Vol. 553 No. 5
71 Mr. R. Bruton asked the Minister for Finance the procedure for re-evaluating the benefit of capital projects in instances where significant cost overruns on costings at the time of the original approval are identified; and if he will make a statement on the matter. [14619/02]
In accordance with the principles underlying the strategic management initiative, my Department has been pursuing an active policy of maximum delegation to Departments for some time. In relation to large capital programmes, therefore, responsibility for individual projects is generally delegated to the relevant Department. The role of my Department is to set out a clear framework in relation to the management of capital investment.
In managing capital projects Departments are required to comply with my Department's guidelines for the appraisal and management of capital expenditure proposals in the public sector. These guidelines set out four main stages of project appraisal and management. The appraisal stage aims to provide a basis for a decision on whether to approve a project in principle. This stage includes an assessment of uncertainty and risk.
The planning stage involves the establishment of a project management structure, preparation of a design brief, detailed planning and design of the project and a review of costings. If changes are proposed to the project in the course of the planning stage, the guidelines make it clear that the cost implications should be fully appraised and the approval of the sanctioning authority sought before proceeding. On receipt of a tender price and other relevant information, the case for proceeding with the proposal is again subject to review. Where it is proposed, following such reappraisal, to go ahead with a project at a price higher than that originally proposed, a decision will again be required by the sanctioning authority to proceed.
The implementation stage begins once the final approval for the award of a contract has been secured. If adverse developments occur, including unforeseen cost increases, which call into question the desirability or viability of the project, the sponsoring agency should consider necessary measures to rectify the situation. Where, despite these measures, increased costs are likely to arise, the approval of the sanctioning authority for the extra expenditure has to be obtained before any commitment is made to accept cost increases. The viability of the project given the changed circumstances should also be reported on.
Following the completion of a project, the final stage is post-project review. Such a review is recommended to evaluate both the project outturn and the effectiveness of appraisal and management procedures. I am confident the steps outlined in the guidelines provide sufficient guidance for the re-evaluation of projects at key points in the decision making process.
The reason I ask this question is that there is a widespread perception, with which I am sure the Minister will agree as he has done in the past, that the Government has not been capable of delivering results, despite spending enormous amounts of money. Has the Minister received requests for the approval of cost increases in respect of significant capital projects? For example, the Luas light rail project has run over the original cost by 250%. Have the cost overruns in any of these projects caused the Minister to reconsider whether the benefit is worth the cost? Given the huge cost increases, have any projects been dropped from the NDP as a result of the procedure he has outlined because they no longer represent value for money?
Once a project commences, it continues until it is completed. The post-project review then comes into play. This is the stage at which the assessment takes place. As I pointed out, if, at any point during the appraisal stage of a project right through to implementation stage, the Department considers that the costs outweigh the benefits, the project will be abandoned. However, as I also pointed out, it has been the practice since 1994 or even before to delegate more responsibility to Departments – rightly – rather than have everything approved by the Department of Finance.
While the Deputy is correct that costs have risen considerably in the construction area, the amount of money the Exchequer planned to spend in the period 2000-02 will be ahead of what we had budget enveloped for those years.
If the Minister, as an accountant, was advising a business about a project which had run over its original cost by two, three or four times, would he not ask it to reconsider and inform him if there was still a rate of return? Is he saying that, as the person responsible for the stewardship of our tax resources, he does not receive information on whether it is worthwhile proceeding with projects which have hugely overrun and that he permits taxpayer's money to be expended on these projects without having such information available to him?
The Deputy is not suggesting that we leave a bridge half completed or a road running into the middle of nowhere. Once a project starts, it must be completed.
Therefore, the Minister will never reconsider a project.
The relevant Department reconsiders projects during each stage. If one project is wildly overrunning, the Department's plans will be affected in the ensuing years because it will have to meet the cost of the overrun and its allocation may not be sufficient to do so. Once major projects have passed stages one, two and three, they will run to completion because, as I said, one cannot leave a bridge half built. Nevertheless, there are evaluation techniques applied at all stages in the relevant Departments and agencies. If a project goes wildly over budget, it will impact on plans for future capital projects because the money from the Exchequer will not be available to implement them.
What the Minister is saying is that the white elephant will be built and future projects will then suffer. Is that correct?
One would have a white elephant if one built a bridge halfway across the Boyne or a road going nowhere in the Bog of Allen.
Cost overruns arise much earlier than that.
