While the Chairman introduced my colleagues, I propose to elaborate on the position before we start. Mr. Paul O'Donoghue and Mr. John Dempsey, who are seated on either side of me, are part of the Irish Water management team, while Mr. John Barry and Mr. Ger Cowhig are part of the Irish Water programme in Bord Gáis. They are working on building the permanent organisation and its systems before handing them to us, as the Irish Water company, to run the business. To give a simple example of this, metering was set up and then handed to the business last July.
I thank the Chairman and members of the committee for the opportunity to present to them. We are here to talk to them about implementing Government policy and the process involved in undertaking one of the largest reform projects in the history of the State.
We understood the committee to have come here today to hear an explanation of four things: what money is being spent on establishing Irish Water; whether it is being appropriately spent and whether we are getting good value; whether the proper controls are in place to approve and control spending; and whether consultants or external service providers were required.
Bord Gáis was given a mandate to establish Irish Water as a key part of the water reform programme. We set out for Government our approach to delivering Irish Water back in January 2012. Our proposal was to establish it as a modern utility that would deliver a world-class water system and the best possible value for the customer. In order to deliver this we established the Irish Water programme and assembled a team comprising the best utility expertise in Bord Gáis combined with the water and wastewater expertise of the local authorities and the Department of the Environment, Community and Local Government. This team scoped out the full project to deliver a new company with the capability of managing all of the public water and waste water assets and deliver services to customers. That programme was to run from April 2012 to April 2015, with one of the key milestones being to ensure we had all the systems, processes and capabilities in place to take over €11 billion worth of assets from 1 January 2014.
The budget as submitted by Bord Gáis for the programme was €150 million, with a project contingency of €30 million. This entire programme and associated budget, as well as the approach to resourcing and staffing the programme, was rigorously examined and approved by both the internal Bord Gáis governance and approval processes and the relevant Departments. The full programme, associated works scope and full costs were presented to the Department in September 2012. Bord Gáis standard programme management methodology has been applied to the Irish Water programme, with monthly reports to the Bord Gáis internal steering committee, the Bord Gáis board, the recently established Irish Water board and the Department.
Bord Gáis set out clearly from the outset that while the core capability of defining what was required to establish Irish Water existed within Bord Gáis, it would require the use of specialist service providers to help implement the programme. In essence, the Bord Gáis team, in conjunction with secondees from the local authorities and the Department, specified what was required. Bord Gáis used its experience and its existing systems and processes to define the requirements for Irish Water. In the main, this required us to specify and implement five major utility information systems: a customer care and billing system, a work and asset management system, a financial system, a procurement system and capital project management systems. All of these were based on existing Bord Gáis systems, but the specification had to reflect the needs of a water utility, as distinct from an energy utility, and meet the needs of an organisation approximately three times the size of Bord Gáis today.
In order to design and implement these systems to the specifications set out by Bord Gáis, we engaged external service providers through a competitive procurement process. They are experts in the building and integration of complex utility information systems. The use of such expertise is standard practice for utilities internationally and is seen as the most efficient practice in terms of both delivery and cost management. These service providers have joined our team temporarily to help us build a hugely valuable asset. We did not bring in experts to tell us how to build Irish Water, to answer the Chairman's point. We brought in contractors to help us build the systems and processes necessary to run the business. This is standard practice in utility businesses. In our case, we simultaneously built five major systems and procured global specialist expertise to ensure that the most efficient industry practice is being deployed. The following are the major companies that were used by Irish Water to help deliver the required systems and processes: IBM, Accenture, Ernst & Young and KPMG. To date we have invested approximately €100 million in the delivery of the programme and approximately €50 million of this was used on such specialists. The Irish Water programme will run to April 2015 and will obviously be run down on a graduated basis between now and then in order to finalise the systems I have described and deliver two more, a geographic information system and a mobile workforce management system.
The main scope of external work went out to public tender in nine lots and, following a detailed evaluation of the bids, we secured fixed-price lump sum contracts to deliver the major work scopes. Importantly, we only pay out when we have a proven deliverable. Based on the delivery of the full scope of work, we expect the final cost of the work packages to be as follows: IBM, for three lots, €44.8 million; Accenture, for three lots, €17.2 million; Ernst & Young, €4.6 million; and KPMG, €2.2 million.
Detailed explanation of the works involved comes later in the document. These systems will enable Irish Water to deliver a minimum of €2 billion worth of savings for the Exchequer by 2021 and provide the Irish people with a fit-for-purpose water system that will ensure the public health and safety of our communities, facilitate economic development and protect our environment.
Bord Gáis is privileged to have been selected as the company to establish Irish Water. It has been a hugely demanding task and the approach taken accords with best international practice. The Irish water programme has been established to deliver this huge reform project and it is being delivered on time and within budget. Irish Water, as a new modern utility, is up and running since 1 January 2014 as planned.
I will go back to the questions I posed earlier. On the question of what money is being spent on establishing Irish Water, I have outlined the overall programme cost. With regard to whether it is being spent appropriately and whether we are getting good value, the answer is "Yes, it is," because we procured on the open market on the basis of fixed price. It benchmarks favourably and has the capacity to save the Exchequer €2 billion by 2021. On the question of whether the proper controls are in place to approve and control spending, governance both internally and externally is rigorous. On whether consultants and external service providers were required, from the very outset, Bord Gáis advised the Government that this type of support was critical to delivering the programme and achieving the targets set in a demanding timeframe. In terms of achieving targets to date, the performance has been outstanding in meeting the milestones set for the metering programme initially and now in having Irish Water in place to commence its work as Ireland’s newest utility.
I will now give a brief synopsis of what is in the rest of the document I submitted. Section 2, on page 4 of the document, deals with Government policy. The proposal to establish Irish Water was contained in the programme for Government announced in 2011. Despite the fact that since 2000 investment of €4 billion had been made in wastewater treatment, environmental compliance remains a major factor. Currently the EU is taking an infringement case against Ireland for non-compliance with EU standards on up to 80 plants. Many other plants cannot satisfy EPA licence standards. Despite the issues at the time, before making a decision to go ahead with the establishment of Irish Water, the Government asked the Department of the Environment, Community and Local Government to carry out an independent assessment in 2012. This assessment made key findings, recorded on page 5 of the document, which relate to both existing provisions and recommendations for the new organisation.
Page 6 of the document provided summarises these findings. In summary, to establish Irish Water to deal with the chronic problems in the system there was a requirement for utility-standard asset management, utility-standard workflow practices, utility-standard procurement practices, and an appropriate IT infrastructure to support this. In regard to the programme strategy and budget, as far back as January 2012 Bord Gáis set out its strategy to the Government for delivering Irish Water. The model put forward in response to what Government was requesting was to utilise the core experience of Bord Gáis and supplement that with support from third-party service providers for an intense short period in order to deliver Irish Water as cost-effectively as possible.
Page 8 of the document provides a summary of the budget submitted by Bord Gáis in September 2012. This budget work was grouped into various lots for the purpose of tendering activity. The tender process is described in detail on page 9, as is the conclusion of the contracts. Page 10 provides a summary of the significant lots plus the legal services tendered by Irish Water for consultants. The main legal services have been highlighted. On that page, reference is made to a figure of approximately €13.3 million and 18 contractors, but that should refer to 22 contractors, and we will circulate that list of contractors today for information. We are happy to respond to any other queries in regard to this.
Section 4 of the document, on page 11, deals with the budget process, the establishment of Irish Water and timelines. As I mentioned already, we made a submission in January 2012 and in response to the Department's queries a detailed statement of capability was provided, which confirmed that as part of the project Bord Gáis would have to use external service providers.
Next, we provide important timelines in the process, starting with the mobilisation phase from May to August 2012, following on to September 2012, when the budget for the programme was submitted in the sum of €150 million plus contingencies, recognising that any contingency would need further express approval of individual items from the Department if it arose. In December 2012, Bord Gáis received a cost recovery letter from the Department amounting to €50 million expenditure to the end of March 2013 and permission to enter capital commitments totalling €80 million with termination rights in the contracts. These were requirements of Bord Gáis, having regard to good governance prior to proceeding with the project. In March 2013 we began the formal financial reporting letters to the Department, with submission of the year to date budgets and the actual spend. We also submitted an outline of the lots that I mentioned earlier, defining what each lot means and the outcome of procurement processes and an indication of the scores. On 25 and 26 July, Irish Water received a letter from the Department of Communications, Energy and Natural Resources and the Department of the Environment, Community and Local Government for consent for Irish Water to enter into a €250 million loan facility with the National Pensions Reserve Fund, to facilitate the metering programme and establishment costs. We can see that in December, CER recognized that the establishment of Irish Water was a significant undertaking and efficiently incurred costs should be allowed into a regulated asset base. In other words, those costs themselves were to be treated as an asset. The CER further noted that all of the activities described by Irish Water are core to delivering the objective of a national integrated water service provider with associated benefits to customers and other stakeholders in Ireland. The CER also noted that Irish Water has drawn heavily on BGE personnel and processes, which is the most efficient means of establishing Irish Water; in other words, the most cost beneficial.
On page 15 of the presentation, we take the reader through what the money is being spent on, from the work and asset management and capital programme planning, and managing and operating €11 billion of assets, to page 17, where we outline customer operations and billing functions, and how we have to manage the expectations of 1.8 million customers, which is the largest customer base of any organisation in the country. The support services are listed on page 18 and outline the systems required for supporting 4,300 staff and so on, working with the local authorities to perform their roles.
I will not go through the issue of benefits, except to state that the end of the benefits section on page 20 shows the projection over an eight year period to 2021, regarding the combination of these total efficiencies of €1.1 billion, along with other factors such as the increased income resulting from the introduction of domestic water charges, which will result in a net reduction of at least €2 billion in Exchequer funding of the water industry than would have been the case, absent Irish Water.
Benchmarking, which is outlined on page 21, is quite important. We can glean certain information from documents in respect of UK utilities. For example, Severn Trent Water expects to spend £101 million to upgrade its systems with the objective of achieving the "lowest possible charges". Thames Water installed a new working asset management system in 2011, which is one of the five that we are talking about here, at a cost of £150 million. We provide a Scottish example and an Irish example from bringing together an all island single electricity market.
I have tried to convey the reality of the situation. Bord Gáis and Irish Water were asked to deliver a project based on Government policy, with an incredibly exacting timeframe. This is what we are doing, within time and on budget. There have been extremely demanding timelines involved, and the people who have worked in this project to make this happen deserve great credit in my view.
I have tried to cover as much as I could in the synopsis. Obviously, we will take every question the committee wishes to ask.