I ask the Comptroller and Auditor General to introduce this part of his annual report. The full text of chapter 21 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.
Chapter 21 — Primary School Planning
Mr. John Buckley
Vote 26 records expenditure of €9.3 billion in 2008. Some €3 billion was spent on the running costs at first level, a further €3 billion at second level and €1.8 billion was spent on third level and further education. A total of €828 million was expended on capital works, including €30 million on meeting annual public private partnership, PPP, costs.
Chapter 4 deals with commitments under public private partnerships. The Department of Education and Skills has been a pioneer in the use of PPPs as a mechanism for procuring schools and third level education buildings. Its first contract for a bundle of second level schools was signed in November 2001 and the five schools concerned commenced operation in January 2003. A new maritime college was provided under a PPP contract in 2004 and the Cork School of Music commenced operation in its new premises in 2007. Further recourse to this procurement mechanism is either in train or planned.
Under each of the projects completed to date, the private sector partners contracted to design, finance and construct the required buildings and to maintain and run them for terms of 25 years. In return, the Department is committed to making annual payments to cover capital and running costs. In 2008, the payments by the Department for the three projects that are up and running totalled almost €30 million.
A key factor in the pricing of PPP deals is the cost of raising project finance. The recent volatility in financial markets has reduced the availability of project funding across the board. This may result in relatively higher costs of private finance, which could undermine the economic justification for the projects. The National Development Finance Agency, NDFA, has in recent times sought to address the inability of banks to hold committed funding terms for the period necessary to evaluate partnership proposals. The solution proposed is the separation of funding from the initial proposal and the subsequent holding of a preferred tenderer funding competition. The outcome will be reviewed in future audits carried out by my office.
In the past, public expenditure constraints tended to result in poor quality construction and inadequate maintenance of educational buildings, leading to very poor returns on what should have been long-term social investments. Due to the fact that a long-term commitment to maintenance is built into PPP projects, it is to be expected that outcomes of this kind will be avoided in cases acquired under PPP arrangements in future.
In addition, a PPP element in the school procurement programme offers the opportunity to identify innovations in design or management efficiencies which are capable of adoption in traditional delivery. This makes it important to review the contribution of public private partnership arrangements after a period of operation.
Chapter 21 of the annual report deals with the capacity of the Department to assemble and use information relevant to the planning of primary school accommodation. The Accounting Officer has outlined the general changes the Department is making to its IT systems in order to have a unified data model to facilitate the ready retrieval of information. In the school planning area, the audit found that there is still scope for linking demand information with information on existing school facilities. Information on emerging demand is generated by a geographical information system adopted in 2008. This has improved early identification of deficits in provision.
In regard to information on the capacity and condition of existing school accommodation, a pilot survey was carried out in one county and this cost just over €1 million. Among its findings was that the greatest need, at least in the county surveyed, Kildare — which is a rapidly growing county in the Dublin hinterland — related to space rather than condition. The software on which the results were recorded could not be accessed on audit due to licensing problems. The Department has since begun moving on to address the accommodation inventory through on-line reporting by schools. This approach should equip the Department with sufficient information for ongoing monitoring. However, in instances where validated information is desirable, particularly in those areas of emerging need identified through the use of the geographical information system, the Department may need to conduct an in-depth targeted survey in order to obtain a comprehensive view of both needs and resources in these areas.
I wish to point out that an opportunity has arisen to share the data from the geographical information system with the Office of the Minister for Children and Youth Affairs in connection with the provision of preschool facilities, including the early childhood care and education scheme.
I thank Mr. Buckley and call on Ms McManus to make her opening statement.
Ms Brigid McManus
I thank the Chairman. I did not introduce the officials from the Department's building unit at the start of the meeting. They are Mr. Seán Ó Foghlú, Mr. Gavan O'Leary, Ms Maria Grogan, who deals with PPPs, and Mr. Tony Dalton. With me from the finance unit are Mr. Michael Keogh, Mr. Eamonn Moran and Ms Blaithín Dowling.
I thank the Chairman for the opportunity to make this introductory statement. I will focus on the position in respect of the two specific chapters being covered. The Comptroller and Auditor General's report shows that up to the end of 2008 the Department had agreed contracts in respect of three PPP projects. These were the pilot schools bundle, the maritime college and the Cork School of Music.
Since then, the Department has entered into two further contracts. The contract for schools bundle 1 was signed with Macquarie Partnership for Ireland in March 2009. This bundle comprises new post-primary schools for Banagher College-Coláiste na Síonna, Gallen community school, Ferbane, Scoil Chríost Rí, Portlaoise, and St. Mary's CBS, Portlaoise. The contract for schools bundle 2 was signed yesterday. Under this bundle, new accommodation will be provided for Bantry community college and Gaelscoil Bheanntraí, County Cork, Kildare town community school, Abbeyfeale community college, Athboy community school and Wicklow town community school. The gaelscoil in Bantry, which is on the same site as the community college, is the first primary school to be delivered via public private partnership. Members will recall from earlier discussions that, because of the scale involved, primary schools are only really done as part of larger campuses.
Chapter 21 concerns primary school planning and deals with the extent to which the Department has information and procedures which allow it to proactively plan for primary school provision. It also deals with the quality of its information on the condition of school accommodation and how development projects are prioritised.
As the Comptroller and Auditor General stated, a number of improvements have been introduced since 2008. We introduced a geographical information system, GIS, and utilised this technology to assist in planning school requirements in the future. The GIS contains information on all schools — primary and post-primary — in the country, geocoded to their locations. This information is then linked to the relevant demographic information for those areas; typically from Central Statistics Office, CSO, census data, the general register of births, the Department of Social Protection — mainly data relating to child benefit — An Post's geo-directory and information supplied by local authorities through their development plans. If members are interested in a demonstration of the system, we would be happy for one of our staff to provide one.
The system allows the Department to view, understand, question, interpret and visualise data in many ways that reveal relationships, patterns and trends in the form of maps, reports and charts. We have already used this information to identify the 42 locations throughout the country where significant demographic changes will occur in the coming years and to help plan for additional primary school places in those areas for the coming school year. On foot of what we discovered, seven new primary schools are being established this year.
The next stage in the process is to identify where additional primary places will be needed in these areas during the next five years and also to plan for post-primary education in these areas. We are also using the GIS in respect of work in other areas where levels of growth are not as high but where additional places will be required.
As the Comptroller and Auditor General stated, we are also involved in discussions such as with the Office of the Minister for Children and Youth Affairs with regard to the other kinds of use to which this information can be put. We have made some use of it in respect, for example, of our value for money initiative relating to school transport. It is a system which is also being used in other areas.
On the previous occasion on which I appeared before it, the committee was particularly interested in the inventory of accommodation and how we deal with this. As the Comptroller and Auditor General's report notes, we have begun to deal with that matter. We have two new stand-alone databases, one which deals with rented school accommodation and another which deals with purchases of temporary accommodation. The rental database holds information by school of the number and size of rented units, date of installation, annual rent and name of accommodation provider. The purchased database has information from the beginning of 2008 by school of the number and size of units for grant aid and then we add base information as it is drawn about date of installation to update them. As the committee will be aware, the number of new rental agreements is falling because on foot of the report done a few years ago, we now only purchase unless it is for a short time.
The new inventory of accommodation, both temporary and permanent, went live this week on the Department's Esinet portal to collect data from all schools. The committee was informed it would go live in November last year but, on foot of discussions with the education partners, they felt it would be better if it was piloted in a number of schools to tease out any problem. We concluded the pilot in February, made some changes following suggestions from different school users and it is now live. We envisage that we when have this information from schools it will then be integrated into the GIS from our Esinet portal in other that it can be used collectively.
In 2008 and 2009 the spend on the primary and post-primary sectors amounted to €1.17 billion. This expenditure facilitated the completion of 128 large scale projects — 75 new schools and 53 large scale extensions and refurbishments. In addition, we had a range of site acquisitions, permanent accommodation, small school schemes, the 2009 summer works scheme — there was no scheme in 2008 — minor works scheme and an energy efficiency scheme in 2009. Therefore, approximately 3,000 small scale projects were completed in that period.
Last year and this year we have achieved considerable improved value for money in terms of costs and the tender prices coming in given the current market conditions. Project progression depends on a combination of a number of factors — prioritisation according to the band rating applied to each project, available finance, urgency of the project, project readiness and rate of progress through planning. While I have referred in detail to some of the issues in the specific chapters, the Vote as a whole covers €9.3 billion gross and €9 billion net in current and capital expenditure, much of it on salary costs and providing a wide range of services at all levels — primary, post-primary, higher, further and adult education. I am happy to address questions across the range.
May we publish the statement?
Ms Brigid McManus
Yes.
I thank Ms McManus.
I welcome Ms McManus, her officials and the officials from the Department of Finance. I refer to Chapter 4 and the issue of PPPs. As the Comptroller and Auditor General mentioned, the Department was a pioneer in the field of PPPs and it has amassed considerable experience in the area, not least in Cork with the School of Music and the National Maritime College. What lessons have been learned within the Department from undertaking large scale capital projects such as these in the context of value for money and structuring projects going forward? It took some time to get the Cork School of Music up and running. There were issues at the beginning because of the complexity and scale of the project. Could Ms McManus crystallise for the committee the lessons that have been learned?
Ms Brigid McManus
There were probably two sets of lessons learned — one about the process of how we did it and one set about things that fed back into design and build and so on. With regard to the process, the pilot bundle of schools was done before we had rules as clear as we have now with the Department of Finance about how one calculates the public sector benchmark and decides when it is economic. For example, a criticism the previous Comptroller and Auditor General made in an earlier report on the first pilot school was that we did different schools and when we benchmarked them, it was not as easy. The process, therefore, of how we calculate the public sector benchmark and how we see we are having value for money has been tightened up in the light of that experience.
That would also have been issue with the Cork School of Music at the beginning in being clear about what one was prepared to pay and below which one was not prepared to go. It was not the only issue. That is one lesson the system and not just us learned. The more general rules that the Department of Finance applies were learned from these pilot projects.
The second issue specific to the design features was that, for example, the pilot bundles of schools had much wider circulation areas, corridors and so on, which were found to be hugely good for discipline and managing the school. Fitness suites in post-primary schools were found to have improved female participation, particularly, in sports. We found it was not good to include the ICT equipment in a PPP contract because of the short span of such equipment and it is not included in England.
We learned many things at the operational, administrative, management, contract level during the process relating to the way we did the contracts, assessments and so on in the first bundle and this facilitated bundle 2, which was the first group of projects under the newer rules and under the NDFA, to go through quicker in terms of how we handled certain issues. For example, we found in bundle 1 we added special needs provision at too late a point. However, even at the level of how the contract was handled, issues such as the usage of the hours were raised. After the schools were built, there was an issue about how we monitored the contracts and whether we were sure the contract terms were being delivered in terms of service, for example, if a window was broken and so on. New arrangements were put in place about helpdesks and getting the principals to verify that the service the company claimed to deliver was delivered. We had problems with that in the early years in the pilot bundle and a set of new arrangements is in place to make sure when we pay the current cost for the operational side, that the schools and institutions are happy. It was more an issue with the individual schools, which are smaller scale. Those were the lessons.
There is a vote in the House and, therefore, we must suspend the meeting.
Sitting suspended at 12.30 p.m. and resumed at 12.50 p.m.
I understand there were three separate models in terms of the financial commitment — the unitary payment, the concession-based model and an asset-based model. Is there now a preferred model or does it vary, depending on the nature of the particular PPP project? I also ask the Secretary General to clarify if at the end of the contracts, at the expiry of the contract, whether the ownership of the building reverts fully to the State and there is no further lien on it by the contractor and that this relationship terminates completely. The third question is about the figures on page 25 of Chapter 4, regarding the maritime college and the School of Music in Cork. The School of Music in particular, as I understand, cost in excess of €50 million to build. The figures on this sheet are saying that pre-2008 there was €11 million of expenditure and in 2008, it was €8 million. How can we relate this to the actual cost of constructing the facility?
Ms Brigid McManus
I can only speak for the type of model of the Department of Education and Skills. All the education ones are unitary payment-based. We have never used anything other than unitary payment. The concession ones are the toll roads where charges can be levied and this does not really apply in education where one is looking at public usage so the State is effectively paying, which means it is a unitary payment. All the contracts are for 25 years. The building has to be handed back as good as it was on day one. There was never ownership in the sense of the ownership of a site in that it is a type of licence. They build on it, they maintain the building, they operate it, they do everything else, but at the end of 25 years, it is back to the Department or to the institution in the case of somewhere like UCC, depending on the ownership of the site.
There is an annual unitary payment which is calculated in a certain way. The €11 million is unitary payments that were made before 2008. It started operating in 2007. The figure of €8.2 million is effectively the unitary payment for 2008 and the future commitment is in net present value calculation of what would be the unitary payments for the remainder of the 25 year contract. If I recall correctly — but we can get the figures after the meeting — the unitary payment is split and part of it reflects the capital cost and part of it reflects the operational cost. What would have been put into the books at the beginning against the capital cost actually reflects some of the unitary payment and some of the unitary payment is in respect of the maintained part which probably was not in the original capital cost. Ms Grogan might have some further figures.
Ms Maria Grogan
No, I do not have further figures, but Ms McManus is correct in what she says that what is highlighted there is the unitary payment in 2007 and 2008, and then for the remainder of the contract period of 25 years.
Is it correct that the net present value of what will be paid over the course of the contract is €199.6 million?
Ms Brigid McManus
Effectively if one takes it in today's money terms, those of 2008 or whatever period in which the Comptroller and Auditor General got it, the contractor would be expected to have got the €218 million figure. So he or she will have got that at the end of the time for building it, financing it and providing operational services.
Is that in today's value?
Ms Brigid McManus
In today's value. Obviously that assumes certain things about inflation and all the contracts have on the operational side. The capital piece of it is fixed right the way through, is it not? However, the operational piece has an ability to vary by CPI. In the unitary payment, there is a capital piece which reflects cost of finance and capital build and that is relatively fixed in cash terms over the period. The operational bit varies.
In that case was the capital outlay, the construction cost, between €50 million and €60 million?
Ms Maria Grogan
Yes.
Is there a figure for the net present value of the element of the unitary payment that relates to the capital side? For example, if it cost the company €50 million to build, how much will we pay in today's money terms for that capital portion of the unitary payment? Is it split?
Ms Maria Grogan
It is split. I do not have those figures.
Ms Brigid McManus
We can let the Deputy have them afterwards.
What else are we paying for? We are paying for the maintenance and the operating costs.
Ms Brigid McManus
We are paying for the operating costs and maintenance. Also effectively — which is where one of the risks comes — there has to be something in use. So, in other words if in a school — as I believe happened with one of our pilot schools, I cannot remember which — the boiler burst, blew up or something, the contractor has a responsibility to provide an alternative building. There is a piece about providing alternative use. The operational side is generally operations that relate to caretaking, cleaning, if one likes the building services as such. Things like the electricity and that are usually pass-through costs.
What does Ms McManus regard as the main benefit of PPPs? Is it that the State is avoiding the upfront capital outlay for construction of a project or is it that responsibility for the operation of it is devolved to the operator, the contractor, for a 25-year period? What is the real benefit?
Ms Brigid McManus
The benefit is probably twofold. I am not sure if my Department of Finance colleagues would be happy if I said avoiding the upfront cost was the thing. I expect that is an issue that arises for people, but on the capital side one gets by the system of tendering a better product, if I can call it that. So one went out to the market with, for example, the Cork School of Music, or with schools, stating what we wanted to achieve and asking them to come up with their best shot at achieving that. It is an opportunity for the private sector to come up with innovative ideas in the knowledge that it will have to support it for 25 years. One of the criticisms would have been that if one just went for a design build rather than operate, a builder would come up with something that has a beautiful design and looked lovely but was hard to work with. On the school side one would have found that the material used, for example, would be material that the contractors knew they would have to paint every two years or whatever. So there are probably benefits in design that one would hope to get and maybe some innovative ideas. Our building unit has been quite innovative in other areas — we have taken some of that stuff on board. That is one bit of it, getting it done upfront and getting the cost spread. The other piece is that there is an operational piece and risk that they are taking on. On the school side as the Comptroller and Auditor General said — it has varied across the schools and probably even in higher education institutions — it probably forces a degree of maintenance so that at the end of that 25 years by that combination of design and maintenance one would get a longer life out of it. That is something we are trying to learn the lessons from and address in our normal programme as well.
Has there been a full assessment of the value for money in comparing the cost for the State to borrow the money paying a level of interest over time and undertaking the project itself, even if it decided to put the design element out to tender to exploit the expertise in the private sector? Has the Department of Finance evaluated the option of the State undertaking it directly, comparing the cost of borrowing to the net present value of the repayments, looking at projects that have been completed in the construction sense?
Ms Brigid McManus
On our ones, before one signs off, there is a prior agreed public sector benchmark, which is what we calculate would be the cost. That involves forecast costs about operations and risk. Also on the pilot schools there was an agreement that at the end of five years of operation we should look at whether it represented value for money in so far as one can take an interim view of the value for money. We are doing that at the moment and we expect the outcome of that schools evaluation in the autumn of this year. That is a five-year-on evaluation. Ultimately looking at the full costs, one can probably only look back at it when the 25 years are finished. I do not know whether the Department of Finance has done anything else.
Mr. Brendan Ellison
No, there has not been a formal look-back review done yet. The pilot schools were reviewed by the Comptroller and Auditor General and at the time the former Comptroller and Auditor General indicated that it was difficult to know until the contract had run its course whether the State got value for money because it was such a long-term contract. It is something the Department of Finance is looking at in terms of whether there could be some mechanism to try to have a look-back review at some of the longer established ones, but that has not really happened yet.
Regarding the benefit of PPPs, I agree that the Secretary General mentioned most of the benefits there are. From our point of view, payments are linked to performance over the lifetime of the project. From a Department of Finance point of view, we like to see that one gets the full life cycle costs of the project. Rather than just the short-term costs of building it in the first place, one gets the whole life cycle costs. Construction times tend to be faster with PPP projects than with traditional projects because the contractors are incentivised to get them built quicker. It is in their interests to do so because they know how much they are going to get in advance. There is the innovation element and the private sector has a chance to bring its expertise and innovation to a project that maybe the public sector in a traditional type of contract would not be able to do. We can also allocate risks to the people who are best able to undertake the risks. So again the private sector can take on risks that it is in a better position to manage. In a situation where we are satisfied that that is how we get best value for money, that is what we do.
The public sector benchmark clearly is how we really test it. In looking at the full life cycle cost of a project the public sector benchmark is the test of what it would cost the Exchequer to do it ourselves over the life cycle. That is the figure that has to be beaten by the tenders when they come in. It is not looking backwards but looking forwards.
Has that been done in respect of any existing project?
Mr. Brendan Ellison
Every project has a public sector benchmark. The ultimate test before a contract would be signed would be that compared with the public sector benchmark of the cost of us doing it ourselves, the PPP option is value for money. If that does not match up there is a problem with the process and it needs to go back to a Minister for decision as to what we do on it.
Is there no look-back exercise as such?
Mr. Brendan Ellison
Not formally yet but it is something that we are conscious of and are looking at how we would go about it. I suppose they are still relatively new and there are so many years to go even on the oldest one that it is difficult to look back yet.
The last advantage — if one likes, it is the flip side of what the Deputy was saying about not having to pay for it upfront — is that PPPs allow us to start a number more projects than we would otherwise be able to do. We can make progress on many projects at a lower cost than would otherwise be the case. The down side is that we are paying for it over a longer period of time.
I take the point that it is an emerging issue. Best practice is still being developed. We are entering into new commitments on an ongoing basis, including the second bundle of contracts that was announced yesterday. The costs of the projects that have been completed, in the sense that they are built and operated, are known. The contracts have been finalised and put in place, and payments are being made. In light of the scale of projects like the maritime college and the School of Music, I suggest that a value for money review should be undertaken to determine if this is the most cost-effective option and to identify formally the lessons that can be applied to future PPPs. That is just a suggestion.
I would like to ask the departmental officials about a couple of related issues. How are schools selected for public private partnerships? It was announced yesterday that contracts for six such partnerships are to be signed. Many schools are on the waiting list for the school planning and building programme. What is the nature of the process that leads to some projects being selected as public private partnerships?
Ms Brigid McManus
I suppose there were two stages in the process. In the roll-out after the pilot scheme, we examined the projects — in schools or in higher education institutions — that were in the pipeline for the next number of years and might be suitable for PPPs. We found that they were new-build projects, by and large. We do some work on brownfield sites. There is international evidence that PPPs are not suitable for extension and refurbishment jobs. We are talking about new builds, ideally but not always on greenfield sites. That would have been a factor.
We also examined the scale of primary school projects, the possibility of bundling such projects and the degree to which risk and operational stuff could be transferred. We found that primary school projects were not very suitable for PPPs. We concentrated on projects in post-primary schools and higher education institutions. We came up with a package of projects that were suitable, in principle, for PPPs. It was then a question of how we could bundle them together and the timing in that regard.
The normal factor to be considered is where schools are needed. Some new schools are needed as a result of population increases and others are needed because of amalgamations. We ideally wanted to bundle them. We initially felt they should be as closely bundled as possible. We had to determine how many needed to be bundled to achieve a critical mass in an area. If the site and the planning permission are not sorted, the project will be held up. We started with some indicative bundles. Something might have needed to be dropped out or put in, depending on its readiness. One of them might have held up the whole bundle. It is a question of what can be in a bundle, in principle, and the timing of the different bundles. Perhaps Ms Grogan would like to mention some of the other criteria we took into account.
Ms Maria Grogan
As Ms McManus said, PPPs are more suitable for greenfield sites and brownfield sites. The schools we have built by means of PPP would have had a high priority under the Department's criteria anyway. We tend to consider the location of them. It is advisable to try to keep them grouped. In the case of the first bundle, we tried to keep two counties grouped together. Ireland is so small that the second and third bundles we are doing are much more spread. We have found that bidders in Ireland do not have a difficulty with that because this is such a small country.
What role is the National Development Finance Agency playing on the issue of securing finance for projects? What impact is the credit squeeze having on the ability of the private sector to come up with the funds to proceed with projects?
Ms Brigid McManus
Basically, we hand the project over to the National Development Finance Agency. We are responsible for the output specifications. The agency helps us with the benchmark work. It acts as an adviser to us. Technically, it is still on our side of the fence at that point. After we have signed off on the output specifications for the bundle, such as the public finance benchmark, the agency does everything else, including the marketing. That is probably a little simplistic, to be fair to Ms Grogan and our technical people. While it is legally the responsibility of the agency at that point, our people continue to engage in a huge amount of interaction on it.
In terms of the credit, it is fair to say there was an issue with the timing of the first bundle of schools. There was a delay on the availability of finance, but it was eventually sorted between the National Development Finance Agency and the financiers. It probably hit the system at the time of greatest difficulty. The second bundle of schools, which was concluded yesterday, involves a consortium comprising Bank of Ireland, NIBC, which is a Dutch commercial bank, and the European Investment Bank. The involvement of the European Investment Bank is not new. I think the National Development Finance Agency would have spoken to it about getting more involved. I think the bank was involved in the Cork School of Music project. It was certainly involved in one of the earlier ones.
There is quite a degree of interest among the banks in the bundle of third level projects that is currently out in the market. It is probably fair to say that the National Development Finance Agency has a sense that the financial aspect of it is not holding things up at the moment.
Ms Maria Grogan
When we sought tenders for the second bundle of schools, the National Development Finance Agency initially required bidders to hold their tender prices for a number of months. As the financial crisis developed, bidders came back to us and said they were not able to achieve that because no bank would give them terms over such a period of time. In order to try to address that, the agency divided the competition into two parts — the tendering at the outset and the financial deal with the preferred bidder at a later stage. That has worked successfully for the second bundle of schools. It is likely to be an element of other bundles for the foreseeable future, while the financial uncertainty remains. It works for us.
I would like to ask the officials from the Department of Finance a final question about PPPs. Do we know what the overall level of State commitment is? I refer to the total contract value of the PPPs in existence. In his 2008 report, the Comptroller and Auditor General stated that the relevant figure for the NRA alone was over €1 billion. The then Department of Education and Science had the maritime college, the School of Music and the schools bundle, which added up to almost €700 million. The figures given for the Criminal Courts of Justice and the national conference centre were €600 million and €725 million, respectively. Do we have an overall picture for the State's exposure or commitment to PPP contract values?
Mr. Brendan Ellison
Yes. I understand that the average annual cost of unitary payments under contracted PPPs, over the next 25 years, will be approximately €132 million. The annual figure ranges from a low of approximately €50 million as we approach 2040 to a high of approximately €225 million next year. The figures in question relate to contracted programmes. Many other projects are in the pipeline. If all of the projects that are in the pipeline proceed to approval, the annual unitary payment may increase to a peak of approximately €800 million. Issues of sustainability arise in the context of the impact that increase will have on the Government's ability to continue to do everything it does. The Department of Finance is examining that issue at the moment in the context of the review of capital expenditure and the work being undertaken on the new capital envelopes for the next five or six years. A report that looks at this whole area is with the Government at the moment. We hope decisions on how we will handle that issue will be made over the next while.
So the annual repayments and PPPs could peak at approximately €800 million per year. What is the overall figure for the MPV of the contract values that are in place? The amount for the Cork School of Music is €219 million, while that for the national conference centre is €725 million. Are our guests in a position to provide information on the net current value of the contracts that have been entered into?
Mr. Brendan Ellison
I do not have that information with me. The only figures in my possession relate to the unitary payments. However, I am sure we can obtain the information for the Deputy.
Mr. John Buckley
The figure is listed in Chapter 4.2 as being €4.27 billion at the end of 2008.
Okay.
Mr. John Buckley
That can probably be scaled in proportion to the unitary payments to which Mr. Ellison referred in order to obtain what the amount might be at its peak, going forward.
At present, the annual payments are approximately €132 million. That could peak at €800 million or six times the current level of annual repayment. Does this mean the MPV could be six times €4.27 billion and that the total contract value for PPPs could be in excess of €20 billion?
Mr. Brendan Ellison
The simple answer is that I do not know. Unitary payments are extremely complicated and there are many factors involved. I presume there must be some figures that make up all of this and we can prepare a note for the committee on it.
Before Deputy Fleming contributes, I wish to pose a number of questions. Last year, there was an underspend of €79 million on the school capital programme. At the announcement of the public private partnerships yesterday, the Tánaiste indicated that there has been a delay in this year's programme. Why is that the case at a time when there is massive unemployment in the construction industry? It was stated that planning issues and the weather had caused the delay to which I refer. I do not understand how a delay of this nature could occur when those in the construction industry are crying out for work.
Ms Brigid McManus
There is one set of issues relating to 2009 and another relating to 2010. Some of those issues are the same, while others are somewhat different. Last year, there were a number of factors. In the first instance, we based our assumptions regarding expenditure on certain rates of tender. We received tenders that were 30% lower than previously. We have a pipeline of projects coming through. Members may recall that in 2007 we were obliged to stop many projects going to tender. In 2008 — the year relating to the accounts under scrutiny — we spent a significant amount more than our original allocation because we probably had a bit too much coming through the pipeline. We adjusted the figure — a similar situation occurred in the period 2003-2004 — in order to try to manage the process. In 2009, we ended up with prices that were much reduced, which is a good thing. We are still getting such prices. Some tenders we are receiving this year are even more than 30% below those which obtained in the past.
When we realised we had a certain amount of underspend, all the tender documents relating to the projects we had stopped at tender at the end of 2007 had to be redone because a new public sector contract had been put in place. There was also the fact that architectural firms were obliged to become used to the new public sector contract procedures and technical people were not as familiar with them. However, there were changes in the architectural industry and firms were letting many people go. Those who had been dealing with the projects were often the staff who were let go by their companies. As a result, new people were becoming involved. There was a combination of factors in 2009.
In 2010, the weather was a particular issue in January and February. The Tánaiste signalled that we were monitoring matters closely because there has been a little bit of softening on some projects which would lead to concern on our part regarding the edges of some of the major projects. I do not believe she was suggesting that it was an underspend of the scale of that which obtained last year.
As already stated, the weather in January was particularly bad so there have been some delays on sites which have been more lengthy than usual. That is in terms of the spend we had in the first quarter which, while it was on profile, is probably a little bit lower than normal.
To cut it short, is Ms McManus confident that at the end of the year the entire €579 million will have been spent?
Ms Brigid McManus
We are on profile so far. We are monitoring it. There are areas in respect of which we would have some concern in that some of our major projects are somewhat slower than we would have expected at this stage. We cannot put new major projects out to tender because they will take five months to get on site. If I or the Tánaiste gave a new major project the go-ahead, the earliest those involved could be on site would be November. Nothing can be done on the major projects, particularly if some of them are spending——
Why is that the case?
Ms Brigid McManus
It takes three months to complete the tendering process. If a project is ready to go to tender, it takes three months for it to do so. Perhaps I will ask Mr. O'Leary to explain the process.
Mr. Gavan O’Leary
As the Secretary General stated, there are various stages in the tendering process. These stages take time to complete. In the context of managing the programme, it takes time to get projects to the point where bulldozers are on site. Due to the fact that we are obliged to operate in accordance with public procurement procedures, the new remedies directive and the tendering procedures laid down, there are certain time overheads involved. As a result of responses, the Alcatel period, etc., as the Secretary General stated, even if the Tánaiste was to allow a particular project to go to tender today, assuming all went well and there were no difficulties in securing bonds or anything of that nature, it would be the end of the year before the project was on site. The significant expenditure in respect of such a project would, therefore, be carried into next year. This is because of the nature of the process of construction. There is a lead-in period for projects of this size and that carries with it certain time overheads which must be carried and taken into account in the context of managing the process.
Ms Brigid McManus
If everything goes well and there are no delays — which is not the case with everything — the minimum period relating to the award of a contract via tender is five months.
In the context of this year, there are obviously other things which we could speed up. Apart from some of the delays to which reference has been made, there is also an issue in that some of the prices being quoted to us are even better this year. We have an issue in respect of the processing of some of our projects on the water conservation side. We had some industrial relations, IR, issues in this regard.
One of the things one would try to do is buy land because it is a good time to do so. Again, we are finding that we are getting land a bit cheaper than we might have hoped. However, the difficulty with accelerating purchases of land relates to the transfer of such land. In light of our system of accounts, it is only possible to charge the purchase of land against the Department's accounts when all the paperwork relating to the deal has gone through. One would always have a pipeline of things one would want to buy. It raises questions about which we must think and on which we are talking to the Minister. It is more the case that we are on the slightly softer side than that we are worried about saying some of the projects should be stopped. We do that every year; it is like a pipeline going through. That is why there is a carry-over of capital provision. We would have carried over the €79 million last year but I suppose that in the newer market conditions, and considering the time it is taking us to do certain tasks and the prices that are coming in, we need to think about how much we let into the system in order to make sure we spend money. In other words, we would make a whole set of assumptions about what an average project will cost, how many we can let go and how many will run into planning difficulties. Maybe we need to make a higher assumption that X% of projects will always be subject to a planning delay, for example, and build that into the numbers we allow into the pipeline. We did that before and we ended up with too much in the pipeline, so we just have to try to manage it better.
It does raise questions about the Department's capacity to react to different circumstances. It is a buyer's market at present. In such a market, one can obtain value for money. The system does not seem to be able to adjust or react sufficiently to benefit from it.
Ms Brigid McManus
Our capacity to react within a year to a particular issue in a multi-annual programme that takes a few years is probably related to how much money one has in subsequent years. If I believed I would have no problem with my money next year, of course I would be banging as much as I could out into next year's issue. In looking at it, one must be aware of the legitimate commitments one can make for the following year.
There was a little delay last year because the multi-annual commitments were not settled until quite late in the system. Bearing in mind that we had to pull some funding back in 2007, when in 2008 we ended up with too much in the system, it proved possible to find extra money for school building. I would be a foolish Secretary General if in the current climate I operated on the basis that that would be the situation. It does give rise to issues associated with our management and how we get our information. The problem is that if there are many smaller projects, or smallish projects — even our large projects are smallish — being done by people in a devolved capacity on sites, I would be concerned to improve our systems in respect of managing the pipeline. We are doing that already and considering a better IT system with a view to monitoring all our projects more closely than we have done.
We are trying to improve how we operate to avail of the capacity. In fairness, we have managed to put many more projects through for less money. Last year, there were particular problems and they probably left a bit of a legacy this year. I would be quite confident that the problems we will have this year will be of a very marginal scale. There is a multi-annual capital system that is designed to allow for those kinds of problem. That is why we have a multi-annual system. Last year we carried funding over into this year. I or the Minister would not be happy to do that. Knowing the demand on the ground, I would want to spend every halfpenny I had if I could. However, one of the reasons we have multi-annual systems for capital is because these kinds of thing can happen.
With regard to reducing professional costs associated with schools building programmes, has the Department proceeded far down the road of producing generic designs for buildings? Many times in my county I have seen one architectural firm designing a school at one site while another firm was designing a school of the same size and type at a site down the road. How successful has the Department been in using generic designs?
Ms Brigid McManus
It is fair to say that we use the generic repeat design for practically all our primary schools. If there is a greenfield site or a site that is not very peculiar and does not have a structure added to an existing building, we use the generic repeat design. Since the downturn, I have been beaten up everywhere I go by architects who say we could have many more landmark buildings by not using the generic repeat design and by giving the architects more work. It is fair to say the generic repeat design has been pretty successful at that level.
In the "rapid" areas, there is a modular variety, a modification of the generic repeat design. It is not really used for post-primary schools. There are standard specifications that reduce the architectural work.
Why in the RAPID areas?
Ms Brigid McManus
I refer to our "rapid" programme rather than the RAPID areas. We have a rapid programme for projects required where we discover, in spite of our GIS, that we need a school very quickly because of demographics. One may remember that we got caught out with Balbriggan a couple of years ago. I refer also to cases where the Department may get the land late for a particular project, in which case it must carry out a construction project very quickly. We have what we call a "rapid programme" whereby a project manager produces what is necessary. We use modular-type buildings in this case. I hate to describe the technical aspect; suffice it to say the buildings are built somewhere else and brought in. However, they are not prefabs, as such. As I understand it as a lay person, they are constructed like an industrial building.
Generic buildings do not really lend themselves to post-primary schools because every one has a different configuration. This is our approach not just because of reasons of cost but also because of the fact that there are so many voluntary bodies trying to manage school projects with professionals. This is a real issue for us in schools. It is not like one is working with the NRA or some such body. We have a lot of design guidance to try to limit costs and help schools to manage projects. We do a lot of briefing.
Under the older contracts, before we were tendering for contracts, the fees were related to the percentage, to the tender price. Effectively, there has been quite a reduction in fees because, if the tender price decreases by 30%, the fees decrease also for the professionals. Some of the professionals feel it reduces them to a pretty unsustainable level that causes them many problems.
I thank Ms McManus and her staff for attending. This has been a disjointed morning because of the votes in the Chamber.
I cannot let the first page of Ms McManus's opening statement pass without complimenting her on the first bundle of PPP-related secondary schools for Banagher and Ferbane. Also included are the new CBS and Presentation convent secondary schools on a shared campus in Portlaoise. They are scheduled to be handed over this summer and to be opened in September. This is outstanding and excellent. The sites were purchased in 2004. There is a six-year period from site acquisition to the opening of the school door.
A myth developed here that a PPP delivers a project more quickly than the traditional method. It is not the case and I have never seen it occur. While the building period might be reduced to 16 or 18 months, the tender process and financial resourcing are enormous, as is the role of the NDFA. I have seen some of the PPP toll concession projects taking longer from initiation to completion than those not done through PPPs. The entire process of tendering, bidding and designing is much longer. I am not aware of any PPP project that was completed quicker than a comparable one using the traditional method. It is a myth that PPP projects are quicker. I compliment the witnesses on the first bundle of schools, which I am sure are being completed to a very high standard.
I do not want to be parochial but must refer to correspondence Ms McManus sent to the committee yesterday on properties transferring under the terms of the indemnity agreement. I do not know if it has been circulated. I refer to the redress scheme whereby the religious institutions had agreed to transfer various properties and, in some cases, cash to the Government. For several years, the Department has been giving us a progress report on the properties. In November, the Department supplied a list of 32 properties that had been fully transferred and another 32 that were not yet finalised. I know they are taking years. The Department is giving us regular reports because the situation has been dragging on. Some issues of title arose in the case of the CBS site in Portlaoise, which was listed on the document. I understand the CBS made an offer of €2 million to the Department a number of years ago. It wrote a cheque and sent it to the Department a few years ago, but the Department sent it back saying it wanted the property. Officials from the Department have given us information at this morning's meeting to the effect that they have done a complete U-turn and have accepted the cheque of €2 million in lieu of the property in Portlaoise.
The property in question could have been very useful as a permanent gaelscoil site or as a site for various other schools in Portlaoise. It would have become vacant when the CBS moved out. It is a tragedy that it could not be resolved, probably because of some title issue. Ms McManus might explain why the Department changed its previous decision. Given that the Department sent the cheque back on a previous occasion, why is it accepting it now? If there was an issue with part of the folio, could the majority of the land — the six or seven acres it should have possible to get title on — not have been separated from the land in dispute and taken over? Ms McManus might explain that. It is not just a Portlaoise issue.
I do not know how many years we have been dealing with this topic. It goes back way before the last general election. I noted in the schedule we got that 28 properties in Appendix 1 are yet to be transferred. They are not fully or finally transferred at this stage. Many years must have passed since we started this process. Apart from the Portlaoise U-turn, why are the other 28 properties taking so long? Is anybody dealing with it? Does somebody look at it for an hour each month? What is causing the delay? Can we do anything to help the Department? Is the Land Registry or some other body causing the problem?
Ms Brigid McManus
I will deal with the case of Portlaoise first.
Yes.
Ms Brigid McManus
The Deputy is right. I do not know whether we have ever said it publicly. His information is right. We were given the cash but we said we wanted the property. We were insisting on the property. The indemnity agreement requires "good and marketable title". We could not get good and marketable title because of an issue on part of the site, which was in a specific trust. There was another issue. I will be honest and straightforward in saying that we changed our minds because the Office of the Chief State Solicitor, on foot of advice from senior counsel, advised us that we had no option other than to take the money. I want to be quite frank. If I am asked why, as Secretary General, I did it——
Was that because of title or because of the indemnity agreement?
Ms Brigid McManus
It was partly because of title. The main issue was the need for good and marketable title. Our contract under the indemnity agreement would also have been an issue. There is an obligation to contribute properties of a certain value, or provide cash if those properties do not have good and marketable title. The indemnity agreement requires full good and marketable title on each property. If they cannot give me property with good and marketable title, I am obliged to get money. They did not have a property with good and marketable title. Even if I was not prepared to take the money they wanted to give me, I had no way under the agreement of insisting on it. That is my understanding, as a non-lawyer.
I acknowledge the good work that has been done with the new schools. The Secretary General will understand that it is a source of disappointment in Portlaoise that the site they had been expecting has been lost, especially as the Department sent back a cheque on a previous occasion. Why, after five or six years, are the other 28——
Ms Brigid McManus
Yes, on the general issue——
If those title issues have not been resolved in the last five or six years to enable them to be handed over, how can we expect them to be resolved next year?
Ms Brigid McManus
This is probably a general issue. Property transfers are very slow anyway. We notice that even with our normal purchases. There is a particular issue with properties that are held by congregations and orders. We have found they can be held in all sorts of parts — in trusts, by the diocese or by orders — and without clear title. The Deputy may recall an issue that held up many properties for a while. They had to go to the Commissioners of Charitable Donations and Bequests.
Yes.
Ms Brigid McManus
It is probably fair to say there was a chunk of time when we were letting them go through with lawyers. We found it was slow. For the last couple of years, we have been dealing directly with the congregations any time there have been delays on the order. It is clear from each report that a certain number get through each time. It is painstaking. It is an issue. Could we have done some of it faster in the past? Maybe. In fairness, it is not as if people are looking at it just one day a week. It is a pretty painful process to transfer some of this property.
I will leave that topic. I would like to raise a few other specific issues. It is clear from the Secretary General's opening statement that there is a very technical way of identifying where schools will be needed, on the basis of population, etc. According to the opening statement, the Department has identified 42 locations in which additional primary school places will be required for the 2010-11 school year. If seven new primary schools have been established this year, a further 35 schools have yet to be provided.
Ms Brigid McManus
No. I probably confused the committee in that respect. If we look in a multi-annual context at places where we are forecasting significantly high population growth over the next number of years, we will see 42 such areas. We have to decide how to meet the needs associated with that population growth within those 42 areas.
I have been handed the list. I appreciate that.
Ms Brigid McManus
Grand. We also have to decide when the needs associated with that growth will arise. In other words, those areas would have been assessed. It would have been decided that additional levels of schooling had to be provided to increased numbers of pupils in those areas. Some of them can be accommodated in existing schools. It was decided that seven new schools were needed this year. I do not know whether we have finished work for 2011 yet. A certain number of extra schools will be needed in those areas in the 2011-12 and 2012-13 school years. We have identified that more schools will be needed in 42 areas over the next number of years — seven this year, a certain number next year and a certain number the year after.
Right. I also noted in the opening statement that the Department invested €1.17 billion in capital expenditure in 2008 and 2009 under the buildings programme. What percentage of that related to site acquisitions? Does Ms McManus have a figure for that? Would most of it have been for that? Has the Department been doing much site acquisition in the last two years?
Ms Brigid McManus
I can probably get the Deputy the figure.
That is fine.
Ms Brigid McManus
There is €60 million this year.
Is that for site acquisitions?
Ms Brigid McManus
In our budget for 2010, we are expecting to spend €60 million on site acquisition.
That is approximately 10% of the Department's budget.
Ms Brigid McManus
Yes.
It is approximately 10% of the capital expenditure budget.
Ms Brigid McManus
It may not have been. I am not sure if it was——
Somebody might be able to give me the figure for the last two years.
Ms Brigid McManus
I will see if I can get the Deputy that figure.
The last question I want to ask relates to whole school evaluations. I have seen very big reports in which people have given such evaluations great praise. I do not think they have ever been allowed to take account of the structure of a school building — whether the roof is falling in, for example. They are meant to look at teaching and whatever. When an official comes to evaluate a school, the local principal often asks him or her to look at the wreck but is told that such matters cannot be taken into account. I do not know how it counts as a whole school evaluation if a basic thing like that can be left out. I get the impression that the Department has eased off or pulled back on these evaluations. Is there an issue with them? How many of them were done in 2008 and 2009? How many of them are happening this year? Has there been a slight change of approach in relation to whole school evaluations?
Ms Brigid McManus
The Deputy is right to say that those undertaking whole school evaluations do not look at the buildings. It is fair to say they occasionally comment if they feel a building is impeding learning. I can think of a couple of rather strong comments on buildings used for Youthreach projects, for example. In such cases, whole school evaluations raised issues about buildings having an impact on teaching and learning. I can get the Deputy figures for the numbers of whole school evaluations. We have adjusted the model. The whole school evaluation system is continuing. We felt there was also a need for incidental inspections. Whole school evaluations are quite intensive on resources.
Yes.
Ms Brigid McManus
There are issues in terms of looking at schools. One might feel that a quicker look — to take a recce — might be useful. We have built in more incidental inspections as part of the system at primary level. We have been trialling a new model of whole school evaluation in post-primary schools in 2009-2010 which involves surveying parents using questionnaires. We would have always consulted a school's parents' council representatives but not conducted surveys. The intention is to have a measured system of evaluation where some schools would be identified for full evaluations while others would have shorter ones.
I am getting the impression a mammoth system was developed for inspections in the past several years but, from listening to Ms McManus now, we seem to be moving away from it. Was the system, as originally envisaged, overambitious and not sustainable? Are quick inspections more productive and do they reveal more information without too much disruption to a school's day? Should we just bite the bullet in this regard and go back to the way we were?
Ms Brigid McManus
No, I would not. The whole school evaluation has been successful. One has different tools in the tool kit; one needs a mix of tools for different jobs. Getting an assessment on how a school performs allows parents to see the totality of how the school works, which is important. It allows the school to affirm good practices but also take a recce on areas that need to be improved upon.
The process also involves a school improvement plan. In a well performing education system, one moves more towards a culture of self-evaluation. The whole school evaluation process is geared towards this. The issue is that it is a new process and we must look at the bits of the system that worked.
The Department always did subject inspections and probationary inspections at primary school level. The feeling was we had lost the incidental inspection piece. It was there at primary but never at post-primary level. Whole school evaluation gave us the benefit of building an amount of incidental inspection back into the system which was never there at secondary level. Whole school evaluation has been a terrific success.
I know the Department does not like league tables. Did the evaluations give a summary of the results achieved by schools in the leaving certificate subject by subject?
Ms Brigid McManus
No.
Examination results and the buildings are excluded from the evaluation. What is examined then?
Ms Brigid McManus
The inspectors have access to the results. They comment on them in their subject inspections for secondary schools and in standardised testing of literacy and numeracy levels in primary schools. One does not get a table that could be put into a league table format. Instead, it is a commentary on the teaching and outcome of, say, French being weak or strong. The results are available to the inspectors.
They are not available to the parents.
Ms Brigid McManus
The evaluation consists of watching a teacher in the classroom and examining results. It also generally examines issues such as school management leadership in teaching and learning, child protection policies, schools with good self-evaluation and subject planning and home-school liaison.
Information is gathered from a range of sources, not just on what the inspector sees. Inspectors get information from the parents' representatives and the student council. There is a subsequent fact-checking and oral hearing process for the school. It is highly labour intensive and puts responsibility on the school and school principal. There have been IR issues this year because of some union directives and staffing issues in the inspectorate.
In follow-on inspections, schools with particular difficulties produce improvement plans. We have scope to bring in our support services to help them in areas where they may need assistance. There is a school improvement working group in the Department that brings together our services which works with some of these schools. We were not doing this with schools ten years ago. I believe we should be doing more of that but what we are changing is the instruments.
In 2008, 245 whole school evaluations were carried out at primary level and 252 in 2009; at post-primary level there were 60 and 57 respectively. In stand-alone subject inspections, 444 were carried out in 2008 with 380 in 2009. Subject inspections included within the whole school evaluation came to 225 in 2008 and 180 in 2009. There were also programme inspections, incidental primary school inspections and 2,469 probationary inspections in 2009. I have a table outlining all the relevant figures which I will forward to the committee later.
What is the breakdown on spend in the building programme?
Ms Brigid McManus
The breakdown under subheads F1 and F2 is: 2008, €91.8 million out of €644 million, 14.3%; 2009, €49.3 million out of €525.97 million, 9.4%; 2010, an estimate of €60 million out of €578.8 million, 10.4%. We did have an issue at the time of high prices for sites which we wanted but for which we were not prepared to pay.
Was this mainly for secondary or for primary schools?
Mr. Gavan O’Leary
In 2008 it was very much 50:50.
The Department no longer rents prefabs but purchases them. It must be the largest purchaser in the country. Since 2008 have prefab prices gone down? Are the purchases carried out centrally or are there regional suppliers?
Ms Brigid McManus
The individual school actually puts out the tender for the prefabs.
Why is that the case?
Ms Brigid McManus
Usually schools are in a better position to negotiate locally. I refer to one of the issues we have asked KCR to examine for us. We have been considering such options as giving them better stuff in terms of contracts and reviewing the contracts. We have asked KCR, the firm at work on buying the prefabs, to examine whether there are other models we could consider for tendering for prefabs.
Does the Department give guideline prices, for example?
Ms Brigid McManus
Generally we do not, but we will query the prices if they appear high to us based on what we know.
Ms Maria Grogan
We cannot give guideline prices because that would be seen as steering the market. If one holds an open tendering process, one cannot give guideline prices.
Would it be better for the Department to act as the purchaser since it has the purchasing power and it is the body which pays the bill as well?
Ms Brigid McManus
We pay most of it but there is still a local contribution in some cases. We pay 90% of it.
Has the Department figures for 2008 and 2009 for the total cost of the purchase of prefabs nationwide?
Ms Brigid McManus
Yes, we can get the figures for the committee. Ms Grogan may wish to comment about that work.
Ms Maria Grogan
I have one further comment. In the vast majority of cases it is the school which would own the site and the buildings. That is another reason we would fund or grant aid the cost of buying the prefab rather than buy it outright and install it on a site we do not own.
Is the Department not paying for it at the same time?
Ms Maria Grogan
Yes.
Ms Brigid McManus
One issue we have considered in the past is whether we should go down a route similar to that for computers. For example, in the case of ICT equipment we have a list of suppliers and prices that people can draw on. That is one of the issues we asked KCR to examine as well as whether there were ways of doing it on a regional basis. I do not believe we will ever be buying them.
The Department may not have an exact figure but does it have a ball park figure for the overall cost?
Ms Brigid McManus
We have the figure here but it also includes people who decide to build in addition to prefabs. We need to strip out the prefab figure. The figure was €29 million in 2008 and €39 in 2009, but that is because more has been purchased rather than rented. The committee's comparison is based on per unit and it would be interested in the data.
Can we have a breakdown of all these figures?
Ms Brigid McManus
We will get the figure and send it on to the committee.
I am concerned that a vast amount of taxpayers' money is going into the purchase of prefabs, which are temporary arrangements. With the Department's purchasing power, I would have thought it could strike a better deal, quite apart from the issues of ownership of sites, and that there would be a more controlled, cost effective way of doing it centrally.
Ms Brigid McManus
In fairness, it has probably been our experience that some people have been offered money instead. I refer to the small money where we indicate a school can have a prefab or an amount of money to build something, and the relevant schools that commission those small building jobs can often get better value locally, because it is for the local school rather than being done centrally.
What evidence is there to confirm this?
Ms Brigid McManus
It is probable the cost for which they are building the buildings is lower than our bill or cost would be at times.
Ms Maria Grogan
In 2008, we sanctioned 335 additional classrooms and gave the schools the option of either putting these in a permanent building or purchasing a prefab. In 118 of the 335 cases, they chose to go for the permanent building. In 2009, we sanctioned 249 purchases and in 120 cases they chose to go the permanent route. Several schools have not yet made a decision about that and are probably exploring the issue. We are seeing a trend of schools taking the option of putting in place a permanent building rather than purchasing a prefab.
What was the cost of this?
Ms Maria Grogan
I do not have the cost although I can get it.
I would be obliged if Ms Grogan would provide it. An issue was raised previously by Deputy Fleming and I expected the matter to be raised this morning. I refer to the question of the top-up of pensions in third-level institutions. Has that practice now ceased across the board? Is the Department satisfied that this practice has ceased across the board?
Ms Brigid McManus
Is the Chairman referring to the issue of added years for pensions?
Yes, that is correct.
Ms Brigid McManus
I sent the committee some documentation on this matter. I refer to the current position of the transfer of pension funds. In so far as there is any discretion with the scheme, it has transferred to the Minister for Education and Skills, with the consent of the Minister for Finance. Thus far, we are working through where exactly issues arise which might be discretionary or not and whether we are satisfied to grant it. We have some cases on hand from a number of universities which we are considering regarding whether they are discretionary.
The issue that arises relates to whether there was a legitimate expectation because of the way a scheme had operated in an automatic fashion over a long period. For example, I recall the Galway scheme, which I believe was referred to in the letter I sent to the committee. Every year, it informed staff of their entitlement on added years. The legal advice in such a situation is that staff have a legitimate expectation to that number of added years. We have fully agreed the position with Trinity College in respect of added years according to our discretion. In the case of other colleges we are still working through some of the people or cases of added years and whether they fall within the legal entitlement or whether they are discretionary cases. All of this relates to staff retiring now. Any new staff are under standard public sector pension schemes.
What is the position with regard to handing over the pension schemes from the universities to the National Treasury Management Agency?
Ms Brigid McManus
They have all been transferred over.
I refer to the deficit. What is the up to date accumulated deficit for all third level institutions?
Ms Brigid McManus
All the colleges have been transferred over but the NUI headquarters has not been transferred. The total estimated value of the assets transferred, including all five institutions together, is €1.36 billion. That is the estimated value of the assets. We will not have a final figure until the audited accounts are completed. Under legislation, there is a requirement for audited accounts. The estimated liabilities of the universities amount to €2.15 billion. This represents a gap of €790 million. I refer to the breakdown of each college. In TCD, the assets are €280.5 million and the liabilities amount to €595 million. In NUIM, the assets are €58.5 million and the liabilities amount to €155 million. In UCC, the assets are €312.1 million and the liabilities amount to €456 million. In UCD, the assets are €496.5 million and the liabilities amount to €598 million. In NUIG the assets are €215.7 million and the liabilities amount to €348 million.
This may sound like a stupid question but has the Department inquired as to how these deficits have arisen?
Ms Brigid McManus
There have been deficits for many years. It was the subject of budgetary discussions between the HEA and universities. Funding must have come from the mainline budgets into the pension funds. Some of the problems would have arisen from the contributions being insufficient to cover the cost and some of the problems would have arisen in recent times, like all pension funds, from the investments. However, I am unsure whether we have any further information.
There is a deficit of approximately €790 million which the taxpayer must pick up. There must have been a serious level of bad planning within that sector. Has there been any inquiry, investigation or examination of the factors that led to this massive deficit, which the taxpayer will have to tackle?
Ms Brigid McManus
At the time leading to the transfer there would have been a detailed examination of the position of the university pension schemes and of what we should do about them because of the new rules whereby one must show the accounting of it. I cannot remember the name of the rules. It is fair to say that one of the reasons in the late 1990s for closing off all those pension schemes and insisting that all the universities operated standard public sector pension schemes would have been a concern about the terms of those schemes and their viability. That would have been one of the factors in the late 1990s when they were changed. I can get you some information about——
What puzzles me is that we have heard stories about top-up pensions throughout the colleges in a situation where there is a deficit of nearly €800 million.
Ms Brigid McManus
The issue was that the terms of the pension schemes were such that those added years were part of the terms of the pension schemes, by and large. There were some discretionary ones but, in practice, they were legal obligations under the scheme. What the schemes would have done was increase the contribution payment. The question is, perhaps, when the terms were there, why were terms not worsened or contributions increased? That would have been part of probably a more general public service issue that would have arisen at the time. What a private company would have done was either worsened the terms of the scheme with the agreement of the staff or the members of the scheme or changed the contributions.
They should have stopped giving top-ups when they were in such trouble.
Ms Brigid McManus
I think the issue is that they could only stop doing those either with the consent of the members of the scheme or in so far as those top-ups were not legally binding as terms of the scheme. The issue is that in most of the schemes for most of the people they were legal entitlements.
I apologise for being late. It was quite a disruptive morning.
My first question relates to the correspondence Ms McManus sent to the committee separately on the transfer of properties under the indemnity agreement. We got that letter this morning. I am not clear about the figures. Ms McManus says that €36 million in property has been transferred to date. She goes on to state that in overall terms the State has realised 79% of the agreement in terms of cash, counselling and property fully transferred. I query that. The total figure for the contribution from the religious orders was €125 million. Is that correct?
Ms Brigid McManus
It was €128 million.
Okay. If Ms McManus says that 79% of that has been transferred, it is over €100 million. How does she account for that €100 million?
Ms Brigid McManus
There was €54.5 million in cash, €10 million in counselling and €63.5 million in property in the original deal. That was the agreed contribution. That amounts to €128 million. Subsequently, we accepted cash instead of some of the property.
Did the Department get the original €54.5 million in cash?
Ms Brigid McManus
Yes, and the counselling money has been paid. The €36.96 million of properties was fully transferred. The money we got in cash instead of the properties was a further €3 million.
How was the €54.5 million in cash dealt with in the Department's accounts?
Ms Brigid McManus
That money went into a separate indemnity account into which the religious orders pay. When we draw money for things such as the redress board, certain money is fed in through a suspense account which comes from the religious congregations' contribution as well as the money that comes from the subhead. There is a special account. We transfer money from a subhead to a special account and money from the religious orders goes into that special account as well. The Department of Finance transfers this money to the residential institutions redress suspense account and the money for the redress board is paid out of that suspense account. I am sorry, I should probably know the sequence of accounts but I do not.
That is fine. What oversight was there of the €10 million in counselling?
Ms Brigid McManus
This was counselling they provided through the Faoiseamh line. I am not sure, to be honest. I will have to find out for the Deputy.
A sum of €10 million would buy a great deal of counselling. I am curious to know where has it been provided and who has verified that the contribution has been made. Perhaps the Secretary General could get that information for the committee.
Ms Brigid McManus
I will. I am told that Faoiseamh is an independent organisation and it has certified to us that it got the contributions. The Faoiseamh line has confirmed that it received €13,904,758 from the congregations between 11 May 1999 and December 2009.
That is the religious orders running their own counselling service.
Ms Brigid McManus
It is a counselling service established by CORI.
They are paying themselves for providing the counselling.
Ms Brigid McManus
It is an organisation established by CORI but it does have accounts and provides telephone counselling.
What is the time scale for the remaining 28 properties to be transferred? When is it expected to wrap that up? This has been going on for a long time and obviously the value——
We went through that earlier.
Ms Brigid McManus
I do not know when we will manage to have it completed. They are all advancing and it is very slow. We are managing to get more of them through the gap. We are saying at a certain point that we need cash instead where one of them is problematic. However, it has been very slow. I am hoping we will manage to get them all through in the next year but I would not wish to commit to it.
When was the agreement signed?
Ms Brigid McManus
The agreement was reached on 5 June 2002. I presume that was the date of signature.
It is eight years later. Money has reduced significantly in value.
Ms Brigid McManus
If they give us cash instead, the cash is in this year's terms. The valuation was set at the date of the agreement.
The €128 million was worth much more in 2002 than now. By right, the contribution should have been discounted to allow for that.
Ms Brigid McManus
With regard to the benefit of the properties, they are all in use by the State or the voluntary organisations that occupy them. They have the same benefit from them as they would if they had been transferred. The issue that arises is that the title has not been transferred.
I see. In cash terms, the benefit to the State is insignificant. The State has had to pay the compensation but did not get the benefit of cash transfers, or properties that could be sold, from the religious orders.
Ms Brigid McManus
The intention of the indemnity agreement was not to transfer properties that could be sold. That may have been true of some. It was simply the value of properties to be transferred. At the time, most of the properties were to be transferred for continued public use rather than for sale.
There was a way around it. Many people felt the State did very badly out of this deal, but when one considers that eight years later a significant amount of the property has not been transferred, it has done even worse than expected in 2002. I would hope the Department would give some priority to completing this matter. Eight years is an undue length of time for the terms of the agreement to be honoured by the religious orders. I would hope the Department would give priority to finalising it.
Deputy Fleming spoke about the whole school evaluation, which has been very successful over recent years. I received an interesting reply to a parliamentary question last week. It showed that 38 inspector posts are vacant in the Department of Education and Skills. How many inspectors are there altogether and what percentage do the 38 vacancies represent? How does the Department expect to continue with the required inspection regime with 38 vacant posts?
Ms Brigid McManus
The issue for the Department as a whole is that we have a moratorium on filling vacancies. On 31 December 2009, we had 133 inspectors.
Is that inspector posts?
Ms Brigid McManus
No, that is the number of bodies. Many of the vacancies occurred at that time. We had 154 inspectors on 31 December 2008.
Is that a full complement, or close to it?
Ms Brigid McManus
That is people, as opposed to posts. On 31 December 2008, we had 154 inspectors and we are now down to 133. We have had several retirements. The number does not include people on career breaks or secondments. The number of actual bodies, as opposed to posts, is down from 154 to 133. The authorised complement would have been higher before that.
About 25% of posts are vacant.
Ms Brigid McManus
I am not sure it is quite as high as that. The figure of 18% sticks in my head but I would have to get the Deputy the exact figure.
If there are 38 current vacancies out of 154 that is one in four.
Ms Brigid McManus
It may be a bit higher. It may be about 160. We could have had some vacancies in the course of the year.
About one in four inspector posts is vacant. What are the implications of that for whole school evaluation and for the inspection of new primary school teachers?
Ms Brigid McManus
First, we are probably looking at filling some of those vacancies because there is an agreement that we can look to fill some. We will be having to reorganise work and we will be doing fewer inspections as a result of that. A number of inspectors were tied up in our regional office structure. We have reorganised that structure. While we have maintained some of our regional office services, such as Limerick regeneration, we have pulled some of our inspectors out of the regional office area to work on the inspectorate issue. While there will be somewhat fewer inspections in 2010, the activity reduction is being carried out by reducing the number of whole school evaluations and increasing the number of incidental inspections. We are doing a shorter form of whole school evaluation in order to deal with some of the staffing issues.
In 2009 and 2010, we used a number of retired inspectors to carry out probationary inspections. We are looking at the model of probation, as to where we go on that and how it is dealt with. If public service numbers have to be reduced because of a budgetary situation one can get a certain amount of saving from efficiencies and a certain amount from reorganising work but if there are fewer people there must be less activity.
It will have a direct impact on quality control within schools.
Ms Brigid McManus
It will have a direct impact on quality control. If I have fewer people in the building unit, that will have an impact. We may look at new models of how to do things but there will be an implication for how quickly projects can be processed. If I have fewer people in IT there will be an impact on how quickly I can roll out IT projects. My Department is no different from any area of the public sector. The psychology service has been prioritised and not only are posts in that area being filled but the service is being expanded in order to roll out a service to all schools. Across the public sector, managers everywhere are having to say they have fewer people, cannot fill vacancies and are having to do the best they can.
Ms McManus referred to the regional offices. There is a strong view that the Department of Education and Skills is extremely centralised and that is why it is not well organised at a local level, for getting prefabs at better prices, for example. The thrust of the organisation of the Department was to move out to the regions and to work on an area basis. Is that thrust now being reversed completely and is the Department withdrawing back to being a centralised organisation?
Ms Brigid McManus
There is a regionalised structure for the psychological service and the inspectorate. They have a local office and regional structure. We have a centralised system of teacher allocation and all other activities. When the regional offices were set up, there was an assumption that they would serve local callers. In fact, that was not the case. The regional offices dealt with local queries and represented the Department on a range of bodies and organisations. Over time, they took on other functions. The dormant accounts, for example, were operated by the regional offices. On foot of a decision taken about a year and a half ago to cut them back significantly, we did a review of them. The Department is short of resources but even if it were not, the issue would have arisen as to the value of being represented on certain boards, such as county development boards, which dealt with a range of issues of which education was a very small part. When resources are very tight, can one justify having people involved in information giving and receiving? On other bodies we played a significant role. In the Limerick regeneration we helped to pull together services. In reorganising the regional structure, we are trying to maintain the roles where we are providing significant added value.
In the current climate of prioritisation, however, we believe that value was not in some of the operations. Indeed some of the offices, because of early retirements, would have had to close anyway because of people leaving. Yes, we are still involved in things such as the dormant accounts and the national drugs strategy.
What about the drugs task forces, at local level?
Ms Brigid McManus
We are not involved in those. Agencies such as the NEWB will be, or NEPS and the Council for Special Education will be involved in things such as the children's services committee, but not a Department representative.
Overall, this is a retrograde step. For so long education was the missing partner at many different tables, because there was not a local face to the Department of Education and Skills. I just believe educational services will be all the poorer for that.
I have a final question as regards teacher retirements this year. What level of increase does the Department expect as a result of the incentivised retirement scheme? What about the cost of those retirements? With experienced more mature teachers retiring, will the cost for this be borne by the Department or is it a matter for the Department of Finance? Overall, as regards teachers' pay, will this result in a reduced budget? Is it the case that somebody else will pick up the tab for the incentivised retirements?
Ms Brigid McManus
I shall first clarify, as regards the incentivised retirements, as we are filling teacher jobs, teachers are not entitled to apply, in any event.
I am referring to the scheme whereby teachers can retire on the basis of last year's salary.
Ms Brigid McManus
I am sorry. Now I understand — the Deputy is referring to the grace period. We had a very high number of retirements in 2009 at 1,981 compared with 1,311 in 2008. We had a big hit, in fact, in excess of €140 million on that set of subheads in our 2009 Estimates. It is somewhat hard to tell what is happening this year. Sometimes teachers will indicate they are retiring earlier, but normally it is 30 August in any year. The sense we have is that because of the situation in relation to the Croke Park agreement some people who might have been eligible to retire, being over 55 with the requisite service, would have retired last year. The sense we have is that there might be a degree of holding off. Certainly, we have not received the same number of retirement applications as this time last year. Whether that changes in light of what might happen in the industrial relations situation is difficult to say.
Generally, the cost of pensions is fully borne from our Department's Vote, unlike in some of the other Votes where there is a separate Paymaster General's Vote. If pensions go up and extra money has to be found, it falls within the Vote. There is probably some savings on the teachers' salaries subhead, because teachers are coming in at the bottom of the scale to replace those who are retiring. In addition, many of those retiring will have posts of responsibility, so that there will be a saving in that regard as well. However, given that we are filling all posts, it is probably fair to say that even in the short-run there will not be a saving from that and neither will there be a saving over a multi-annual period.
Teachers are not being incentivised to retire, if that is the case.
Ms Brigid McManus
I do not understand what the Deputy means as regards "being incentivised to retire".
Why was there an incentive for teachers if there are not savings? Why were they offered the deal on the basis of their salaries last year, before the cuts?
Ms Brigid McManus
The problem we had last year was people were so afraid that there would be a change at the end of the year and their salaries would be adjusted. That is why we had a very high number of retirements last year. My fear is if people believe they will not be able to retire on their current salaries, that an incentive is put in place for them to retire. I believe it is the opposite way around. If one did not want them to retire, one would let matters continue as they are. There was probably a fear of lump sum taxation as well. We did a survey at the time as to why teachers were retiring. About half were planned retirements and about a third said it was due to fears of future taxation of the lump sum as well as the impact of the levy on pensions, rather than on salaries.
I have a final question, as regards special needs assistants, SNAs. How many have been lost to the system and has the Department done an analysis of the damage being done to the educational requirements of some of our students?
Ms Brigid McManus
In terms of the numbers there has not been a very significant loss overall. In terms of total numbers, by December 2010 we shall be broadly at the same level as in December 2009. With the population going up, however, I accept there is an effect. All we did in the exercise carried out by the NCSE was to ensure that criteria under which SNAs should be allocated were being applied. That is what was implemented. In terms of the judgment calls and so on there are many issues to be considered, I appreciate, but there is an obligation where special needs assistants are being allocated in accordance with the system, particularly in a situation where there is pressure on numbers and resources, to ensure that the SNAs are in place on the basis of the system's requirements.
What about the figure for December 2008?
Ms Brigid McManus
The total primary figures show that the SNAs have gone from 10,442 at December 2008 to 10,403 at December 2009 and we estimate the figure will be about 10,394 at the end of December 2010, but in fairness there is a higher population to be considered in that regard.
In terms of the numbers, just looking at the results of the review, which is on the website, there was a net decrease of 346 full-time equivalents. This was as a result of the review, if a certain point in time is taken, but obviously we have special needs assistants going in and out of the system all the time because this is not done on an annual basis, as with teachers. That was the result of the review, if one took the schools that were looked at, at that point of time and saw what the adjustment was. That does not mean that people have not gone in since, and there are many part-timers, so we are talking about whole time equivalents.
I thank Ms McManus. Would Mr. Buckley like to sum up?
Mr. John Buckley
I have two quick points. In connection with the PPP figures I just want to clarify the €4.27 billion of commitments are actually cashflows. We are not able to produce a net present value for that. It can be done but one would need detailed cashflows spreading over a number of years in order to do this. That came up in discussion with Deputy Michael McGrath. The other thing, in case the figure seems rather frightening, is that it rolls up maintenance costs, financing charges and a number of other things besides capital. Therefore, it is not strictly comparable to the national debt, but nonetheless it is a future commitment, contracted and signed.
How long is the commitment?
Mr. John Buckley
It is for 25 years.
The other thing, obviously, is that the boundary for education is being put back. There is the early childhood care and education scheme now and I welcome the sharing of the information by the GIS with the office of the Minister with responsibility for Children and Youth Affairs, because the same issues of matching capacity with need arise at pre-primary level.
I thank the witnesses for their patience this morning and this afternoon. It has been a fairly disruptive meeting, but that was outside our control. I hope we will resume normal operations next week. Is it agreed that the committee note Special Report of the Comptroller and Auditor General No. 67, Chapter 2? Agreed. Is it agreed to note Vote 26? Agreed. Is it agreed to dispose of Chapter 21 of the annual report? Agreed.
The witnesses withdrew.