendations. In this case, the High Court decided the case should not come before it and it was not admissible.

Ms Geraldine Tallon

Limerick City Council chose a couple of grounds to test at court.

Chairman

That is not the question.

Deputy Deirdre Clune

The question is on the fact that the Department took the case to the High Court despite the fact that all arbitrator's reports are upheld by the High Court. This would have been the advice available to the Department.

Ms Geraldine Tallon

The grounds on which Limerick City Council determined it was worth going to court were with regard to the dispute over the tunnelling levels and a test used in determining whether the contractor was persistently in breach of the contract. An issue had arisen as to whether the contractor was in breach of the contract at the time of termination or persistently in breach of the contract. Limerick City Council maintained the contractor was——

Deputy Deirdre Clune

A conciliator's report stated the contractor was not and an arbitrator's report upheld this. Ms Tallon stated risk assessments have been changed and new procedures are in place. How will the independence of risk assessment be addressed?

Ms Geraldine Tallon

It will be addressed by a requirement that a risk assessment in the event of a contract termination must be carried out by a person or body not in any way associated with the case.

Deputy Deirdre Clune

In this case, the risk assessments were carried out by people who had been associated with it.

Ms Geraldine Tallon

The risk assessments in this case were carried out within the team involved.

Deputy Deirdre Clune

So they were not independent.

Chairman

There was no devil's advocate.

Ms Geraldine Tallon

The Department was the devil's advocate in these cases. It is not fair to state there was no——

Chairman

On what basis was it the devil's advocate?

Ms Geraldine Tallon

We were represented at every team meeting. This contract was managed by a project team and a steering group which met regularly. The Department was a member of this group and every key aspect of the handling of this case was reviewed by the steering group. The Department's role in this context was to interrogate the evidence and, to use the Chairman's language, act as devil's advocate in terms of the issues arising.

Chairman

The Department was involved in the previous proceedings. This meant it was party to all the other proceedings. How could it be devil's advocate with regard to going to the High Court?

Ms Geraldine Tallon

We were devil's advocate right the way through. We were involved prior to the termination of the contract, through all the stages of further conciliation and arbitration. We acted consistently in this regard. We have an independent role——

Deputy Deirdre Clune

The Department is ultimately footing the €84 million bill. If that is the case, the two do not reconcile.

Ms Geraldine Tallon

I can give the Deputy——

Deputy Deirdre Clune

When one stands back from this, one can see that there were problems between Limerick City Council and the contractor. Of that, I have no doubt but why did nobody notice that it was getting out of control? I understand that two cases in the Cork main drainage scheme went to conciliation or arbitration, a decision was taken and the contract was cut. If these problems had arisen without the benefit of the backup of the public purse, somebody would have called a halt. Somebody would have decided to restrict the damage, based on reports from a highly-esteemed conciliator and arbitrator to the effect that the contractor was right. Why was a decision not made to cut the contract? What was the Department's involvement?

Ms Tallon referred to the fact that Limerick City Council decided to terminate the contract, rejected the conciliator's and arbitrator's reports and referred the matter to the High Court. Did alarm bells ring in the Department at any stage along the way? Why did no one say enough is enough, we must cut this contract and limit the damage to the public purse?

Ms Geraldine Tallon

We were very concerned at all stages about this contract. Considerable effort was made, in the first instance, to maintain the contract rather than find ourselves in the position that we ultimately found ourselves in, with dismissal. In this case, 80% of the contract time had elapsed and only 34% of the work had been completed.

Deputy Deirdre Clune

Did the conciliator express——

Ms Geraldine Tallon

Yes, I am coming to that.

Chairman

I ask Ms Tallon to try to address the specific question. We know the background to the case and have dealt with it for many weeks. Basically, Deputy Clune is asking, in the context of a strong case history of the High Court upholding arbitrators' decisions, why did the Department decide to play Russian roulette with taxpayers' money? Why did it decide to go to the High Court, given the body of evidence?

Ms Geraldine Tallon

First, I will deal with the conciliator's report, if I may. When we examined the conciliator's recommendations, we took the view that the findings were not consistent with the tenor of the discussions that were had with Limerick City Council in the course of the conciliation process.

Chairman

They were experts in dealing with cases like this.

Ms Geraldine Tallon

Nevertheless, we were very involved, as was Limerick City Council, and we did not feel that the findings and recommendations by the conciliator were consistent with the tenor of the discussions. I feel justified in saying that.

Chairman

And the arbitrator, subsequently?

Ms Geraldine Tallon

As far as the arbitration award is concerned, the issue was the unprecedented element of damages of €17.4 million in respect of losses on two road contracts where, as I have already said, we had clear-cut advice from the Attorney General's office that these damages were too remote to be considered as likely to arise. I accept——

Chairman

For the record, we have to accept the Secretary General's interpretation of the Attorney General's advice because we have not seen it.

Ms Geraldine Tallon

Yes.

Chairman

That is the problem we have.

Ms Geraldine Tallon

I appreciate that.

Deputy Deirdre Clune

I am trying to establish why this project was not cut and was let go all the way. To what extent were personalities involved? The arbitrator, in his report, said that having discovered material and analysis carried out by an engineer was not passed on to the contractor, he found the conduct of the council to be bordering on "reckless". In an effort to defend its position, Limerick City Council engaged Irish Drilling Limited to carry out investigation works but did not share the information with the contractor, despite the fact that it would have been in everybody's interests to have the project completed. If the council had information on the site or on groundworks, it should have shared it with the contractor, rather than spending more public money in an effort to defend itself.

Were daggers drawn? Did personality clashes come into play? It appears that nobody stood back, saw the wood from the trees and called a halt.

Ms Geraldine Tallon

I do not think that is the case at all. I have just been shown a copy of the arbitration hearing, in which that comment was made. It is made at the end of a paragraph and does not necessarily reflect the full sense of the paragraph in which it occurs. It would be easy to tip the balance in any direction by choosing a couple of words, here or there, out of a very lengthy and extensive transcript of the arbitration hearings.

It is not correct to say that personalities were involved, given the extent and duration of the contacts with the contractor initially, even before the termination of the contract. The council was in a very difficult position, with over 800 contacts logged with the contractor over a particular period of time in an effort to keep the job on track, against the background of serious under performance. I have already mentioned the fact that 80% of the contract time had elapsed and only 34% of the work had been done.

Equally, on the other hand, Limerick City Council public representatives and members of the public repeatedly complained — I can give the committee a log of complaints — about the delay, disruption, noise, dirt, dust and so forth.

Chairman

Going back to a very important date——

Ms Geraldine Tallon

My problem——

Chairman

Going back to a very important date, namely, 30 January 2003, after the conciliator's report, Limerick City Council met the contractor, who said he would accept an immediate settlement of €12.4 million. If this was not accepted by noon the following day, the amount would have to be increased to €15.9 million. With the benefit of hindsight, does Ms Tallon agree that was a very fair offer. At that stage, it would have been prudent to make a settlement at that figure of €12.4 million, in view of the fact that a conciliator's report had been completed.

Ms Geraldine Tallon

As an Accounting Officer, I would have to say that the offer was made by the contractor very hastily, immediately after the conciliation findings were made public. It was also made on a very time-limited basis. It came exactly one week after the conciliator's Part 1 finding but that finding did not include any figure for damages. There was nothing in the conciliator's Part 1 finding that would lead one to a benchmark figure.

If one examines the figure involved and its escalation, that would have paid the contractor a sum that was well in excess of the contract price for the job, even though the facts on the ground had shown very slow and very unsatisfactory progress. We did not want to send out a signal that public authorities were something of an easy touch in these kinds of circumstances. I do not know how such a payment could have been defended, given that the conciliation was an informal process and not part of the contract. There was no basis——

Chairman

It was an expert opinion.

Deputy Deirdre Clune

It was an agreed conciliation between the two parties. Is that correct?

Ms Geraldine Tallon

Yes, it was an agreed conciliation but, at the end of the day, the formal process was through arbitration. We had significant misgivings about the conciliation report. To deal with the point——

Chairman

Ms Tallon agreed with her.

Ms Geraldine Tallon

Sorry, to address the point made by the Chairman regarding the offer the contractor put on the table, that offer was made at a time when no figure was available from the conciliation process. No quantum of damages had been identified. The figure involved was to operate for 24 hours and then it was to increase. When converted from punts to euro, it became €18 million including VAT from 31 January 2003. That figure should be set against the equivalent element of the award which was made in September 2006 by the arbitrator.

Chairman

I am not being rude——

Ms Geraldine Tallon

I beg the Chairman's pardon but this is an important point.

Chairman

I want to ask about the figures Ms Tallon cited. She said the offer was for €12.4 million and then she said it was €18 million the following day. Are we dealing in euro or punts?

Ms Geraldine Tallon

We are dealing in euro. The €12.4 million figure was exclusive of VAT. That figure became €15.9 million exclusive of VAT within 24 hours. When I included VAT, it became €18 million. When I compared that figure with the equivalent element of the arbitrator's award, subtracting the €17.44 million which the arbitrator included for road losses, the €18 million offered was higher than the award for the equivalent element made by the arbitrator in September 2006. I do not see how an Accounting Officer could have agreed a settlement completely informally on that basis. If an Accounting Officer came before a Committee of Public Accounts which was doing its duty, it is likely that he or she would be asked how in the name of God could a settlement of that level be reached with a contractor who performed in the manner this one did.

Deputy Deirdre Clune

Ms Tallon more or less dismissed the conciliator's report even though it was agreed by both parties.

Ms Geraldine Tallon

The process was agreed, not the report.

Deputy Deirdre Clune

Either Ms Tallon wants the report to agree with her position or she does not. Parties enter conciliation because they cannot agree among themselves. They do not have to accept the conciliator's recommendation but I would think the process should be approached with an open mind. Clearly, the conciliator's report was not accepted and we now have a situation whereby conciliation is recommended before termination of contracts. Does Ms Tallon agree with the conciliation process? Alarm bells must have rung when the arbitrator upheld the recommendation of the conciliator.

Ms Geraldine Tallon

We are concerned to arrive at a resolution in a situation such as this. Delays ultimately cost money. This was a complex contract for the middle of a busy city centre, so a drawn-out dispute was in the interest of neither the public nor the public authorities. For that reason, we were agreeable to entering a conciliation process with a view to arriving at a resolution. However, the reason for the ultimate rejection of the conciliation was because the conciliator's finding on damages was very large relative to the size of the contract. It was felt by the authorities, and agreed by the Department, that the conciliator had taken a rather narrow interpretation of the demonstration of due diligence at the time of the termination rather than within the framework of a series of persistent breaches over a period of time.

At the end of the day, arbitration was the only process provided for in the contract and if we could not arrive at a resolution in the context of conciliation and, as I have explained, no Accounting Officer could have made the judgment to agree a settlement outside any process, we had to begin arbitration. A detailed and extensive arbitration procedure ensued over a lengthy period of time.

Chairman

When answering Deputy Clune, Ms Tallon said she could not stand over the offers made by Uniform Construction of €5 million and €8 million but the conciliator ended up deciding on almost €20 million.

Deputy Thomas P. Broughan

In an addendum to the Chairman's point, the Department through Limerick City Council had prior experience of the contractor's work on the Abbey River pipework, which was roughly the same price. Should this experience not have persuaded the Department to settle for what has turned out to be a lower figure?

Deputy Seán Fleming

Ms Tallon appears to be supportive of the decision of Limerick City Council to proceed with arbitration and, ultimately, the High Court. Is that correct?

Ms Geraldine Tallon

Yes.

Deputy Seán Fleming

Therefore, if the same set of circumstances were presented to the Department today, it is reasonable to argue that the same course of action would be followed. Ms Tallon was not Secretary General at the time but she supports the decisions made.

Ms Geraldine Tallon

A very important point arises. I do not think I would have any basis for following a different course of action. The replacement contractor which was appointed to complete the work did so without the ground stabilisation the failed contractor claimed was necessary. A small amount of ground stabilisation was done in certain areas but, crucially, the replacement contractor finished the job without any extensive need for stabilisation.

Deputy Seán Fleming

At how many times the price of the first contract? It was three times the price of the first contract.

Ms Geraldine Tallon

Overall if one examines——

Deputy Seán Fleming

Of course the replacement contractor could finish it at three times the price.

Ms Geraldine Tallon

Other factors entered in at that stage, inevitably and unfortunately in terms of contract inflation——

Deputy Seán Fleming

Surely that justifies the original point.

Ms Geraldine Tallon

No, because if one examines how that element of the contract evolved, the original contractor claimed nearly €6 million was necessary for ground stabilisation works. The replacement contractor spent less than €1 million on ground stabilisation and was able to continue the job at the tunnelling level set in the specification and use the tunnelling machinery the failed and dismissed contractor had not been able to use successfully. None of the ground stabilisation was required to anything like the extent the dismissed contractor claimed. Limerick City Council's original site investigations, therefore, held good. That fact was not admissible in the course of the arbitration proceedings because they related purely to the facts of the case over the period of the work and up to the termination of the original contractor. The subsequent events and handling by the replacement contractor vindicated Limerick City Council's position on the technical feasibility and competence associated with the work, but that was not allowable in arbitration.

Deputy Seán Fleming

While I do not want to get into the detail of the tunnelling cost, what was the approximate cost of the ground stabilisation to which Ms Tallon referred?

Ms Geraldine Tallon

It was €800,000.

Deputy Seán Fleming

So Ms Tallon feels she was right about €800,000, but spent €75 million to stand over that principle. We are looking at it from a different point of view. This is what was wrong with the Department and the council. They were in the trenches on this.

The only justification I have heard today was about an €800,000 element of the contract and the Department seems satisfied to put that on the public record. However, it has cost us over €70 million to justify the Department's righteousness on the €800,000. It is depressing that the essence of what Ms Tallon says is that under all those procedures she had no option but to pursue it to the courts. She agrees with the approach taken, followed the legal advice and could not have come to a quick deal outside the court lest she be challenged by this committee.

What is being said here is that if the same situation arose again we would reach the same outcome. If the Department would do the same again, no lessons have been learned. The essence of everything I hear today is that Ms Tallon stands by everything that was done and would do the same again. The major difference is that Ms Tallon says there are no other grounds. The one reason she should have done something differently and should do so in the future is the cost to the taxpayer. It is not Ms Tallon's or my money. It is €75 million that went somewhere apart from the original contract. Ms Tallon can see where the Public Accounts Committee has a difficulty with this.

Ms Tallon says the issue of the consequential loss on the other contracts was unforeseeable. Let us be real. If I crash my car, part of my insurance policy covers the consequential loss of having to hire a replacement car. If I have a fire in my house part of my insurance policy covers the consequential loss of having to rent a different house. If my office has a fire, part of my insurance policy covers consequential loss of having to replace what was lost other than the building. Everybody knows that when somebody has a legitimate claim, consequential loss is a fact of life.

Ms Tallon has to accept the High Court decision but I get the impression that she does not agree with the conciliator, arbitrator or High Court and still feels she was right about the €800,000 and they were all wrong about the other €70 million. Ms Tallon has had to accept it, but I get no sense that she feels any of them were right, including the High Court. In Ms Tallon's opinion was the High Court right or wrong? She has to accept the High Court's judgment, but does she agree with it?

Ms Geraldine Tallon

The Deputy asks a very difficult question.

Deputy Seán Fleming

Maybe I will not ask that question but we have gained a sense of Ms Tallon's position without asking her to say it.

Ms Geraldine Tallon

The High Court decided there was no basis on which to intervene in the case. I would hate Deputy Fleming, the committee or the public purse to feel we did not sympathise with the concern he raised or that we are not disappointed by the ultimate outcome. However, he must acknowledge that he is working with the inestimable benefit of hindsight.

This was a difficult, complex and controversial case. We were dealing with a contractor with very escalating prices and costs being identified in terms of the claims, damages, etc. The contractor, as we said earlier, began with a figure of €12.4 million, excluding VAT, in January 2003. By May 2003 the contractor was quoting €30 million, by September 2003, €38 million, by March 2004, €65 million, and by October 2005, €84 million.

Deputy Seán Fleming

What is the relevance of any of that when Limerick City Council had ordered him off the site in November 2001? The curtain came down the day it ordered him off and took possession of the site. Those subsequent claims were not presented before the contractor was ordered off the site. Ms Tallon cannot use the figures the contractor produced years after he was ordered off the site to justify the decision to do so made in November 2001. None of those figures was in the framework known to Ms Tallon or stated by the contractor before he was ordered off the site. She is using hindsight to justify a decision made three years earlier.

Chairman

Would Ms Tallon quote the conciliator's figure in 2003?

Ms Geraldine Tallon

It was €25 million.

Chairman

Uniform was prepared to take a lot less. It was talking about €12 million, was it not?

Ms Geraldine Tallon

Uniform talked about a settlement of €18 million.

Chairman

Was it not €12.4 million initially?

Ms Geraldine Tallon

It was €12.4 million plus VAT.

Chairman

That was for everybody to walk away from each other; the Department refused and the conciliator came in and recommended a figure far in excess of what Uniform sought.

Ms Geraldine Tallon

As I said, there was a range of reasons we were unhappy with the conciliation process. The figure the Chairman quotes was on the table from the contractor for a single day. It was hastily made and very time-limited.

Chairman

However, it was on the table.

Deputy Seán Fleming

Ms Tallon is highlighting the fact that the procedures in the public system did not allow it to respond quickly and flexibly when an offer was on the table.

Ms Geraldine Tallon

We carry responsibility with local authorities for hundreds of contracts on an annual basis. Do we arrive at a settlement with a contractor for whom 80% of his contract time had elapsed and 34% of his work had been done, despite repeated efforts to carry him across the line? On what basis do I, as Accounting Officer, arrive at a settlement in that set of circumstances?

Deputy Seán Fleming

I do not think Ms Tallon would.

Ms Geraldine Tallon

What message would it send to all the other contractors?

Deputy Seán Fleming

She would not. I agree with her.

Ms Geraldine Tallon

This is the context in which we have to work.

Deputy Seán Fleming

I understand everything Ms Tallon has said and it leaves this side of the House with the obvious conclusion that in the same situation we would have the same outcome. Ms Tallon has said six times that she could not possibly do anything other than what was done. If that is the view of the Department and everybody involved we would have the same outcome. How much has been paid out? Has the €83 million been fully paid out or is there any more to be paid?

Ms Geraldine Tallon

We have learned many lessons. We have to carry the responsibility for hundreds of contracts and that is a serious responsibility. My comments are based on putting myself in the shoes of those involved in 2001 or 2003 and asking if I would have exercised different judgment. I have asked myself whether there was any basis for making an alternative judgment to that which was exercised at the time and I do not think there was. That does not mean we and the Department of Finance have not reflected on the lessons learned in considerable depth. A series of changes have been put in place in the form of new conditions of contract.

Chairman

The Secretary General said the Department was helping the contractor in every way to cross the line. Are they the words she used?

Ms Geraldine Tallon

Yes.

Chairman

In his report, the arbitrator said he had discovered material on an analysis carried out by the engineer but not passed on to Uniform Construction Limited. He described this conduct as bordering on the reckless and that is damning of Limerick City Council.

Ms Geraldine Tallon

It might be useful to ask Mr. Gerry Galvin, my principal adviser, to comment on the technical matters.

Chairman

It was Ms Tallon who made the statement about helping Uniform Construction across the line. I ask her to comment on the arbitrator's statement that an analysis was carried out but not passed on to Uniform Construction, and his description of that conduct as bordering on the reckless.

Ms Geraldine Tallon

We were involved at every stage and we were prepared. Before the contract was terminated, the offer was made to engage a specialist subcontracting tunnelling expert to assist with the work but that was not accepted by the contractor. Every effort was made.

Chairman

The arbitrator also commented on that point. He said the engineer used Irish Drilling Limited to perform tests. In paragraph 271, subparagraph 44 of his report it states: "Thus it was confirmed that the drilling by Irish Drilling Limited was not intended to assist in the construction of the works but to support a defence to a probable claim". What was the relationship there?

Mr. Gerry Galvin

I will deal with those two points. Earlier in the same paragraph in which the arbitrator used the term "bordering on the reckless" he questioned the veracity of the report, which had been withheld by the engineer on the grounds that its assumptions on the location and soundness of the abutments of Sarsfield Bridge were never verified. That report supported Limerick City Council in the position taken by its engineer. The tunnelling in the vicinity of the bridge would not affect or be affected by the abutments of that bridge. The report was not going to further inform Uniform Construction's position on tunnelling past that bridge.

The second point was on the Irish Drilling investigation. That additional drilling took place in late February and early March 2001 when Uniform Construction had run into the first problems with the tunnelling and made claims that the ground conditions were not as stated in the site investigation report. It is quite normal in such contracts for an engineer to seek to prove or disprove what the contractor claims in regard to ground conditions. In this case, Uniform Construction had claimed there were voids in the ground causing the problems with the tunnelling. The drilling carried out by Irish Drilling was to establish whether such voids existed and in the event it showed they did not.

Deputy Seán Fleming

In the final paragraph of her opening statement, Ms Tallon said her Department had issued instructions to local authorities requiring them to avail of the conciliation option in advance of any decision to terminate a contract. Given the fact that, in this situation the council went to conciliation, the new instruction may not achieve anything in reality. I expect Ms Tallon will tell me how much has actually been paid out and how much is still to be paid out but it is important to look at the lessons which have been learned. She says one of those lessons is the need to tell councils they must avail of conciliation before terminating a contract. Given that we have experience of councils not accepting conciliation, it will not necessarily change anything except the sequence of events. The same people in the same situation would still terminate the contract because they would reject the outcome of the conciliation. That is not a strong enough change in approach to avoid a repeat of the situation.

How many contracts worth over €1 million are currently in conciliation or arbitration? Are any in the High Court? If this was a once-off event then it is in the past. However, I am worried that many contracts are in the process of conciliation or arbitration and may yet end up in the High Court, and that a Secretary General will tell us in two years' time that the correct decision was taken, even if it cost the taxpayer €70 million. Does the Department know which contracts are in conciliation or arbitration? Ms Tallon must know about difficult contracts that have been entered into.

Ms Geraldine Tallon

I do not have those figures.

Deputy Seán Fleming

Are they obtainable?

Ms Geraldine Tallon

I cannot give a detailed breakdown at this point but the figures are obtainable for contracts in which public funding is used. If they are part of our programme we can find the figures.

Deputy Seán Fleming

Another Deputy raised this issue at a different Oireachtas committee in respect of a roadworks project near Straffan. The contractor has nearly had to close because the process of arbitration has gone on so long and he has not been able to get other work. I hear of other cases and I would like to know the full extent of the problem. Perhaps Ms Tallon could supply that information to the committee.

I know I am being hard on the officials present but I would like to know what lessons have been learned for the future. This case is in the past but the future is more important and I would be grateful for reassurance in that regard because that is why we are meeting today.

Ms Geraldine Tallon

I thank the Deputy. The difference in the present approach lies in the fact that conciliation is now mandatory before a decision is taken to terminate. In this instance the conciliation was a post-termination event so there is a distinction between the two approaches.

Deputy Seán Fleming

Is the new requirement written into the contracts?

Ms Geraldine Tallon

It is optional in the new form of contract but the Department has told local authorities it is our policy in all cases. It brings an independent third party view to the equation at a very early stage, before termination takes place. The significant lessons learned are being applied now in the shape of the new contract, which rebalances the risk significantly between contractors and public authorities. A number of recommendations were made to the Department in the Considine report and all have been acted upon or are being acted upon by the Department. In hindsight, it is very clear that this was not a happy experience from any point of view but I am satisfied we exercised the best judgment we could at the time. I perfectly understand and sympathise with the concerns the Committee of Public Accounts has on behalf of the public. In terms of the expert assessments, nobody has come back and said to us that we should or could have acted differently in a live situation.

Chairman

After the arbitrator's findings and in light of the weight of evidence that the High Court would not overrule an arbitrator, surely that was the time to cut losses. Who, aside from the Attorney General, advised the Department to proceed to the High Court in light of hefty evidence that the High Court would not overrule an arbitrator? The High Court judge, Mr. Justice Clark, referred to a strong policy of the courts in favour of upholding arbitration awards.

Ms Geraldine Tallon

Yes.

Chairman

That knowledge was in the possession of the Attorney General and legal advisers yet the Department proceeded to the High Court, with catastrophic consequences. That is one position where a halt could have been called.

Deputy Thomas P. Broughan

I have a point about the powers of the committee. May we hold the Attorney General to be responsible with regard to advice? I have never been a Minister but my understanding of Government is that almost every action of our public service must go through the Attorney General's office. The Attorney General is ever-present in any kind of spending where contracts are involved. We have no comeback whatsoever.

Chairman

I am advised we cannot do so. His opinion is privileged.

Deputy Thomas P. Broughan

Representatives from the office appear in front of us.

Deputy Seán Fleming

Not with regard to legal advice.

Chairman

Would Ms Tallon answer the point I put to her? Would she agree that the Department could have called a halt to the process before entering the High Court in light of the weight of evidence that the High Court would not rule against the arbitrator?

Ms Geraldine Tallon

The arbitrator has a very large measure of discretion in finding of fact and the High Court determined that it would not intervene and there was no basis for intervention. We continued to take legal advice at all crucial stages.

Chairman

Has the Department ever considered questioning the legal advice? It is only advice.

Ms Geraldine Tallon

There was advice at a late stage. The Attorney General secured further independent senior counsel advice and made a determination utilising further independent advice to it as part of that process. The advice was that there was no basis for going back to court after the arbitrator's findings.

Chairman

There was a basis.

Ms Geraldine Tallon

I apologise. After his final award there was no basis for going back. The critical point I wish to revert to is that in the meantime, a second contractor had succeeded in carrying out the work without the level of difficulty, delay or anything else. None of that was admissible in evidence as part of the arbitration hearing because it all post-dated the termination.

Deputy Seán Fleming

I have two final questions. How long did it take to complete the work, compared to the original timescale? Is there anybody who can be sued for bad legal advice? There was a clatter of expert quantity surveyors, independent engineers and those on-site. The people who helped draft the contract documents may be made accountable if the documents were insufficient for the job, excluding the €800,000 we have agreed on. Is there anybody the taxpayer can pursue on professional indemnity grounds?

The Department indicated it operated on professional advice, such as technical, engineering and probably legal advice as well. There must be some claim. Has a claim been pursued or the possibility been exhausted of making claims against any or all of the professional advisers? Ms Tallon might give her opinion on how she arrived at her conclusions.

The cost of the legal and professional advice ended up at €17 million or twice the contract price. It is a great arrangement if the legal and professional advice at the end of the process ends up being twice the original contract price. Some of those people should be well covered for professional indemnity insurance. I would like a comment on that.

Ms Geraldine Tallon

The Deputy's first question related to the timing of completion of the replacement contract. That is set out in the Considine report. The start date of the replacement contract was April 2004 and it was completed by July 2005.

Deputy Seán Fleming

That was for the final two thirds of the contract.

Ms Geraldine Tallon

Yes.

Deputy Seán Fleming

So it took 15 months for the final two thirds of the contract. It is still longer than the original contract, which was for 18 months.

Ms Geraldine Tallon

Yes, but there had been very significant——

Deputy Seán Fleming

We understand there were difficulties.

Ms Geraldine Tallon

——delay and difficulty in terms of progress.

Deputy Seán Fleming

The professional advisers perhaps helped bail out the poor taxpayer.

Ms Geraldine Tallon

We have considered that at length and carefully. Limerick City Council commissioned an independent team at our request.

Deputy Seán Fleming

I hope they were from outside the jurisdiction. The Department can understand our concern

Ms Geraldine Tallon

I understand the Deputy's concern. Rather than saying they were friends——

Deputy Seán Fleming

Colleagues?

Ms Geraldine Tallon

It would probably be fairer to say they are competitors in the market.

Chairman

Are they from the same area?

Deputy Seán Fleming

What is the conclusion of that?

Ms Geraldine Tallon

They would be Dublin-based. We are advised there is no basis.

Deputy Seán Fleming

Has the Department ever succeeded in any contract, anywhere, against professional indemnity insurance for any adviser? The Department has hundreds of contracts, so it should cheer me and tell me it has been successful.

Mr. Gerry Galvin

The answer is "Yes".

Deputy Seán Fleming

Good.

Mr. Gerry Galvin

It is particularly so where structural failures have occurred due to design faults. In the water services area there has been approximately four cases to my knowledge, where in one case the professional adviser paid over a sum rather than let a claim go against his professional indemnity insurers.

Deputy Seán Fleming

I am happy to hear that.

Chairman

Are these lawyers still employed by Limerick?

Mr. Gerry Galvin

They would be in finishing out some of the remaining contracts.

Chairman

Do they have other contracts with public bodies?

Mr. Gerry Galvin

They have an overall appointment with regard to giving legal advice on the Limerick main drainage contracts. All of those are now in the final stages. Construction has been completed and they are in the final stages of resolving final accounts and the like.

Chairman

Would they have involvement in other contracts?

Mr. Gerry Galvin

Yes, they are one of the two leading firms of construction lawyers in this country.

Chairman

Has the Department of Finance any comments on the use of consultants, be they legal or engineering, who would have their judgments questioned?

Mr. Jimmy Doyle

My understanding is that if a project was contemplated and went out to tender, the company could apply for the tender. The criteria is set before the tender goes in and in law, they are entitled to apply for any tender. The propositions would have to be considered in light of the tender.

Chairman

Before I call Deputy Broughan, Ms Tallon did not answer Deputy Fleming's question on the final total cost.

Ms Geraldine Tallon

I apologise, I forgot to pick up on that question. Approximately €70 million has been paid out.

Deputy Seán Fleming

What is the balance?

Ms Geraldine Tallon

The balance is approximately €5 million of legal or arbitration costs, which are before the Taxing Master, and approximately €7 million in respect of the final account on the replacement contract.

Deputy Seán Fleming

Will it be possible for Ms Tallon to send the committee a note when the accounts are finalised? I ask her to send us a final note on the matter.

Deputy Thomas P. Broughan

I notice that the Considine report which seems to be a thorough investigation of the mechanisms used to monitor the contract and the disaster that occurred with the sub-contract was presented to the Minister for the Environment, Heritage and Local Government, Deputy Gormley. As the amount of money involved was over €5 million, were all 20 contracts in the Limerick scheme signed off by the then Minister, Deputy Noel Dempsey?

Ms Geraldine Tallon

Yes, at the cost identified by the Deputy, the award of a contract would be signed off by the Minister.

Deputy Thomas P. Broughan

It was over a given size and required ministerial consent.

Contract 3.6 was also carried out by Uniform. It seems it went over budget on the contract that was a predecessor of the contract that has turned out to be a total disaster. Did its performance on the earlier contract which went all right, even though it had gone over budget, not indicate something? I accept it was a totally different contract but the company has certain engineering skills. Did the Department not have a template that would have allowed it to make a phenomenal example of the company? It seems the goal was to encourage the others by making an example of Uniform. The net result is that the State has lost €84 million. Ms Tallon says she did not have the benefit of hindsight but, with regard to this company, she did. It had carried out a contract successfully; therefore, when it was apparent to the Department that it could get the company off site for a more reasonable sum, should it have taken the offer?

Ms Geraldine Tallon

The two contracts were different. As the Deputy said, Uniform performed on contract 3.6. It had the lowest tender for contract 4.2 and there was no basis to do anything other than award it the contract. The difficulty was that it required more specialised work in the level of tunnelling involved and technical difficulties began to emerge quickly. Every effort was made to maintain the contract in place and provide assistance and support to get the job over the line. When one reaches a point where 80% of the contract time has elapsed with less than 35% of the work done, this begs questions of our stewardship of public contracts.

Deputy Thomas P. Broughan

One could refer to the earlier contract and say the company got the job done and had a reasonable track record, if not the best.

Ms Geraldine Tallon

As I said, there were over 800 detailed contacts maintained and logged with the company. The public authorities were caught in a difficult situation where, on the one hand, they were trying hard to maintain the contract while, on the other, faced major complaints from the public relating to noise, dirt, delays, disruption and so on in the city centre. Not only must an authority respond to the disruption and dislocation associated with such a major job in a city centre site, it must also be cognisant of its responsibility to ensure the prudent, effective management of public contracts generally.

This was a major scheme that consisted of 20 contracts. If one allows one contract to slip to that extent and seeks to arrive at a settlement, the settlement may be substantially higher than the contract price.

Deputy Thomas P. Broughan

The bottom line from the committee's point of view is that the bill is €80 million higher than expected. It was to cost under €190 million but the figure is now approaching €300 million. This is an extraordinary outturn. In engineering terms, it was a large contract but the overrun is still huge.

The Considine recommendations and conclusions seem good from the point of view of us protecting our constituents. From now on this type of contract will be restrictive; there is no way it could be otherwise.

The Considine report recommends that a minimum standard of risk assessment be specified for local authorities, including a worked example which should provide for the identification of each significant risk factor and where both principal and quantum are uncertain, assign values to the risk factor. This is a classic cost-benefit analysis in accountancy. Does the Department have a worked example? My local authority in Dublin city has recently produced a corporate risk management strategy which the city council has discussed. It was interesting that two major areas of risk were identified — water supplies and drainage and housing. They are the highest on the list, even higher than traffic. Has Ms Tallon read the recommendations and are they being implemented? In this case is there a worked example?

Ms Geraldine Tallon

The worked example is not yet available. We have been concerned by the recommendations, the majority of which have been acted on. They are covered by the new form of contract or a circular letter issued by the Department as a follow-up to the Considine report.

Deputy Thomas P. Broughan

Recommendation No. 4 has not been implemented.

Ms Geraldine Tallon

We are in the process of developing the brief to have the work done.

Deputy Thomas P. Broughan

Is the Department seeking a final account report on significant contracts?

Ms Geraldine Tallon

Absolutely.

Deputy Thomas P. Broughan

Willl it include all the risk accounting issues?

Ms Geraldine Tallon

Yes. We routinely receive final accounts on all our projects. Sometimes we are accused of considerable delay because of the rigorous assessment we conduct at that stage.

Deputy Thomas P. Broughan

Is Ms Tallon confident that in the two areas of resources there is engineering inspection expertise in her Department? The Considine report makes interesting points on the Department's accountancy and economic expertise. Does it have the necessary engineering expertise? Do the local authorities also have it? We have heard local authorities complain that in various disciplines such as major engineering works and traffic management they do not have in-house expertise and must outsource everything. This suggests a small amount of expenditure could have prevented the disaster in the Limerick drainage case. Does the Department which is to be relocated to Wexford and the likes of Limerick City Council, Limerick County Council and Fingal County Council have the expertise necessary to invigilate the expenditure of €300 million of our constituents' taxes?

Ms Geraldine Tallon

First, I am very satisfied with the expertise available in my Department. I think the Considine report vindicates this view. Not only is there a suitable number of staff, but there is an accumulation of experience covering civil engineering, contract management, conciliation and arbitration. I am very satisfied that the Department is appropriately resourced in this regard.

Local authorities have a long tradition of managing civil engineering works in which they are well-practised. In terms of housing construction, water services, waste water services, I am satisfied that there is a very good system in place at local government level. That is not to say that I am in any sense complacent about it. Local authorities routinely acquire and utilise significant levels of consultancy expertise and input, particularly when a specialist point of view is required. As in the case of roads with the Department of Transport, within the water services area we have provided much stronger project management structures, project design teams and project offices, to ensure that there is a good support structure available to the local government system to carry out very significant capital investment on behalf of the State.

Deputy Thomas P. Broughan

When will the Department have in place all the recommendations in respect of contracts, resources and risk assessment? I was on the Public Accounts Committee ten or 12 years ago when we had a number of similar disasters involving much lower sums of money. When might we know that the findings on this and other documentation prepared for us by the Auditor General and Comptroller might be in place as a safety net?

Ms Geraldine Tallon

All but one of the recommendations of the Considine report are in place now. The remaining one relates to the work examples concerning risk assessment. We are putting that in hand now and will devote time and effort to getting it right. I expect to have that in place this year.

Deputy Seán Fleming

We all meet engineers in the course of our work who make the other point, namely, that because there is a transfer of risk to the contractor the taxpayer pays a premium for that same transfer. Some local authorities and engineers are very good at managing risk under the old format. Now they are told they must, as standard procedure, add a premium to the contract to cover the risk they know not to be there. Has a cost benefit analysis been undertaken? How might this be done in order to have a conclusive answer on whether it is a worthwhile exercise to transfer the risk? The one thing we know about transferring risk is that we are paying for it. We know the cost. Do we know what we are getting in return? We get certainty. Engineers tell me that is what we get but they say it comes at a dearer price. What can Ms Tallon tell us about what is being done about this?

Perhaps it is a question for the Department of Finance as well. The transfer of risk in roads, hospitals, health, schools, involves more than the Department of the Environment, Heritage and Local Government. Perhaps the Secretary General of the Department of Finance might talk to the committee about assessments done on value for money in risk transfer and whether the Department has found how much money is being saved across the different types of contracts available in the public service.

Ms Geraldine Tallon

Ultimately this is a policy decision of Government in terms of conditions of contract provided——

Deputy Seán Fleming

It must be based on some information.

Ms Geraldine Tallon

It is based on information that includes detailed work by the Government contracts committee, on which we are represented and through which the experience regarding Limerick, unhappy as it was, was reflected and transmitted. The Deputy is correct in what he says has been reported to him. The major advantage of the new system is greater price certainty in terms of outturn costs. I add to that what I said to Deputy Broughan. We have made our project management systems as rigorous as we can to try to ensure that, while a price is being paid for certainty of outturn, we do everything possible to manage this so as to contain it to the best extent possible.

Deputy Seán Fleming

It is a topic this committee might return to in a broader context.

Chairman

I ask Mr. Purcell to make any final comments he may have. Does he believe that this was an unavoidable debacle that was nobody's fault? Could it happen again? What conclusions does he draw from this experience?

Deputy Thomas P. Broughan

Should any heads roll?

Mr. John Purcell

I have some familiarity with the west of Ireland expression "ask me an easy one". I will take Deputy Fleming's last point first about re-measurement. I would imagine that some of our reports were instrumental in prompting a review of the traditional form of contract. That was on the basis of some work we did on the roads programme but also work done on water supply and sewerage contracts. It was not unusual that the final outturn over contract price was about 30% or 40% — I cannot remember the exact figure — in excess of the tendered price. That was down to the traditional form of contract used in those works, the re-measurement. It did not seem to us that that was the best way of doing things.

I accept totally what the Deputy said. There is a view, not only among engineers, but also among some administrators, that perhaps we are paying more for the same product. I believe that the State had to get away from the position whereby, on building projects, apart from re-measurement, it was seen as a soft touch for extras and variations and so on.

Deputy Broughan mentioned a period 12 years ago. I was around then as comptroller and was probably bringing examples of some of those type of events to the attention of the committee. I believe it was right to do so but over a period a study should be done to examine whether better value for money is really delivered. There are other options, such as entering partnerships and so on. We took our lead and perhaps the Government did likewise when it looked at the kind of certainty that was achieved in the private sector. An insight into that was acquired through some of the work in the public private partnerships.

I differ a little from the Accounting Officer's view while I go along with much of what she said. I have the advantage of hindsight and I believe I have enough experience over the years to discount or put a value on hindsight. Some things might have been done and perhaps should have been. In the audit query to the Accounting Officer, I asked why the Attorney General's office had not been consulted earlier. She gave an explanation as to why that office was not brought in beforehand. Part of the weakness of the approach was that independent third party views were not provided at different stages.

We can look at risk assessments, as raised in some detail by Deputy Broughan. The first of those was fairly rudimentary. I know risk assessment and risk management were not the flavour of the month in 2003 but they have developed in recent years. The second risk assessment was a little better than the first. The third got down to talking turkey and the fourth was also quite good. The flaw was that they were carried out, not by a third party, but by people who had a vested interest in justifying themselves. Otherwise they would be saying that the advice given early on, at conciliation, at the interim arbitration award, and all of these stages, had not perhaps been quite so good. While I appreciate what the Accounting Officer has said about the Department's independent function and the quality of the staff in the Department, if one is involved to the extent that the people concerned have been — that is, every step of the way, including on the steering group and in the overall design of the scheme — no matter how independent one thinks one is, one is captured. That is a fact of life. These are the two issues that should have been addressed differently.

In looking for hard-nosed advice in this area the Department of the Environment, Heritage and Local Government had by that stage access to the State Claims Agency which was set up to capture in one agency a hard-nosed business attitude to settling such claims. I do not see any reference to it, although perhaps it was not within its remit at the time. These are the issues that should have been addressed differently.

It is important, as all the members have said, that the lessons are learned for the future. There have been changes. I do not think in the present circumstances with the new contract arrangements, the facility to seek conciliation before terminating a contract and the development of risk assessment by an independent third party that a situation such as this would arise. It is not possible to eliminate completely such a risk, but there is a better chance that it would not arise.

Chairman

That is a fair assessment. I thank everybody for the time given and especially the members for their preparation for the issues discussed. It was work carried out well.

Is it agreed that chapter 6.1 — contract termination costs be disposed of? Agreed.

The agenda for our meeting on Thursday, 8 May is as follows: 2006 Annual Report of the Comptroller and Auditor General and Appropriation Accounts, chapter 3.10 — aspects of rental taxation (resumed), and the accounts of the Private Residential Tenancies Board.

The witnesses withdrew.

The committee adjourned at 2.35 p.m. until 10 a.m. on Thursday, 8 May 2008.