Dáil Éireann debate -
Wednesday, 27 Nov 1985

Vol. 362 No. 2

Private Members' Business. - Report of Committee on Public Expenditure — Control of Capital Projects: Motion.

Mr. L. Fitzgerald

I move:

That Dáil Éireann takes note of the Report of the Committee on Public Expenditure: Control of Capital Projects.

This report arose from public concern about major cost overruns on public construction contracts and the committee decided that an urgent review should be undertaken of the extent to which public sector contracts were monitored and controlled at present and also to examine two projects in which there had been major overruns, namely, the Howth harbour development scheme and the Department of Justice prison building programme.

Because of the committee's concern about the apparent lack of control of expenditure on public capital projects it was decided to appoint the first sub-committee to examine this important area and in as much depth as was possible, given the resources available and within a very limited time scale. The sub-committee, which met for the first time on 31 October 1984 consisted of four members — Deputies Richard Bruton, Joe Doyle and Noel Treacy, with myself appointed to act as chairman of the sub-committee.

The sub-committee met on 12 occasions and heard evidence from officials of the Departments of Finance, Fisheries and Forestry, Justice and also the Office of Public Works. Submissions were received from the Royal Institute of Architects of Ireland and the Society of Chartered Surveyors in the Republic of Ireland and I want to take this opportunity to thank all those people who attended our hearings or sent us written submissions. It goes without saying that, but for their co-operation and help, we would not have been able to complete our work.

Once the sub-committee members identified the areas to be examined we structured our examination along the following lines: firstly, the sub-committee looked at the historical background, including the 1983 report of the working group on cost overruns on public construction contracts; secondly, we examined the present system of control of capital expenditure operated by the Department of Finance and at Departmental level generally; thirdly, we examined in detail the background to the cost overruns on the Howth harbour development scheme; fourthly, the sub-committee reviewed the Department of Justice prison building programme which had resulted in large-scale professional fees being paid in the case of some projects which did not get off the ground and finally, we looked at the role of the Office of Public Works and the extent to which that office acted as principal and agent in the case of a number of capital projects.

Other speakers this evening will describe in some detail the progress and results of the main committee's review. I propose to outline the sub-committee's main findings which formed the nucleus of the report adopted by the Committee on Public Expenditure last July and which is the subject of the present debate.

One of the most vital and interesting documents before the committee was the report of the working group on cost overruns on public construction contracts which reported in 1983. That report detailed the scope of the problem of cost overruns on capital projects and estimated that they averaged at least 7½ to 12½ per cent which was equivalent to about £60 million to £100 million in 1982. The working group were of the view that substantial savings of up to £60 million could be made if capital cost-overruns could be avoided.

The working group's brief was to consider what measures might be taken to avoid non-viable investment decisions and to reduce the increase in costs on public contracts during construction. The group also looked into consultants' costs, particularly in relation to fees.

There were 17 important recommendations in the 1983 report which were aimed at making the appraisal and execution of capital projects more effective. Though we know that the Department of Finance have tightened up controls generally in this area we have to say that, in the important area of introducing changes in the system of payment of fees to consultants, there has been no change made to date, so far as the committee are aware. This aspect will, no doubt, be referred to by other members of the committee during the debate. To sum up, the committee were disappointed with the lack of progress on the implementation of the working group's report and this was one of the reasons why we decided to review what action was being taken to control public expenditure.

At this point I would like to put the scale of the problem in context. The Public Capital Programme amounted to £1,259 million in 1980. In 1985 the total Public Capital Programme is estimated at £1,800 million. This is financed by Exchequer and non-Exchequer resources of £1,066 million with Exchequer borrowing funding the balance. The size of capital expenditure this year, representing a fifth of total public expenditure, means that every effort must be made to ensure that there is value for money in the case of every £ spent on capital projects. I will now refer to systems in operation at present for control of expenditure in that area. The present controls were referred to in paragraph 3 of the report.

The committee were informed that the Department of Finance issued a comprehensive circular, known as 1/83, which set down guidelines for the appraisal, control and execution of public capital projects. The purpose of that circular was to ensure a systematic approach to capital project planning and implementation throughout the public sector. It encouraged the review of and improvement of planning and control procedures already in operation as well as providing guidelines for Departments and agencies in introducing formal procedures where none previously existed.

We asked the Department of Finance to send the committee a formal memorandum on follow up action taken since the publication of circular 1/83. The response to our request by the Department of Finance is referred to in paragraphs 4 and 5 of the committee's report and the memorandum itself is summarised at appendix 7 of the report.

The overall conclusion the committee reached in the area of centralised or departmental control was that, despite the new guidelines, not all Departments were adhering to the Department of Finance control systems — in essence there seemed to be an acceptance that Departments may be allowed some discretion on the extent to which capital projects may be controlled. This we would find unacceptable and the committee have not only drawn attention to this weakness in the present system but have specifically included reference to it in the report's recommendations.

We hope that the Minister for Finance will examine the systems in operation within his Department for the control of capital expenditure and that action will be taken to ensure that any discretion or loopholes that exist at present will be dealt with so that unwarranted leaks of scarce Exchequer resources on the capital side can be stopped by immediate remedial action.

The initial objective of the committee's inquiry was to examine the steps which had led to a reported increase on the Howth harbour development scheme from an estimated £3.5 million to £12 million. Following the hearing of evidence from Department of Fisheries and Forestry officials towards the end of 1984 the committee decided that an in-depth inquiry should be made. The review was included in the sub-committee's terms of reference as part of the general inquiry into the control of capital projects.

Given the technical nature of the Howth harbour project the committee decided to engage the services of Mr. John Ballance, architect and engineer, as consultant to assist in that particular aspect of the report. I would like at this stage to pay tribute on behalf of the sub-committee and the committee to Mr. Ballance for the excellent work he undertook on our behalf. Apart from officials of the Department of Fisheries and Forestry, the sub-committee heard evidence from Mr. P. McCabe, Commissioner of Public Works, and his advisers. Again, I would like to thank the officials involved who were very forthcoming and helpful in giving evidence.

Unfortunately, the Howth harbour scheme inquiry revealed disturbing evidence of lack of proper controls which led to the final cost of the project being four times the original tender price. Our report sets out the various factors which led to the huge cost overrun. Perhaps I could summarise what happened as follows: the Department changed their plans radically after going to tender; despite the fact that two independent borehole investigations in Howth harbour showed discrepancies, the Office of Public Works went ahead with excavations and much greater quantities of rock were found than anticipated, costing an estimated £1.241 million compared with a tender price of £0.243 million; additional works cost £1.69 million; effects of a price variation clause, £2.25 million; a syncrolift £0.91 million; and other works £0.56 million; the committee were gravely concerned at the lack of control on the Howth harbour development scheme and the lack of action in the Department of Fisheries and the Office of Public Works when the costs began to get out of control. The consultant's report, which is included in our report, shows clearly the evolution of the project and how the original tender price rose from just over £3½ million to almost £12 million.

Towards the end of last year the committee became aware that, in the case of a number of major capital projects for the prison service, considerable expenditure had been incurred on professional fees. The buildings and installations were designed as commissioned by the Department of Justice. The design work had reached an advanced stage before it was decided by the Department that the projects would have to be redesigned. This was to secure economies of cost by modifying the requirements originally planned. I should mention here that in one case the redesign was proceeded with even though the Department of Finance had refused to sanction expenditure on the site development works for the project.

Because of their concern, the committee decided to follow up the initial inquiries by seeking written material from the Department of Justice and subsequently by hearing evidence. Following a series of meetings the committee found the following:

(1) Four prison building projects were involved, two in Wheatfield, Dublin, and one each in Cork and Portlaoise.

(2) Total fees of almost £13 million were payable.

(3) During 1982 the Department of Justice decided to modify the prison designs to increase the accommodation while reducing unit costs.

The committee were seriously concerned at the fees that had been paid for design work on prisons when work had actually commenced on only one site. For that reason the sub-committee were given the task of examining the other aspects of capital expenditure to which I have already referred.

The sub-committee set out to establish: (a) why very considerable fees were paid; (b) what caused the delay in getting work off the ground and, (c), what information — such as projections of prison population — was used by management in the Department of Justice in deciding on the original designs and the subsequent redesigns of the new prison accommodation.

The sub-committee found no clear evidence as to why designs on four separate prison building projects were initiated in 1979. The committee could not accept the reasons advanced by the Department of Justice for deciding on abandoning original designs and commissioning four new designs and questioned why the projects were not cost effective in the original design.

This particular case graphically illustrated for us the level of consultants' fees that must be paid under existing agreements, whereby the greater proportion is paid before construction work gets underway. The committee regard the present fee system as inequitable and are recommending that this situation should be altered immediately.

I would have to say that we found this particular case difficult to comprehend in terms of how the prison building programme got out of hand. Questions must be asked as to why certain decisions were taken and subsequently changed, the result of which added to the overall cost to the Exchequer. These and other aspects will, I am sure, be covered in speeches by other colleagues on the Committee on Public Expenditure. One other disturbing aspect was the refusal of the Minister to clarify a number of issues. This added to the confusion in the minds of members of the sub-committee.

It would be an understatement to say that the committee were unhappy with the role of the Office of Public Works in relation to capital projects generally. They might have assumed that in the case of the prison building programme the Department of Justice, if not aware already, would have been alerted by the Office of Public Works to the fact that delays and redesigns would involve greatly increased expenditure. As stated in our report, the Office of Public Works must, in their capacity as professional-technical adviser to Government Departments, assume responsibility for warning client Departments of the financial and other consequences of modifying or amending designs on public construction projects. Our recommendations define how such problems can and must be avoided in future and how the Office of Public Works can improve their performance in this area.

The committee were particularly concerned about the payment of fees to professional consultants acting on behalf of client Departments and offices. I should mention here that consultants' fees based on a percentage of total cost were last fixed by the National Prices Commission in June 1975, though we understand the Minister for Finance is now reviewing this whole area.

The sub-committee of four members, as I said before, reported to the main committee and their report and recommendations were fully endorsed. The report before the House, with minor amendments, represents the work undertaken by our sub-committee and I am happy to have been associated with them from the outset.

To sum up, in their review of capital projects, the Committee concluded that:

—The guidelines laid down in the Department of Finance Circular 1/83 left an undue level of discretion to Departments, offices and State-sponsored bodies.

—The guidelines had not been universally adopted by all agencies.

—Approval and/or sanction "in principle" by the Department of Finance is used from time to time. There is a need for clarification on the contractual or other commitment involved in such a practice. If it implies that public expenditure is committed in the absence of detailed project appraisal and evaluation, then this approach should be changed.

—On the basis of the evidence heard in the case of (a) the Department of Finance Circular 1/83, (b) the Howth harbour development scheme and (c) the Department of Justice prison building programme, the committee are convinced that radical changes are required in the management and control of capital projects if major cost overruns are to be avoided in future.

—The Office of Public Works need to improve their present approach to project management and this will occur only if there is a commitment by their management to introduce a system of tighter technical and administrative control. One of the main problem areas identified by the committee lay in the rather passive role adopted by the Office of Public Works in their relationship with client Departments. The office should act with more decisiveness and authority and should refuse to accept projects on behalf of any Department or office who do not conform to standards laid down by them, particularly in relation to briefing, monitoring and control systems.

—The present system of fee payments to consultants must be changed immediately if the Exchequer is to eliminate or greatly reduce the excessive sums that have been paid on public capital projects.

—The present contract system in relation to capital projects, has in many cases operated to the detriment of the Exchequer, that is, contracts which are not on a fixed price basis are, the committee believe, open to abuse by virtue of contingency and other additional costs being added in subsequently.

There are 11 recommendations in the committee's report. If time allowed I could read them all into the record but I will refer only to the more important ones as I see them here. The recommendations are as follows: (1) Departments or offices and the relevant State-sponsored bodies must improve present systems of briefing, monitoring and controlling of public expenditure on capital projects so that cost overruns will be eliminated; (2) Fixed price tenders should be sought in all cases of contracts of shorter duration than two years; (3) Project proposals should be drawn up on the basis of estimated total costs, that is allowing for inflation, interest, contingencies etc. rather than where only current costs are shown. The system of fee payments for consultants must be immediately amended as follows: (i) Fees should be paid in two moieties, (a) related to the cost of the project at tender stage, and (b) the smaller portion related to the final cost of the completed project; (ii) Fees should be negotiable; (iii) In the case of repetitive projects fees should not be on a percentage basis but at a reduced rate; (iv) In general, fees should be open to price competition; (v) Under no circumstances should fees be fixed as a percentage of the final cost of a project.

Reporting systems between the Department of Finance, the Office of Public Works and client Departments/offices and State-sponsored bodies must be improved. Better planning, regular reporting and early warning systems should ensure that (a), the most cost effective schemes are undertaken, (b) delays will be avoided and (c), cost overruns will not occur.

A small technical advisory unit should be set up immediately in the Department of Finance reporting direct to the Second Secretary, Public Expenditure Division. This unit, which would be small, consisting of, say, a construction economist and an experienced architect/engineer, would bridge serious gaps that exist at the moment. The function of such a proposed technical unit would be to provide the Minister for Finance with professional advice on the Public Capital Programme and which, the committee believe, is essential if the PCP is to be monitored and controlled adequately. This unit would liaise with the OPW on an ongoing basis.

Specific responsibility and accountability for capital projects and their budgets should be assigned to individual management teams appointed within the Department which should liaise with OPW or outside consultants. The committee, while recognising the constitutional and statutory position of Ministers and Accounting Officers, feel that no real progress can be made in the elimination of excess expenditure unless individuals are assigned responsibility and are held accountable on a personal basis.

I believe the committee's report to be one of the most important to be laid before the Dáil to date. I am confident that the Minister and his officials will study it in detail and act on the reasonable and basic recommendations contained in it. The implementation of the recommendations will result in an improvement in the planning and execution of projects under the Public Capital Programme. It also points the way towards significant savings, more cost effective use of taxpayers' money and ultimately a reduction in our borrowing requirements.

Mr. R. Bruton

I cannot improve on Deputy Fitzgerald's review of the report. The committee's findings can be summed up very simply. In the case of Howth harbour, we found that in real terms it had an overrun of 66 per cent on what it should have cost. In the case of the prisons programme, we have spent more than £8 million on consultants' fees and for that money we have eight sets of prison designs but only one site has been entered. What is important about those findings is not just the individual examples but the committee's conviction that they are not isolated problems. In recent times we can recall the problems that occurred in the case of the IIRS "A" building; we can recall the problem in the case of the Bord Iascaigh Mhara offices, the delay in moving into them; the Office of Public Works fit outs and the Beaumont Hospital problem where an expensive building is still unoccupied.

There are numerous cases in respect of which capital programmes have come badly unstuck for the Government and substantial overruns were incurred. We looked at individual cases and we found, disturbingly, that basic mistakes were being made that should never have occurred. For example, in the case of Bord Iascaigh Mhara and Howth harbour, no basic economic feasibility studies were done and the return on the money to be invested was very hazy in the minds of the project sponsors.

The most basic idea that anyone undertaking a home improvement would observe is not to change your plans once you have the builder on site. That error was made in the case of Howth harbour. Entirely unrealistic contingency provisions were made in that case. Any prudent person would have put in a reasonable expectation that contingencies would have to be provided for. As we know to our cost, enormous overruns were encountered when they hit rock in Howth, but the contingency put in was 4 per cent, far below what would be standard in that type of project, admitted by all to be uncertain in regard to costings and likely to go wrong.

The most fundamental problem we found was that there is no professional system of control once the project is under way. This made for many difficulties. The reasons for all these basic mistakes are numerous, but one undoubtedly is that there is no internal professional expertise in many of the sponsoring Departments in either the presentation or execution of a brief for a capital project. There is no proper management scheme in those Departments which could respond to information that would be fed back by, say, the Office of Public Works when a project is being developed, or which could use the analytic work done on the feasibility of the project. From the evidence of the Department of Finance it is quite clear that just providing analysts who would assess feasibility will not be an answer to the problem unless there are management teams who can use that information and respond quickly to problems that crop up on capital projects. At present this is seldom the case.

Another problem referred to by Deputy Fitzgerald is the unwillingness or inability displayed by the Office of Public Works to assert a more professional approach to sponsoring Departments if such Departments do not have a professional approach and are somewhat slipshod.

To his great credit, in January 1983 the Minister issued guidelines to Departments designed to deal with the sort of problems the committee reviewed. As a model, those guidelines are excellent — I do not think the committee could find any fault with them — but unfortunately there are no case studies on which we could assess the impact of the guidelines. The committee had misgivings because though the model was excellent, whether the guidelines could be brought to fruition was questioned.

We must bear in mind that in 1971 similar guidelines were issued to Departments and, as I have said, we cannot say the results were excellent when the Howth harbour project, for example, occurred during the existence of those guidelines. From reading the response to the guidelines, it appeared to the committee that the various Departments seemed to be giving a rather relaxed response. There seemed to be discretion which would allow them to decide whether the guidelines would apply in their case. They were obliged to reply within three months but many of them did not do so. That would show their lack of commitment.

The guidelines have limited coverage. Projects that do not have to go for Department of Finance approval are not covered. The guidelines left major areas like housing and continuing programmes of spending from their remit. We were not convinced that the guidelines had the teeth they would need to be effective: any project that did not conform with the guidelines should have been ruled out of the Public Capital Programme. That is the ultimate way to enforce the guidelines.

We must go further than the guidelines have gone if we are to make sure that the experience of the application of the 1971 guidelines will not be repeated. The committee recommend that the guidelines be obligatory and that a project would not be admitted to the Public Capital Programme without conformity with the guidelines.

The committee decided that the Minister for Finance should set up a central unit within his Department. It was represented to us by the chartered surveyors that there is a basic problem of lack of co-ordination in the Public Capital Programme generally involving the Department of Finance and that there is need for greater expertise in that Department to tackle this problem. The Department of Finance in that way would become much more effective as a sanctioning body in regard to projects being put up for sanction.

For instance, I do not think it would accept the rather hazy projects presented in the case of Howth Harbour so far as economic feasibility is concerned. It would look questioningly at whether different options had been considered by the sponsoring Departments and, perhaps most important, it would vet the sort of assumptions that tend to form part of cost benefit analyses. From my experience of the arterial drainage programme, I am aware that it is very easy for a sponsoring Department to present a rosy picture of an investment they are making. It is important that the Department of Finance should have the expertise to question such rosy assumptions in relation to so-called feasibility analyses. That is an important area and one that needs to be strengthened within the Department.

The other role that such a central unit would assume would be the role of better co-ordination of the capital programme generally. The committee found that it was disconcerting to find programmes being stopped in their tracks because of Government decisions in cases where there were considered to be side effects to some costs on those projects that were not taken into account properly when the decisions were taken. It is important that an expert unit within the Department would recognise the cost of delaying a project or of stopping it in its tracks. Similarly, the unit would consider the difficulties that might arise in cases where the plans of different Departments would mean that in one region there might be an enormous number of projects in progress while in another there would be none. Such a clash occurred in the mid-west area, for instance, where at one period there was a huge level of activity in the capital programme area. That had a bad effect in terms of increasing the cost of conducting the work. It is another aspect that this unit could become involved in. In other words, they would be performing overall co-ordination of the capital spending programme.

A final point that the Minister should examine seriously for future capital projects is that in the case of ongoing programmes, such as the arterial drainage programme which continues year after year, there should be an insistence by him that not only are feasibility studies presented when projects are being undertaken but that performance studies are carried out after the completion of a project with a view to ascertaining whether it achieved the results its sponsors intended. That did not occur in regard to the arterial drainage programme. The take-up by farmers, the hoped for increase in stocking and so on did not materialise. It is important that sponsoring Departments should have the discipline of finding out whether their past projects were a success if more money for ongoing programmes is to be considered. The same is true of other programmes that are financed continually.

There is another side to better management results than merely laying down procedures as has been the approach of the Department of Finance in their guidelines and that is that better procedures must be buttressed by financial practices that bring the chickens home to roost to the various sponsoring Departments who incur overruns. That means that there would have to be one serious change, that Departments should have on their current budgets the cost of interest and depreciation of the capital projects they undertake. If, for example, the Department of Health undertake to build a hospital they do not have to include in their current budget the cost of the interest and depreciation involved. That has a very bad effect. Obviously, it means that delays in occupation and in the completion of the project do not have an immediate impact on the budget of the sponsoring Department though it is their responsibility to ensure that does not happen. The Department of Health are exemplary in not having delays in the construction of hospitals and neither do they have overruns, but other Departments have very serious overruns. At the end of the day they do not feel the cold winds on their budgets of those bad decisions. They can continue merrily the following year using the new capital resources. The Minister for Finance must find the capital for those financial overruns and that money must come from the taxpayer.

Therefore, we should charge out interest and depreciation costs to sponsoring Departments. Similarly, we should charge them the full cost of consultancy services of the Office of Public Works. That office should not be providing services to Departments on a free basis. Departments availing of those services should pay the full fees. This would be another way of reminding them of the cost of delays in the execution of projects.

An equally important change we need to make in the way sponsoring Departments deal with their projects is to ensure that they submit full cost projects. The habit has grown up in Ireland of giving at constant prices the cost of a project as if a hospital or any such building could be constructed in five minutes thereby incurring only today's prices. Everyone knows that while construction is in progress the capital cost and the interest on that must be incurred and that provision must be made for cash flow if inflation will increase the cost during the course of construction. We should abandon the practice of not providing full cost projections.

The Minister expressed the belief that his guidelines alone will render unnecessary measures such as those I have outlined. I do not consider his faith as expressed to us when he was kind enough to attend at a meeting of the committee to be well founded. I would not have faith either in the point he made that Departments' capital budgets are being trimmed already in cases where there are overruns. I do not think that is the case. Certainly it would not be the case in a Department such as Fisheries where the Howth Harbour Project would probably represent several years of their capital spending as would also the overruns involved. Therefore, that sort of expenditure cannot be controlled by saying that next year's budget will be pruned. To proceed in that way might mean missing out on some very valuable project.

I should like to turn now to a pet subject of mine. That is the conviction that not only must we put financial constraints on Departments to ensure that they recognise the cost of overruns and not only must we have good procedures of the kind the Minister has introduced into his Department, but we must have public knowledge and Dáil scrutiny to ensure that projects being embarked on are being executed effectively. The Public Capital Programme as presented now to the Dáil falls far short of what is needed in that regard. We do not vote on the Public Capital Programme. We vote only on a small part of it. We have no annual debate on that programme though it is absorbing £2,000 million. In the document itself we do not have the sort of information that would allow us to ascertain whether the various Departments who are engaged in projects are doing what they are setting out to do.

Therefore, in future we should provide a Public Capital Programme which in the case of major projects should outline a brief summary of the appraisal on which the project was based, the reason it is going ahead and the hopes for benefits from it. We should get a statement of the full cost that is expected to occur and the cash requirement year by year over the coming years. Each year after the project is introduced, and until it is completed, the Dáil should be given a progress report to see how the project is proceeding both as regards the timescale and the budget. That sort of information is already provided within Government.

I am not asking for something new, extraordinary or onerus. For anyone running a project costing more than, say, £5 million or £10 million, that type of information should be easily accessible. There are no State secrets involved here. We should insist that that type of information be laid before the Oireachtas so that we can make a realistic appraisal of it and perhaps, spot cases where things are going wrong at an early stage. This would have a salutory effect on Departments sponsoring such projects because they would know the Oireachtas will be watching like hawks for cases where overruns occur. I appeal to the Minister to consider that seriously. I know he is supportive of that idea as evidenced by his publication of the comprehensive programmes in the case of current spending. I ask him to extend that commitment into the Public Capital Programme area which is, in many ways, more important because capital investment sets the constraints for current spending for a number of years ahead. If we do not get it right at the time of capital investment, it will be hard to get it right later when the costs of manning and so on come home to roost.

I would like to comment on the fees issue. This is a difficult issue because we do not have any evidence before us that excessive fees were paid or that fees were paid for work which was not carried out conscientiously by the consultants. In my view, the present system of fees is inappropriate to the Government's style of programming and the way Governments are forced at times to stall or delay programmes and, regrettably, the present situation where bad briefings occur and delays are happening because of bad management. We must question some aspects of the fee system. In particular the present situation where payments are based on the final cost of a project, regardless of when the consultant made his input, is ludicrous. The bulk of money paid to consultants—architects, quantity surveyors and engineers — is paid at the tender stage. In the case of architects it is 75 per cent and somewhat less in the other two cases. Yet, when the project is completed, perhaps with massive overruns, they get their fees linked to the final cost price. There is no sense in that and we should not continue that system.

Equally, there is no sense in the fact that at present interim payments are not index-linked. In other words, if a consultant got paid in 1980 pounds, when the final cost of the project is calculated he gets his percentage as if the 1980 pounds were equal to the 1985 pounds when we all know that the 1980 pounds were much more valuable. This means he is being paid even more than his percentage which some people might feel is high. Those two aspects in particular need careful scrutiny.

I thank the Minister for Finance for the very constructive way in which he has approached the committee's work. I could not conclude without saying that the approach of the Department of Justice did not match up to what we expected from a Department reporting to a committee trying to do serious work but I hope this was a once off problem.

Mr. Hilliard

I welcome the opportunity to speak briefly on this report which deals with the control of capital projects. This is a very important area. As has already been mentioned, £1,800 million will be spent in 1985. This is an area where there can be a huge saving of taxpayers' money, especially in these days when it is very difficult to raise extra taxation. I would like to highlight one area of concern. When decisions are made by a Government in office, a new Government coming into office may reverse the decisions made and as a result taxpayers' money is wasted.

I want to give one example dealing with the decentralisation of Government offices. This policy was adopted in 1980 but in 1983 another Government reversed that decision. As a result, considerable costs which had already been incurred were written off because no further development took place on the policy decisions made in 1980. Sites costing £641,000 were purchased in ten centres. Consultants' fees for architects, surveyors and engineers were paid for preparing plans and working drawings to enable tenders to be sought for these projects. In September 1981, £2 million was approved by the Department for planning and design fees but by 1983 only five tenders had been received. It was noted that up to 31 December 1983 a total of £2,296,000 approximately had been paid in respect of fees but a small proportion of these fees was refundable because the capital estimate costs were lower in some cases and because of the fact that work did not commence. I do not dispute the fee charges as these are recognised fixed charges.

The work being done by these people would be accepted as very satisfactory. I say this because I want to stress that Government policy changes, redesign of plans and tenders not being sought immediately, are the real causes of the wasteful spending of taxpayers' money. It is obvious that the principle that time is money is not recognised here today. It is in this area that the major problems lie. Until we have a better relationship and understanding between Government and the officials of the Office of Public Works especially, there cannot be much or any improvement in spending taxpayers' money on capital development. God knows, the PAYE workers are crying out loud about the savage amounts of tax deducted from their wages each week. I hope that the present work being done by the Oireachtas Joint Committee on Public Expenditure, and this report, will convey some hope to the taxpayers that we as elected representatives are very concerned that their tax is at least spent wisely.

I would like to see radical changes in management and control, the Office of Public Works acting with more authority, a review of the present system of fee payments to consultants and a review of the present contractors system. This report also recommends that fixed contracts be agreed where the work would not take any longer than two years to complete. We should also identify early and eliminate cost overruns if possible. These are a few of the suggestions in the report which clearly outlines our grave concern regarding capital expenditure. We also include in this report many ideas and suggestions which warrant the serious consideration of the Government.

Minister of State at the Department of Finance (Mr. J. Bermingham)

The report of the Committee on Public Expenditure which is now before us is a comprehensive one and, like the curate's egg, is good in spots. The fact that it concerns itself, in the main, with matters which are also the concern of the Office of Public Works, indicates the important role exercised by that office in public capital projects.

The office comes in for a fair amount of criticism in this report and I would be less than honest if I did not agree that some of it, but not a lot of it, has some justification. Criticism is not all that is merited by the Office of Public Works and might I suggest that an objective assessment of the work of that office would reveal many a job well done and would also reveal that there is no other agency at the full disposal of the State which has the organisation, experience and varied skills to undertake the many architectural, engineering and other projects which, over the years, have successfully been undertaken by that office. Had that office not been available to the State, and had it been necessary to engage private interests to carry out those projects, the extra professional fees that would, of necessity, have been involved and the profit which the private interests would naturally have expected to make on their ventures would have added up to even greater calls on the public finances. It is important to bear that in mind.

The title of this report is "Control of Capital Projects". There are so many references to lack of control in this report that one could be forgiven for getting the impression that, once a programme or project started, everyone sat back and let it take its own course. That is not the case. Of course there was control but it was not as formalised as it might have been.

For some time past the Commissioners of Public Works have been impressing on sponsoring Departments the need to establish fully their total requirements at the initiation of a project so that the need for changes or extra works during the course of a job will be kept to a minimum if not entirely eliminated. In the past, changes and extras have been a major factor in increasing the costs of projects.

Estimates are now being framed to include all relevant costs where formerly construction costs only were included. This former practice gave rise to what are loosely called cost overruns whereas a major part of the overruns was inflation, but I will return to that later. During the course of major projects, detailed cost reports are now being obtained at regular intervals and this is proving to be very helpful in monitoring the financial progress of projects.

It is important to mention that the implementation and continuation of these procedures is dependent on the availability of necessary staff resources. If the staff of the Office of Public Works continues to be depleted, as it has been over the past couple of years, the success of these procedures cannot be guaranteed. It will be appreciated that it is not easy to adopt and operate regular detailed control methods if a single official is expected to administer 20 or 30 projects of various sizes and at different stages of development at the same time.

Now I would like to turn to the question of appraisal which is mentioned in the report. The committee say they would like to see in-depth appraisal and evaluations undertaken of all capital projects, and rightly so. But only on rare occasions does that responsibility rest on the Office of Public Works. It cannot be within the competence of that office to decide whether or where to provide fishery facilities such as a pier or a slip-way. Neither can it be for that office to determine the need for an employment exchange, a prison, a veterinary laboratory, or a customs post. For the most part, the office act as agent providing for the needs of other Departments. There are some cases where the decision rests with the Office of Public Works but very often it amounts to a straightforward decision whether to restore a building or let it fall down. It goes without saying that the office always contribute whatever technical advice on meeting the needs of other Departments is within their competence to give.

I want to say something about cost overruns. This phrase appears again and again throughout the report and its use for the most part is inaccurate. Anyone who knows anything about the management or administration of projects will know that, before a reliable estimate of cost can be made, it is necessary to know precisely what the requirements are and to have done a certain amount of planning. Normally a project is taken beyond the inception stage on the basis, among other things, of its probable cost. It is unfair to call that probable cost an estimate. It is no more than just that — a probable cost based on perceived needs rather than firmly established needs and on assumed building costs rather than costs based on detailed planning. Too often such a figure is referred to as the estimate and, when eventually actual costs emerge which include not only contract sums, an allowance for unforeseen variations or extras, fees, fitting-out, inflation etc., the cry of cost overrun is heard and there may be no cost overrun at all in the strict sense of that term. People who shout about cost overruns should first make sure that they know what they are shouting about. I can tell what a cost overrun is not. It is not the difference between the original order of cost and the final cost.

Frequent reference occurs in the report to the Department of Finance circular 1/1983. The guidelines set out in that circular are being followed by the Office of Public Works in so far as it is possible to do so. Since it was issued, only one architectural project and one engineering project costing in excess of £10 million have been started. An inter-departmental committee have been set up in each case to monitor the progress being made and the expenditure. The committees meet at regular intervals and consider detailed cost reports submitted by the design teams at equally regular intervals. The design teams and, indeed, the contractors are invited to attend the meetings as considered necessary and I am very pleased to be able to say that the degree of co-operation received from all the members of the design teams and from the contractors has been excellent and the projects are on target.

Much is said in the report about consultants' fees. I understand that the Minister for Finance will speak on this particular aspect of the report in his contribution to the debate. My comments so far have been of a general nature dealing with the broad subject of public capital projects. The report also deals with two specific projects, the Department of Justice prison building programme and the Howth harbour development scheme. I will deal with the prison programme first.

Reference is made to major overruns on both projects. In the case of prisons, the report concentrates on four specific cases and concerns itself with the amount paid out in consultants' fees. It also draws attention to the fact that only one of the four cases actually got under way. Incidentally, it was not the women's prison. In these four cases, there has been no cost overrun at all. By no stretch of the imagination can properly payable consultants' fees be described as a cost overrun. In the case which is in progress, I have already stated that it is on target — in fact it is running slightly under budget so far but we are only about one-third of the way through the work as yet. As I said earlier, if somebody wants to shout about cost overruns he should first of all make sure that he knows what he is shouting about.

There is another statement in the report that I would like to follow up. The committee were unable to make a judgement as to whether the expenditure to date on the prison building programme was efficiently/effectively spent or otherwise. They are the committee's own words. They say the reason for that was that the Department of Justice felt unable to divulge certain information. So what happens? The Office of Public Works gets the kick — a kind of sideways swipe. The committee assumed that the Department of Justice, if not aware already, would have been alerted by the OPW to the fact that delays and redesigns would involve greatly increased expenditure, and then went on to believe that the fees debacle in the case of the prison building programme would not have occurred if a more professional relationship had existed between the office and the Department of Justice. I am not sure what that last bit means but it looks to me to be a case of kicking the cat. The Department of Justice and every other Department are well aware that if new or altered design work has to be done it has to be paid for and, if anyone thinks that something can be got for nothing these days, he is living in cloud-cuckooland.

Later on in the report, the committee decided to have another go by saying that the OPW must accept partial responsibility for the cost overruns. I am still talking about the prisons programme and must ask again, what cost overruns?

Again, the office is criticised for allowing Departments to change plans "in mid stream". Does this mean that original plans must prevail even if they are found, before it is too late to change, to be unnecessary by reason of changed circumstances, or too expensive, or otherwise in need of change, for sound and valid reasons? Are we saying that the OPW must say to any Department, even though the Department reconsider their needs in the meantime, that they continue with what they started? I am sure the committee do not intend to say that but that is what they seem to be saying.

I now turn to the Howth harbour project. Let me say first of all that while there is criticism in this report of certain aspects of the way in which this project was carried out, nowhere is there a suggestion that the works do not represent full value for the money spent on them. The end product, by any reckoning, is a fine engineering achievement which, in addition to providing a major fishery harbour, adds considerably to the public amenity that is the village and harbour of Howth.

I now wish to address myself to some aspects of the report. I quote from paragraph 7.4.2 on page 18: "despite the fact that two independent borehole investigations showed discrepancies, the Office of Public Works went ahead with excavations and much greater quantities of rock were found than anticipated..." The clear implication is that further investigations should have been made to determine the amount of rock to be excavated. The Office of Public Works do not accept that such further investigations, costly in themselves, would have been warranted. The simple fact is that, at that time, there was no reason to believe that further boring would provide more accurate information. If a further investigation had confirmed the findings of one or other of the sets of borings, clearly, as the eventual outcome showed, the findings of that further investigation would also have been inaccurate and nothing would have been achieved. On the other hand, if this third investigation had thrown up a new set of figures, what was then to be done? Should there have been a fourth, a fifth, or maybe a sixth, in an effort to obtain two coinciding results? What guarantee would there have been that such coincidence of results would have represented an accurate picture of the actual incidence of rock? There would, and could, be no such guarantee. In this case a total of 118 holes were bored, and I note that the committee's engineering consultant does not dispute the Office of Public Works' view that this number was adequate. The simple fact of the matter, recognised internationally, is that civil engineering project investigations must be limited in their extent. I would refer Deputies to the publication entitled Managing Construction Projects issued by the International Labour Office in which this fact is forcefully expressed. Let me quote from this publication:

When costs are estimated, it is important to make some allowance for the unexpected, because the earlier investigations cannot have covered every possibility. Unless they are done in great detail, and consequently at enormous expense, engineering investigations will be limited in their extent, i.e. in the hard information they provide.

This quotation relates to engineering work in general but is doubly relevant to underwater civil engineering projects. I submit that the criticism implied in paragraph 7.4.2 is unwarranted and, if Deputies will pardon the unfortunate pun, without foundation.

Another suggestion emanating from this report is that the Office of Public Works were remiss in not providing a client controlled contingency to cover, and I quote, "the inevitable and expected difficulties in the sea works"— paragraph 7.8. In fact, a contingency sum of £340,000 was included in the January 1977 Estimate on which the decision to proceed with the project was taken. This whole matter is dealt with in the OPW submission to the committee, as recorded at pages 166 to 169 of the report. I shall return with some general comments on the question of contingencies in a few moments.

While there is an understandable tendency to draw alarming, but misleading, conclusions when a reputed estimate of £3.6 million results in a final cost of £11.8 million, I want to substantiate my initial contention that the Howth harbour works represent full value for the money spent. Let me put the initial estimate and the final cost in their proper context, using the figures adopted by the committee's engineering consultant. The figure of £3.6 million was the contract sum for the civil engineering works only and did not include the cost of other works then envisaged, such as certain ancillary buildings and the syncrolift installation. The actual estimate for the entire scheme, excluding the yacht mooring basin, is put — paragraph 7.7 — at £4.6 million in 1977 prices. Adding the inflation figure, calculated by the committee at £4.75 million, one arrives at a sum of £9.35 million. To this must be added £1.2 million which is the cost, before inflation, of the yacht mooring basin. One then arrives at a total of £10.6 million which should, by the committee's reckoning, have been the final cost.

As I have already said, the final estimated cost given by the commissioners, and quoted at page 164 of the report, is £11.8 million. The difference we are talking about is £1.2 million which represents an increase of some 10 per cent. This is by no means extraordinary in a complex marine engineering project of this nature. The increase is accounted for mainly by the additional rock encountered during the works.

On this question of rock, I might mention that, when the inner harbour was dried out and the overburden removed, the rock profile exposed was most unusual in the view of the Geological Survey Office. This fact is one of many contained in a document submitted to the committee in which the involvement of the OPW in the whole project was described and analysed. I think that the absence of this document from the report is an unfortunate omission. Its inclusion would have assisted Deputies to appreciate the whole picture as it evolved from 1959 to 1983.

I return to the question of contingency sums with a cautionary note, again based on the views expressed in the report. The recommendation is made at paragraph 7.9 that an adequate and carefully thought out contingency in line with the prospective risks in the project must be included in the feasibility document.

Nobody will quibble with this aspiration. The difficulty arises in its implementation. The fact is that, if the items intended to be covered by a contingency sum were capable of being adequately identified and measured in advance, there would then be no need whatever for a contingency sum. Items covered by contingency sums, by their very nature, cannot be accurately evaluated in advance. Certainly, in the light of experience and of any information that can be made available at reasonable cost, every effort should be made to include, where necessary, realistic contingency provisions. But I can see a real danger emanating from the recommendation, that exaggerated or unnecessary contingencies would be included in cost estimates. There are superficial attractions to such a course. Were the project not to proceed, the exaggeration would not come to light and if the project did proceed, the underspending on contingencies could be applied to unnecessary variations.

Alternatively, an entirely spurious saving could be shown. Such a saving might result in an entirely undeserved pat on the back. The temptation is obvious. So what, one might ask, as long as the saving, spurious or otherwise, is realised? The danger is that the inclusion of safe, that is exaggerated, contingency amounts so as to achieve notional savings may tilt an economic appraisal of a project in the wrong direction. I know that this is not the intention of the recommendation made in the report but I trust the House will agree that the recommendation raises genuine problems in implementation.

There is no perfect answer to this problem. As I see it, assessment of likely contingencies, however honestly made, must, inevitably, include an element of risk and the possibility of error. This is particularly relevant in civil engineering projects and doubly so in civil engineering projects undertaken in a marine environment. In undertaking projects of this nature, this fact must be faced.

Finally, on the question of contingencies, I return to the point made in the report that a client-controlled contingency should have been included in addition to the contingency provided in the bill of quantities. I have explained that a client-controlled contingency was, in fact, included. But I am inclined to take the report's recommendation a stage further. Nobody will dispute that a client-controlled contingency should be a sine qua non in major projects. But, are there adequate grounds for continuation, in all cases, of the practice of including contingencies in the actual contract? I think not. Unless there are compelling reasons for it, contingency sums should not be included in Office of Public Works contracts. Contingencies should be reserved to the client.

It is a pity that what could have been an excellent report should have been spoiled by some instances of what I can only describe as less than fair and less than objective reasoning and comment. Lest I should be accused of being only critical. I want to assure the House that I support much that is in the report. I should like to pay tribute to those who examined these matters and helped in the compiling of the report.

I am particularly pleased to see the report advocating a more stringent and aggressive approach by the Office of Public Works in relation to all parties involved in their projects. The Commissioners of Public Works have assured me that they welcome any encouragement and support they can get in this regard.

Mention is also made of Departments conforming to standards set by the Office of Public Works in relation to certain matters. This also is welcome.

Fixed price contracts are mentioned. Certainly in theory that form of contract is the ideal and should be aimed at where at all possible. Indeed, in the Office of Public Works fixed price contracts have been in use for many years. There are, however, hazards attached to them in certain circumstances and they are not necessarily always to the best advantage of the State in the long term.

While I have been critical of many aspects of the report, I feel obliged to say that, in so far as they affect the Office of Public Works, I am broadly in agreement with the recommendations in the report.

Mr. O'Kennedy

A number of members of the committee are anxious to make contributions and for that reason I shall be very brief, which in itself may be a pleasant change. I am prompted to make a contribution on the basis of some of the statements by the Minister of State. He was a little too sensitive and appeared to hold the view that the burden of the report of the committee was being entirely directed at the Office of Public Works.

Mr. J. Bermingham

It was principally directed at the OPW.

Mr. O'Kennedy

That was not the intention in any circumstances. We recognised that the OPW is the agent of the Government in carrying out public contracts and if the Minister of State, and his advisers, read our report carefully they would find that we were not singling out that body as the target for a further attack from the committee. We were talking in terms of a general monitoring of programmes, particularly cost overruns. We never suggested — I do not know how the Minister of State could draw the conclusion — either in relation to harbour or prison programmes that fees spent for work that was not completed were cost overruns. We did raise the consequence of decisions which meant that professional fees that were committed would not be spent and, worse still, that the work undertaken on the basis of these professional recommendations would be cancelled. We did not make that case against the Office of Public Works.

The Minister of State asked in that context if we were seriously suggesting that the OPW should go ahead with programmes which proved to be unnecessary in view of changed circumstances or which proved to be too expensive and the answer to that question is: "No, we are not so seriously suggesting. We are not criticising the Office of Public Works in that connection". In the case under review, at whatever level of Government the decision was taken, is it now being suggested by the Minister who made that statement that the prison development programme which was sanctioned in 1981 was unnecessary? The case that the committee always made was that if it appeared to be necessary at that time, with the advice available to the Department of Justice, the evidence before them seemed to suggest that it was even more necessary now. The evidence of the lack of prison accommodation which has been all too obvious in the last two years, with horrific consequences for our society, demonstrates very clearly that no Department and no Government could suggest that the prison programme which was cancelled was unnecessary in view of changed circumstances.

If any member of the current administration, or any administration, proposes now that that was the reason that that programme was cancelled after major consultancy fees had been already committed, then they had better stand up and declare it publicly and formally in this House. I do not think the Minister for Justice could now say that, or the Minister for Finance who probably would have been pretty directly involved in the initial decision to cancel that capital programme. I do not think that anyone could suggest that what we are talking about here would be unnecessary in view of changed circumstances. This may be perhaps a personal gloss of mine on the committee's report in that context, but I wanted to make it abundantly clear that our criticism in that instance is not directed at the Office of Public Works. We know that the Minister of State at the Department of Finance would not have the authority to go ahead with the programme when the Minister now sitting beside him decided with his colleagues in Government that they were cancelling that programme. We are not so naive as to suggest that in those circumstances the Minister of State at the Department of Finance should tell the Minister for Finance that irrespective of whatever decision the senior Minister made he was going ahead, anyway.

Mr. Dukes

There is total harmony in Kildare, I can assure the Deputy.

Mr. O'Kennedy

I come to the next element and here is my personal gloss. I believe that that decision was a disastrous one on the part of the Government of which the Minister of State is not a member, though obviously he is in association with that Government. It was a disastrous decision which is costing us in financial and social terms ever since.

Mr. N. Treacy

And security terms.

Mr. O'Kennedy

And security, of course. We find the consequences of the disastrous decision that was forced upon us in Spike Island. We find that there is totally inadequate prison accommodation and, quite frankly, the whole administration of justice being undermined when prisoners are not only being let out before their sentences have concluded but others are being met at the gates of the prison after being sentenced and told, "No room at the inn". And we worry about the morale of the Garda Síochána, of our prison officers and of our courts. Nothing did more to undermine the administration of justice, the morale of the people at various levels, be they gardaí, prison officers or judges, than that most disastrous decision. We lost, of course, the money that was paid to the consultants. I forget the precise figure.

Mr. N. Treacy

£12.7 million.

Mr. O'Kennedy

£12.7 million for nothing. It has been clearly established by experience in the meantime that never was it more necessary for the work in respect of which that amount was spent not only to be started but to be completed. That is the point that I make.

We know that from time to time there are changes of Government and that Governments that come into office look at the programmes which are ongoing. We make a special case that in relation to necessary capital programmes, unless the advice of those charged with giving that advice to Government, namely the officials of the Department of Justice, is totally and utterly wrong and bad, there should not be changes in essential capital programmes on a change of Government. Otherwise we will have stop-go decisions which will only give rise to these consequences. In that connection it is easier on the day, in the interests of controlling public expenditure as far as the public are concerned, to cancel capital programmes because people will not say that it is going to cost them more money for school transport, for instance, or that they are losing money on their grants, or that their social benefits are being reduced. You will not get the public reaction. For that reason, it is easier on the day to cancel this or that programme and claim virtue for doing so. As we now learn to our cost, the reality is that that kind of easy decision gives rise to some very serious consequences of the kind which I have outlined.

I want to make another comment which directly involves the two Ministers present and I shall not press their patience much further than this. I also heard with great interest the Minister of State say — and I think that his officials in the Board of Works obviously and understandably wanted to get this point across —and I am now paraphrasing, "Can we seriously be expected to monitor programmes properly and effectively when we are not provided with the necessary staff and adequate resources to do it?" Can the officials of the Office of Public Works be criticised for not doing what they know is necessary when they are not provided with the necessary resources, money and staff to do it? If ever I heard, to say the least of it, a sharp criticism scarcely veiled, of a senior Minister by a junior Minister, I heard it in that reference. I do not expect that the officials of the Office of Public Works can do what is not possible to do without the staff required to do it, or without the resources necessary. I do not blame them for raising the question as to whether they can seriously be expected to do all these things without the necessary money or staff. It is time for the Government who took the decision to get their act together, to use the cliché. Certainly, the two Ministers who worked most closely together in the Department of Finance should resolve their differences before they come into this House.

Mr. Dukes

No test.

Mr. J. Bermingham

There is no difference. The Deputy cannot even read the speech.

Mr. O'Kennedy

I shall take my time, because it is very important. The record is there, unless the Minister was ad libbing at the time, which I doubt very much.

Mr. Keating

It is on page 3. I was going to make the same comment myself, less bluntly.

Mr. O'Kennedy

I am obliged to my chairman for pointing this out to me. Which part of the page?

Mr. Keating

The second paragraph.

Mr. O'Kennedy

This is not only a criticism, but a very sharp criticism of a senior Minister from his associate Minister.

Mr. Keating

I shall probably be ticked off for helping to point this out.

Mr. O'Kennedy

The Deputy will, too. Here I am quoting the Minister of State:

It is important to mention that the implementation and continuation of these procedures is dependent on the availability of necessary staff resources. If the staff of the Office of Public Works continues to be depleted, as it has been over the past couple of years, I am afraid the success of these procedures cannot be guaranteed.

If ever there was a total, blunt criticism——

Mr. Wilson

Stasis.

Mr. O'Kennedy

——of the Minister for Finance by the Minister of State at the Department of Finance it is expressed there, that the Minister for Finance has depleted the resources of the Office of Public Works over the past couple of years. The Minister of State is now telling us that if this continues, then we may not expect his section of that Department to discharge their responsibilities. He continued to say:

It will be appreciated that it is not easy to adopt and operate regular detailed control methods if a single official is expected to administer 20 or 30 projects of various sizes and at different stages of development at the same time.

I have to say hear, hear: to the Minister of State, Deputy Bermingham. I agree entirely with him. Had I been writing the script I could not have done a better job myself.

I can only say to the Minister for Finance — who will be replying in a moment — that he might take note of what his Minister of State has sharply criticised him for. Would he take note of the fact that these officials cannot be expected to do the work without the necessary staff resources and finance? Would he ensure that the next time he happens to have some opportunity to discuss these things with his Minister of State they might resolve their differences in private before coming in here and embarrassing the rest of us by following the habit we are supposed to have of criticising the Minister for Finance and his Government colleagues? I thank the Minister of State for having been so open, courageous and determined in this frontal assault. I hope somehow it will draw some response from the Minister now sitting beside him.

Mr. Keating

I might draw the attention of the House to the fact that the eloquent vice chairman of the committee did indicate that there was a certain personal gloss on the remarks he made.

As chairman of the committee I want to express a word of appreciation to the chairman of the sub-committee, Deputy L. Fitzgerald and his colleagues, Deputy R. Bruton, Deputy N. Treacy and Deputy J. Doyle who did most of the work on this. They have produced for us a significant report with significant recommendations. There are 13 specific recommendations. I have to admit to being a little disappointed that the Minister of State did not accept or reject any one of them, although he said at the end of his remarks — and one might be forgiven for thinking up to then that he was not going to say it — that he was broadly in agreement with the recommendations in the report, which is heartening and encouraging to those of us who put some work into this.

I believe that the recommendations contained in the report are worthy of being implemented. They may not be refined to the point to which the expertise available to the Minister of State and the Minister for Finance would bring them. But they all contain a valid perception of something that is not adequate, some inefficiency or ineffectiveness which could be put right by the implementation of the specific recommendation. I do not believe there will be any change in the way we do things until such time as recommendation 13.7 is implemented. In brief what that boils down to is that each Department would pay, out of their budget, the cost of what they consume in the course of doing their work.

At present the reality is that Departments order what they like, when they like, change their minds as often as they like, because they do not have to worry about who pays the bill. It does not matter one whit to their budgets how much it costs. It is absolutely unacceptable that client Departments can change their minds willy-nilly. Until such time as departmental budgets reflect the excesses and largesses, the inefficiencies and the changes of minds and hearts they regularly make in seeking to procure their requirements, there will be no change. Ultimately when Departments have to pay the bill — and even then, of course, we should be reminded that the degree of perception they will have will not be similar to that of the rest of us who have to pay individually out of our own pockets for items we consume — at least it will be reflected in their budgets. Then we may get some automatic and spontaneous system of order, internal constraints, simply because it will come out of their budgets.

I would seriously ask the Minister for Finance — when he contributes in a few moments, if he has an opportunity to tell us as succinctly as he can, whether he considers that recommendation as being open to be implemented; yes or no.

One of my regrets is that the defence this evening by the Minister of State at the Office of Public Works, in a sense, is understandable. But that is not the point of this report. We are not interested in attacking the Office of Public Works, any other Department, or officials. That is all irrelevant. What is relevant is what we will be doing next week and next year. What we inside and outside this House want to know is: will Howth harbour recur? Will we be talking about £25 million in eight years time for another set of plans in some other Department? Whether one describes it as an overrun is irrelevant. That is the nettle that must be grasped: whether the systems have been changed to ensure that these débacles — to use the words of the Minister of State — will not recur. In due course — preferably tonight — I should like a comment, affirmative or negative, on each of these 13 specific recommendations which are the fruit of many months of work.

The Minister of State made a couple of remarks on which I should like to make an observation. For example, he said:

I would go further and say that, had that office not been available to the State, and had it been necessary to engage private interests to carry out those projects, the extra professional fees that would, of necessity, have been involved and the profit which the private interests would naturally have expected to make on their ventures would have added up to even greater calls on the public finances.

That simply does not add up. We are not asking two different sets of people to do the same work. We want it done efficiently. We do not care whether it is done by the State or by people outside; it should not be done twice.

I am very pleased that the Minister of State has confirmed for us that estimates are now being framed to include all relevant costs where formerly construction costs only were included. If our modest nudgings in that respect have perhaps encouraged that change to be brought about, so much the better. I am pleased also to note that detailed cost reports are being obtained at regular intervals. That is all good and is apparently happening now. It was not happening when we were examining the issues in this report.

Seeing the opportunity as a senior Opposition politician, Deputy O'Kennedy put the boot in on the question of staff. I use a slipper because I am on this side of the House but his point is well made. Quite frankly, it is disarming and a little bemusing to hear an office holder bleat about lack of staff. That is not our problem. I am not sure that it is the Minister for Finance at whom he is getting. I gather that the Minister for the Public Service actually has the final say. Anyhow, let them sort it out but do not, for God's sake, tell us that they cannot get the act together because there are not enough staff.

The Minister of State said also:

only on rare occasions does that responsibility rest on the Office of Public Works.

On that question, we do not mind. We are not interested in whether it is the Office of Public Works, the Department of Justice, the Department of Fisheries or whoever. We are simply saying that, from the perception of the man in the street, there is a lot of money being spent and not enough being obtained for it. We tried to spell that out clearly. The Minister of State continued to say:

It cannot be within the competence of that office to decide whether or where to provide fishery facilities...

This on the question of professional expertise. Yet, to be fair to the Office of Public Works, they have to put up with a bewildering succession of requests for the provision of just such items. The question of the technical competence and expertise available to them in making certain judgments in that respect obviously is a hazy area and is in need of some degree of clarification.

Mr. Wilson

We have the best committee of the lot.

Mr. J. Bermingham

I would be surprised.

Mr. Keating

The Minister of State continued to say:

For the most part, the office acts as agent providing for the needs of other Departments.

That is a fair statement. Again I believe we could bring about an improvement if we could get individual Departments to pay for the costs which they incur.

The Minister of State made a point relating to the definition of an overrun. He takes us to task and there is probably some truth in what he says. It is probably not fair to call architectural fees for plans which are not implemented an overrun.

Mr. Wilson

Superfluous expenditure.

Mr. Keating

It is a total waste of money. A rose by any other name will smell just as sweet or a nettle by any other name will sting just as deep. It does not matter what one calls it. Redesigning the parameters of the definition will not work in this case. The Minister stated:

...before a reliable estimate of cost can be made, it is necessary to know precisely what the requirements are and to have done a certain amount of planning. Normally a project is taken beyond the inception stage on the basis, among other things, of its probable cost.

I do not know what he means by that last sentence. In the private sector they have very clear costs and estimates. They do not operate on the basis of hazy notions of probable cost, whatever that phrase means. A probable cost is obviously different from a final estimate. I presume it is a ball park figure which relates to the estimate. If there was a major discrepancy there would not be any point in having a duplicate system of probable cost vis-á-vis estimates. We do not mind which is which. When the State decides to build X it should know precisely what X will cost. In the case of Howth harbour one of the officials of the Department said openly and bluntly that not alone did the Department of Fisheries not know what it would cost but they spent £3 million without the sanction of the Minister. If that is what they call probable costing, the sooner it is dealt with the better. The Minister said it was unfair to call a probable cost an estimate. Perhaps it is and if we are wrong we should apologise. It is not germane to the point we are making.

The Minister distinguishes between a probable cost based on perceived needs rather than firmly established needs and on assumed building costs rather than costs based on detailed planning. I am not sure about the difference between perceived needs and firmly established needs. There should not be any discrepancy between them. Work should not begin on the basis of perceived needs. By whom are they perceived? Is it written down somewhere? Is it worked out in a plan? Need should be spelled out clearly before any proposal is taken beyond inception stage.

The Minister stated that the guidelines set out in the Department of Finance circular 1/1983 are being followed by the Office of Public Works in so far as it is possible to do so. These are the type of qualifications I worry about. They are either being followed or not. This is the kind of qualification we get on all sides of the House from successive administrations. Things are "under review" and all the other clichés are used which allow people to slip out of responsibility. In this case the cliché is "in so far as it is possible to do so".

Later in his speech the Minister unconsciously used a phrase which sums up our perception of the fees issue in the case of the prisons. He referred to the fees "débâcle". It is his word and it is an honest expression. The Minister went on to talk about the Howth harbour project and he said repeatedly that nowhere in the report is there a suggestion that the works do not represent full value for the money spent on them. He said that the end product adds considerably to the public amenity. That is absolutely accepted. It is a fine achievement and nobody disputes that it adds to the lustre of life on that side of the city or that it is arguably good value for money. That is not what we are talking about. We are talking about whether the same amenity value could have been provided for less. That is the issue which the report addresses.

I am a little intrigued at the logic of the Minister's remarks about the boring for the Howth harbour site. The Minister stated:

The clear implication is that further investigations should have been made to determine the amount of rock to be excavated.

There were contradictory borings which could have led to further contradictory findings. Obviously the extension of that logic is that one does not do any boring and the problem does not then arise. The sub-committee reported that the investigation indicated there would be problems which would reflect on the final cost and that therefore the contingency sums and other aspects of the project should perhaps have been dealt with in a different way.

On the question of contingency sums the Minister of State made the very valid point that ideally in a Utopian world there should not be any contingency sums. Life is not like that and problems will arise. If a change has to be made in a project for some good and valid reason that problem must be addressed. In this case the committee are saying that the contingency fund was wildly disproportionate to what it could reasonably have been expected to be. It was below the average on public construction projects for a project which was somewhat hazardous because it was an underwater job with complicating factors.

The Minister of State spoke about many aspects of the work of the Office of Public Works detailed in a document submitted to the committee. He said that the absence of this document from the report was an unfortunate omission. The report runs to 250 pages. As cháirman of the committee I was worried about the size of the report. Every conceivable document which had any relevance was included. If it is considered proper, I will be very happy to include the document referred to as an addition so that the House or anybody else will have the benefit of it. I have a feeling that this document came to us after the report was completed. I am sure the House will be agreeable to adding the document to the report so that there will be no recriminations.

Mr. O'Kennedy

There is consensus on that.

Mr. Keating

Towards the end of his speech the Minister of State said:

It is a pity that what could have been an excellent report should have been spoiled by some instances of what I can only describe as less than fair and less than objective reasoning and comment.

Nobody could be more staunch, more loyal or more supportive of the Office of Public Works than the Minister of State.

Mr. N. Treacy

Hear, hear.

Mr. Keating

His defence of the Office of Public Works brings to mind the classic legends we came across in the classroom — the battle of Thermopylae and the Pass of Cuchulainn. Nobody stands firmer in the gap than the Minister of State on behalf of the Office of Public Works. I respect that. In fairness to his officials who do a lot of good work, it has to be respected. It is always with a slight sense of discomfort that I become involved in a report which might be interpreted as rubbing the Minister of State the wrong way. None of us had any desire to do that. It is proper to put on record that the Office of Public Works do extremely good work. The report never disputed that. We do not talk about whether it adds to the final value of the generality. That is not the issue. We want to know whether we can do things a better way and the report unequivocally says that we can. It makes 13 specific recommendations which the committee want in place. Alternatively a good reason must be given as to why they should not be in place.

I should like to thank the sub-committee for their help in preparing the report. I thank both the Minister of State and the Minister for their presence this evening. It is encouraging to see men taking an evening off to come here at this late hour to be with us in these deliberations.

Mr. O'Kennedy

Is this the Deputy's notion of taking an evening off?

Mr. Keating

This is an evening off compared to some branch meetings. The Ministers are here and listening and I am sure some good will come from it. I look forward to hearing the Minister for Finance and I thank the Minister of State for his lengthy and considered contribution.

Mr. N. Treacy

As the only non-Dublin member of the sub-committee I was delighted to work on the investigation of capital projects and cost overruns. I want to say how delighted I am to have worked on this sub-committee and to pay tribute to my colleagues for their dedication to their task. I should particularly like to pay tribute to our excellent clerk, Mr. Judge, and to the professional advice which we got from Mr. Ballance who made a major contribution to the report.

We are not here to single out the Office of Public Works for unfair treatment. We are here, as the chairman of the committee rightly said, to ensure that the taxpayer gets value for money in future. We are not satisfied that they got that value for money in the past and we hope, as members of the Committee on Public Expenditure and particularly as members of the sub-committee, that we can pinpoint ways for the future in which money can be better expended with the same good resultant end product and positive projects being realised.

As laymen who examined the Howth harbour project, we were very pleased with the final project although we felt that the management involved left a lot to be desired. The Minister of State admitted this in his speech when he said that of course there was control but that it was not as formalised as it might have been. I applaud the Minister for admitting that, because we are not satisfied that there was tight formal control from the start to finish of the project and that from the outset the Office of Public Works only acted as agents.

I have just completed my third year in this House and I understand clearly how the Office of Public Works are always standing in the breach as agents for the State, doing these projects and providing services for other Departments. I understand that they are often in a straitjacket and that when they are given instructions and put them into operation, after a week, a month or a year there can be a change of direction, attitude and policy and the Office of Public Works have to carry the can and justify why so much money has been spent on small projects.

The Howth harbour development was originally estimated to cost £3.5 million but it ultimately cost £11.8 million. This was 200 per cent more than originally expected. The Department of Fisheries and Forestry had ultimate control over the Howth harbour area and they changed their plans radically after the project went out to tender. I accept that this put major pressure and constraints on the Office of Public Works and, ultimately, on the Exchequer in regard to the financing of the project and its total cost.

I also acknowledge the treatment which the Department of Fisheries and Forestry gave to the many agencies involved, including Bord Iascaigh Mhara and other commercial and voluntary organisations. They listened to them, accepted submissions from them and they implemented those submissions and recommendations, even those from voluntary bodies. Perhaps they were not implemented in full, but major parts were accepted by the Department and were implemented, on their instructions, by the OPW. Of course this led to cost overruns. The fact that the Department changed their plans radically after going to tender was a disaster because it was obvious that more money would have to be expended and that the people involved might think there was a never ending supply of money.

The other project which we investigated was the Department of Justice prison programme. The Department commissioned designs for various prisons. Then there was a change of policy, possibly because there was a change of Government, and a sum of £12.7 million was paid in fees for five designs, four new prison designs and one redesign. When we interviewed the Department of Justice officials it was hard to get them to admit that there were five designs involved as they tried to say that there were only four. However, they ultimately accepted the fact that there were five designs. We received every co-operation from Government Departments, State agencies, public servants and departmental officials.

We are public representatives and Members of Parliament elected by the people to work for the common good and to ensure that the funds of the Exchequer are spent to give the maximum benefit and to get the maximum value for taxpayers' money, and we were held in contempt by some officials of the Department of Justice who did not co-operate with us to the full extent or give us information which was so vital. These officials hid behind various Ministers and said that they could not impart information for security reasons. The Minister is a servant of the people and the common denominator available to all Ministers by way of resources are the advisers in his Department and the nation's finances. The same advice must have been available to the present Minister as was available to his predecessors and there is no reason for any Department officials to hide behind a Minister. The information we sought should have been forthcoming. Ultimately, we did get the information owing to the forthright manner in which the sub-committee went about their business and the persistence and diplomacy of our excellent clerk.

Hindsight has proved conclusively that it was a disastrous decision to suspend the prison programme and to redesign the various planned projects. I appeal to all Governments to ensure that planned projects are brought to fruition. We now see the high cost of security, the morale in the Garda, the difficulties being encountered by the Judiciary and the legal profession because there is no prison accommodation for people who need to be confined for certain periods. Judges in some courts, especially in the city, are often told before the court sits that there will be no prison space available for the week and that is how they are forced to operate.

The fact that the prison programme was changed at a vital time has led to this serious situation developing, but I do not wish to alarm anybody. It is not in the interests of this House or the country that any responsible public representative should do that. It is vital to change the system whereby professional fees are paid for various projects and it is time that the State, which has ultimate responsibility and control, should be the agency which decides the type and method of payment of professional fees for public projects and State tenders. It may be all right in certain circumstances — although personally I do not think it is all right at any time — for a percentage fee to be paid to a professional group, person or agency for putting projects on paper and for those fees to be paid before the project starts. The amount of money spent in this instance would have built one or two prisons. I appeal, as did the chairman of our sub-committee and the chairman of the Committee on Public Expenditure, to the Government and to the Minister of State to ensure that a new policy is initiated vis-á-vis payment of professional fees.

I should like particular attention to be paid to the many recommendations we made, particularly recommendation 13.1. This states that there should be more briefing, monitoring and control of public expenditure on capital projects so that cost overruns will be eliminated. Any future capital projects should be properly planned, designed, costed and examined before being set out for tender. After that there should be a realistic contingency figure allowed for inflation or for some eventuality that may necessitate a small change in direction to bring the project to a successful conclusion.

It is my opinion that the total amount of money initially planned for the project should be in line with the timescale. If that timescale is two, three or four years, it should be possible to allocate an amount from the annual Estimates rather than the present position where the Estimates are planned annually, where each Department or semi-State body make their application which is considered by Cabinet, which is then put before the Dáil and passed. Where there are overruns it is a matter for the client Department or the State agency concerned to put the case before the Minister concerned and explain why the money is needed. Then it is up to him to persuade his Government and his Minister for Finance to ensure that the allocation is available in the Book of Estimates. That is not a good system. I ask the Minister for Finance and the Minister of State at the Department of Finance to ensure that future projects are planned over a period, with the amount of money needed being allocated at the start of the project to come out of the Estimates year by year rather than having to make a case for a cost overrun 12 months later when the Book of Estimates is being prepared and when the budget has to be passed by this House. In the final analysis this is where the finances are found to run the State.

It is vital that fixed price tenders be sought. In this way the possibility of a cost overrun would be minimised. I expect the officials in the Office of Public Works will consider this point in the future. It is vital that there be clear negotiations on fees. These could be identified for the initial design and, secondly, for the supervision and the bringing of a project to conclusion. These fees could be paid in two stages or in various stages. This would be preferable to the present situation where fees are paid on a professional scale on the estimated cost of a project. This is basing amounts on future costs which may not be realistic or which may become unnecessary because projects planned do not always come to fruition.

The report before the House is having some effect already as I understand the architects and other professional people working for State agencies and Government Departments are not finding it so easy to get payment of fees. I accept that everyone is entitled to payment for work done but I am delighted to see that what we have recommended is being implemented in what I hope will be a professional ethical manner.

We are a young developing country. We do not want a repetition of what happened in regard to Howth harbour. I hope the experience garnered by the Office of Public Works, by the Department of Fisheries and Forestry and ultimately by the Department of Finance as well as the report of our committee will highlight the way forward in the future for client Departments, for the Office of Public Works as agents of the State and for future administrations. In this way we will have tighter control, better management, better programming of finances and a more efficient and expeditious conclusion to all future State projects.

Ultimately it is the taxpayers who carry the can, the PAYE sector, the self-employed and all who make their contribution to the finances of the State. We must ensure that Government Departments and State agencies do not change their minds or change direction. Projects that are planned, initiated, designed and costed should be brought to a conclusion as quickly as possible. We must make sure that there is no change of policy or direction just because there is a change in administration. We must act as responsible politicians, both in and out of Government. We must ensure that what is planned and projected is in the interest of the common good and that State funds are not wasted because of a change of course or direction.

In the past few years many projects have been changed. I refer to projects such as the Ballyforan briquette factory managed by Bord na Móna where much money was expended. However, a decision was made not to go ahead with it. There is also the case of the project involving inner city development in Dublin which was planned when we were in Government and put into action by us. It was brought to a standstill and now two years later it is being reactivated. However, much money has been lost in the meantime. Costs are higher and there has been a considerable loss to the Exchequer in respect of PRSI and VAT contributions. Sites have been purchased throughout the country for the decentralisation programme but they are now being put up for sale. These were good, sound, solid projects to develop the country and to provide services in the interest of the common good. Some have been abandoned and others are being reactivated. We should ensure in the future that any sound project that is properly planned and costed will be brought to fruition in the interests of the people.

As a member of the sub-committee and of the Committee on Public Expenditure, I hope that in our small way we have made a contribution in highlighting the necessity to have cost efficient and effective management of all projects. I am confident that the Minister for Finance and his Minister of State will ensure that the recommendations we have put forward will be implemented as sensibly and as positively as possible.

Mr. Naughten

I welcome the report and share the views of most of the previous speakers in regard to overruns in projects like Howth and in regard to the Department of Justice. The report gives us an opportunity to try to prevent repetitions of these overruns. At a time when it is so difficult for the Government to find finance for public projects, it is frightening to see vast sums being paid in fees to consultants. I am sure the Minister of State in charge of the Board of Works would not agree with overruns in contracts, with the State having to pay far greater sums than the original tender prices.

The alarming thing is that these extra costs are concerned with so many Departments. I am a member of the Committee of Public Accounts and I am keenly aware of the vast overruns on capital projects. It is proper that this House should discuss those matters. I endorse the points made in regard to the system of fixing consultants' fees and I share the view that it is high time to re-examine this matter as it has obtained in the last ten years. I appeal to the Minister for Finance to examine it with urgency, particularly the system by which fees are assessed and fixed.

Another cause of extra costs is that changes are allowed in contracts during the work. I thoroughly object to this process and I suggest it be examined speedily. I note that in a Department of Justice contract placed in 1979 for £273,000, the ultimate cost was more than £1 million. That was in respect of staff accommodation in one of the Department's institutions. I understand that the accommodation was supposed to be temporary, but each unit finally cost £22,000 when completed in December 1981. This is a disgrace and repetition should be avoided.

The same occurs throughout the whole field of capital expenditure. A telephone exchange was built for the Department of Posts and Telegraphs, the tender being placed in 1978 at £1.8 million. The final cost was £2.6 million, an overrun of £600,000, because of a dispute between the Board of Works and the contractors. The contractors' excuse was the bad winter and overtime. That should not be tolerated. When the Board of Works sign a contract there should not be changes, and many of the overruns happen because contracts are changed. It is like giving a cheque book to contractors engaged in public building contracts.

I will return to consultants' fees. If I were in that business, apparently all I would have to do is to get a contract from the Board of Works and I would have no financial worries for a long time. I will give two further examples of increases in contract prices. A library and lecture hall were built at UCC and the contract in 1978 was for £3.9 million. In 1980, the final cost was £8.6 million. A State laboratory at Abbottstown was to be built at a cost of £1.2 million. The final cost was £2.7 million.

We cannot continue to have huge overruns, and the Minister must examine it as a matter of urgency. The whole system must be examined, including how consultants' fees are arrived at. When projects are let to contract there should be a clear contract without deviation. A stadium was to be built for £600,000 but on 7 December 1979 there was a further cost of £284,000 and still a further tender was given to the same company for £180,000, the final cost being £600,000 above the original tender price. The Government cannot and should not tolerate this any longer.

Minister for Finance (Mr. Dukes)

I thank the members of the committee and especially the members of the sub-committee for the work they have done and for the concerns they have expressed. I wish in particular to thank Deputy Naughten who so far this evening has been the only person not a member of the committee to participate in the discussion of the committees work and their report.

The area covered is one of very considerable importance, one to which the Government and I have been paying a good deal of attention. The concerns which motivated the committee to take up this matter were very similar to those which inspired the changes that have now been put in place by the Government and the new procedures we are now following.

I did have the opportunity of fairly extensive and probing discussions with the committee while the report was being drafted. We covered quite an amount of ground during that discussion, some of which has been referred to this evening but not all of which comes through in some of the comments that have been made in the debate. To reply to some of the comments made here tonight would necessitate covering some of the same ground I covered in my discussions with the committee. It is not my intention to do that. The report might have gained a little had the committee given themselves a little more time to finalise it after the discussions we had.

I am sure that Deputies on the other side of the House will realise that during the course of this discussion I may be tempted into indiscretions here and there. That is not my intention. In my discussions some weeks ago with the committee, they will have found a very ready ear for the concerns that are expressed in the report. Without any wish to be contentious, I must say that I found some of the remarks made by the Opposition and particularly those of Deputy Treacy to be such that, if followed to their logical conclusion, would seem to be in conflict to a certain degree with the concerns expressed in the report.

Mr. N. Treacy

We have been consistent.

Mr. Dukes

I appreciate that it is difficult to set out a procedure for decision making and for analyses as we go about our political business and suffer the slings and arrows of outrageous fortune. It can be difficult to adhere to the ideas that appear to be good when the basic analyses are being done but I am prepared to do that and I should like to think that I would have the support of the members of the committee in that regard. We will have the opportunity of seeing the degree to which each member of the committee is committed to all of these matters as we go through Estimates discussions and as we proceed with the budget debate in the early part of next year. I will be looking forward to the support of members of the committee on all sides of the House for a number of matters I will be talking about then, in relation particularly to capital expenditure.

The committee's report deals with shortcomings in the procedures for planning and monitoring capital investment projects and supports that line of argument with a detailed analysis of two projects — the Howth harbour development scheme and the prison building programme. I do not propose to go into detail on either of these projects. My colleague, the Minister of State, has dealt with a number of aspects of both programmes but I should like to make the point that both programmes were planned before the publication in March 1983 of my Department's comprehensive guidelines for appraisal and control of capital expenditure, referred to more widely as circular 1/1983. I should not like it to be inferred from what I have said that I take the view that since those guidelines were published, everything in the garden has been rosy, that there are no difficulties remaining. That is far from being the case. There is always room for improvement and I welcome a number of suggestions put forward by the committee with a view to bringing about improvements in this area.

I should like to put the issue in the broader context of the quality of capital investment generally. In the past decade, public capital investment has accounted for about 50 per cent of gross domestic fixed capital formation in the economy and has heavily influenced the composition of a further 25 per cent. In this way, the State plays a pivotal role in the determination and composition of the level of national investment. The level of gross national investment itself has been maintained at a consistently high level — averaging about 27 per cent of GNP in the past ten years. It is clear that successive Governments have attached a very high importance to public investment as a means of achieving long term economic growth and of generating jobs.

Paradoxically, however, despite large scale involvement in investment and despite the maintenance of high overall national investment ratios, the rewards in terms of growth and job creation have been less than satisfactory. In fact, the annual average volume growth in GNP in the past decade has been of the order of only 2 per cent per annum. This can hardly be termed a good return. Other forces have, of course, had an influence on the level of growth, but it is clear that the return on public investment has been less than satisfactory.

We should all be concerned about the apparent lack of return on State investment expenditure in the past. While it would be a misleading over simplification to say that poor quality public investment was the cause of low growth in the economy in recent years, it is clear that this has been a substantial contributory factor. I welcome the committee's report for the opportunity it affords us to look again at what has been accomplished and what remains to be done in this area to improve the efficiency and effectiveness of State investment so that we can enhance its contribution to growth and employment.

A fundamental requirement for any investment project, whether it be undertaken by a Government Department or a private firm, is that the benefits or income flows accruing from the investment yield a positive return over and above the cost of the investment decision. The State does not have access to free funds. In the current year the Exchequer must borrow about £¾ billion to finance the Public Capital Programme.

Capital assets are by their nature long-lived; their useful life extends over a period of many years into the future. The process of acquiring these assets, typically by construction, usually takes several years. Once they come on-stream, it may be several years more before the benefits which they were created to produce begin to flow. In the meantime, of course, the State has had to put its money up front in the expectation that over time the benefits deriving from the investment will outweigh the costs. It is clear that, once the decision to undertake a project is taken it pre-empts the State's freedom of choice in future years because the annual capital expenditure associated with the project becomes a first charge on Exchequer resources in subsequent years. The selectivity and prudence which should apply to the spending of these funds is therefore of critical importance and is all the more so today given the priority of restoring balance to the public finances.

We must recognise that every investment decision carries a degree of risk. Some are a good deal more risky than others. It would be foolish to expect that every investment project would perform fully up to original expectations. What we need to do is to ensure that an adequate proportion of investment projects provide sufficient return to cover the cost of the overall investment portfolio. The initiatives which have been taken by the Government in recent years are designed to ensure just that.

The first major step was taken with the establishment of the working group on cost overruns on public construction contracts in late 1981. That group's report proved to be a key document in the drive towards better quality appraisal and management of public investment projects. That working group made 17 recommendations which they felt would contribute to a substantial improvement in project conception and appraisal, effective management and control. They specified procedures for formulation, vetting, design and supervision of projects along with arrangements for improved cost control and payment of consultants' fees.

Around the same time, the Department of Finance were completing work on the preparation of comprehensive guidelines for public investment planning and control. Many of the improved procedures proposed by the working group were accordingly incorporated in circular 1/83. That circular formalised a more rigorous and systematic approach to the appraisal, monitoring and management of public investment projects. It had two main objectives, first to improve the quality of decision making by improving the quality of the information on which decisions were based through the use of systematic appraisal techniques and second, to improve the quality of management control once projects were underway.

The guidelines deal with the various stages of project appraisal, sanctioning procedures, contract supervision, project management and cost control. They are not intended and I want to emphasise this, to be a standardised rigid system designed to apply inflexibly to the wide range and variety of individual projects that go to make up the Public Capital Programme.

Circular 1/83 marked an important change in attitude to the appraisal of capital projects. Although some Departments and agencies had previously followed effective appraisal procedures, the overall standard was uneven and left a great deal to be desired. The current procedures have been in operation for a comparatively short period — less than three years — but already they are bringing about a more rigorous and cost-conscious approach to the planning of public investment. My Department are in regular contact with the spending Departments to ensure that proper attention is given to appraisal. The national plan, published in October 1984, emphasised that Government approval for projects to be included in the Public Capital Programme depended on rigorous appraisal being applied along the lines of circular 1/83.

More recently, I have been taking initiatives in the area of consultants' fees and contract procedures, subjects which have figured largely in this evenings debate. My Department are currently in consultation with the professional institutes about fees and have drafted proposed new procedures in relation to the placement and administration of public contracts which I hope to introduce early in the new year. I will return to these developments later.

It is fairly clear that we have not been shirking our responsibilities in this area. Every opportunity to push home the message of the need to improve the quality of State investment has been taken and will continue to be taken in the future. It is plain commonsense that we as a nation simply cannot afford to sink money into projects which fail to give adequate returns and we no longer intend to allow that to happen.

In that regard, I took more than a passing interest in what Deputy O'Kennedy called the personal gloss he wanted to give to the discussion this evening. I cannot remember the exact month, but during the autumn of last year I had the pleasure of being invited to speak to one of our institutes of engineers about project appraisal in relation to the Public Capital Programme. Deputy O'Kennedy, who was not present at the conference, got hold of a copy of the paper which I had given at the conference, which was rather weighty which, I think, was appropriate to the occasion. That Deputy came in here this evening in his usual smiling way to talk about his personal gloss on this report which is concerned about getting better value for money for public investment. Some days after I had given that paper, he stood in those benches and emoted at me — that is the only word I can use — and took issue with me for taking an excessively rigid economically based approach to public capital projects. That man, who this evening as vice-chairman of the committee was emoting——

Mr. Wilson

The Taj Mahal was an emotion——

Mr. Dukes

I do not think Deputy O'Kennedy can be compared to the Taj Mahal, although I read recently that one cannot get into the Taj Mahal in the evenings because the water gets into the dome and they are afraid of any damage that might be done——

Mr. N. Treacy

There is a leak like that in this administration.

Mr. Dukes

I suppose it is not too bad that the Taj Mahal needs repairs to the dome after all the years of good service it has given. However, I was very interested by the contrast between Deputy O'Kennedy's personal gloss this evening and the umbrage he took when he felt I was taking an excessively rigid, excessively monetarist — to use his favourite buzz insult word — approach to capital investment. As I said before this evening and on other occasions in this House, I will wait for the day when Deputy O'Kennedy and his Fianna Fáil colleagues, who have worked very hard in the preparation of this report, put public money where their mouths are, and defend in this House measures that are intended to get value for money.

Mr. Wilson

That is what we are doing.

Mr. Dukes

This means they will have to make up their minds if project A is more important than project B. If project A is more important, then that is the project with which we will go ahead and project B, no matter how desirable it might be, will have to wait. That is what investment appraisal is all about.

Mr. N. Treacy

And if they are equally important what do you do?

Mr. Wilson

Toss a coin.

An Ceann Comhairle

There have not been any interruptions in this debate so far. Please keep it that way.

Mr. Dukes

I am sorry if Deputies opposite feel that ordinary common sense and a defence and exegesis of what is in the report should be regarded as provocation.

Mr. Wilson

Hermeneutics is the word.

Mr. Dukes

I hope that Deputies on all sides, but particularly on the opposite side, of the House will be so convinced by the general thrust of this report that we will not have to have this discussion when we come to the budget debate——

Mr. N. Treacy

We are not convinced by the Minister's economics——

Mr. Dukes

I got him. Now he is talking about the hair shirt.

Mr. Wilson

If we buy a hair shirt we want good value.

Mr. Dukes

This is what is commonly called the hair shirt because when you have to make decisions it hurts, and when you must decide that some things are more important than others then you must have the commonsense——

(Interruptions.)

An Ceann Comhairle

We must have order.

Mr. Dukes

——you must have the guts to defend the decisions you make on the basis of the criteria laid down. I know this committee have been so persuasive and have so well argued their case that we will not have this debate again and we can take all these conclusions as read in future economic debates.

Mr. N. Treacy

The Minister is inclined to treat our report with flippancy.

Mr. Dukes

It may be naive of me to think that but I think there is still redemption even for Deputy Treacy and Deputy O'Kennedy.

I want to turn now to the specific recommendations made by the committee, several of which are critical of circular 1/83. I do not intend to itemise them now, but I want to use my time to make specific remarks about them. Guidelines, by their nature, are flexible instruments designed to allow the bodies or individuals to which they apply to put them into operation in a way that best suits the circumstances of particular programmes. I have already stated that the purpose of Circular 1/83 is to ensure a systematic approach to capital project planning and implementation across a wide spectrum of public capital investments. The circular makes it quite clear that responsibility for the design and implementation of detailed procedures consistent with the guidelines rests with individual Departments and agencies precisely because differences in procedures may be appropriate to different programmes and that capital appraisal, per se, is an integral part of the responsibility which departmental managements hold. Departments do not, however, have discretion to disregard project appraisal.

The committee's emphasis on a much more central role for the Department of Finance in capital project appraisal seems to be both inflexible and unwieldy and unnecessarily and excessively bureaucratic. It is nice for once to be able to come into this House and tell other Members that their proposals are excessively unwieldy, inflexible and bureaucratic. It is the case on this occasion. In addition, it would undermine the important principle that line management in spending Departments should be accountable for implementation of the programmes.

Circular 1/83 acknowledged, and this still holds true, that the size and nature of projects must, inevitably, influence the extent to which the steps outlined in the circular are applied. Some Members of the House seemed to feel this evening that Departments were a little too relaxed in their approach to the application of circular 1/83. I can assure the House that they are not relaxed about it for any lack of attention from me or my Department. There is another area, similar to the area just referred to in terms of responsibility for management, which gives me the opportunity to raise paragraph 4.2.3 on page 6 of the report where it says:

The Committee noted that Circular 1/83 excluded a number of major areas of public expenditure, namely, loan finance advanced by agencies such as the Industrial Credit Company, Agricultural Credit Corporation, Fóir Teoranta, Housing Finance Agency and local authorities for houses (par. 7). The Committee would wish to ensure that all capital projects which are financed from public funds should, as a matter of routine, be subject of rigorous appraisal and evaluation.

I must make it clear that I do not agree with that approach. On reflection members of the committee will agree with me. It would be absolutely impossible even to conceive of a situation where every loan made by the ICC or the ACC, where every operation carried out by Fóir Teoranta or by the Housing Finance Agency and every scheme of houses built by a local authority, would have to be subjected to this kind of appraisal under the terms of circular 1/83, and end up at some stage on my table or in my Department for sanction. The committee have taken an excessively centralising view of this and have done so in this respect in rather too indiscriminating a manner. I fully agree that decisions made by the other agencies mentioned here should be subjected to fairly detailed appraisal and evaluation by those agencies but it must be on the basis of specific criteria laid down to suit the needs of those agencies and the context in which each one of them works.

Recommendations 13.1, 13.3, 13.5 and 13.8 propose improvements in control and reporting systems, assigning specific responsibilities for projects to management teams and making the costing of projects more comprehensive. These features are already an integral part of recommended project appraisal, monitoring and control procedures as defined in circular 1/83.

The main features of the procedures are that:

First, there should be clearly designated individual project manager with responsibility for overseeing the execution of the project. The new management system referred to in the recently published White Paper on Public Service Reform envisages increased personal accountability by individual managers for the expenditure programmes which they administer.

Second, all those concerned with a project, officials of the sponsoring agency, outside professional consultants or others are required to proceed on the basis that proper management of the contract must ensure that costs are minimised and that the project will be completed within the budget cost.

Third, major once-off projects with a value in excess of £10 million have a cost control and supervising committee charged with responsibility for overseeing the execution of the project.

Fourth, design changes are not allowed unless they are fully justified by changed circumstances.

Members of the Committee have been a little over enthusiastic in their feeling that on no account should we make any allowances for changed circumstances. That is not something which can be defended in the real world, nor would the model of private sector behaviour in matters like this indicate that one should batter on ahead regardless of the original plan without taking account of changed circumstances. The committee's enthusiasm has run away with them on that point. The other main features are:

any extra costs arising from permitted design changes must, in the first instance, be offset by cost reducing changes in other areas. If this is not possible, the approval of the sanctioning authority for the design changes and the extra costs must be secured before any commitment is entered into with the contractor or consultants in relation to such changes.

Fifth, extensions of time are agreed by consultants only for most exceptional and unforeseeable circumstances outside the control of the contractor.

The cost control and supervising or monitoring committees just mentioned, are an important element of the control and reporting procedure. These committees maintain continuous liaison with consultants, contractors and others involved in the construction work on projects and insist on careful management and control throughout. In addition, they prepare frequent reports summarising all relevant developments relating to the project costs and viability and submit them promptly to the sponsoring Department and other relevant authority. The monitoring committees also review the project as each stage is completed and ensure that the next stage can appropriately proceed having regard to the overall cost approved by the sanctioning authority and to the availability of funds. Finally, if adverse developments should occur which call into question the desirability or viability of the project, part of the monitoring committee's brief is to prepare a special report and submit it at the earliest possible moment to the sanctioning authority with an assessment of the costs and benefits of terminating it before completion.

These monitoring committees are now in place on several major capital projects, for example, the Wheatfield prison project. Future major capital investment projects in the pipeline will also have monitoring committees as and when the Government decide that they should proceed.

Circular 1/83 is also quite explicit on the scope of the detailed feasibility and investment appraisal study which must be carried out. It is also quite explicit as to what is required in relation to financial appraisal. The procedures are comprehensive and cover, in particular, the estimation of the full cost of the project and its phasing, both in cash terms that is inflation-adjusted future price levels contrary to what some members of the committee seem to think, and in real terms that is at constant prices. This applies also to all possible alternative options so that all of those considerations can be taken into account at the very beginning. An allowance must be made in the costings for the possibility of cost overruns for various reasons e.g. design problems, higher than expected inflation etc. Consideration is also given to the Exchequer costs, including the proposed capital contribution from the Exchequer; ongoing current costs to be borne by the Exchequer, directly or indirectly, if the project or programme is undertaken, including interest charges on capital, commissioning costs, additional current expenditure, staffing requirements and so on. In this regard the proposal to include in departmental voted allocations all of the ongoing costs that have been mentioned during the discussion would be an extremely complex matter, particularly if we were to put in the ongoing interest costs and allowances for depreciation. It would be extremely difficult to put those kind of allowances into departmental allocations and reconcil them with corresponding Central Fund flows. I say, having thought about it at some length, that unless we were to take up the option — which I think the committee would not recommend — of specific earmarked funding on the borrowing side for each project, a very complex operation, we could not go along with that proposal if it is meant in the way I understood it to be put forward this evening.

Two of the most important and immediately relevant recommendations made in the report are those at 13.2 concerning fixed price contracts and 13.4 concerning the system of fee payments to consultants.

On the question of consultants' fees, I agree broadly with the committee's recommendations. Indeed, I wrote to the professional institutes involved last April seeking to have a number of changes introduced into the system. First, fees should be calculated on the VAT exclusive cost of projects; second, over a certain value of contract — £2 million — fees should be open to price competition and, under that level, fees should be negotiable; third, fees should be split, one portion paid by reference to the cost of the project at tender stage and the other portion related to the cost at completion. I am very pleased to have the committee's support in adopting that line of approach.

I am pleased to say the first change concerning the VAT exclusive cost of projects as a basis for fee calculation has already been implemented. Consultations are continuing with the professional institutes with a view to early implementation of the other changes.

On the matter of fixed price contracts, I agree that these are desirable and public authorities are being encouraged to use fixed price contracts whenever possible. The Minister of State, Deputy Bermingham, referred this evening to this matter. To be workable, however, such contracts must be well defined beforehand, should not be open to significant changes after award, and should have fixed starting and finishing dates, all features which I think the committee would wish to see in them. With the decline in inflation, it should be possible to extend the use of this form of contract and I intend to encourage it in appropriate cases.

In the past, unfortunately, many public sector projects have not been sufficiently well defined at tender stage to enable a fixed price tender to be obtained. We are now taking steps to make it a requirement on public authorities that every aspect of the design should be completed before going to tender. This will go a long way towards meeting the concern which Deputy Naughten expressed. Such requirement would obviate the scope for client or consultant inspired changes, and consequent claims for extra cost by the contractor.

The committee also recommend the establishment of a small technical advisory unit in the Department of Finance to bridge what they consider to be various gaps that exist at present. The function of this unit would be to provide me with professional advice on the Public Capital Programme, advice which the committee believe is essential if the PCP is to be adequately monitored and controlled. While I find the committee's suggestion interesting, it appears to indicate a lack of awareness and understanding of the true problems involved in successfully implementing project appraisal. The main stumbling block, if one exists, to converting the circular 1/83 guidelines into operational rules and thus to improving the quality of projects making up the PCP, lies outside the centre with line Departments and agencies. Unless the will and expertise exist in the outside Departments and agencies to undertake proper capital appraisal then the required improvement in performance will not materialise.

As I see it, the basic role of my Department in relation to capital appraisal and control must be to (a) define standards for project evaluation; (b) ensure that these standards are applied uniformly and (c) review the adequacy of appraisal arrangements from time to time.

The application of those standards must, however, remain in the hands of management in line Departments of offices, where it belongs. It is important from the point of view of management accountability that we keep that principle in mind. We must, therefore, equip those Departments who are directly responsible for project implementation with the requisite professional and technical skills to do the job.

In this regard, I am conscious of the need to achieve significant improvements in the level of accountancy skills and expertise in the Civil Service generally and in the field of capital appraisal in particular.

We have already made progress in that regard. One initiative which I would mention is the analyst training programme run by my Department. At present about 25 officers with training in analysis have been allocated and training is proceeding at the rate of four per year. We have taken steps to increase the number of professional accountants available in the Civil Service both by having people serving in the professional accountant grades and encouraging by a number of means serving officers in the Civil Service to acquire new or higher levels of accounting skills and expertise.

Recommendations 13.9 and 13.10 address the format and content of the Public Capital Programme booklet. Basically, what is being looked for is an expanded publication which would provide details of feasibility studies and appraisal, details of current and prospective costs and so on, and the provision of capital projects data on a multi-annual basis. I must say that I have some difficulty with that recommendation. I do not think that the PCP booklet would be an appropriate vehicle to use to get that information across. It seems to be a matter which would more properly be dealt with in the comprehensive expenditure programme booklet which, the House knows, I want to develop further so that it becomes a more useful tool not just for us in the House here but for interested parties generally to give them a better basis on which to assess the suitability and the returns to public expenditure, particularly on the capital side but also on the current side. Too often we forget that we should look for a return on expenditure there also.

Recommendation 13.7 deals with a related point — charging the full cost of capital projects to the budget allocations of the Departments concerned. Important steps in this direction have already been made with the development of comprehensive public expenditure programmes. I refer the House to my remarks a few moments ago on the complexities of accounting in following what I understood earlier to be a suggestion made by some members of the committee.

I accept that, having regard to the long-term nature of capital expenditure, there are obvious benefits to be gained in settling public investment allocations on a multi-annual basis. Such an approach would, for example, provide a guide to the private sector as to the Government's intentions for national investment. It would also help to avoid cases where programmes have to be stopped because the original level of ambition set out was far in excess of the level of resources likely to be available to carry out those programmes. I would make that remark in particular in relation to some of the comments that were made about the prisons programme and to remarks that Deputy Hilliard made about decentralisation.

I agree with the committee that the state of affairs existing before the implementation of Circular 1/83 was in many regards most unsatisfactory. The position has improved very substantially since the application of that circular but I would be the last to say that it is entirely satisfactory or perfect. I wish to commend the committee for the initiative they have taken in drawing attention to the problems set out in the report. I should like to repeat that I look forward with very pleasurable anticipation to the support of each member of the committee in the work I will be carrying out to give effect and recognition to the concern expressed in the report.

Mr. L. Fitzgerald

I have not got time to make a response to the Minister but I should like to express my gratitude, and that of the members of the committee, to the clerk and his staff who so ably and diligently helped us in the preparation of our report.

Question put and agreed to.