The NDFA was established on 1 January 2003 in accordance with the National Development Finance Agency Act 2002. Its primary function under that Act is to provide a financial advisory service to State authorities in respect of capital projects over a certain size, €30 million, under guidelines issued by the Minister for Finance.
The NDFA (Amendment) Act 2007 significantly expanded the role of the agency to include the procurement of certain public capital projects by way of public private partnerships. This consolidated the agency's new procurement role, which began in 2005, in the education, justice and health areas. With the passing of the 2007 Act the NDFA's procurement remit was extended to include a wider range of State authorities. For example in early 2007 the NDFA commenced pre-procurement work on behalf of the Department of Arts, Sport and Tourism for the National Concert Hall and Abbey Theatre. We are also engaged in pre-procurement work for the decentralised headquarters of the Department of Social and Family Affairs in Drogheda. The areas excluded from our procurement remit are transport projects which are already provided for in the mandate of the National Roads Authority, NRA, and the Railway Procurement Agency, RPA, as well as certain local authority PPPs. However, all these projects continue to be subject to the NDFA financial advisory remit.
One rationale for the decision to assign these functions to the NDFA was the need to have a central and enduring professional expertise available to State authorities to analyse all financial aspects of infrastructure projects and, in a significant number, to act as procurement agent. Another reason was the recognition that a rapid growth in Government capital projects would have to be matched by a developed institutional expertise. A third rationale was the fact that the NTMA was already managing a number of significant financial businesses on behalf of the State. The procurement function complements the financial advisory functions already established within the NDFA and is governed by guidelines issued by the Minister for Finance.
In view of the new procurement responsibilities assigned to the NDFA, a technical project management group has been established in the agency. This group, comprising 15 project managers with a good deal of experience between them, recruited from the private sector is leading the delivery of projects once these are specified and handed over by the relevant State authority. The total head count in the NDFA is now 36. To date, 121 projects have been referred to the NDFA for financial advice. The NDFA has now completed its formal advice on 38 projects, of which 21 were PPPs and 17 were traditional. The NDFA is currently working on 57 active projects in conjunction with the sponsoring Departments or agencies.
I will say a few words about the public sector benchmark and value for money test. PPPs have been in the news recently and it may be worthwhile to emphasise that the approach to these projects is both rigorous and fair. The preparation of the public sector benchmark, PSB, is the key step in the appraisal of a PPP project. It fully estimates the cost of those elements of the project for which the PPP company is to bid. It is based on the lifetime cost of procuring those same elements by means of traditional procurement, including risks. The cost estimates are the responsibility of the State authority concerned. The PSB does not include any costs borne directly by the authority irrespective of the procurement method used and therefore not part of the PPP contract. In this way, the PSB serves as a direct, like with Iike comparator for the PPP bids and, at evaluation stage, forms the basis for the value for money assessment of the highest ranking bid, which is crucial.
In the case of projects to be procured by the NDFA on behalf of the State authority, the PSB remains the responsibility of that authority. It will be compiled by the NDFA, with input from the authority, and agreed by the authority before going to the market. The achievement of a value for money outcome in the use of public funds is the overarching consideration in the procurement of each public investment project. In the procurement of a PPP project there are key stages at which value for money is formally tested and the Minister for Finance has issued guidelines outlining how and when to carry out these formal tests.
The first and second tests are conducted by the State authority prior to going to market and help it to determine whether a PPP has the potential to give value for money against the alternative of procuring it by traditional means. These two tests are to varying degrees qualitative as there is no market test, such as would be reflected in bid prices, available at that point.
The third test is conducted after receipt and evaluation of the bids and is a quantitative measure relying on a highly formalised process. The purpose of the third test is to compare the highest ranking bid with the public sector benchmark to assess quantitatively whether that bid offers a potential value for money solution. If the bid equals or beats the public sector benchmark, it is deemed to offer value for money. A key principle is that the figures used in both the public sector benchmark and the PPP models must be comparable. In other words, we are comparing like with like.
If the highest ranking PPP bid equals or beats the PSB, the contract is awarded to the PPP company, provided always that the capital cost is consistent with the capital envelope allocation available to the authority. If the highest ranking bid fails to equal or to beat the public sector benchmark, the general principle laid down in guidelines by the Minister for Finance is that the matter should be referred by the authority to the appropriate Minister or to the Government.
I will move to developments on projects since the issuance of the 2006 report, dealing first with education. This amounted to a PPP programme of 27 schools costing €320 million. The first schools bundle involves the replacement of six existing schools, with four new schools located on three sites, two in Portlaoise and one in each of Ferbane and Banagher, County Offaly. These schools will provide 2,700 pupil places. The project will be carried out as a design, build, finance and maintain contract with a concession period of 25 years.
Macquarie Partnerships for Ireland was appointed as preferred tenderer and detailed planning permission was sought on 16 April 2008. Subject to no delays, this was expected to be granted in July 2008 and a financial close target date of August 2008 was set. However, a request for additional information has been made by Offaly County Council in respect of the Ferbane school, which will delay matters for an expected six weeks.
The second bundle consists of six schools on five sites in counties Cork, Limerick, Kildare, Wicklow and Meath. These six schools are to provide accommodation for approximately 4,700 students. The project was handed over to the NDFA for procurement in May 2008 by the Department of Education and Science. A contract notice was published in the Official Journal of the European Union on 20 May 2008. Expressions of interest are due on 27 June and following an evaluation of the expressions of interest, a shortlist of three tenderers will be invited to tender for the project in August 2008.
With regard to third level institutions, the Minister for Education and Science announced the bundling selection for this 17-institute programme on 15 January 2008. It is anticipated the first bundle will be advertised to the market during the third quarter of this year, with the second bundle to follow within six months. Pre-procurement work is under way and output specifications, risk assessment and enabling works and design are currently being progressed.
In the arts area, the first project is the National Concert Hall. The project has now been handed over to the NDFA for procurement. This will involve regeneration of the National Concert Hall, consisting of the building of extra facilities in the hall. The NDFA will be responsible for all aspects of the PPP procurement, including the construction period, up to the point of delivery of the new National Concert Hall. A contract notice was published in the Official Journal of the European Union on 29 May and two days ago we had a market launch day in the National Concert Hall, which was extremely well attended by people interested in bidding for this work.
With regard to the Abbey Theatre, the Office of Public Works is progressing arrangements for the international design competition. On successful completion of this competition, the standard pre-procurement work will advance, including the output specification and risk workshops. The public sector benchmark will be finalised and on completion, and assuming all policy matters are addressed, the project will be handed over to the NDFA for procurement.
The NDFA is financial adviser to the following transport projects.On metro north, the NDFA assisted the Railway Procurement Agency in reviewing the public sector benchmark which has been presented to and approved by the RPA board. The tender documents for the infrastructure contract, the rolling stock and the operation contract have issued to the four shortlisted consortia in May 2008.
Metro west will run initially as a light railway with the ability to be upgraded if required and it will run on the ground surface. In July 2007 the RPA selected the preferred route corridor for metro west, which will link Tallaght, Clondalkin and Blanchardstown and will provide a fast commuter service to the airport and the city centre via metro north.
The social and affordable housing regeneration projects are procured by Dublin City Council under the sanctioning authority of the Department of the Environment, Heritage and Local Government. The committee will be aware there has been controversy about some of these housing PPP projects which are stalled at present. These projects differ as follows from what can be described as "mainline" PPP programmes.
The housing PPP projects are essentially land swap deals. In general, in return for Dublin City Council providing a site, the successful bidder must deliver a specific number of social and affordable housing units and community facilities before it can build and sell the private housing and retail units. It is the profit from the private aspects of the development that pays for the social elements. The commercial viability of these transactions is based on the potential revenues from the sale of the private units.
In contrast, the non-housing PPPs are generally based on monthly payments made from the Exchequer to the PPP company, subject to the facilities being available to a set standard for 25 years. The commercial success of the transaction is a function of the PPP company ensuring that it meets the availability standards so as to receive all monthly payments. This is fundamentally different from the housing model, which is requiring the private sector to take the market risk for the sale of the private units.
The NDFA's role as financial adviser is to focus on the value for money test and does not engage in policy matters. The determination of whether to use a PPP or other type of procurement structure on a housing regeneration is not within the NDFA remit.
The phase of the decentralisation project covering areas in Carlow, Mullingar and Portlaoise is being procured by the OPW, with NDFA acting as financial adviser. Macquarie Partnerships for Ireland was appointed as preferred tenderer in January 2008. Planning for all three sites was submitted in April 2008 and is expected to be granted in July 2008, subject to no planning questions or delays. A planning notification was granted for the Portlaoise site on 3 June. The target date for financial close is August or September 2008, post the receipt of planning permission.
Thornton Hall prison involves the development of a new prison complex on the Thornton Hall site in north Dublin for the replacement of Mountjoy Prison. The Irish Prison Service is procuring this project, with NDFA as assigned project manager post-contract. The design development stage is being finalised by the preferred tenderer, Leargas Group. Funder due diligence is to commence afterwards. The planning resolution and environmental impact assessment are currently going through the Oireachtas. Financial close, which is anticipated to occur in the third quarter of 2008, will be dependent on the date on which planning permission is granted in accordance with the Prisons Act 2007.