COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 13 Dec 2012

National Development Finance Agency Financial Statements 2011

Mr. Brian Murphy (Chief Executive Officer, National Development Finance Agency) called and examined.

Chairman

Before we begin, I remind members, witnesses and those in the Visitors Gallery to turn off their mobile phones because they interfere with the sound quality of the transmission of the meeting. This applies particularly to those who leave their mobile phones on the desk in front of the microphone which picks up the noise which means the proceedings cannot be transmitted properly. We continually receive reminders during our meetings from members of the media to the effect that they cannot hear what is being said.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I remind members of the provision within Standing Order 163 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policy or policies.

I welcome Mr. Brian Murphy, chief executive officer of the National Development Finance Agency, and ask him to introduce his officials.

Mr. Brian Murphy

I am accompanied by Ms Deirbhile Brennan, operations manager and secretary to the National Development Finance Agency board; Mr. Gerard Cahillane, deputy director and head of finance and operations; and Mr. Steven Burgess, head of procurement and project management.

Chairman

I welcome the officials from the Department of Public Expenditure and Reform, Ms Marie McLaughlin and Ms Annette Connolly. I call on the Comptroller and Auditor General to introduce the chapters from his reports.

Mr. Seamus McCarthy

Today the committee is examining the chapters on public private partnerships, PPPs, in both the 2010 and 2011 annual reports. It is also examining the financial statements of the National Development Finance Agency for 2011.

On PPPs, the National Development Finance Agency provides advice for sponsoring Departments and agencies. In addition, it is the procurement authority for PPP projects, other than those in the transport and local authority sectors. Major PPP contracts entered into during the past decade or so had, up to the end of 2011, cost the Exchequer approximately €2.3 billion and involved legally binding commitments to pay a further €4 billion. Programmes of future projects are in place in a number of sectors and these are expected to result in further substantial Exchequer commitments. As a result, it is important that there be a sound understanding of the circumstances in which PPPs can deliver good value and where it is better to avoid that method of procurement.

There is relatively little detailed information in the public domain on Irish PPPs. Financial commitment information is presented, in varying levels of detail, in the financial statements of public bodies. The main aim of the PPP chapters for a number of years has been to provide information on the overall level of Exchequer commitments arising from the major PPP contracts entered into. The chapter in the 2011 report recommends that the Department of Public Expenditure and Reform publish up-to-date listings of all major projects in place or being developed, as well as details of the Exchequer's commitments.

It also recommends that this commitment should be reported in the annual finance accounts. The Department has already responded to those recommendations, and some additional information has been published on the Department’s website. This information needs to be expanded and kept up to date. The Department has also committed to discuss with the Department of Finance how best to include the legally binding PPP financial commitments in the annual finance accounts.

In recent years a number of PPP projects in development were cancelled and some were deferred. Difficulties in securing project funding have also meant that most other projects in preparation progressed slowly. Significant expenditure has been incurred on cancelled projects. Some of this has delivered no effective benefit while some has led to the purchase of assets which may be of value in the future should projects recommence. The stimulus package announced in summer 2012 targets a number of projects that are to be delivered as PPPs. These include projects in the education, transport, health and justice sectors.

Reflecting some of the concerns that committee members raised at last week’s meeting, it may be useful to put the discussion of PPP procedures in a wider context. A number of issues arise with regard to any capital investment proposal. First, it must make economic sense to make the investment - for example, it needs to be demonstrated clearly that there is likely to be a sufficient return through use or service delivery over the full economic life of the asset. Next, where there are a number of projects competing for scarce investment funding, appraisal methodologies should ideally identify those which are likely to deliver relatively greater returns. If a project has passed both of those tests, questions then arise as to how best to finance the project and to procure and manage the assets. This is where the choice between PPP and more conventional direct investment arises. A choice also needs to be made about the optimum structure of the PPP, such as whether to include a finance element. The NDFA is responsible for assisting Departments and agencies in ensuring that analysis of those complex questions is done thoroughly and properly.

The guidelines issued by the Department of Public Expenditure and Reform make clear that a project should not proceed as a PPP unless careful appraisal shows that it delivers better value than using the conventional procurement approach and that it is affordable. In doing so, the projected cost of PPP procurement is compared with what is known as the public sector benchmark - that is, the estimated cost of delivering the project using conventional public sector procurement. I pointed out previously that very little information is in the public domain about that evaluation process for Irish projects, even where they have been up and running for a number of years. The Office of the Comptroller and Auditor General has reported on a number of these in the past, but that cannot be a substitute for routine publication of appraisal results by the sponsoring bodies. To date, I am not aware of any other reviews that have been published. The Department of Public Expenditure and Reform has expressed concerns that publication may have implications for the State’s negotiating position for future projects. In my view, publication would help improve understanding of the factors that influence obtaining value in public investment projects. There is also a case to be made that for certain projects, a set affordability limit should be made known to private sector bidders, who would be required to bid in terms of what they could deliver for a limited sum.

The Department’s guidelines also require that a post-project review should be carried out for all major public projects, and PPP projects are no exception. Specifically in the context of certain roads projects for which the outturn has been significantly more costly than projected, the 2011 chapter recommends that such evaluations be carried out once sufficient time has elapsed after completion of the project. The main purpose of such reviews is to identify whether good value has been achieved for the public investment, as well as any lessons for future public investment projects.

One of the key arguments advanced in favour of PPPs has been that they allow for the private sector partners to be innovative in the design of assets and in the way services are delivered. This freedom to be innovative is believed to be a factor in the potential for PPPs to deliver better value. Formal reviews of projects should allow for that kind of innovation to be identified and, where appropriate, to be adopted as the new standard in conventional procurement. In this way, selective use of PPPs should result in progressive development of economy and efficiency in public service investment. I must point out that, internationally, PPP projects are seen to have the potential to deliver good value if used in appropriate circumstances, but that there are significant cost risks if project scoping and allocation of risks are not optimal.

Chairman

Thank you, Mr. McCarthy.

Mr. Brian Murphy

The establishment of the NDFA in 2003 addressed the need to develop in the public sector a centralised and permanent in-house financial expertise to provide expert advice on the financial risk and insurance aspects of the public sector capital programme. The first objective of the NDFA is to ensure the State gets value for money on all public capital investment projects referred to it for financial advice. Since 2007 the NDFA has been responsible also for managing the procurement of public private partnership projects, PPPs, outside of the transport and local authority sectors. In performing its duties the NDFA is required to have due regard to the guidance and directions issued by the Minister for Finance and the Minister for Public Expenditure and Reform in the financing and procurement of public investment projects.

The NDFA has two quite clear and specific statutory mandates. The first is the provision of financial advice to State authorities. Once a project is referred for advice, the NDFA is responsible for maintaining the financial integrity of a procurement process for the specific contract and ensuring value for money is achieved in that process. The mandate does not include advising on policy or economic matters relating to projects or other project budget issues that remain the responsibility of the sponsor and sanctioning authority. Consequently the NDFA has no role in project identification or selection or the basis on which a project may proceed. The second mandate is the procurement of all PPPs outside of the local authority and the transport sectors. The NDFA acts as a procuring and delivery agent for the relevant State authority within the budgetary and project scope as defined by the sponsoring and sanctioning authorities.

In the past year the education sector has been the most active for the NDFA. The second bundle of PPP schools, having reached financial close in June 2010, was delivered ahead of the programme time, with the final school completed in October 2011. These six schools provide accommodation for 4,700 students in Cork, Limerick, Kildare, Wicklow and Meath. The preferred tenderer for the third bundle of schools, BAM public private partnership, was appointed in September 2011. Planning permission was secured for all schools by May 2012. On 9 November 2012, the NDFA awarded the contract for schools bundle 3 to BAM public private partnership PGGM Infrastructure Cooperatie, a joint venture between BAM public private partnership and Dutch pension fund administrator PGGM. Construction has now commenced. When completed, the eight schools in bundle 3 will provide accommodation for approximately 5,700 students in Donegal, Galway, Leitrim, Limerick, Waterford, Westmeath and Wexford. In the meantime the project will have created 1,100 jobs, of which 200 are already on-site.

The NDFA continues to work with the National Roads Authority in its role as financial adviser on PPPs. Good progress is currently being made in moving the N11-Newlands Cross public private partnership to financial close. The preferred tenderer for the N11-Newlands Cross PPP is also BAM public private partnership PGGM Infrastructure Cooperatie.

In March 2012, the Minister for Education and Skills announced details of 219 new major school building projects as part of a €2 billion capital investment programme. The NDFA, together with the Office of Public Works, the vocational education committees and county councils, will assist the Department with the delivery of more than 80 major school projects. The NDFA has commenced work with the Department on the delivery of 18 of these 80 school building projects.

The NDFA continues to provide financial advice on all projects referred to it and is currently advising State authorities on 25 active projects. Developments in the past year included the opening in July 2012 of the new cystic fibrosis unit in St. Vincent's University Hospital, for which the NDFA provided financial advice to the Health Service Executive. In August the NDFA was involved in the successful drawdown of a direct loan of €100 million to the Exchequer to finance a programme of school building improvement projects that are to be procured on a traditional - that is, non-PPP - basis for the Department of Education and Skills. In late November a further €100 million traditional loan contract was signed between the European Investment Bank and the NTMA in respect of traditional water-wastewater projects.

Recognising the continuing infrastructure deficit in certain sectors and the need for job creation, the Government announced a stimulus package on 17 July 2012 to provide investment amounting to approximately €2.25 billion on a range of important new projects designed to stimulate economic growth and create employment.

The package will involve raising €1.4 billion for investment in public infrastructure PPP projects from the EIB, the NPRF, domestic banks and other sources of funding. The financing of these investments will be structured as being off-balance sheet, in line with standard PPPs, design, build, finance, maintain models. The balance of the programme, approximately €850 million, will be funded from the proceeds of asset disposals, including national lottery and newERA asset sale activities.

The NDFA will work closely with the various stakeholders in order to ensure a sufficiently competitive environment to generate value for money for the taxpayer. We have commenced an intensive market engagement with a view to attracting interest from investors, contractors and other relevant stakeholders. In general, as the vast majority of equity for PPPs comes from overseas investors, such investment is analogous to foreign direct investment. It is used in the formulation of real assets and job creation.

I look forward to taking questions from members. In the event that I do not have the information available to me, I will revert to the committee within two weeks.

Chairman

May we publish the statement?

Mr. Brian Murphy

Yes.

Deputy Paschal Donohoe

I welcome the witnesses and thank them for their attendance. I thank Mr. Murphy for his presentation. Last week's meeting was attended by officials from the Department of Public Expenditure and Reform. I have some questions which I also asked them last week.

I wish to discuss the evaluation of the performance of public private partnerships in this country, what has been learned from the experience of PPPs in the United Kingdom and how it is planned to change the future structure of the PPP system in the United Kingdom. Mr. Murphy is far more knowledgeable than me about the UK system which has been in operation for some time. Changes have been made recently to the structure. At last week's meeting I referred to a report compiled by the UK National Audit Office in April 2011. The report made observations and arrived at conclusions on the PPP system. While it found that private finance delivered benefits for the delivery of infrastructural projects, it questioned whether more could be done to capture the share of the benefits for the taxpayer to level the playing field between the private company and the taxpayer. Is Mr. Murphy familiar with this report? In his view, is any of its conclusions applicable to Ireland?

Mr. Brian Murphy

The NDFA is familiar with that report. My colleagues and I maintain extensive dialogue with our opposite numbers in the United Kingdom, both in the Treasury and the various procurement authorities, including Scottish Futures. The book on public private partnerships was written in the United Kingdom. The rest of the world has been learning from the United Kingdom. It is fair to observe that it has, to date, delivered 717 infrastructural projects which might not otherwise have been delivered and which have cost tens of billions of euro. We have studied closely the findings of the National Audit Office's report, the Chancellor's statement last week and also the introduction of the PF2 model which attempts to implement some of these conclusions and the lessons to be learned. The perception is that some of the value achieved has been retained in the private sector and that the taxpayer needs to see more of it. I refer to the example of Scotland where a new PFI-PPP model has been introduced which attempts to cap equity returns to the private sector. The jury is out in this regard and it remains to be seen whether it will work. The Scots have an ambitious PPP programme which is somewhat similar to ours and they aim to apply this model of capped returns. The ultimate barometer of success will be whether there is a competitive and active market for these projects.

Deputy Paschal Donohoe

I refer to the PF2 model. My understanding is that the Chancellor considered the British taxpayer should take a larger equity stake in the proposed new projects. Is this conclusion applicable to projects here?

Mr. Brian Murphy

That the taxpayer should take equity up-front is an interesting concept. Before the finance issue is closed off, the major sponsor - the major promoter - would have to release some of its equity to the market to institutional investors. The reaction from the market is not altogether in favour of this proposal, for a number of understandable reasons. There is a real concern that if the taxpayer were to have a significant equity interest and seats on the board, this could create conflicts of interest. I can foresee situations where serious conflicts of interest could arise. More important, perhaps, there has been comment by professional investors in the industry that it would make it much more difficult for them to invest if they were put in a position where they would have to carry the bid risk and costs and then just before financial closure, they would have to offload a lot of their equity. I could see this being a problem.

Deputy Paschal Donohoe

Is that reaction not inevitable? If a new model aims to change the nature of the engagement of the private sector with public projects, the initial reaction of the sector will never be the giving of approval.

Mr. Brian Murphy

I am not too sure about that. Some of the comments I have read have been made by serious investors in the industry. They have a global perspective and this is a global and, at least, a European market. Investors have a pool of funds to invest in European PPPs, not just UK PPPs. That capital is mobile and fungible. It will go to the markets where the returns are most attractive. The best way of protecting the taxpayer and to ensure value for money is to ensure there is a rigorously competitive bidding process. That provides the greatest protection for the taxpayer. The equity returns we have observed in accommodation-type projects probably range between 10% and 13%. That is not an extortionate return for the private sector.

Deputy Paschal Donohoe

Mr. Murphy's assessment of the proposed model in the United Kingdom is that the proof of the pudding will be in the eating.

Mr. Brian Murphy

Absolutely.

Deputy Paschal Donohoe

It will be a case of seeing how many are willing to participate.

Mr. Brian Murphy

Absolutely. If the rest of the European PPP market is very competitive and there is a large number of projects in the pipeline, it will be very interesting to see the pattern of migration of capital. My colleague, Mr. Burgess, and I are watching what is happening in Scotland very closely. We visited Scotland a couple of weeks ago to attend a major seminar held by Scottish Futures and it was very interesting to talk to investors who are all very enthusiastic about the project pipeline, but the proof of the pudding will be in the eating.

Deputy Paschal Donohoe

Where does Scotland stand in terms of the deployment of that model? At what point will we be able to discover whether our model is as strong as it can be? Can we learn from Scotland and what is being planned in the United Kingdom?

Mr. Brian Murphy

The real innovation in Scotland which is interesting involves the idea of capping the equity returns.

Deputy Paschal Donohoe

At what level?

Mr. Brian Murphy

The figure will vary from project to project. If returns are deemed to be over a certain level, they come back to the taxpayer, which is admirable. However, if the objective is to deliver infrastructure, if one has a fantastic model but no one is interested in bidding, that is not success.

Deputy Paschal Donohoe

Has any project been funded using this new model?

Mr. Brian Murphy

No.

Deputy Paschal Donohoe

It is out in the market and we must wait and see what will be the degree of participation.

Mr. Brian Murphy

Yes.

Deputy Paschal Donohoe

At what point will this become clear? Will it be during next year?

Mr. Brian Murphy

I suppose it will become clear in the next couple of years as they launch projects. We must wait and see how successful they will be in the marketplace in terms of attracting bids.

Deputy Paschal Donohoe

Are there any signs that other countries, particularly in Europe, are seeking to develop or change their models of funding in a similar way to the UK?

Mr. Brian Murphy

Yes, but not necessarily on the equity side. In the Benelux countries, for instance, some very interesting things are happening in the Dutch market. Some of the Dutch financial institutions are developing interesting structures and products, which we are studying to establish if they could have applicability here.

Deputy Paschal Donohoe

On the return on such investments to the State and the private investor, one of the themes we explored last week is the difficulty in accessing, from our point of view, whether those returns are being properly monitored, given the need for commercial sensitivity and for certain public information not to be released into the public domain. The Comptroller and Auditor General, in his opening statement, made the point that not much new information comes into the public domain. How satisfied is Mr. Murphy that the right kind of project follow-up is taking place to ensure taxpayers get the value demanded?

Mr. Brian Murphy

That is an interesting question. The observations by the Comptroller and Auditor General perhaps related to the original pilot schools project. It is important to remember that the project was called a pilot schools project for a reason. It was a pathfinder project, a trailblazing project. It was effectively the first PPP in Ireland and it was done at a time when there was not a body of understanding, expertise, procedures or policy developed. We have moved on a good deal since then. I cannot remember the exact number, but we have delivered probably 15 to 20 PPPs between roads and the various accommodation projects. Within the NDFA we have developed a huge body of policy and procedure supported by the Department's guidelines, which have evolved over the years and are based on lessons learned not only locally but internationally. In regard to each project we do, the procurement people and finance people sit down together and do a thorough look-back audit, an evaluation of how the process went, what we could have done better and what we did well, and our policies and procedures are updated continuously to reflect best practice. We also liaise extensively with our opposite numbers overseas in other markets and understand exactly what they are doing. We try to incorporate best practice in so far as it suits the market because there are different nuances in different markets. With regard to releasing detailed financial-type information, one part of me says we should be doing that, while another part of me says there are real risks involved in doing it.

Deputy Paschal Donohoe

What kinds of risks are involved?

Mr. Brian Murphy

Again, it depends on what we want to publish. The stimulus package is coming down the line. There will be a pipeline of projects. Many of these projects are quite similar; they are schools and accommodation-type projects. One does not want to show too much of one's hand to the market. There is a balance to be struck to ensure there is a good competitive process and robust negotiation, on the one hand, and transparency on the other. Although we want there to be as much transparency as possible, we must be mindful that the price of such transparency could be a bad deal. We in the NDFA have talked to our colleagues in the Department of Public Expenditure and Reform about this and we would favour releasing, perhaps at the time of going to the market, some kind of indicative number for the budget, but we would not favour publishing the PSB, for instance.

Deputy Paschal Donohoe

What is the PSB?

Mr. Brian Murphy

The public sector benchmark. It is the yardstick or milestone against which we measure value for money.

Deputy Paschal Donohoe

I assume what Mr. Murphy is referring to is the cost of a project if it were funded through conventional Exchequer means. Is that correct?

Mr. Brian Murphy

It is, but it also includes the risks that are proposed to be transferred. However, in a nutshell, that is what it is.

Deputy Paschal Donohoe

In light of the comment by Mr. Murphy that the first bundle of projects was a pathfinder, how have the appraisal techniques for these projects changed over time to reflect the learning the State has accrued from school projects and what has happened elsewhere?

Mr. Brian Murphy

One only has to look at the enormous body of guidance which has been developed and issued by the Department of Finance and now by the Department of Public Expenditure and Reform. That reflects the evolution of the market and best practice in the market. The policies and procedures that we apply internally reflect what we have learned from delivering projects. When we come to the next project we try to incorporate best practice and improve on what we believe is already a very robust and rigorous process.

Deputy Paschal Donohoe

With regard to that process, one of the aspects we examined last week was the project appraisal stage and how we can ensure targets laid out for the taxpayer are being met. A point I explored last week is that it is apparent that very rigorous appraisal takes place at the capital stage of a project and I sought to explore what happens when the project moves beyond that stage. When a project has been up and running for number of years and is at the service delivery stage, as opposed to building stage, what appraisal techniques are still in place to ensure the taxpayer gets what was predicted just as the private sector does? How do we manage that?

Mr. Brian Murphy

The secret to ensuring continuous value for money through the post-construction phase - in other words, the operational phase - is good contract management.

Deputy Paschal Donohoe

Could Mr. Murphy talk me through how that works?

Mr. Brian Murphy

The PPP project agreement provides for the continuing management of maintenance and life-cycle operations - the provision of soft services or hard services, whichever it may be. The payment mechanism that we design and build, which is very much a part of the PPP process, reflects all the monetary-related conditions within the project agreement. That payment mechanism governs the administration of the contract. In other words, every month an invoice is raised with reference to this payment mechanism and it will reflect, in the case of an availability-based project, deductions for non-availability or for non-performance. The secret to generating continuing value for money is effective contract management and the contract needs to be designed to reflect that. Within our agreements there is provision for periodic market testing, perhaps every five years, for certain services. We have assisted a number of agencies which were considering reviewing this market testing, and have succeeded in getting various deductions and price adjustments in respect of those services.

Deputy Paschal Donohoe

What is the position with regard to making that kind of work fully available publicly? Would the agency come up against a commercial sensitivity barrier in trying to do that?

Mr. Brian Murphy

There are issues of commercial sensitivity, without a shadow of a doubt; of course there are.

Deputy Paschal Donohoe

Can Mr. Murphy reveal any of this kind of work?

Mr. Brian Murphy

Yes, I can but I cannot mention names. That would be unfair to the parties. In a sense this is all covered by the Comptroller and Auditor General's audit. The Comptroller and Auditor General has unlimited access to all of our files.

Deputy Paschal Donohoe

One of the conclusions in the report with regard to the initial bundle of schools, as Mr. Murphy said, is that while he may have access to it, it is not publicly available - we cannot see it. A criticism made of PPPs across many jurisdictions is that any time a broader group of people seek to appraise how the taxpayer is benefiting from them, we, as public representatives, cannot get that information because we are told it would undermine the ability of the State to get good value in the future.

Mr. Brian Murphy

Ultimately, these are policy questions. If the policy makers ultimately decide that this must be released, then it must be released, but it is important to understand there could be risks.

The pilot schools project which predates the NDFA by many years was originally conceived in 1999 and started in 2001. Recently, in agreement with the Department of Education and Skills, we have taken over its contract management. Our view in the NDFA is that there is a lot of internal expertise in regard to PPP contractual arrangements and the structure and financing of PPPs. We have built a very close relationship with the Department of Education and Skills and delivered quite a few schools already. It was considered that we could better administer the contract for the project. Recently, at the beginning of the year, we took it over. We accessed the life cycle fund and helped to manage a refurbishment of some schools during the summer. We are retaining the management contract for the two PPPs projects we have delivered in the education sector. That is an innovation. We will now carry out the administration of the contract. We will be the ones raising the invoice and overseeing the payment mechanism.

Deputy Paschal Donohoe

I hope that will allow the NDFA to take better advantage of the expertise it has built, as opposed to that of line Departments.

Mr. Brian Murphy

Absolutely. Since I joined the agency I always considered a fault with the structure was that we built and delivered the project, spent three months holding the sponsoring authority's hand and showing it how it was done and that then we walked away. That was not very effective. We are now keeping all this work in-house on education projects.

Deputy Paschal Donohoe

Let me move to the cancellation costs of PPPs. I fully accept that it is not Mr. Murphy's role to decide whether the metro north and DART underground projects are to be deferred. That is a policy decision. With regard to some of the PPPs that have been deferred, the costs already accrued to the taxpayer are very significant. Where the metro north project is concerned, we have acquired assets at the same time. What conclusions can we take on board that might seek to reduce the cancellation or deferral costs of PPPs?

Mr. Brian Murphy

As the Deputy implied, we have no hand, act or part in deciding whether a project is to be cancelled. It is unfortunate, particularly in current circumstances, that a cost arises in quite a few projects. There is, however, some consolation in the sense that some of the cost has created some value that can be used, perhaps at some time in the future. As the Deputy stated, the projects have been deferred.

We try to keep as much activity as possible in-house to control our costs. We try to minimise external consulting costs. With regard to costs incurred by sanctioning or sponsoring authorities, there is very little we can do. What we are trying to do is consider ways to make the bidding process cheaper for everybody, including the public and private sides. That is important to be competitive in the market. With regard to PPPs, we are examining taking in parallel more of the various steps in the delivery process. I hope this will help to reduce costs.

It is important to remember that the public sector has lost quite a bit in regard to cancelled projects. The private sector has also lost a lot of money. We estimate that, in the past two or three years in regard to cancelled or postponed projects, the private sector has lost perhaps €60 million. When we talk to the market about the stimulus package and the new pipeline, this makes the conversation difficult.

Deputy Paschal Donohoe

Where cancellations or postponements occur, what is the impact on the agency's ability to secure value? I assume the private sector factors in the degree of risk given what has happened. That risk would probably result in a higher price for the taxpayer.

Mr. Brian Murphy

That is a fair observation. What the private sector really wants is certainty of pipeline. It wants to be able to see that in the next few years there will be a flow of projects, but it needs to feel confident that these projects will be delivered. This gives it confidence to bid. Many of the investors are professionals, or big boys, and understand they can lose money and will not win all bets. However, they also want to understand that if they are to commit equity, they will have a chance of gaining on a deal, even if they have lost on one previously. They want to see that there is a pipeline of projects.

We have been talking to participants in the market, not just domestically. As stated, most of the equity for PPPs comes from investors overseas. Therefore, we have been talking to investors overseas. While they are delighted and welcome the stimulus package as being very good, they are asking to be shown the money and whether the projects will come on-stream. As there is an element of doubt, we have a big selling job to do.

Deputy Paschal Donohoe

I am particularly interested in the Grangegorman DIT project. It is fantastic for the education sector. How does Mr. Murphy assess the standing of such projects in the context of the discussion we have just had?

Mr. Brian Murphy

The DIT-GDA project at Grangegorman is almost a long-term programme within which there will be many projects. The first two education projects are expected to be PPPs. In fact, we are assessing internally whether they will be carried out as one or two PPPs. It may be better, from a value for money perspective, to opt for two. The Grangegorman project is the kind of project that can attract big international players.

Deputy Paschal Donohoe

I hope there is certainty of investment in that regard. It was mentioned in the Budget Statement by the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, and clearly flagged as something we wanted to make happen.

Mr. Brian Murphy

That is true, but there is a certain degree of scepticism. Grangegorman projects had been announced three or four times and not realised. One can understand investors are a little wary.

Deputy Paschal Donohoe

I urge Mr. Murphy to do all he can to ensure the project secures the investment it requires. It is a superb project that will deliver considerable returns, both social and economic, to the taxpayer. I thank Mr. Murphy for answering my questions.

Mr. Brian Murphy

Thank you, Deputy.

Deputy Sean Fleming

I welcome Mr. Murphy and his colleagues. I will begin with some broad-ranging questions. What is the role of the Department of Public Expenditure and Reform regarding the NDFA? Its annual accounts are sent to the Minister for Finance and part of the NTMA which falls within that Minister's remit. Some of the notes suggest the Secretary General of the Department of Public Expenditure and Reform is on the board. I also note that departmental officials are on some working committees with officials of the NDFA. What is the role of the Department of Public Expenditure and Reform by comparison with that of the Department of Finance in regard to the NDFA? Who is responsible for what?

Ms Marie McLaughlin

We are responsible for the policy dimension of PPPs. Our engagement with the NDFA is in terms of its role as the procurement body and source of funding for PPP projects. It assists us in the development of the PPP guidance suite we have in place. Our Minister is not the Minister responsible for the Vote, funding or accounts of the NDFA. Our interaction with the NDFA is on policy.

Deputy Sean Fleming

What proportion of projects in which the Department is involved is carried out by way of PPPs?

Mr. Brian Murphy

It is probably 50:50.

Deputy Sean Fleming

Mr. Murphy does not know; he does not have an exact figure.

Mr. Brian Murphy

There are 25 active projects on which we are advising. Of these, perhaps half a dozen are PPPs. We expect more PPPs as a result of the stimulus package.

Deputy Sean Fleming

I acknowledge it depends on the market.

Mr. Murphy has said that currently three quarters of the agency's projects are not public private partnership projects.

Mr. Brian Murphy

Currently.

Deputy Sean Fleming

That brings us back to the Department of Public Expenditure and Reform. I just want to get a picture because I do not understand the role of the respective-----

Mr. Brian Murphy

We have recently had our mandate extended. Because of our track record and history with the Department of Education and Skills in recent years which has been very successful - we have built a very close working relationship with it - it has requested that we also help it to provide traditional schools. We are in the process of building 18 schools, aside from the PPP projects.

Deputy Sean Fleming

Not through the PPP method.

Mr. Brian Murphy

No; separate from PPPs.

Deputy Sean Fleming

In terms of what I am asking the witnesses from the Department of Public Expenditure and Reform - I wonder if we should have representatives of the Department of Finance here - if three quarters of the projects in hand are not PPP projects - the witness has said the role of the Department is to advice on policy issues regarding the PPP aspect of the work of the National Development Finance Agency which forms only a minority jpart of its work - what is the role of the Department of Public Expenditure and Reform in regard to the agency? We could have done with representatives of the Department of Finance being here also. I am simply making an observation.

Ms Marie McLaughlin

Is the Deputy talking about capital expenditure?

Deputy Sean Fleming

The NDFA only.

Ms Marie McLaughlin

We liaise with the NDFA on our policy guidelines across the range of capital expenditure items, both PPP and non-PPP. It is an expert adviser on the suite of guidelines we have in place for both PPPs and normal capital expenditure items.

Deputy Sean Fleming

That is fine. I am trying to gain an understanding of the Department responsible because with the two new Departments it is difficult to know what is the position.

This question is to the NDFA representative. Mr. Murphy has said the Department of Education and Skills is responsible, but does he sign many of these contracts? Is the NDFA the contracting authority for many projects?

Mr. Brian Murphy

We contract as agent for the Minister. For instance, I signed the last PPP contract which we closed in early November. I signed it, with another authorised director from the NDFA.

Deputy Sean Fleming

For the schools.

Mr. Brian Murphy

It was for bundle 3 which we closed on 9 November.

Deputy Sean Fleming

Is the NDFA the contracting authority for many projects? Mr. Murphy has said it advises and that there are line Departments.

Mr. Brian Murphy

It is the procuring authority for PPPs, yes.

Deputy Sean Fleming

Excluding roads and transport.

Mr. Brian Murphy

Yes. The NDFA is the procuring authority. For instance, for all of the accommodation-----

Deputy Sean Fleming

For the OPW and the Courts Service the NDFA is the contracting authority.

Mr. Brian Murphy

It will be the procuring authority for PPPs in the justice area which will include Garda regional head offices and new courthouses.

Deputy Sean Fleming

The Central Criminal Court.

Mr. Brian Murphy

That predates our mandate.

Deputy Sean Fleming

I just want to find out-----

Mr. Brian Murphy

The NDFA is the financial adviser, but the actual procurement predated our mandate.

Deputy Sean Fleming

When was the NDFA's procurement mandate changed?

Mr. Brian Murphy

The relevant legislation is the amendment Act of 2007.

Deputy Sean Fleming

I will make a general observation. Regarding PPPs - I am looking at page 1, chapter 6 of the Comptroller and Auditor General's report in which he gives the figures for a commitment of approximately €4 billion - the Department of Transport, Tourism and Sport appears to be responsible for almost half of the PPPs. The figure indicated for the National Roads Authority is almost €1.7 billion. One could say, therefore, that we have two State PPP finance agencies. My point is that according to chapter 6 the NRA is responsible for contracts amounting to 42% of the total. Does the NDFA share expertise? The NRA must pick up a great deal of expertise on its side regarding the 42% of PPP contracts signed off on behalf of the State. What learning process is there between the two agencies?

Mr. Brian Murphy

We liaise closely. Our financial advisory team, for instance, is the adviser on all NRA related projects.

Deputy Sean Fleming

Even though it is the contracting authority.

Mr. Brian Murphy

It is the procuring authority, but we provide the financial advice. Up until recently the chief executive of the NRA, Mr. Fred Barry, was on our board-----

Deputy Sean Fleming

I understand that.

Mr. Brian Murphy

-----and that was an ideal platform on which to share. Mr. Barry understands precisely what we have been doing.

Deputy Sean Fleming

As Mr. Murphy has mentioned board members - I know Mr. Barry left recently - how many from the private sector are on the NDFA's board? All of its business is with the private sector.

Mr. Brian Murphy

Up until recently the ratio was probably 50:50.

Deputy Sean Fleming

Mr. Corrigan and Mr. Murphy are not-----

Mr. Brian Murphy

Clearly, we are not, no. I am talking about non-executive directors - the outside directors.

Deputy Sean Fleming

Ms Fitzgerald is in the National Consumer Agency.

Mr. Brian Murphy

She is gone-----

Deputy Sean Fleming

She is going at the end of the year.

Mr. Brian Murphy

She is going at the end of the year, yes.

Deputy Sean Fleming

Is Mr. Gerry Murphy, a new director, from the institutes of technology? Is he from the private sector?

Mr. Brian Murphy

Yes. He has recently joined the board.

Deputy Sean Fleming

Mr. Watt is from the Department.

Mr. Brian Murphy

He recently joined the board.

Deputy Sean Fleming

The only people on the board from the private sector are Mr. Tony Jones and Mr. Peter McManamon.

Mr. Brian Murphy

Both will be gone by the end of the year.

Deputy Sean Fleming

Who is on the board today from the private sector?

Mr. Brian Murphy

Petrina Smyth recently appointed.

Deputy Sean Fleming

The NDFA has a board of eight people.

Mr. Brian Murphy

Yes.

Deputy Sean Fleming

Including the two executives.

Mr. Brian Murphy

Yes.

Deputy Sean Fleming

I am looking at the list of board members in the NDFA's annual statements.

Mr. Brian Murphy

Absolutely, yes.

Deputy Sean Fleming

I know there is a transition period, but there is only one member on the NDFA's board with direct private sector involvement. All of the contracts it is entering into are with the private sector. Mr. Murphy does not select the board, but I am sure he-----

Mr. Brian Murphy

I do not select the board. That is a policy matter. The Minister appoints the directors. He is responsible for appointing the members to the board.

Deputy Sean Fleming

I ask the representatives of the Department of Public Expenditure and Reform to relay my comments to the Minister.

Ms Marie McLaughlin

It is the Minister for Finance.

Deputy Sean Fleming

I am sorry, wrong Department - caught again. Ms McLaughlin might send him a copy of the transcript.

Regarding the total amount of commitments under public private partnerships, it is stated on page 1 of chapter 6 of the Comptroller and Auditor General's report that there are commitments to the tune of €4 billion. I ask this question of the representatives of the Department of Public Expenditure and Reform. The footnote states that does not include expenditure under the contracts in respect of the relevant local authorities or the outstanding commitments that will have to be met by local authorities from their own budgets. I am sure the financial positions of local authorities are reflected in the EUROSTAT figures. The chart indicating the total outstanding at €4.029 billion at the end of last year is heavily qualified by that footnote which states much of what is going on and a lot of the capital investment is in water and wastewater facilities. Does Ms McLaughlin have a figure for the financial commitments vis-à-vis the local authorities to give us the full picture of the outstanding commitments under PPPs?

Ms Marie McLaughlin

Regarding the water services sector, it would be Exchequer funding. There would not be private funding.

Deputy Sean Fleming

Will Ms McLaughlin say that again?

Ms Marie McLaughlin

The design, build, operate, DBO, projects in the water services sector are fully Exchequer funded. They are not funded with private funding.

Deputy Sean Fleming

No, but many of the wastewater programmes are PPP projects. I can give Ms McLaughlin the list on the next page of the-----

Ms Marie McLaughlin

They are not funded. There is no private funding involved.

Deputy Sean Fleming

I am asking about the outstanding commitments under these contracts. The Comptroller and Auditor General has included in the report a figure of €4.029 billion for outstanding commitments under PPP contracts at the end of September 2011, but he qualifies it by saying the outstanding commitments to be met by local authorities are not included. Can anyone tell me what the figure of €4.029 billion would be if the outstanding commitments for local authorities - the majority have commitments under PPPs for the maintenance of wastewater treatment plants for the next 20 years - were to be factored in?

Ms Marie McLaughlin

That information should be available in the Department of the Environment, Community and Local Government. I do not have it with me, but-----

Deputy Sean Fleming

I ask Ms McLaughlin, through her Department, to obtain it from whoever has it rather than having us try to track it down?

Mr. Seamus McCarthy

We asked the Department of the Environment, Community and Local Government if it had that information and it told us that it did not. If it had been able to provide it, we would have included it, but I do not believe it has it.

Deputy Sean Fleming

It appears to be a specific lacuna in the information provided in the Comptroller and Auditor General's report. Ms McLaughlin's Department should not be happy that there is such a lacuna.

The Department of the Environment, Community and Local Government estimates the PPP design-build-operate plants in question represent average savings in the range of 10% to 20% for capital project costs and 5% to 10% for operational costs. That is an utter bluff, particularly if the Department cannot give us the figure on outstanding commitments. I want the Department of Public Expenditure and Reform to inquire of the Department as to how it arrived at that figure because, based on what we heard this morning, it sounds made up.

Ms Marie McLaughlin

Obviously, we will speak with the Department. However, this figure would be based on the appraisal done on the projects before they commenced. There would have been value-for-money tests and assessments of the costs the projects would incur. Those figures would have been based on these assessments. The basis that they went ahead was that they did represent value for money when tested against the public sector benchmark.

Deputy Sean Fleming

That is exactly the point I am coming to. The initial appraisals did not reflect the real costs of these projects. Most local authorities that entered a design-build-operate contract are now claiming that the annual payment they have to make to the PPP operator is far in excess of what was originally expected. Now that the PPP operators are the only monitors of the throughput of the water and wastewater plants, they have been able to raise certain issues which were not known or sufficiently accounted for at the design stage. Most local authorities are bitterly complaining that the annual charge for these plants is far in excess of what they originally budgeted for at the time of contracting.

That is the second reason I am stating the Department's figures are not only a bluff but are also inaccurate. Will the Department of Public Expenditure and Reform take this up with the Department? Many county managers have told me these PPPs are a phenomenal strain on local resources because they are much more expensive than originally factored.

Earlier, Mr. Brian Murphy said the best way to ensure value for money is to have a good tendering process. I disagree with him on this. It is the specification process before going to tender that is more fundamentally important. I am satisfied the specification process for many of the wastewater plants did not factor in everything that came to pass. The follow-through of the implementation of the contract is equally as important.

Mr. Brian Murphy

I absolutely agree with Deputy Fleming that the project specification and pre-procurement work is absolutely key to ensuring value for money from a PPP. The next elements are a competitive tendering process, an effective post-closing contract management and risk allocation. The risk should be allocated where it is best managed.

Deputy Sean Fleming

What are the fees paid to board members?

Mr. Brian Murphy

They are approximately €12,500 but four members do not take fees. Mr. John Corrigan and I do not get fees.

Deputy Sean Fleming

Mr. Fred Barry would not have taken fees either.

Mr. Brian Murphy

Apart from the fact he is no longer on the board, he would not have taken fees when he was. I must point out I would not expect to get fees either.

Deputy Sean Fleming

We understand that. However, how many members of the board would be entitled to fees? Surely, those board members already on the public payroll like Mr. Fred Barry, in the past, Ms Ann Fitzgerald, of the National Consumer Agency, and Mr. Robert Watt, Secretary General, Department of Public Expenditure and Reform, would not be eligible for these fees.

Mr. Brian Murphy

I think six directors were eligible for fees.

Deputy Sean Fleming

Is it approximately €12,500 per member?

Mr. Brian Murphy

There were four paid members who each received a fee of €12,600. Those members are gone now.

Deputy Sean Fleming

That would come to a total of €50,400. However, the agency's annual accounts give a figure of €75,000 for these fees. Does that include expenses?

Mr. Brian Murphy

That is the figure for the previous year.

Deputy Sean Fleming

It is exactly the same figure for 2010 and 2011. I do not want to dwell on this, just put it on the record.

Mr. Brian Murphy

For May 2012, we only had four paid board members. Before that in 2010 and 2011, we had six paid members which brings it to €75,600.

Deputy Sean Fleming

I understood that the majority of the board were already employed in the public sector.

Mr. Brian Murphy

The board has changed radically in the past few months.

Deputy Sean Fleming

Were those six board members not paid from the public purse? I am just trying to establish a simple principle that no one from another State agency got director's fees for sitting on this board.

Mr. Brian Murphy

The list of the directors is published in the annual report.

Deputy Sean Fleming

Yes, I have it and the lovely photographs in front of me.

Mr. Brian Murphy

There were fees paid to the other six directors. Mr. John Corrigan and I did not get fees. The other six did collect fees.

Deputy Sean Fleming

Did Mr. Fred Barry, chief executive of the National Roads Authority, a highly paid State executive, get paid a director's fee to sit on the National Development Finance Agency's board?

Chairman

Will Mr. Murphy confirm the names of the six directors who were paid fees?

Mr. Brian Murphy

We will come back with that.

Chairman

Does Mr. Murphy have it now?

Deputy Sean Fleming

We have the names here in front of us. I will name them. I hope the Department of Public Expenditure and Reform is listening. They are Mr. Stewart Harrington, a director of Killeen Properties Limited.

Mr. Brian Murphy

There was Mr. Tony Jones.

Deputy Sean Fleming

Mr. Jones is a business consultant.

Mr. Brian Murphy

There was Mr. Peter McManamon.

Deputy Sean Fleming

Mr. McManamon is chairman of Ceva Inc.

Mr. Brian Murphy

There was Ms Ann Fitzgerald.

Deputy Sean Fleming

She is chief executive officer, National Consumer Agency. That is a State body. Did she collect fees for sitting on the board of another State body? We will carry on.

Mr. Brian Murphy

There was Mr. Liam Berney.

Deputy Sean Fleming

Mr. Berney is an industrial officer, Irish Congress of Trade Unions.

Mr. Brian Murphy

Then there is Mr. Fred Barry, chief executive of the National Roads Authority.

Deputy Sean Fleming

The chief executive of the National Roads Authority, a highly paid State official, was paid a director's fee for sitting on the National Development Finance Agency's board. Ms Ann Fitzgerald, chief executive officer, National Consumer Agency, was also paid director's fees.

Mr. Brian Murphy

I do not determine the level of fees or who gets them.

Deputy Sean Fleming

I am just putting this on the record. I am not asking Mr. Murphy to take responsibility.

Mr. Brian Murphy

That is fine.

Deputy Sean Fleming

Chairman, maybe we should take this issue up with the Minister directly. Can the officials from the Department of Public Expenditure and Reform tell us the Department's position on State officials receiving director's fees while they are sitting on another State agency's board?

Ms Marie McLaughlin

That is not my area of the Department. However, it would be my understanding that normally they would not be paid. I would not like to comment on this particular instance. We will certainly take it back to the Department and find out what the situation is.

Deputy Sean Fleming

Ms McLaughlin might have that clarified as soon as possible.

Chairman

If she raises this with the Accounting Officer or, through him, the Minister, she might let us have a note on their views on the matter. It is a matter we will probably pursue again.

Deputy Sean Fleming

How many of the agency's staff are engineers?

Most of the agency's projects involve construction. One would assume from the outside that the majority of its staff come from engineering and technical backgrounds. Does it buy in these skills? I ask for a pen picture.

Mr. Brian Murphy

I will draw a pen picture of the type of person we employ. We have a staff of 44, approximately one third of whom are on the financial advisory side. The majority working in this area are chartered accountants and experienced former bankers, corporate and project financiers. All of them are professionally qualified and have several years of experience.

On the project management and procurement side - Mr. Burgess's area - we employ 27, up from 23 because we recruited recently in response to the stimulus package. Most of these individuals are professionally qualified in a construction or procurement related discipline. They include engineers, architects, quantity surveyors and people with extensive procurement expertise in the private sector.

Deputy Sean Fleming

In advance of the meeting the agency kindly supplied a briefing note on its up-to-date activities. The note refers to the stimulus package announced by the Government on 17 July. What is the agency's role in the package?

Mr. Brian Murphy

Is the Deputy referring to the planning of the stimulus package?

Deputy Sean Fleming

Yes, its input into it.

Mr. Brian Murphy

We had a considerable input in advance of its announcement in the sense that the Government was concerned about how it might be financed. For example, I was extensively involved, with my colleagues in the Departments of Public Expenditure and Reform and Finance, in dealing with the European Investment Bank. I accompanied both Ministers to a couple of meetings with the bank. In that sense, we had an input in how the package might be financed. We also advised extensively on market conditions and the concerns the market might express if the country was to launch a stimulus package and a pipeline of projects. The market experience and information we possessed fed into the process.

Deputy Sean Fleming

Speaking from memory, the package included a figure of €105 million by way of PPPs for 20 primary care units. How did the agency arrive at a figure of approximately €5 million per primary care unit? Did it examine the position in different parts of the country in calculating the cost and would the cost be different in north Dublin compared to central Dublin or Ballaghaderreen? I am sure costs in Ballaghaderreen are substantially lower. Of the 35 primary care centres announced by the Government, 20 were to be constructed through PPPs in two bundles of ten. How did the agency arrive at these figures?

Mr. Brian Murphy

We have no role in selecting primary care centres. All the projects were chosen at Government or policy level. We have no role whatsoever in that regard.

Deputy Sean Fleming

How did the agency arrive at the figure of €105 million?

Mr. Brian Murphy

We did not arrive at that figure.

Deputy Sean Fleming

There is a figure included in the stimulus package.

Mr. Brian Murphy

Absolutely, but we did not arrive at it. We have no role in determining the budget or the projects chosen.

Deputy Sean Fleming

I understand that. My opening question was on the agency's role and Mr. Murphy was very expansive in his response.

Mr. Brian Murphy

We advised on how a programme might be financed.

Deputy Sean Fleming

Does Mr. Murphy know from where the figure of €105 million came?

Mr. Brian Murphy

No. The Deputy would have to refer that question to the HSE or the Department of Health.

Deputy Sean Fleming

Mr. Murphy is here because he advises on the financing of PPPs. His agency is the State's adviser on the costing, financing and procurement of PPPs. It is involved in this process. A precise figure is set out for an exact number of projects. The NDFA is the sole State agency in a position to set out a figure, but Mr. Murphy saying €105 million is not his figure.

Mr. Brian Murphy

I am saying we had no role whatsoever in project or site selection or budgeting. Our role in advance of the announcement of the stimulus package was to advise our colleagues in the Department of Public Expenditure and Reform on how it might be financed, the difficulties that could arise in the financial and banking markets and the likelihood of success of a pipeline of projects, irrespective of their individual nature. In other words, we advised on the likely response of the stakeholders in the market - the bidders, contractors and equity providers - to a stimulus package. We had no role whatsoever in determining which Department put in what projects. That is for the sponsoring and sanctioning authorities to do. In regard to our role in PPPs and achieving value for money, if we procure a PPP, we take it over after the policy issues, the budget and public benchmarking issues have been determined and agreed. Only then do we take responsibility as the procuring authority. In regard to primary care centres, we absolutely and definitively played no role.

Deputy Sean Fleming

In the context of the stimulus package, does the agency take a view on whether building 20 primary care centres in two packages of ten constitutes a good package for the market? I accept that Mr. Murphy may be unable to answer this question.

Mr. Brian Murphy

Let me try.

Deputy Sean Fleming

The agency notes that the package involves raising €1.4 billion for investment in public infrastructure and public private partnership investment projects with the European Investment Bank. The NDFA is the most knowledgeable of all State agencies about markets, costs and tendering. Primary care provision is one aspect of the overall €1.4 billion package which I happened to mention. The agency had no involvement in putting together the figure of €1.4 billion.

Mr. Brian Murphy

Absolutely not. These are policy matters.

Deputy Sean Fleming

I would have thought the agency was best placed to advise the Government on the possible costs of PPPs. I ask the officials from the Department of Public Expenditure and Reform how such a cost can be arrived at if the State agency with the most knowledge of procurement and tendering for PPPs played no role in calculating the figure of €1.4 billion that the Minister for Public Expenditure and Reform announced on 17 July. How does the process operate?

Ms Marie McLaughlin

The stimulus package is directed towards projects that meet key infrastructure needs and are in line with the priorities of the Government's investment framework. The projects included in the stimulus package were identified by Departments and costs in the order of those announced were brought forward by them. The further the projects pass through various stages of funding and financing, the greater the precision with which their costs can be identified. These figures were produced by the sponsoring Departments.

Deputy Sean Fleming

Would it not have made sense for the Department of Public Expenditure and Reform to touch base with the NDFA, as the agency solely charged with advising on the operation, implementation, tendering and managing PPPs? Should it not ask the agency to validate the Departments' figures?

Ms Marie McLaughlin

Since the announcement of the package, we have been very much engaged -----

Deputy Sean Fleming

After the fact. What about before the figure of €1.4 billion appeared in the press release? People take such figures seriously when a Minister announces them. I would have assumed that each Department ran its figures by the agency for advice on whether the proposed projects would attract PPP funding. Two packages of ten primary care centres were costed as part of the package, but the people who will be testing the market were not consulted on whether the figures were valid. Can somebody help me?

Mr. Steven Burgess

Everything that has been said is true. Perhaps there is confusion on how the process is followed. The sponsoring and sanctioning authorities are responsible for identifying the projects to be prioritised within their respective programmes.

The sanctioning authorities are those responsible for identifying what projects are to be prioritised within the programme. We are all aware the list of projects people would like to bring forward is a lot longer than the list there.

We liaise with each of the sanctioning authorities. In the case of primary care, we liaise with the HSE. In the case of the courts projects, we liaise with the Courts Service and with the Department of Justice and Equality. In the case of Grangegorman, we work with the Grangegorman Development Agency and DIT. We had prior engagement with them as the Grangegorman project had been announced previously, but was deferred in the previous budget. We were looking to re-engage and restart on that process.

In the run-up to the eventual definition of what was termed the "stimulus package", we had been liaising with the HSE as part of our normal ongoing engagement with it in terms of project and finance advice. In that conversation, the prospect arose that the primary care programme could, perhaps, be a candidate for being delivered by way of PPP, since there were insufficient Exchequer funds and the lease model that was being pursued was not having the desired delivery effect. We had those broad conversations and we had certainly advised the HSE that we believed the primary care programme had suitable characteristics for it to be a successful PPP, as has happened in other jurisdictions, not least the United Kingdom. Therefore, those conversations had taken place.

What we are trying to convey, however, is that in terms of deciding how much of a project or how many projects would be brought forward and what the overall budget levels for those would be, the NDFA plays no role. We can advise as to the likely success of a project as a PPP and whether there is a market for it, but the decision is ultimately for the sponsoring Departments and the Government as to the overall ability to fund a programme and the scale of that programme. As Mr. Murphy has pointed out, one of the key inputs we were providing was to assess how much could likely be afforded. The Comptroller and Auditor General has properly identified the long-term commitments such programmes generate and what was reasonable. That was a decision for PR.

Deputy Sean Fleming

Essentially, was the figure of €105 million for the primary care units produced by the Department of Health?

Mr. Steven Burgess

It would have assessed what capacity it could afford within its budget to deliver €100 million or €200 million in projects.

Deputy Sean Fleming

I will conclude with the observation -----

Mr. Brian Murphy

May I add to that? To clear up any confusion, we had no role in the budget. However, as Mr. Burgess said, in our ongoing discussions with the HSE and the Department of Health, we had said, for example, that the template we used with regard to the schools was very successful and suggested it might be worthwhile looking at that to see if it would work for primary care.

Deputy Sean Fleming

I have no problem with primary care centres if they go that route. I have no objection in principle to that. All I am saying is that if the €105 million for the 20 primary care centres has come from the Department of Health, that is not a figure it can stand over. The Department has not produced a figure it can stand over in the past two years and I put the figure of €105 million in the same category.

I have two other questions before I make my last point. The NTMA, with the assistance of the NDFA, signed a loan for €100 million in mid-November with the EIB for wastewater treatment projects. I urge the NDFA to take on board comments I made with regard to wastewater plant projects. It should talk to county managers about this issue and take on board what I have said before it releases further funding.

When does the NDFA expect construction on the Newlands Cross project to begin?

Mr. Brian Murphy

We are working very closely with the NRA to get a financial close on that project, the N11 and Newlands Cross package. The preferred bidder is BAM PPP PGGM Infrastructure Coöperatie UA.

Deputy Sean Fleming

Will it begin next year?

Mr. Brian Murphy

We have now closed the schools deal so the team that worked on that is now working on financial due diligence. We expect the deal in question will close in early February and that construction will start then.

Deputy Sean Fleming

Fine.

Ms Marie McLaughlin

Before we leave this topic, I would like to point out that the central expenditure evaluation unit of the Department of Public Expenditure and Reform is beginning to carry out work - a focused policy assessment - on the issue of value for money analyses conducted in regard to water projects. The terms of reference will broadly be to assess the extent to which the required VFM procurement analysis is being carried out for water investment projects in the local authority sectors, to assess at a high level the quality of the VFM test carried out, how VFM analysis informs the final procurement decision and feasibility of post-project review for water investment. This is something we are actively engaged in doing.

Deputy Sean Fleming

What I am saying about people's experience gels with that.

Chairman

Will Ms McLaughlin send us a note on that explaining the timeframe for the review and who is involved in it.

Ms Marie McLaughlin

Yes. It is our Department.

Chairman

We would like a detailed note on it so that we understand clearly what the review is about and who is conducting it. That would be a help to us.

Deputy Sean Fleming

This is my final point. The NDFA has signed a number of contracts and I have an important question to ask in the public interest in that regard. What measures does the NDFA take to ensure publicly-funded contracts are completed in accordance with the registered employment agreements, REA, tax and social welfare obligations and health and safety rules? What does the NDFA do to ensure that when it signs a contract giving approval for a major project these obligations are complied with? I believe there is massive non-compliance out there.

Mr. Brian Murphy

With regard to the PPP contracts we sign or that I sign on behalf of the State, the counterpart we deal with is a special purpose company, PPPCo, whose shareholders usually are the main contractor and an infrastructure investor, perhaps a bank or some such investor. The rules for the competition stipulate the requirements or preconditions set out by the Deputy, tax compliance and all the other compliance issues. In advance of closing, there is a rigorous process of due diligence. As part of the bid assessment also, we check all of those things, but in advance of closing, there is rigorous due diligence to ensure there is compliance with the conditions.

Deputy Sean Fleming

That is nonsense. It counts for nothing on a construction site to say the guys in head office have conducted a due diligence process. I am talking about a construction site for any project. The site might have 100 people, some of whom are on the dole, some of whom are not paid the REA rate and some of whom are not tax compliant. I have not mentioned unpaid sub-contractors and annual contracts, but I will get to those in a minute.

To knock on the head what Mr. Murphy has said, I put a parliamentary question to the Minister for Jobs, Enterprise and Innovation, Deputy Bruton, asking whether he was assured all Exchequer funded construction projects, which includes those of the NDFA, are completed in accordance with registered employment agreements. This question was answered on Thursday, 22 November. The Minister responded that the National Employment Rights Authority, NERA, had conducted inspections on this and provided its figures for 2010, 2011 and 2012 to end-August. NERA inspected 183 sites and found that there was non-compliance of 51%. NERA conducted 30 inspections this year, to end-September, on electrical registered employment agreements and found there was non-compliance of 37%. The overall level of non-compliance was 49%. Therefore, I give diddly squat credence that the due diligence done in advance of what is happening on the ground, on the basis that the NERA inspections show 51% non-compliance with registered employment agreements, including sites for which the NDFA signed contracts.

The response did not deal with the issue of whether people on the sites were claiming social welfare. That is a different issue, but the NDFA should be concerned about it. What mechanism does the NDFA have in place to check there is compliance in this regard? The NDFA will say it gets a certificate of compliance from an architect when he or she signs off for payment, but that means nothing in practice. Compliance with health and safety rules should also be verified. I put forward the official NERA figures to debunk the theory there is compliance. There is not.

Mr. Brian Murphy

I would like to know how many of the NERA figures were based on PPP construction sites.

Deputy Sean Fleming

I will answer about one specific project, one of the NDFA's flagship projects, a beautiful school completed in Portlaoise and two in Offaly.

For the duration of that construction contract, some workers used to arrive in their good clothes every Thursday morning to be brought by bus to the North by the subcontractor to collect their social welfare. I have said this on the public record in the Chamber before. When they came home later in the day, they got into their working clothes. Every Thursday morning, a group of them would arrive in their good clothes to sign on. I have said this on the public record. I do not expect Mr. Murphy to know about it. I was asked about specific cases. I will not go into the specifics of the subcontractors who were not paid for their work. It is not enough for Mr. Murphy to say that a contract and a memorandum of understanding have been agreed with the main contractor. The unit that was mentioned a minute ago will appoint someone to do the construction. That person will appoint someone to do ground works. That person will appoint someone to do the block work. There can be four links of subcontractors on the chain.

The same thing applies in the case of the NRA, but I will stick with the NDFA. I have said the same thing to the NRA about people not being paid for delivering tarmac, quarries, stones and supplies. Subcontractors in many school projects have not been paid. In that context, I would like Mr. Murphy to talk about any projects in which the NDFA has been involved in which the contractor went bust and left unpaid debts behind. Is he aware of any cases in which subcontractors, employees and suppliers of materials have not been paid? What can he do when one of these main contractors comes in again? Can he say "Get out of here - I would not deal with you again"? There must be some provision for him to use his own judgment. It is very easy for contractors to give him the cheapest price if they are not intending to pay the registered employment agreement rates. The NDFA is paying them on the basis that they will pay those rates. If those rates are not being paid, the contractors in question can pocket the difference. That is taxpayers' money. This brings me back to the issues of specification, tendering and contract implementation. All of the tendering can be correct, the paperwork can be beautiful and the audit trail can stand up, but there also needs to be a focus on what happens with the registered employment agreement rates on the ground.

I will make it a bit harder by referring to the disappointing response that the Minister gave to a recent parliamentary question. He said that "compliance by contractors working on public contracts would be enhanced if NERA, and relevant Awarding Authorities .... could share appropriate information and thus provide for an effective utilisation of the provisions .... designed to secure compliance with employment law". He went on to say that "data protection" issues mean that NERA cannot even notify the "contracting authorities". I know the Department intends to introduce a workplace relations Bill shortly. That will be of assistance in this regard. The Minister concluded his reply by saying he is "confident that the measures [he proposes to introduce] will provide a legislative basis to facilitate the more effective enforcement of REAs [to which my question referred] for the construction sector in the context of Public Works Contracts." That applies to the Department of Public Expenditure and Reform because it is responsible for the OPW.

There is a problem. We get denials all the time. The Minister genuinely said that if an inspection is carried out on the basis of a registered employment agreement, data protection issues mean it cannot actually tell NERA that there is a problem with a contractor on a site. He said he will correct this problem so that if a State agency knows about this and sees this, it can do something about it. Every time a contract is awarded, I would like the NDFA to tell those involved that an unannounced combined inspection of the site in question will be carried out by NERA, the Department of Social Protection and the tax office as a matter of policy. I expect that would frighten many people. A great deal of work is taking place in the black economy. Many people who would be willing to pay the proper rate are not getting jobs because those who are not planning to pay the official rates are coming in with lower prices. If they were to be told by the NDFA that unannounced inspections of their sites will take place, it would buck them all up.

I am not loading all of this on Mr. Murphy. I know he feels I am putting pressure on him. This problem is bigger than his area. He happens to be here today. I would say the same thing to a representative of the NRA, a local authority or the HSE. I am highlighting a bigger problem than he can handle. I ask him to take on board what I am saying. He should use his discretion to help to stamp out much of what is happening. The NDFA should not deal with any contractor who has a record of not paying a subcontractor or a supplier on a previous job. Perhaps Mr. Murphy will say this is a policy issue. I am reflecting a problem that is widespread in the community. As Deputies, when we get an opportunity to raise these matters with State agencies, we are bound to do so. I am not loading all of the problem on Mr. Murphy. I ask him not to be defensive. He should understand what I am saying. I am not criticising him or his organisation. It is a much bigger problem.

Mr. Brian Murphy

I am appalled by what the Deputy said about workers on a school project in Portlaoise being transported by bus. Nobody could justify that or subscribe to it in any way. I started to explain this earlier. The contracts we sign are PPPs. We sign them with the special purpose PPP company, which engages a contractor to run the site. That contractor might engage subcontractors who might engage further subcontractors. One can see how the whole hierarchy of risk develops. We are very active on the site. The team led by my colleague, Mr. Burgess, does inspections. I will ask him to expand on that in a few minutes. We exercise commercial judgment within the confines of EU and local procurement laws, which are very prescriptive. There is a huge risk here. One is on very thin legal ice if one decides to exclude from the process a certain contractor because one has heard a rumour that it did not pay somebody.

Deputy Sean Fleming

I know.

Mr. Brian Murphy

That is the problem and the difficulty with exercising commercial judgment. The Deputy and I might believe that a certain approach is absolutely the one to be pursued, but the law might say something else. It is a very difficult balancing act. On the non-payment of subcontractors, as the Deputy is aware - we discussed the year before last, if not last year - one of the main contractors on the first and second bundles of schools went into liquidation. One has to understand the business model. One has to understand where our legal responsibility lies in relation to the PPP company. I understand that everybody involved in the second bundle of schools ended up getting paid. I will ask Mr. Burgess to talk about this in a moment.

Deputy Sean Fleming

In response to the parliamentary question I mentioned earlier, the Minister said that "when a contract is awarded, the public authority must .... notify NERA and provide it with a copy of the form". He went on to say that "a dedicated email address" has been established in this regard and that "35 notifications have been provided to NERA to date [this year, presumably]". The number of public contracts is much greater than 35. I am addressing this to the officials from the Department, which issued a circular to contracting authorities last November or December. If it is the case that just 35 notifications have been issued by public bodies to NERA, it is clear that public bodies are not even notifying NERA. The Minister said they are required to make such notifications. The number of public contracts signed in the last period is a multiple of 35. It is clear that public bodies are not even notifying NERA. I suspect that they do not appear to be notifying NERA of public contracts. The Minister said in his reply that they are obliged to do so. I am just giving that information as well. There are many lacunae and problems in this area. That is all I am saying.

Mr. Steven Burgess

The Deputy has touched on a number of issues that are difficult for contracting authorities to tackle. He suggested that full policing might be required throughout the supply chain in the cases of PPPs and Exchequer-funded projects. That is a particular challenge in the context of current resource levels. Having said that, PPP contracts are different from most traditional forms of contract. We act as the employers' representatives. We manage the contract rather than hiring an architect or professional project manager. We have a very hands-on approach.

We have learned lessons from schools bundle 1, which we have carried through to our most recent contracts. This includes a more visible and transparent reporting regime between the PPP and ourselves in terms of its level of compliance on a monthly basis with, for example, payments to sub-contractors within the supply chain. A statement to that effect must be signed by two directors. Failure to comply would potentially constitute a breach of contract. We ensure compliance is taken seriously.

NDFA staff visit sites on a regular basis. Not only do they inspect building and quality records, they are also made aware of all sub-contractors appointed and confirm that their contracts conform with the requirements of our contract. We also engage in our own health and safety assessment of sites. Along with PPP, we appoint an independent tester who will certify the project on completion and confirm that all the processes and building-----

Deputy Sean Fleming

Is Mr. Burgess saying that the NDFA will do this or is currently doing so?

Mr. Steven Burgess

We currently do so. We appoint an independent tester. From schools bundle 2 onwards, we widened the remit of the independent tester to include a specific quarterly inspection of health and safety matters on sites. Our level of oversight within the PPP regime is high. As to whether it could be higher, the answer is "Yes, it could". However, that brings with it attendant costs. What it comes down to is striking the right balance between the level of policing of these matters and reliance on the warranties and representations of other parties that they are complying with the law. We are not obliged to ensure that people comply with the law.

I will check that the notification has gone through to NERA. I am not aware of the circular referred to but I will follow up that matter.

Deputy Sean Fleming

Mr. Burgess said that the main contractor was required to certify that a sub-contractor had been paid. However, the problem arises where a sub-contractor engages another sub-contractor and so on. I suggest there is a need for a mechanism which ensures that any person who enters a site, whether that person is a contractor, a sub-contractor or anybody else, must supply his or her PPS number. This addresses issues with regard to tax, social welfare and health and safety. As such, if an accident occurs on-site, a record of everybody permitted to be on-site will be available. It is important that this is done.

Mr. Steven Burgess

The issue is partially addressed by the safe pass system. No person should be working on a site without his or her safe pass registration. As such, the Deputy's concerns would, in part, be addressed in that way.

Chairman

Before calling Deputy Murphy, I wish to clarify a number of points arising from questions from Deputies Fleming and Donohoe. Mr. Murphy mentioned that the private sector had lost €60 million.

Mr. Brian Murphy

That is an estimate in terms of costs lost and funds invested.

Chairman

The other figure of €219 million relates to PPPs that were abandoned or shelved. How much of that amount is lost to the State? Some projects have only been shelved and may be completed in time. As such, the money spent on them thus far may have been worthwhile. Separating those out, what is the loss to the State in this context?

Mr. Brian Murphy

The figure of €219 million comprises €154 million in respect of the metro north project and €40 million for the interconnector, with the balance being in respect of the metro west project. The NDFA is not the procuring authority for any of those projects. As such, I am not in a position to give an estimate of what is recoverable and so on.

Chairman

Mr. Murphy cannot say whether any of that €219 million is recoverable?

Mr. Brian Murphy

No.

Chairman

It did not happen on his watch.

Mr. Brian Murphy

No. The NDFA is not the procuring authority.

Chairman

Can the departmental officials answer that question?

Mr. Brian Murphy

I can outline the position with regard to a number of the other projects, including third level programmes 1 and 2. These programmes were cancelled a year ago last November. With regard to some of the spending by the preferred bidder on intellectual property, design and so on, I understand one of the institutions concerned has separately agreed to purchase this. As such, some of that value has been retained.

Chairman

I am interested in the €219 million which arises from projects abandoned or shelved. Mr. Murphy earlier gave us an estimate of €60 million lost to the private sector. However, when it comes to taxpayers' money, we do not even have a guesstimate of what has been lost to the State. Mr. Murphy says he cannot answer that question because the NDFA is not the procuring authority, which I understand. What is the procuring authority?

Mr. Brian Murphy

I refer the Chairman to the figures with regard to property acquisition. I presume some of those sites remain. The design and PPP procurement-----

Chairman

I am not here to guess. I am asking what is the exact amount lost to the State as a result of projects that were abandoned or shelved. From whom can I get that figure?

Mr. Steven Burgess

If I may, I can speak on the third level programmes. As stated by Mr. Murphy, we do not have visibility on the numbers for the other projects as we are not the procuring authority and do not know the expenditure levels in that regard. In respect of the third level programme that was cancelled, as reported in the Comptroller and Auditor General's report the cost of the cancellation of that project was €5.7 million in respect of enabling costs. In addition, some €4.4 million of cost was expended on consultancy costs. I would venture to say that that €4.4 million is lost to the State. The €5.7 million relates to physical works, seeking and obtaining planning permission and so on. I would venture to say that a significant portion of this money was expended on Waterford Institute of Technology in respect of the temporary accommodation required and works to be demolished. There was also a cost for a new park and ride facility, which stands the institute in good stead. I would say approximately half of that amount is lost to the State. We can revert to the committee with a more accurate assessment of the enabling costs at a later date.

Chairman

That is Mr. Burgess's account of the NDFA's involvement.

Mr. Steven Burgess

Yes.

Chairman

Who is accountable for the balance? Is it the Department?

Ms Marie McLaughlin

The contracting authorities of each of the projects.

Chairman

Does the Department not have oversight of the contracting authorities?

Ms Marie McLaughlin

Yes, but I do not have with me a breakdown of the losses versus the value retained in terms of sites.

Chairman

Arising from the questions asked, the Department of Public Expenditure and Reform officials do not have on hand the amount of the €219 million they referred to which is lost to the State. They also do not have the figure relative to each local authority area in terms of money invested directly in PPPs. It was stated earlier by the officials that they would forward a detailed note in response to the first question to the committee. Can they do likewise in respect of the second question?

Ms Marie McLaughlin

We will take up the matter with the Department of the Environment, Community and Local Government.

Chairman

Will Ms McLaughlin report back to the committee on those matters?

Ms Marie McLaughlin

Yes.

Chairman

As of today, roughly €697 million has been lost to the State. When forwarding the figures, as was done here this morning with regard to the NDFA, Ms McLaughlin might provide us with a breakdown of what can be added in terms of value should a project be resumed and what has absolutely been lost. This information would be helpful to the committee.

I understand the NDFA has no responsibility with regard to the contracting agencies for transport and environment projects. Does the NDFA provide the agencies with advice in that regard?

Mr. Brian Murphy

We have given financial advice to the National Roads Authority in respect of the roads programme.

Chairman

Does the NDFA offer any other professional advice such as, for example, in respect of engineering?

Mr. Brian Murphy

No. It is purely financial advice - helping with regard to the PSP and then carrying out the value-for-money test.

Chairman

So the NDFA offers financial advice to the two largest Departments which spend money on infrastructure, namely, the Departments of Transport, Tourism and Sport and the Environment, Community and Local Government. Looking back on the history of the NRA and the overspends that were incurred - I admit that the position in this regard was corrected to some degree in respect of recent projects that came in on time and under budget - financial advice was offered to the Department of Transport, Tourism and Sport. Could the same be said in respect of the Department of the Environment, Community and Local Government?

Mr. Brian Murphy

We have been a financial adviser on two environmental projects. These are projects relating to water. We are currently working as a financial adviser on the Dublin outfall project, which is at a very early stage. We were also an adviser on the Waterford group water scheme.

Chairman

At last week's meeting, through the questions posed by Deputy Eoghan Murphy, we dealt in detail with the Poolbeg project. I wish to make an observation to the effect that the Committee of Public Accounts has almost reached the stage whereby, in order to complete its work, to assist the Comptroller and Auditor General and to ensure that taxpayers are informed, we will almost certainly be obliged to hold a meeting at which the witnesses will be the Accounting Officers from the Departments of Public Expenditure and Reform, Finance and the Environment, Heritage and Local Government. We cannot get to county managers or those who are driving the Poolbeg project, nor can we readily obtain information relating to local authorities, PPP projects and the former's input into the latter. In addition, there is a great deal of cross-referencing to be done with the Department of Finance. I am of the view that the Committee of Public Accounts should pursue this matter early in the course of its work for 2013.

There is a vast amount of taxpayers' money that is not easily accounted for, and this is not acceptable to me as Chairman of this committee. Listening to the questions that have been asked, I do not know how it could be acceptable to the general membership of this committee either. Given the commitment of €4 billion to PPPs and what appears to be a loss of €219 million - and God knows what is the position with regard to local government and transport - I am of the view that we must draw a line somewhere. The officials from the Department of Public Expenditure and Reform should take note of what is being said because this is a matter I intend to address in the new year. A substantial amount of taxpayers' money is going directly from central government to local government, but this is not being accounted for and we cannot obtain direct answers in respect of it. We must correct the position in this regard in the interest of taxpayers.

Mr. Brian Murphy referred to the make-up of the NDFA's staff. Will he indicate the amount of money that was spent last year and in the previous year on external consultancy work?

Mr. Brian Murphy

In 2010 the amount spent on external consultants was €4.954 million and in 2011 it was €3.149 million. The important aspect to remember is that this expenditure related to third-party technical, financial or legal advice. It is all recoverable from the sanctioning authority on whose behalf we are procuring a project.

Chairman

Yes, but it is all taxpayers' money.

Mr. Brian Murphy

It is all taxpayers' money. As the agent, we engage the consultants and then the cost is recoverable from the budget of the procuring authority.

Chairman

So the skills that the NDFA lacks are procured from outside legal, technical or financial consultants.

Mr. Brian Murphy

Yes, and we also engage engineering consultants.

Chairman

It is still a huge amount of money. I presume a competitive tendering process is undergone in respect of such consultancy work.

Mr. Brian Murphy

Absolutely. All consultants are engaged under public procurement rules and we run competitions.

Chairman

Will Mr. Murphy provide a breakdown in respect of staff salaries? How many are earning more than €100,000?

Mr. Brian Murphy

I understand that when he appeared before the committee last week, my colleague Mr. Corrigan, the CEO of the NTMA, supplied a detailed breakdown. The NDFA does not engage people directly. We do not employ people; they are all NTMA employees.

Chairman

So the figures with which we were provided last week also obtain in respect of the NDFA. That is fine.

Mr. Brian Murphy

Absolutely. The NTMA provides all the skills and engages all the relevant people. The numbers provided by Mr. Corrigan also include those for the NDFA's staff.

Chairman

Is it the case that Mr. Murphy is employed by his agency?

Mr. Brian Murphy

No, I am employed by the NTMA.

Chairman

I see. That is fine. I call Deputy Eoghan Murphy.

Deputy Eoghan Murphy

I thank Mr. Murphy for coming before us today. I wish to return to an issue raised by Deputy Sean Fleming when he was discussing the membership of the board. Sitting on a board of this sort is a big responsibility, and I am sure there is a great deal of work involved. If people are going to take on such work, then in certain instances they should be paid for it. However, the idea that the head of one State agency would sit on the board of another and get paid for doing so is outrageous. I wish to clarify a number of matters for the record. The six members whose names appear on the 2011 report were each paid for sitting on the board for that year. The total figure in that regard was €75,600, which equates to approximately €12,600 per person. The board met on five occasions in 2011.

Mr. Brian Murphy

The board met on five occasions in 2011 or perhaps six.

Chairman

The figure is €12,000, is it not?

Mr. Brian Murphy

It was €12,600 per person. It is important to remember that sitting on the board is not the only thing these people do. They attend other meetings. For example, one of them sits on the audit committee, which meets four to six times each year. In addition, individual projects have steering groups and these must also have directors from the board. They engage in other meetings which are not apparent.

Deputy Eoghan Murphy

I am aware of that. Where do the meetings of the board take place?

Mr. Brian Murphy

They take place in the Treasury Building.

Deputy Eoghan Murphy

All five of them take place there?

Mr. Brian Murphy

Absolutely, yes.

Deputy Eoghan Murphy

Okay. I just wanted to be clear on that. There have been changes to the membership of the board.

Mr. Brian Murphy

There have been changes. Three new members were appointed some months back and there are three new members who will be appointed very shortly. We are waiting to hear back from the Minister for Finance on that. Three members' terms finished at the May board meeting and the terms of three more will finish at the end of this calendar year. Therefore, their final board meeting was on 29 November.

Deputy Eoghan Murphy

And they will be paid for those services on the board?

Mr. Brian Murphy

Yes.

Deputy Eoghan Murphy

Will any of them be from other State agencies?

Mr. Brian Murphy

Is the Deputy referring to the newest members?

Deputy Eoghan Murphy

Yes.

Mr. Brian Murphy

One of the new members is the Secretary General of the Department of Public Expenditure and Reform, who obviously will not be paid. Another is the head of the institutes of technology and he will not be paid either. As stated earlier, neither John Corrigan nor I are paid for our membership. There is only one other new member who will be paid.

Deputy Eoghan Murphy

And that person will not be coming from another State agency?

Mr. Brian Murphy

No - from the private sector.

Deputy Eoghan Murphy

Okay. I thank Mr. Brian Murphy for the clarification.

The main matter on which I wish to focus relates to the Poolbeg incinerator project, which is mentioned on page 18 of the NDFA's report for 2011. The NDFA is financial adviser for this project.

Mr. Brian Murphy

Yes; we have become the financial adviser for the project.

Chairman

That development might be a bit too late.

Mr. Brian Murphy

This is what we call a legacy project, and it has been hanging around for a long period. We were engaged as a financial adviser some years ago. Deputy Murphy will probably be aware - I think this matter was referred to previously - that a value-for-money letter from the NDFA issued in May 2007. The Deputy may not have seen it but I would refer him to the detailed letter we wrote two years ago. John Corrigan, chairman of the NDFA, wrote that letter, in which he set out our role and responsibilities in these matters. That letter was addressed to Deputy Sean Fleming in his capacity as a member of the Joint Committee on the Environment, Community and Local Government.

If it would be helpful, we will supply a copy of that letter afterwards to the secretariat. Let me give the background to it. The letter to which I referred was written by Mr. John Corrigan in March 2010. It set out the role of the NDFA and how it became involved. The project predates the NDFA's existence and is a legacy it inherited. The NDFA worked in the pre-existing arrangements which were already set up by the sponsoring authority, DCC and the sanctioning authority the then Department of the Environment, Heritage and Local Government. The arrangements included working with the client representative consortium, which had been chosen by the sponsoring agency and was led by RPS as technical advisers. The consortium also included PwC as project financial advisers and McCann FitzGerald as project legal advisers.

We issued a value for money letter in June 2007. The key role of the NDFA was to provide an opinion on the value for money testing as per the guidance issued by the Department of Finance. We were measuring what was tendered against the agreed benchmark. In essence the NDFA's role in the project was to compare the net present value of the private sector bid with the MPV of the agreed public sector benchmark. In the case of this project, the NDFA's role, as directed by the sponsoring authority, was to work with the pre-existing client representatives in order to carry out this value for money comparison. The value for money letter was issued in June 2007.

Earlier this year in light of everything that has been happening and the various negotiations, I wrote to DCC and advised it the 2007 value for money letter is now void and a new value for money letter will be required when outstanding commercial issues have been resolved. I understand there are various issues to be resolved including the provision of private finance. I understand that discussions on the provision of private finance are well advanced. We are not privy to those discussions obviously but there are also a number of other outstanding issues, namely, the question of state aid, on which a ruling from the European Commission is awaited. I understand a complaint was made to the Commission on the procurement grounds which must be ruled upon. Only when all outstanding commercial issues and the items I have mentioned have been resolved, will the NDFA be given a new financial model. The NDFA will provide a refreshed public sector benchmark and the final bid received will then be compared to test whether it provides value for money.

Deputy Eoghan Murphy

Is it correct to say that will happen following the securing of finance on the private side, so that when the project will get the go ahead again, the NDFA will then test it against the value for money benchmark?

Mr. Brian Murphy

Yes, absolutely.

Deputy Eoghan Murphy

That does not make sense.

Mr. Brian Murphy

The NDFA can only assess value for money on what is finally bid. There will only be an agreed financial model when the other issues have been resolved, and then it will come to the NDFA.

Deputy Eoghan Murphy

Does that include the bid being accepted?

Mr. Brian Murphy

Absolutely, yes. The Covanta consortium is the preferred tenderer. If the final bid that comes in does not satisfy the benchmark, then it will not be value for money.

Deputy Eoghan Murphy

If Covanta comes in with its final bid in the first quarter of next year, the NDFA will conduct a value for money test on the bid and if does not represent value for money for the State, the NDFA will finish the contract with Covanta.

Mr. Brian Murphy

If it does not represent value for money, there is a process whereby the sanctioning authority must go to the relevant Minister.

Deputy Eoghan Murphy

Will other people be bidding at the same time? Are we asking for new bids, for example, is Indaver being asked to bid?

Mr. Brian Murphy

My understanding is that the preferred bidder is Covanta. The negotiations are continuing between DCC, which is the procuring authority and the preferred bidder.

Deputy Eoghan Murphy

I am confused. My understanding is that we were waiting for Covanta to secure final financing and then they were going to go ahead. Mr. Murphy is stating that is in doubt now.

Mr. Brian Murphy

The project will go ahead but it is subject to the project being value for money.

Deputy Eoghan Murphy

I am interested in the value for money condition, as this is the first I have heard of it. When was the decision taken that the value for money result from 2007 was void?

Mr. Brian Murphy

I am the Accounting Officer, the official who must issue the value for money letter. When I looked at the delay, I considered that a letter issued in 2007 cannot be valid in 2012, so we need to see a refreshed benchmark and a value for money test.

Deputy Eoghan Murphy

When did Mr. Murphy make that decision?

Mr. Brian Murphy

In the first quarter of 2012. I wrote a letter to DCC in March to advise it of that fact.

Deputy Eoghan Murphy

Can members be given a copy of that letter?

Mr. Brian Murphy

First I must check whether it can be released legally.

Deputy Eoghan Murphy

It would be very interesting to see it.

In 2007 a value for money letter was issued, but a great many things changed after 2007 and the NDFA made reference to some of them. The NDFA gives financial advice on projects, how does it work in this case? In the first quarter, Mr. Murphy decided to look again at this project.

Mr. Brian Murphy

The role of the NDFA is just to do the value for money test. As I said at the start and when I was explaining the letter that Mr. Corrigan sent, this was what we called a legacy project. It predated the formation of the NDFA. Our sole role as the financial adviser is to do the value for money test.

Deputy Eoghan Murphy

The sole role of the NDFA is to do the value for money test. Essentially that was done in 2007. Why did the NDFA decide to do it again?

Mr. Brian Murphy

The value for money test that NDFA does is that it compares the bid with the benchmark. Things have changed since. We then said the value for money letter cannot be valid, we must do a new one based on the final commercial terms, the final financial model versus a revised benchmark.

Deputy Eoghan Murphy

Does somebody come to the NDFA and request it to do another value for money report?

Mr. Brian Murphy

That process is what is required under the guidelines issued by the Minister.

Deputy Eoghan Murphy

Did the Minister come to the NDFA in the first quarter?

Mr. Brian Murphy

No. The officials, the sponsoring authority, DCC is following the guidelines for PPP procurement as issued by the Department of Finance or by the Department of Public Expenditure and Reform.

Deputy Eoghan Murphy

Did they request the NDFA at the beginning of the year to look again the project?

Mr. Brian Murphy

DCC is aware that it must have a final value for money test result before the deal can be signed. The officials must liaise or dialogue with the NDFA on it. My colleague, Mr. Gerard Cahillane, and his team of analysts have been liaising extensively in the past 18 months with DCC on this point.

Deputy Eoghan Murphy

Did Mr. Murphy say in March 2012, that the 2007 VMF letter was no longer valid and that the NDFA must look again at the issue?

Mr. Brian Murphy

I decided to write that letter, so that there could be no confusion further down the road on the issue of value for money. I wanted to remove any doubt about the situation. For the sake of clarity and certainty, I stated that the 2007 letter was void, and that we would require a new value for money test.

Deputy Eoghan Murphy

When the NDFA does the new test at the beginning of next year, will it take into account the €80 million already spent and the Hennessy report which talks about a potential future liability for the taxpayer?

Mr. Brian Murphy

There will be a final bid, a financial model which we will compare to the benchmark. Whatever money has been spent is irrelevant to that exercise. That is the money that has been spent on land acquisition and other things.

Deputy Eoghan Murphy

Is account taken of a second compulsory purchase order after 2007, that had not been anticipated in the original?

Mr. Brian Murphy

The revised benchmark will take care of whatever new circumstances there are.

Deputy Eoghan Murphy

And the money spent?

Mr. Brian Murphy

The money that has been spent is excluded because much of that was on land acquisition which would be spent in any case.

Deputy Eoghan Murphy

It was not necessarily so because the second compulsory purchase order was a result of the foreshore licence that was denied.

Mr. Brian Murphy

We must clarify that point. The important point is that the revised benchmark will reflect new conditions and that will be compared to the final bid.

Mr. Gerard Cahillane

Let me clarify the point. In any assessment of the value for money, one must assess the value for money versus what is tendered to the market so that there is a like for like comparison. When one is preparing a benchmark for any project, one must ensure that it is only what is tendered to the market, what the market will provide - the services, the construction and delivery that it will provide will be incorporated into the test. If there are enabling works in any particular projects, such as land purchase or any such items, they are not part of that particular test, that is a matter for the State of look after itself.

Deputy Eoghan Murphy

How is that taken into account when we are looking at this in terms of being a participants

Mr. Gerard Cahillane

In terms of the particular value for money test for which we are responsible, it is not taken into account.

It would need to be incorporated into the cost-benefit analysis.

Deputy Eoghan Murphy

Who does that?

Mr. Gerard Cahillane

That would have been done by Dublin City Council, DCC.

Deputy Eoghan Murphy

Does anyone check that analysis for the council?

Mr. Gerard Cahillane

I am not aware of how that is processed.

Deputy Eoghan Murphy

We need to find out. Someone else needs to look at the figures as well, rather than Dublin City Council which is directly involved in the project and is part of the consortium. We need to know that the cost-benefit analysis done by DCC stands up and takes into account all the relevant matters. I presume the NDFA will not take into account the Hennessy report when it undertakes a value for money exercise because that will come into the cost-benefit analysis.

Mr. Gerard Cahillane

Yes.

Deputy Eoghan Murphy

I presume matters such as falling volumes of waste will not be included. I presume the NDFA will look at what is being tendered in term of how that will compare in the market.

Mr. Gerard Cahillane

Our test is a very mechanical test. We can only incorporate into the public sector benchmark what the private sector is going to provide and deliver. We cannot take into account ancillary costs or expenditures. Dublin City Council will have to incorporate all the expenditures arising in the project. The council keeps a full account of the total project cost.

Deputy Eoghan Murphy

Can the NDFA provide me in writing the details of how the test will be carried out in order that I can know what will not be included?

Mr. Gerard Cahillane

There are good guidance principles regarding the preparation of the public sector benchmark.

Deputy Eoghan Murphy

I appreciate that. I thank Mr. Cahillane for answering my questions.

Deputy Kieran O'Donnell

I welcome Mr. Murphy and his colleagues. I wish to elaborate on a number of points which may have been touched on. I refer to the report of a review carried out by the UK national audit office. I refer to the breakdown of the share of profit between public sector and private sector in public private partnerships. Is it possible for either to make a profit from a PPP? Are the terms of a PPP made public? Does the NDFA carry out a cost-benefit analysis? It would seem that in the case of the UK, the government would have built the projects at a cheaper cost if it had borrowed the money rather than using the PPP system. I wish to tease out the issue of value for money. The UK equivalent system is called a private finance initiative. The UK national audit office report highlighted that these were poor value for money compared with a system where the government borrowed the full total and the project was then a public project. In some cases these projects were being used to circumvent departmental budgets. Do the contracts incentivise the contractors in any way? Does the NDFA include a renegotiation clause in the contract? I ask Mr. Murphy to shed some light on how PPPs work. Irish contractors find it difficult to get bonds. How many PPPs involve major Irish contractors? Are their tendering prices robust? Are they tendering at such low rates that these are not sustainable? Does the NDFA carry our due diligence inspections on the contracting companies? Is there scope for breaking down a PPP into a number of units so that smaller Irish building companies can tender for the work? I ask Mr. Murphy to provide an overview.

Mr. Brian Murphy

There is a lot in those questions. I will start with the UK because the Deputy raised some interesting issues-----

Deputy Kieran O'Donnell

I do not want Mr. Murphy to cherry-pick the issues.

Mr. Brian Murphy

No. Deputy O'Donnell spoke about private sector profit in a PPP. With all due respect, the private sector would not be involved in PPPs unless it can see a return.

Deputy Kieran O'Donnell

I accept that.

Mr. Brian Murphy

We have visibility on that return. We see the financial model. We see the bid that comes in and we assess it against the benchmark, as we explained earlier. We see the financial structure - how much is equity, how much is mezzanine, how much is senior debt. We can see if a tender is reasonable and whether it is within the range of expected return for that type of project.

The UK national audit office has carried out some very interesting work. We have studied the reports very diligently. We agree with some of the conclusions and we disagree with others. We have been following the PF2 initiative, which the Chancellor announced last Wednesday. We have examined some of the proposed innovation which addresses in some way what the Deputy was asking about. We see that there are some good ideas but we also have some reservations.

Deputy Kieran O'Donnell

Perhaps Mr. Murphy could provide some examples.

Mr. Brian Murphy

Theoretically this idea that the State takes equity is a sound idea. However, when one examines the practical issues, in my view there will be some problems.

Deputy Kieran O'Donnell

Why?

Mr. Brian Murphy

There will be problems of conflicts of interest. The State will have a seat on the board of the PPP company. There could be serious differences between the equity holders about how to apply life cycle funds or reserves or whatever. The other potential drawback, and we have been hearing some negative feedback from the market about this initiative, is the notion that before a financial close, the promoter or main sponsor - the biggest equity holder, in other words - will be required to sell off some of its equity to institutional investors such as pension funds, for example. I have a sense that professional investors in infrastructure, who will have borne the big cost risk, will not be too happy about that.

Deputy Kieran O'Donnell

Is Mr. Murphy talking about institutional pension funds, for example?

Mr. Brian Murphy

Yes. I sense they may not be too happy. I made the point that the capital which is provided for PPPs is internationally mobile. This is an international market, not an Irish market or a UK market or even a European market. It is a global market. The capital is very fungible, very mobile and will migrate to where the perceived returns are best. For instance, Scotland has introduced a new model of PPP where the returns for equity holders are capped. This sounds great and is marvellous protection for the taxpayer, but if investors do not take the bait, then projects will not be built. It is a difficult and very challenging balancing act. Our role is to ensure the best value for money for the taxpayer. This would imply minimising the equity return to the private sector. On the other hand, it is essential to attract sufficient interest from the private sector to create the value for money, to get the competitive tension going. It is a delicate balancing act.

Deputy O'Donnell made a good point about bonds in the Irish market. This is a concern to us. I will ask my colleague, who is head of procurement, to deal with it.

Deputy Kieran O'Donnell

In the PPPs which the NDFA has monitored in recent times, how many of the principal contractors have been Irish? How many of these have gone out of business during the lifetime of the project? What have been the implications in such cases?

Mr. Brian Murphy

Two high profile projects which we have closed in the past couple of years were school bundles Nos. 1, 2 and 3. School bundles Nos.1 and 2 are closed and are built and delivered, while school bundle No. 3 was closed a couple of weeks ago. Thankfully, the builders are on site and the construction is taking place. The contractor in school bundle No. 1 went into liquidation. This was a major Irish contractor. Fortunately, 98% of the work was completed so we got the project finished out, everything was fine and everything was handed back to the Department of Education and Skills. We had a structure in place in the second bundle with joint contractors who were two large Irish contractors. We structured it so that it was a joint venture with joint and several responsibility.

Deputy Kieran O'Donnell

Cost saving.

Mr. Brian Murphy

Joint and several responsibility to deliver. One of the major contractors on school bundle No. 1 was one of the contractors on school bundle No. 2. When that company went into liquidation, the other contractor stepped in and did a very good job. They delivered all the schools ahead of budget and ahead of time even though some of the schools they took over were actually three months behind.

Deputy Kieran O'Donnell

Has the NDFA put further measures in place to ensure the structural soundness of principal contractors appointed to these projects?

Mr. Brian Murphy

Absolutely. One of the big challenges for us is assessing and ensuring the financial robustness of a project because that underpins its deliverability. We are looking at all kinds of initiatives to do that. I will ask Steven Burgess to comment-----

Deputy Kieran O'Donnell

I am interested in the bonds and, more particularly, Irish contractors because they provide more specifically Irish jobs.

Mr. Steven Burgess

The Deputy touched on an important point for the Irish domestic contracting industry but also for the deliverability of not only the capital programme but the stimulus programme. The reality is that all the contractors, or pretty much all of them, who take part in our public-private partnerships, PPPs, are Irish contractors.

Deputy Kieran O'Donnell

It is good to hear that.

Mr. Steven Burgess

While we hear that the equity investment is almost exclusively international, although there is a very small-----

Deputy Kieran O'Donnell

The Dutch pension fund and the -----

Mr. Steven Burgess

That is correct. Across all the deals that have taken place in Ireland during the past ten years, they would all involve international equity investors. The contractors are by and large almost exclusively Irish and that is a difficulty for us looking forward. We talked earlier about the marketing of the stimulus package and attracting equity investors to invest in Ireland. No different than our colleagues on the NTMA debt bench going to market Irish bonds but the delivery vehicle will be the Irish construction industry and that has taken a significant knock in the past number of years. The CSO's report published in the past few days shows how much the productive output of construction has dropped.

Deputy Kieran O'Donnell

I have not seen that report. Why type of figures does it quote?

Mr. Steven Burgess

It shows a further 8% to 10% drop over last year but this is an industry whose productive output about has dropped by 75%-----

Deputy Kieran O'Donnell

Since peak.

Mr. Steven Burgess

-----since peak. That has had a big consequence on balance sheets in terms of the construction market. While we can say that those in the sector have been able to deliver very substantive and world recognised projects in terms of their competency, they are very much a shadow of their former selves. Equity investors coming into the market are looking for strong counter parties. Within the PPP contracts, we do not look for performance bonds because there are already sufficient mechanisms within them to incentivise the PPP company to do what it is required to do.

Deputy Kieran O'Donnell

The performance bonds would be a feature internationally.

Mr. Steven Burgess

One would not necessarily see a performance bond in a PPP contract because of the-----

Deputy Kieran O'Donnell

They are in contracts in Poland and in other countries but that is neither here nor there.

Mr. Steven Burgess

Perhaps but we do not require them and neither does the UK. The payment mechanism already has a performance element in it which sees a deduction being made for non-performance. It would be rubbing salt into the wound to require that and it would not constitute value for money to ask for it.

Deputy Kieran O'Donnell

With regard to the stimulus package, the future of PPPs and the Irish construction sector, what do the witnesses as the people in this space believe should be done to ensure Irish contractors can get bonds in place, bid for PPPs and comfort can be provided to the institutional investors to ensure PPPs can be brought to fruition unencumbered?

Mr. Steven Burgess

I think, Chairman, that may be straying into area of policy but I would say there are discussions going on between ourselves and the Department of Public Expenditure and Reform on this very matter. It is probably not my place to comment on that, but we would be looking for any measures that would strengthen the availability and costing of bonds certainly within the public procurement context.

The Deputy also touched on something, of which we are also acutely aware, in respect of PPPs as public procurements. Our equity investors, who are the sponsors and leads, like to see very large projects but, with the diminished capacity we have in our market, contractors here would like to see much smaller projects. Again, we have to find a balancing act to structure deals such that we are attractive to both parties. It means we tend to make our projects slightly larger. One of the reasons for that is the transaction costs that go with PPPs. Generally, a contract value of around €50 million would be the bottom threshold. That obviously creates barriers to the participation of SMEs. To take 2007 as an example, that was less of an issue and there was plenty of work for everybody but that is not the case today. We have embarked on an initiative with Enterprise Ireland to look at ways in which we might offer greater transparency to the opportunities for SMEs within the PPP programme. We are trialling that approach through the devolved schools building programme, which is the traditional one. We, along with Enterprise Ireland, will host a market launch day for that programme next Monday and we will advise those who would participate in this that they would be required to participate, for example, in meet the buyer type events. We cannot force the main contractors to engage the SMEs but we can create the opportunities for people to be presented with a chance to talk to the main contractors and to-----

Deputy Kieran O'Donnell

Is the agency doing anything to incentivise the principal contractors to engage with the SMEs?

Mr. Steven Burgess

We are.

Deputy Kieran O'Donnell

Okay.

Mr. Steven Burgess

Leading on from that, the stimulus package is meant to be about growth and jobs. Not only will we incentivise them or seek that they participate directly with the SME sector, we will also seek to incentivise them to engage those who no longer work in the industry. Hopefully, this will encourage apprenticeship and engagement of the long-term unemployed under the contracts. We are looking at mechanisms in that respect. Public procurement is a difficult area but we are certainly looking to find mechanisms to do that.

Deputy Kieran O'Donnell

I thank Mr. Burgess for that. It is good to hear good news.

Deputy Paschal Donohoe

Can I direct a specific question to Mr. Burgess on what he just said? He made the point that the shrinking balance sheets of the construction companies seeking to participate in these PPPs is having an impact on the agency's ability to secure investment in the projects in the first place. Can he explain why that is the case?

Mr. Steven Burgess

Within the PPP structure we engage with the special project vehicle or the special project company, as it has been termed, that has been set up. It is a ring-fenced company into which the risks of the project go. It engages with a delivery partner, or generally two delivery partners, one to deliver the works, which is through a design-build formal contract, and another to deliver the services. Our PPPs are not only about delivering a school on day one, they are also about maintaining it, making sure it maintains its life value over the term and delivering soft services. The PPP company looks for strong partners because this is a long-term relationship. These are long-term deliveries and the PPP company seeks to pass the risks we pass across the table to it back down its supply chain because it wants to hold as little risk within its own entity as possible. It will look for a strong contracting partner who can absorb those risks and that is the reason for it.

Deputy Paschal Donohoe

I understand.

Mr. Brian Murphy

I would add that normally they will also require or expect the main contractor to take equity in the special purchase company, SPV. As Mr. Burgess said, the balance sheets of many of the construction companies show that those companies do not have the capacity to invest.

Deputy Paschal Donohoe

They are not able to do so.

Mr. Brian Murphy

The investor wants the contractor to have a skin in the game, in effect.

Deputy Paschal Donohoe

Yes, I understand. I was not quite sure what the relationship was there and I appreciate Mr. Murphy's explanation.

Chairman

I thank the Members for their input. Before I hand over to the Comptroller and Auditor General, I do not believe there is a paragraph in his opening remarks or observations on PPPs generally that does not ask the Department to examine various aspects of PPPs, whether it be in terms of the advice, the sound understanding required, the publication on the website, or the matter of no effective benefit or the economic sense to make the investment. In respect of all those, explanations are sought. If all of the observations were to be acted upon, that would provide a greater understanding to the public, to those who might be interested in PPPs, and to the members of this committee in terms of the role we play in terms of ensuring value for money for the taxpayer.

I suggest that the Accounting Officers in the Departments of Public Expenditure and Reform and Finance be given copies of the observations of the Comptroller and Auditor General and the transcript of the meeting. Actions based on the observations of the Comptroller and Auditor General can be taken on board by the departmental officials. I would like to know the response of each Department to the observations.

Ms Marie McLaughlin

A number of the recommendations have already been responded to. I refer to the updating of the website and to making as much information as we can available.

Chairman

We are still going to give a copy of the observations and the transcript of the meeting to both Accounting Officers, and we will ask for their observations. Some action may have been taken. We want to see what has been done, what needs to be done and what the officers do not want to do. Greater understanding is required on the PPP process and accountability.

Mr. Brian Murphy

May I make a suggestion? PPPs comprise a technical area, particularly in regard to the benchmark and financial models. If members of the committee consider it useful, we would be delighted to welcome them to our office to make a presentation or offer a workshop.

Chairman

We will certainly consider that invitation.

Mr. Seamus McCarthy

I have a few points to pick up on. For a number of years, my predecessor and I have reported on PPPs. As Mr. Murphy stated, from as early as 2003 we have been making the point that there is a need for more information in the public domain on what delivers value for money in respect of PPPs. This also applies to capital projects in general and what makes them work. Sponsoring Departments have an obligation to account publicly for their performances and the achievement of value for money. The Fact That my office can consider the details of an individual project is not a substitute for accountability. The importance of putting good information into the public domain still stands.

Deputy Murphy asked how we account for updated information. I made the point last week that there is a distinction between what the NDFA does in examining a project and what is referred to as value-for-money testing in that context. It is about trying to decide what is the better way to procure a project rather than considering value for money, which has another meaning in the sense of determining whether we need to be engaging in one project rather than another. In this regard, I refer to cost-benefit analysis. As Mr. Cahillane said, there are various technicalities that arise in regard to the assessments in both contexts, but the departmental guidelines on capital projects emphasise that where significant developments happen in the course of developing a project, there is a need to revisit the earlier decision – the cost–benefit decision – in the light of the later information.

The National Audit Office has made a point on the visibility of returns, to which Mr. Murphy referred in the context of financial models. Certainly, one can see the level of return expected for a project if it runs according to a model’s projection. However, the outturn is not known. I do not believe there are structures in place to do so. PF2 in the United Kingdom is making suggestions about trying to have more visibility on the actual returns achieved by private sector partners rather than projected returns suggested by the model.

With regard to the projected returns, Mr. Murphy mentioned a return of 13% to 15%, which may reasonably be expected in a risk-bearing commercial venture. That would be a central expectation but the outturn could be higher or lower. Typically in these projects, there are limiting constraints built in so that any excess benefit would be shared between the public and private sector partners. Alternatively, if a project does not turn out to be as lucrative as projected, there is a floor below which the private sector partner will not incur a loss. This is the case with roads projects. It is a very technical and difficult area. If the Committee of Public Accounts is to be given a presentation by the NDFA, I would certainly like to attend and hear a little more.

Mr. Brian Murphy

Mr. McCarthy is very welcome.

Chairman

Chapter 6 of the 2011 report deals with a number of PPP projects for Departments and various bodies. We will keep the chapter open until we examine them.

The next matter to be dealt with is the 2011 accounts of the NDFA. Does the committee agree to note the accounts? Agreed.

I thank the witnesses for attending.

The witnesses withdrew.

The committee adjourned at 12.55 p.m. until 10 a.m. on Thursday, 20 December 2012.