I welcome this report. Most of the issues raised in it do not fall within the scope of PPP policy. The focus of much of this report seems to be the impact on subcontractors arising from the liquidation of Sammon, itself a subcontractor working on the schools PPP bundle 5 project. This intrudes on law dealing with the complex situation of company insolvency rather than PPP policy or public procurement policy. The position of any subcontractors engaged by a PPP company is essentially no different from that of subcontractors working on traditionally procured projects, whether in the public sector or private sector.
I absolutely sympathise with anyone who has experienced a financial loss. The State, however, is not to blame for this loss. The State meets its obligations and will pay the PPP company the contracted price for the project delivered. That said, the Government has considered this report in its entirety, and I am happy to set out how we will respond to its recommendations.
Last year, the Government launched its vision for how we can achieve a better future. Project Ireland 2040 includes two core elements, namely, a national planning framework and a €116 billion national development plan that sets out an ambitious and strategic vision for Ireland's investment in public infrastructure over the next ten years. With this plan, investment levels in Ireland will continue to increase at a sustainable rate and, very importantly, our infrastructure investment will be strictly guided by the national planning framework, which creates a single vision for our country as a whole, covering both rural and urban areas. This will deliver modern public infrastructure over the coming years that will improve the lives of people throughout Ireland and allow our companies and economy to continue to compete with the best in the world.
I will briefly explain what PPPs are and their role in the delivery of Project Ireland 2040. A PPP is an arrangement between the public and private sector for the purpose of delivering infrastructure or services that were traditionally provided by the public service. In effect, it is a form of procurement available to the public sector. When referring to PPPs, we generally mean that the asset is funded and constructed by the private partner, following which it is made available for public use and is paid for by the State and-or users over an extended period, typically between 20 and 25 years, following which the asset comes into State ownership. In the meantime, the PPP is regarded as off-balance sheet from a general Government perspective, which means that the initial capital cost of the project does not impact on the general Government balance over the construction period, but rather its cost is spread over the lifetime of the project.
Since the late 1990s, significant infrastructure projects have been delivered on behalf of the State using the PPP approach, including the pilot schools bundle in 2002, the National Maritime College in 2004, Cork School of Music in 2007, the Criminal Courts of Justice complex in 2009, the National Conference Centre in 2010, further schools bundles and a number of major motorway projects from 2005 onwards.
In July 2012, the Government announced plans for a major new €1.4 billion PPP programme, as part of a €2.25 billion stimulus programme of investment in public infrastructure projects. This comprised eight new PPP projects across the health, justice, transport and education sectors, of which schools bundle 5 is one. This was followed up with a second phase of the PPP programme, announced in 2014, to deliver 1,500 social housing units and a third phase, announced in 2015, to deliver projects across the higher education, health and justice sectors. There are now 28 PPP and concession projects that are either operational or in construction, in addition to those in procurement or planning. The annual cost of the unitary payment charges in respect of operational PPPs is some €290 million in 2019. The contractual capital value of all PPPs in operation or construction is over €5 billion.
In order to support value-for-money assessment, an analysis, called the public sector benchmark, is prepared that estimates the full cost of pursuing the project as a traditional procurement. As a general rule, a project proceeds as a PPP only if the tendered cost to the Exchequer is less than the public sector benchmark, which was the case in school bundle 5. The committee has suggested that the public sector benchmark be published before concluding a PPP contract. The public sector benchmark is confidential as it effectively says how much the State should be willing to pay for a particular category of project. However, current practice is already to publish the public sector benchmark, once it is no longer commercially sensitive.
In 2017, I initiated a policy review of the future role of PPPs to ascertain how they would contribute to Project Ireland 2040. The main outcomes of the review are: PPPs should continue to feature as a procurement option for projects that demonstrate value for money over a traditional procurement option; value for money should be the key deciding factor, an approach also recommended by the 2017 IMF review of our public capital investment processes; PPPs that have already been announced and that are in planning or procurement, as announced in budgets 2015 and 2016, will proceed as planned.
There is frequently a degree of misunderstanding regarding what a PPP project entails.
Comparing the construction costs of a project with the total payments made by the Exchequer over a 25-year PPP contract does not compare like with like. The payments made by the Exchequer over the lifetime of the PPP contract include not just the construction costs but also those relating to finance and operations and maintenance, including cleaning and caretaking, over the period. The PPP company must provide a fully maintained asset. If the asset is not available or maintenance is not undertaken in accordance with the contract, the State reduces its monthly payment until the required standard is restored. This means that the PPP company has a strong incentive to deliver a high-quality asset and maintain it in good condition. Over the lengthy period of the contract, the PPP company can expect to make substantial investments and significant refits to keep the asset in good order. Residual life requirements are key features of these contracts, which means PPP companies must hand back the assets in good condition and meet specific residual life conditions. In traditionally procured projects, such further costs fall to the Exchequer. All of this is taken into account when designing a PPP. The PPP contract makes explicit the full costs of constructing and maintaining an asset in good quality.
The Department of Education and Skills is undertaking a review of the first pilot bundle of five post-primary schools that were delivered through the PPP model in 2001-2002. The review includes a direct comparison with traditional schools that were procured around the same time. The review will incorporate detailed condition surveys of the buildings and compare the operation and maintenance provision in both PPP and traditional schools. We expect it will provide useful learning for the traditional schools programme and for the PPPs.
Schools bundle 5 is a PPP project that is delivering five schools and an institute of further education across four sites. The bundle includes: Loreto College in Wexford, which is in my constituency; Coláiste Ráithín and Ravenswell primary school in Bray; Eureka secondary school in Kells; Tyndall College in Carlow; and Carlow Institute of Further Education. The bundle will provide for 3,150 post-primary school places, 24 primary school classrooms and 1,000 further education places. The new buildings are replacing infrastructure which is no longer fit for purpose or adequate for student enrolment numbers and are hugely important investments for the school communities involved. This project is managed by the National Development Finance Agency, NDFA, on behalf of my colleague, the Minister for Education and Skills. In 2016, the PPP contract was concluded with a consortium that included Carillion, a British company which had been involved in many PPP projects in the UK. The construction was subcontracted by Carillion, as the works contractor, to Sammon, which was an Irish construction company. Following the financial collapse of Carillion in 2018, Sammon went into examinership and subsequently into liquidation.
The PPP structure transfers delivery risks to the private sector. Therefore, responsibility for completing the construction of schools bundle 5 ultimately rests with the PPP consortium and the private investors funding the project. As with all forms of public procurement, the prime focus is on achieving value for money in delivering the required schools. The three school buildings in Bray and Wexford were handed over in late August and early September of last year in time for the current academic year and are now fully operational. The remaining buildings in Carlow and Kells are scheduled for completion in the second quarter of this year. The NDFA, in consultation with the Department of Education and Skills, is liaising closely with the PPP company and the funders to achieve the delivery of all remaining buildings as soon as possible. The full lessons from schools bundle 5 cannot be determined until all the buildings have been delivered and the final outcome is known. A joint lessons learned exercise regarding schools bundle 5 has commenced and will conclude after all the buildings are delivered. The review involves my Department, the Department of Education and Skills and the NDFA. I intend that this review will publish a summary of findings. This will substantially address the need to identify whether any aspect of the PPP framework needs attention as a result of experience of this project.
The Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach has made a number of recommendations to review and promote the Construction Contracts Act 2013 and potentially implement alternative protections for subcontractors. When the 2013 Act was being developed, extensive research into the approaches taken in other jurisdictions was undertaken and this was reflected in the regulatory impact assessment undertaken at the time by the Office of Government Procurement. This means that potential alternatives have already been evaluated and assessed. The legislation is based on the approach taken by the UK and New Zealand Governments in dealing with similar issues. It is important to appreciate that alternative measures, such as requiring contractors to acquire performance bonds, entail unpredictable costs for the private and public sectors. The balance that was struck in the Construction Contracts Act 2013 represents all that any such measure can do.
Some people have suggested that PPP contracts are exempt from the scope of the 2013 Act. This exemption applies only to top-level contracts with the PPP company - typically, a contract involving equity people and funders rather than the construction sector subcontractors the 2013 Act seeks to protect. The 2013 Act applies to subcontractors further down the supply chain. For example, it would apply to subcontractors working for Sammon on schools bundle 5. The committee recommends the promotion of awareness of this legislation. I agree with this recommendation. It appears that subcontractors are not availing of this framework in situations that could help them. This is best addressed by inviting construction sector representative bodies to promote awareness among their members. To that end, I have arranged for the Department of Business, Enterprise and Innovation to deliver a presentation on the Act to the construction sector subgroup. This group ensures there is regular and open dialogue between the Government and the construction industry on how best to achieve and maintain a sustainable and innovative construction sector which is positioned to deliver successfully on the commitments in Project Ireland 2040. It comprises representatives of key industry bodies, as well as senior representatives of relevant Departments and agencies with responsibility for policy and the delivery of infrastructure. It is chaired by the Secretary General of the Department of Finance. The scope for construction sector bodies to pursue their own initiatives in this space has not been exhausted. The construction sector could give consideration to the establishment of a fund to guarantee payment to subcontractors - not limited to public sector contracts - on the basis of a levy collected and managed by the industry. This might have a positive impact on payment behaviour.
The Companies Act 2014 is the legislation applicable to the winding up of companies. The Act contains detailed provisions relating to the realisation and distribution of assets and provisions to address abuses when companies are being wound up, such as rules on the fraudulent disposition of assets and unfair precedents. The Company Law Review Group is a statutory advisory expert body which advises my colleague, the Minister for Business, Enterprise and Innovation, on the review and development of company law in Ireland. As recently as 2017, the group published a review of company law safeguards for employees and unsecured creditors. Subcontractors are likely to be unsecured creditors under company law. In general, the review found that the existing protections and remedies for employees and unsecured creditors in company law are comprehensive and fit for purpose. As the group's report is of recent vintage, the need for a further review of company law in respect of subcontractors at this stage is unlikely to be productive.
I welcome the joint committee's report. I have drawn it to the attention of the relevant State bodies with an interest in its recommendations. The thrust of its recommendations are already reflected in the actions that have been taken. I refer particularly to my commitment to invite construction sector bodies to promote more awareness of the Construction Contracts Act 2013 and the protections that are already available.