Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Wednesday, 19 Jun 2024

Public Private Partnerships: Discussion

An Cathaoirleach

The first item on the agenda is to note that the minutes of 12 June 2024 were agreed at our committee meeting earlier this morning.

The purpose of this meeting is to engage with the Department of Public Expenditure, National Development Plan Delivery and Reform to discuss public private partnerships. As usual, I ask members to note the position regarding privilege. Those who are present on the campus of Leinster House have full cover. Those who are not may only have limited cover. Members are also reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against any person outside the Houses, either by name or in such a way as to make him or her identifiable.

We are joined by the following witnesses from the Department of Public Expenditure, NDP Delivery and Reform: Mr. Eoin Dorgan, assistant secretary general; Mr. Kevin Meaney, principal officer; and Ms Margaret O'Donnell, assistant principal officer. They are all very welcome.

I invite Mr. Eoin Dorgan to make the opening statement on behalf of the Department.

Mr. Eoin Dorgan

I thank the members for the opportunity to be here today to offer any assistance we can to the committee in its discussions on the topic of public private partnerships, PPPs. I am joined by my colleagues Kevin Meaney and Margaret O’Donnell.

The primary role of the Department of Public Expenditure, NDP Delivery and Reform in relation to PPPs is to facilitate the PPP process centrally by developing the general policy framework, including, where necessary, the legal framework, and the capital investment policy framework within which PPPs operate, and by providing central guidance to Departments and other State authorities in that context. A full suite of guidance covering the PPP process is published on the gov.ie website. Responsibility for individual PPP and concession projects, including financial responsibility and responsibility for compliance with the requirements of the infrastructure guidelines and PPP guidance, rests with the relevant sponsoring Department or agency.

I will provide a brief overview of Ireland's PPP market. Significant infrastructure projects have been delivered on behalf of the State through the use of PPP procurement. The first such project was the construction of the pilot schools bundle, which was completed in 2002 and which is scheduled to be handed back into State ownership in 2027. Since then, a further 29 projects have become operational across a range of sectors including housing, health, courts, higher education and roads. Further PPP projects are in train in the health, higher education, courts and housing sectors.

The procurement of projects through the PPP process played a very significant and important role in facilitating the delivery of essential infrastructure projects across a range of sectors, in response to the fiscal crisis. Procurement by PPP enabled the implementation and development of infrastructure projects when the Exchequer was seriously constrained in terms of its ability to fund infrastructure directly. The use of private finance ensured the provision of much-needed infrastructure. The projects in this regard were accounted for off-balance sheet.

This year, approximately €334 million will be spent by Departments in respect of PPP unitary payments. This equates to just over 2.5% of the overall capital allocation for 2024 of €13 billion. The future liabilities for all existing PPP operational projects over the next 20 years has been calculated at €5.9 billion, or an average of approximately €250 million per year.

In ensuring that Departments obtain the best value for money from public capital investment PPPs are subject to the same robust and rigorous project appraisal process as traditionally procured projects. It is essential that projects are judged on their merits and in cases where PPPs may be demonstrated to give better value for money than traditional procurement, it is appropriate that they should be selected on that basis. All projects are required to adhere to the infrastructure guidelines, which set out the value-for-money guidelines for the evaluation, planning and management of public investment projects. The infrastructure guidelines also require that the sponsoring agency seeks the advice of the National Development Finance Agency, NDFA, on all projects above €75 million, in terms of the optimum means of financing the cost of the project on a value-for-money basis. The guidelines also provide that the option of procuring a project by PPP for projects of this value should be considered by the sponsoring agency as part of the project appraisal.

In addition to the infrastructure guidelines requirements, PPPs are also subject to specific value-for-money tests under PPP guidance at four stages during the procurement process. The first of these is a PPP procurement assessment, which is a test carried out to determine whether and in what form a PPP arrangement has the potential to offer the best value for money solution for the procurement by reference to a number of criteria. The second stage is the completion of the public sector benchmark, PSB, to determine whether, in light of the quantifications in the PSB, the conclusion reached in the PPP procurement assessment still holds. The third stage is the tender evaluation stage. The purpose of this stage is to compare the highest ranking bid against the PSB, allowing for the differing impact of taxes, etc., to assess whether the highest ranking bid offers a potential value-for-money solution. The fourth stage comes at financial close, when a final test is carried out to assess the impact of any changes in the interest rate or discount rate and to examine the effect of any proposed changes in the contract terms.

Following completion of the project, PPPs, just as is the case with traditionally procured projects, are subject to the infrastructure guidelines requirement that a post-completion review be carried out for all major projects once sufficient time has elapsed to allow the project to be properly evaluated with sufficient evidence of the flow of benefits and costs from it. There should be two separate focuses of such a review, the project outturn and appraisal, and management procedures, which may be undertaken at the same time or at different times but they should be done as soon as is practicable. In the case of PPP projects, once contract close is reached, the cost of the project to the sponsoring agency is essentially set for the duration of the contract. In these circumstances, since the future cost of the project is effectively known at this point, it is possible for an element of the post-completion review to be undertaken on a provisional basis at that stage. A final, definitive post-completion review for PPP projects will effectively only be possible at the conclusion of the PPP contract, when the asset is handed back to the sponsoring agency and all costs arising under the PPP contract are definitively known.

Of course, post-project reviews are not the only mechanism for reviewing past experience in order to draw lessons that can be applied in the future. The NDFA is the financial adviser on all PPPs and procures the majority of the accommodation projects on behalf of sponsoring Departments. Experience gained on each project procured helps inform the procurement of each subsequent project. The NDFA carries out an in-house lessons-learned exercise following all PPP procurements in order to see what improvements can be made in processes and procedures. This has resulted in a number of changes in the way PPPs are procured over the years.

I hope I have provided the committee with some useful insight into PPP policy and procurement guidelines. My colleagues and I are happy to respond to any questions the committee may have in relation to these matters.

Deputy Rose Conway-Walsh

I thank Mr. Dorgan for his statement. I am really glad to have an opportunity to discuss this matter in greater detail with the witnesses. My first question is on the value for money. Who does the analysis of the PPPs? Is it the contracting Department or is it the Department of Public Expenditure, National Development Plan Delivery and Reform?

Mr. Eoin Dorgan

The sponsoring Department or the agency would do that value-for-money test.

Mr. Kevin Meaney

In consultation with the NDFA. They would have a strong hold on the metrics included in the assessment.

Deputy Rose Conway-Walsh

The NDFA-----

Mr. Kevin Meaney

In consultation, yes, However, mainly it is the sponsoring agency.

Deputy Rose Conway-Walsh

What role does Department of Public Expenditure, National Development Plan Delivery and Reform play?

Mr. Eoin Dorgan

We set the overall policy framework in which PPPs are developed. We were heavily involved in the PPP process, and we would have led on the guidelines for the use of PPPs. We have responsibility for the infrastructure guidelines, which all PPPs must go through until they become PPPs and go through their own unique process.

Deputy Rose Conway-Walsh

Who would make the decision as to whether something should be a PPP or whether it should be done in another way under some other model? Who makes that decision?

Mr. Kevin Meaney

Similar to traditionally procured projects the introductory guidelines guide the first stage of an assessment of the need of a project or a piece of infrastructure. At that point, the sponsoring agency, in consultation with the approving authority if it is a Department, would make a decision on whether they wish to go down the traditional procurement route or to use a PPP model. As we set out in our opening statement, at that point there is a PPP assessment again and they would link in with the NDFA to see if THE project is suitable and could it prove viable.

Deputy Rose Conway-Walsh

I am trying to discover the role of the Department when it comes to deciding which pathway to take. Does it have a role?

Mr. Kevin Meaney

We set out all the guidelines. In the context of the public sector benchmark we set out the technical parameters and how it applies-----

Deputy Rose Conway-Walsh

I completely understand that, but does the Department have another role? If there is single project, for instance, and the Department is deciding to use PPP or whatever, is it purely down to the Department and the NDFA?

Mr. Kevin Meaney

The sponsoring agency would put forward the proposal. Typically for most of these projects-----

Deputy Rose Conway-Walsh

When Mr. Meaney says "the sponsoring agency" what does he mean?

Mr. Kevin Meaney

Whichever sector is bringing forward the new-----

Deputy Rose Conway-Walsh

Is that whichever Department?

Mr. Eoin Dorgan

In some cases it is a Department. For roads, for example, it is Transport Infrastructure Ireland.

Deputy Rose Conway-Walsh

Right.

Mr. Eoin Dorgan

This is why it could be a Department or other agency.

Deputy Rose Conway-Walsh

You can understand already how obscure it can seem to people when they are trying to find out whether the money is being used for the right thing.

The expert group review from 2018 said that PPP financing was more expensive than State financing. They argued that PPP was suitable for countercyclical investment when it is difficult or expensive for the Government to borrow. Since 2020, we have not been in that situation anyway. Why has the Government then expanded the use of PPP contracts into areas like higher education and housing? What is the rationale for that?

Mr. Eoin Dorgan

That review also drew out some of the benefits. There can be benefits in terms of bringing in some private sector expertise and innovation, which can yield benefits for projects. We can see that certain sectors are probably more conducive to that. It also maintains that broader range of delivery mechanisms. When the State can be physically constrained, it is very difficult to go back at that point to try and open up a PPP market. We look to have multiple ways of financing and developing key pieces of State infrastructure. The review group also pointed to those as well and would have drawn out some of the elements showing that although PPPs can appear more expensive a lot of them take account of the financing costs over the long term and the maintenance costs that would not be reflected in the traditionally procured projects.

Deputy Rose Conway-Walsh

Is Mr. Dorgan saying that it is not really more expensive and the review group was wrong to say that it is more expensive?

Mr. Eoin Dorgan

They drew out that a lot of factors must be taken into account. This is why each individual contract has to be assessed on the basis of its merits for whether the PPP option is best versus a traditionally procured option.

Mr. Kevin Meaney

When the pros and cons of PPPs are considered, it is very much acknowledged that in most cases it is cheaper for the State to borrow so that cost of the financing component is always flagged. It could be cheaper for the State to borrow given central banks' borrowing.

Within the public sector benchmark, that is part of it. The PPP company tender price obviously does include the cost of finance whereas the public sector benchmark, or the public sector cost, essentially treats finance as free, or it is not included in the calculation. In that comparison it is already acknowledged. The savings that can be generated through the PPP would have to overcome that hurdle. It is acknowledged that the cost of finance is more expensive.

Deputy Rose Conway-Walsh

Over what period? For example, if the Department does a five-year PPP, Mr. Meaney and his colleagues will evaluate this and how to make the decision and in which route to go, whether it is the traditional route or the PPP route, over what duration do they do it? Is it over 25 years? Will Mr. Meaney go through how they come to the conclusion that this is best value for money to do it, even when we have had very low borrowing rates from the ECB so the cost of finance was very low or we are in a situation now where the Department is putting money into funds? Will he explain that for me?

Mr. Kevin Meaney

Typically, for recent building PPPs, 25 years is the generally accepted length of time. Some of the early roads projects were 30-year projects. The idea was the full construction cost was borne, if we went with PPP, by the private company and then there were unitary payments on an annual basis over either 25 years or 30 years. In the public sector benchmark, the comparison is not just the construction costs but also the ongoing maintenance costs that would bring such an asset to a standard at handover by the end of that cycle that it would be still in good condition for the State to use.

Deputy Rose Conway-Walsh

All the assets that are done on PPP basis come back to the State. Are they all 25 years or are there ones that take longer?

Mr. Kevin Meaney

Some of the road projects were 30 years. All the accommodation and buildings, would be 25 years.

Deputy Rose Conway-Walsh

Is that for housing.? So absolutely everything comes back. We do not have any contract -----

Mr. Eoin Dorgan

We might just double-check that because each Department is responsible but that that is the norm. We can double-check that and come back to the Deputy.

Deputy Rose Conway-Walsh

I would be surprised if it was not but the officials might just check it.

I want to raise higher education and housing in terms of the decision to go down the PPP route. What is the rationale for those projects?

Mr. Eoin Dorgan

The broad rationale for PPPs is trying to use private sector expertise and innovation. There is also the element where an element of risk is transferred to the private sector that it can manage.

With housing and the higher education sector, these projects were brought forward by the relevant Departments and they have proposed that they can be done by PPPs. In housing or even higher education, we are very conscious, as I am sure everyone is, of the capacity constraints in the construction sector and also the delivery of big capital projects. With PPPs, we tend to get bigger, more international potential contractors so that could bring an additional element of capacity. Construction capacity was a key element of the ESRI review that fed into the national development plan review last year. That is one potential attraction of PPPs in the higher education and social housing projects that are active at the moment.

Deputy Rose Conway-Walsh

I just cannot align that with some of the Minister Further and Higher Education, Research, Innovation and Science's announcements particularly relating to the technological universities, with resource to expand, develop and fulfil the vision that is there. Would it not be better for the investment to be put in there instead of a PPP? Would that be the way to go to keep the promise of investing in the technological universities rather than forcing them down the other route?

Mr. Kevin Meaney

There are two higher education bundles. Initially there was one and it was split into two around 2020. The initial decision on those was taken in 2015 and 2016. They faced some challenge in some of those technological universities of getting approval. Some projects could not go ahead around 2010 because there was a lack of Exchequer funds for capital projects then. Maybe through that lens, PPP was seen as a more secure means for those particular projects. They are in process. Bundle 1 is mostly delivered and bundle 2 is in active procurement at this point.

Deputy Rose Conway-Walsh

However, technological universities have to make unitary payments for the PPPs, which is an ongoing drain on their resources all the time, yet the Minister promised investment in their expansion. I am trying to reconcile how that could be a good deal. If they have to pay these unitary payments, is that not taking from somewhere else that needs investment? Is it not causing them financial strain on an ongoing basis?

Mr. Eoin Dorgan

The unitary payments come from the Department of further and higher education’s budget. One of the attractions of PPPs is that projects that might take longer can be brought forward . I know it is taking quite a while to get to this point but an overall capital envelope is divided among Departments by Government decisions on budget. Yes, the cost is spread over the unitary payments 25 years into the future but actually it can have the effect of allowing the capital envelope of a Department to be spent on certain projects while also bringing forward capital development that is paid for subsequently over the 25 years through the unitary payments.

Deputy Rose Conway-Walsh

Yes, but it could be also be looked at as letting the Government off by doing them as PPPs so it does not have to make the investment that is needed at a given time and instead the Departments have to use up their funding on an ongoing basis in terms of the unitary payments? I know the way the Department is looking at it but the way I am looking at it is that when there are cash-strapped universities, and we all know about the €309 million hole in further and higher education as it is, it seems that this is a constraint rather than what it is intended to do.

I also cannot understand why when we are supposed to have billions of euro of investment in housing, we would do social housing on a PPP basis. It just does not make sense. It is not like expertise or anything else is needed. Many of these projects are just duplications.

Mr. Kevin Meaney

It goes back to the point of trying to bring in more capacity into the sector, with the potential for international expertise or an international scale of development for what should be big housing projects.

Mr. Eoin Dorgan

It is very much linked to the Housing for All strategy. It was announced as part of that. It is absolutely not a case of substitution. The Department of housing, in trying to meet the ambitious targets it set overall, was looking at all means of delivery and PPP was another means it identified as possible.

Deputy Rose Conway-Walsh

Would it not be better to give the money to the local authorities and get them to ramp up from there?

Mr. Eoin Dorgan

It is a similar capacity challenge in that local authorities, when trying to deliver public housing, will contract the private sector to do the building. What we are trying to do is to create projects of scale that can bring in additional capacity to deliver.

Deputy Rose Conway-Walsh

I know but then there are local builders and so on in terms of the local economies.

The IMF recommended that Ireland reduced its reliance on PPP contracts but the number has remained the same or been ramped up. Why was the IMF recommendation to reduce the reliance on PPP contracts ignored? The IMF recommended to the Minister that he restrict the areas where the contracts were to be used, traditionally, in social areas like healthcare, housing and education but the opposite has happened. Why has the Minister chosen to ignore those recommendations and increase the use of PPPs instead?

Mr. Eoin Dorgan

The IMF recommendations set out that the main driver for PPPs is value for money for the Exchequer. They should be pursued on the basis of value for money and affordability. The guidelines would have taken account of a lot of the IMF's recommendations in terms of increased transparency in the publication of data on PPP contracts that are awarded. That is a key element of what is being delivered.

Deputy Rose Conway-Walsh

Transparency in PPPs is a significant issue. When we ask questions about it, we are told it involves commercial sensitivity and the information is not available to us - often for five years afterwards. Where is the transparency?

Mr. Eoin Dorgan

We have tried to publish more of the information on project classification, when they are operational, construction capital cost, unitary payments and the impact into the future.

Deputy Rose Conway-Walsh

At what point would the Department publish material relating to payments into the future?

Mr. Eoin Dorgan

It is a matter for each Department because they are aware of the detail in a very specific commercial sense for each project. We collate the information from the Departments but generally beyond-----

Mr. Kevin Meaney

The table on our PPP website is updated roughly annually. A piece of infrastructure is built and is operational and those are the 30 or so projects we referred to in our opening statement. We publish it annually. It is the back of expenditure report every year. It is a vast table we put into-----

Deputy Rose Conway-Walsh

What is the time lapse? Is there full transparency then? Is this the case with every project? Is that information sent in as and when? What are the Department's checks and balances? What does the Department do after the horse has bolted if it is making all that information available afterwards and sees that something does not look right and that it should have done another way?

Mr. Kevin Meaney

The information that is published is very up to date. Social housing bundle number two was operational from 2021 and it is all captured in terms of the construction cost and our expectations of the unitary payments. It will be handed back to the State in 2046. That has to be an assessed figure for the unitary payments. Some indexing is allowed over time for certain parts of the operational expenditure so it is an estimate. We provide for 2% inflation per annum but it can change.

In terms of active projects, before they are approved, there are four different stages at which value for money is assessed. This is post tender. Before financial close, the tender is assessed for value for money. In many cases, it does go to Government for a decision.

Deputy Rose Conway-Walsh

Is that information, including the rationale, assessment, estimate and why we are doing this, then published? If a decision is being made about a project today, when is that information published?

Mr. Kevin Meaney

Our guidelines say as soon as is practicable. Particularly outside the roads projects for TII, assessments are published - both the business cases and the public sector benchmark test.

Deputy Rose Conway-Walsh

That after five years. I am trying to get to the bottom of it.

Mr. Kevin Meaney

It does not necessarily have to be five years. It could be sooner. We leave it up to the sector to guide as to when it is not a sensitive commercial matter.

Deputy Rose Conway-Walsh

This is part of the problem around commercial sensitivity. If you are looking at five years, you are looking beyond a government cycle. How is accountability built into it over whether this was the right way to go if projects are not done on time?

Mr. Eoin Dorgan

Department Accounting Officers are still responsible for accounting that this is the best value. The challenge is that that level of commercial information is revealed, essentially, bids that are in tender could be undermined because it allows potential tenderers to-----

Deputy Rose Conway-Walsh

Exactly.

Mr. Eoin Dorgan

That is the balance we are trying to strike between opening up access to the information but not in a way that leads us to have what is essentially a less competitive tendering process.

Deputy Rose Conway-Walsh

Is that not one of the great weaknesses of PPPs? It is a trade off between transparency----

Mr. Eoin Dorgan

It is a tension that is traditional to government as well because only certain information can be released as well on how a potential tenderer is pricing certain elements of the risk of the contract in terms of financing. It is a broader tension in terms of procurement tension.

Deputy Rose Conway-Walsh

When there are private bodies as opposed to doing it internally or making assessments internally and doing a cost-benefit analysis. It seems that when it goes to PPP or is privatised, there is less opportunity to hold people to account. Accountability is around value for money and how we use it. If we are entering a PPP contract and there are other services involved it such as cleaning or maintenance, in respect of entering a 25-year contract for one of those services, how can we get value for money in that scenario?

Mr. Eoin Dorgan

In some respects, this is where we really have to set out the exact requirements in the tender. One of the complexities of a PPP is that we are defining the outcome we want but it is also one of the advantages in the sense that we have projects that locked down and are not being altered. What we have seen from some of the studies is that the two biggest risks to projects being delivered on budget are optimism bias and project development issues. That applies when things are changing in construction so we are leaving yourself open to those changes. In terms of maintenance or care, what we are weighing up is the balance of the economies of scale of making the operator of this, who is required to hand it back in a specified condition at the end, responsible for the maintenance and, therefore, it is incentivised to maintain it to that high standard throughout. This is weighed up by the sponsoring agencies and Departments. The operator is including and budgeting for that from the outset so as to get the best value in terms of delivering that project back to us at the end of 25 years in the predefined state.

Deputy Rose Conway-Walsh

Has the Department examined any PPPs and thought, "We paid over the top for this"?

I take it there are a number that are evaluated and scrutinised.

Mr. Eoin Dorgan

In some ways, you are looking at the very end of it, when you have got the asset back. We are still waiting to come to the end of the first set of projects. In some ways, the test will be what the asset we are getting back is, and whether it has met the predefined conditions. In some respects, that judgment is best made when the project is completed. I know that can be a very long time horizon.

Deputy Rose Conway-Walsh

I would expect there would be a certain amount of continuous evaluation-----

Mr. Eoin Dorgan

Yes, there is.

Deputy Rose Conway-Walsh

-----that can be done. An assumption is being made that the asset is handed back in a certain condition. Using that assumption, is it then a case of comparing if it was the right vehicle with which to deliver a particular project? What has Mr. Dorgan been finding in that regard?

Mr. Eoin Dorgan

We have come back to that value-for-money assessment before the event. It has been very rare in recent times that the PPP price that has been tendered with 25-year maintenance has not been seen as comparable or value for money in comparison to what it would be if we had to do it traditionally and maintain it at that standard, bearing in mind that by the end of 25 years we would have an asset.

Deputy Rose Conway-Walsh

Do we have that evidence? Do we have our counterfactual and what is the actual? Are we measuring it even on an aggregate level just to see that this is the way, despite the expert group, the IMF, saying it is right in this?

Mr. Kevin Meaney

We probably look at individual cases because it is an individual project and you are comparing it to traditional procurement. We are confident that the contracts prior to the date were assessed at the time as proving good value for money. As I mentioned, the NDFA, along with the sponsoring agency in the Department, keeps in regular contact with the relevant project. Then there are set criteria that say it has to be in a particular state when it is handed back.

Deputy Rose Conway-Walsh

I know. I will finish on this. I wonder if there is somebody somewhere who is looking at this model of delivery to examine it. Are they saying that the expert group and the IMF said this and therefore this is the way we are going? They know we are right on that basis because they have a separate column with the evidence. They know if it is a plus or a minus or where we are at, while taking all those things we have spoken about into account.

Mr. Eoin Dorgan

All of these projects met-the-value for money assessment and we have not had issues with them, which points to the fact that they have met the criteria. That is constantly monitored by the NDFA and the sponsoring Departments. If there were emerging issues and they were coming back to us saying there was a problem with a particular PPP project, then you would start to draw that conclusion, but that has not happened to date.

Deputy Rose Conway-Walsh

Would the NDFA get back to the Department? Is that the pathway? It would get back and say-----

Mr. Eoin Dorgan

Actually, even sponsoring Departments would get back because if there are problems, we should be seeing that through the expenditure whether it is that, say, the PPP unitary payments are not being made because there is a breach of contract or whether we are having to put in more resources which are not in normal circumstances allocated.

Deputy Rose Conway-Walsh

It needs to be done in a very systematic way and we need to have an aggregate of it.

Mr. Kevin Meaney

We chaired a PPP review group in 2018 and it was brought together again in 2021. This was looking firstly at whether the policy was still sensible and operational - it had been changed post the IMF review - and then looking at some of the practical applications. The NDFA would be the lead guide for all the sectors on that. Some tweaks were introduced but, by and large, the general view is that both the policy and the practice is working and the sectors are happy with the quality of the assets they are getting from the process.

Deputy Bernard J. Durkan

I welcome our guests to the committee. I wish to follow up on Deputy Conway-Walsh's line of questioning. Have the witnesses set and identified examples of the most and the least successful PPPs over the years, from the point of view of State interests?

Mr. Eoin Dorgan

As Mr. Meaney was saying, we would judge whether they are providing value for money and meeting the terms of the contract. In some ways, trying to make that judgment on the most or least successful project is very challenging across different sectors. Essentially, we seek to make sure they are meeting the requirements that we set out at the outset and the value-for-money test which, as the IMF pointed out, is the key consideration at this point in the economic cycle for the State.

Deputy Bernard J. Durkan

Did the IMF identify what it saw as the least successful PPP project or those projects that were not as successful as they should have been?

Mr. Kevin Meaney

The IMF review was more so on the processes, the strategy and the policy areas so it did not get into any individual traditional PPP projects. It was looking at the strength of the guidelines, the process we have and the supports we have for sectoral delivery. It did not get into individual projects.

Mr. Eoin Dorgan

That is the challenge. Doing that cross-sectoral comparison can be challenging from that perspective.

Deputy Bernard J. Durkan

Did the IMF make any suggestions for the operation of future projects?

Mr. Kevin Meaney

Yes, the key one which was introduced in 2017 when the IMF did the review was regarding our fiscal parameters. Having 10% of the annual Exchequer going on unitary payments was a limit. If we got up to that point where PPPs were of such a scale that unitary payments were up to 10%, that would be a point-----

Deputy Bernard J. Durkan

What was it 10% of?

Mr. Kevin Meaney

It was 10% of total Exchequer capital per annum. We have to test it each year. It did not get close. It got to about 7% when Exchequer capital was quite low in 2012, 2013 and 2014. We removed that. The IMF's suggestion was that there should be a notional charge or a charge against the Exchequer allocations of a sector for the PPP projects. Therefore, if a sector is going down the route of PPP and the construction cost for next year will be, say, €60 million for that sector, the recommendation is that we would subtract the €60 million from its Exchequer allocation. That was the chief recommendation. Value for money then has to be the key guideline. You should only go down the PPP route if it is seen as a better way of delivery than through the Exchequer. That is a change in our policy. That was the main change that came out of the IMF review.

Deputy Bernard J. Durkan

Does the Department have a rule of thumb for judging the success or otherwise of a particular project by reference to the condition - or potential condition - of the infrastructure when it is handed back, or due to be handed back, to the Exchequer?

Mr. Eoin Dorgan

The complexity of these contracts is that they spell out in real detail what the requirements are for handing back. Each project has to meet all of those conditions. As we were saying, in some ways these first schools bundle will be the first test of that but our understanding is that there are no concerns in the sense that the maintenance has been good so it is not expected that there would be issues. Unlike in other jurisdictions, we have not had issues where an investment or a PPP project has ended up coming back to the State early, perhaps because it got into difficulty.

Deputy Bernard J. Durkan

Has the Department made comparisons with other jurisdictions as to how they deal with them and whether we are as successful or as unsuccessful as the case may be, in comparison with those?

Mr. Kevin Meaney

I can take that question. Obviously, we have had the IMF review and it has an international presence. It would be aware of examples, perhaps unfortunate examples, in other jurisdictions from which we could learn.

We are also part of a group in Europe called EPEC, which is a PPP expert committee with European expertise. Again, this would guide on best practices and lessons learned from the European system. Our colleagues in the NDFA would highlight that we came later to adopting PPPs generally than our neighbours, in the UK, for example. These countries may have started ten to 15 years ahead of us in many instances. In the initial stages, many lessons were probably learned from some mistakes that had occurred in the UK. In this regard, there was a benefit to being a bit later in adopting this approach.

Deputy Bernard J. Durkan

Has there been a better or worse uptake of these projects in this country compared to other European countries where they might operate?

Mr. Kevin Meaney

The IMF review set out that there has been a relatively low uptake of PPPs in Ireland. Historically, the UK would have been seen as having a much higher uptake generally as a percentage of capital projects delivered. Ireland would be seen as being towards the lower-to-middle end of the uptake but not at the higher end at all.

Deputy Bernard J. Durkan

The types of projects undertaken include roads, bridges and motorways. Two or three motorways were undertaken and perhaps more. Can the witnesses indicate the benefit derived in measured terms as a result of adopting this approach? I refer to value for money and achieving a satisfactory result much earlier or much later than would ordinarily be the case. For instance, I can think of some road projects that should have been undertaken years ago. Why did we not move on them? If the projects that were undertaken were satisfactory and worked out okay in the past, why not do more of them?

Mr. Eoin Dorgan

It is for the individual sponsoring Department or agency to determine which projects they wish to bring forward for a PPP undertaking. As we said, we are starting to see more of these types of projects being taken in the educational and housing areas. Of the 30 projects, these are across transport, education, housing, justice and health, while the OPW has one project. This is where we have seen them come through. It is up to Departments to come forward if they think there is a project they feel is really necessary and can be done by PPP. It is up to the Department itself to assess such a project and then make the proposal in line with the guidelines, whether it will come to us or to the Government to bring it forward.

Deputy Bernard J. Durkan

Does it always come down to the sponsoring Department to make that decision?

Mr. Kevin Meaney

Yes. Like any project brought forward, it would have to come from the sector initially, the sponsoring agency, through the Department. The proposal would then come to us, in the form of the preliminary business case, for review. It will also, typically, go to the Government for wider discussion if it is a project of scale.

Mr. Eoin Dorgan

In a sense, that Department is going to be accountable for the spending of the money involved, so therefore it would have to own the project.

Deputy Bernard J. Durkan

Given the amount of angst we went through during the period after the economic crash when there was a scarcity of resources - to some extent, there still is - in relation to the building of houses, why were the various authorities reluctant to get involved in the delivery of bigger housing projects right across the country? This approach would have alleviated much of the hardship experienced due to a lack of housing at the time.

Mr. Eoin Dorgan

It is probably for other Departments or agencies to best answer that question. The Housing for All strategy sets out many of the issues and we would be aware of these issues. If we are only talking about housing for private sale, I think-----

Deputy Bernard J. Durkan

Public or private.

Mr. Eoin Dorgan

Well, for private sales, one of the constraints ten years ago was the uncertainty concerning whether there would be sufficient demand or people with the ability to purchase homes. In the context of the public realm, the challenge at the time of constrained resources would have been what the Government faced.

Deputy Bernard J. Durkan

Surely there is an obligation on the part of any Government at any time to make the best use of the available resources in the best fashion in response to particularly important issues. In those circumstances, it was known that Europe did not want this country to go off-balance sheet with spending. I can understand why this might have been the case, but it does not take away from the fact that there was this option available where the private sector could have taken on the risk along with the public sector. I did not ask this question about the degree of risk accruing to the public and the private sectors in the event of something going wrong.

Mr. Eoin Dorgan

It is a matter for the private sector regarding what it wants to tender for. The government of the day would have made its decision in terms of what was then the budgetary strategy. This would have been what was then available in terms of spending through public sources in terms of PPPs. It was then a matter for the sponsoring Departments and agencies, as we were saying, to bring forward such projects. In terms of risk sharing, this is, in some ways, covered as part of the value-for-money assessment in terms of how the risk is being shared. As we said earlier, the advantage of PPPs is that they allow the private sector to shoulder more of the risk than the public sector. This is a balance, because, to be fair, the unitary payments will effectively reflect the risk the private sector providers will be taking on in respect of the delivery of the project.

Deputy Bernard J. Durkan

Why, then, do we not do more of it? I can think of several examples of potential projects in this regard. For example, the road surfaces in this city, to a large extent, are some of the worst I have ever seen. A classic example is manhole covers. Very often, these are an inch to two inches below the level of the road surface. I cannot understand how this situation is allowed to continue but it does. Anybody who has a bad back, like I happen to have, will get a jolt every time you cross over one of those manhole covers in your car, which is not good for the back or for any disc condition at all. What I cannot understand, therefore, is why there should not be an evaluation done of the city's road surfaces with a view to identifying those most objectionable.

I know motorists are not wanted anywhere anymore, in the city, in the country or anywhere at all according to our reports, but we cannot, at the same time, live without them. If we do not want motorists to be coming into the city to spend their money, keeping the road surfaces in a really poor condition will discourage them from coming into the city forevermore. Perhaps this is the intention. I do not know. I do not think it is a good idea, however, and I do not think it is a good long-term plan. Anyone who has a direct link-in with the city fathers might whisper into their ears that some of us do not exactly like the way road surfaces are left in this city. I will not go into this subject any more than that.

I think we should look at those projects that have progressed satisfactorily and identify how best the value to the State and the Exchequer was realised. This can be done by looking at what was done on time and within budget, or without the budget, as the case may be. An endeavour of this type would let us know what examples we might be able to look to and use in the future to promote this PPP concept.

An Cathaoirleach

I call Senator Higgins.

Senator Alice-Mary Higgins

I thank our witnesses. I will pick up where Deputy Conway-Walsh left off. I feel it was almost a case of two different things being asked for and given. Much of the discussion was around value for money and the review of each project. When how these projects were assessed was being described, it was almost like they were being described as being assessed within themselves. The questions being asked included whether the project had delivered what was required, had it come in on time, were the unitary payments as expected and these kinds of elements.

In reviewing whether these were good decisions, it is not simply a matter of whether they delivered as expected by the contract. The question is whether it was the right approach to take in the first place in regard to PPPs. That is the wider analysis that needs to be done. It is notable that the IMF focused on the processes, strategy and policy. Is a PPP actually the most effective way? The IMF said it should only be chosen when it can demonstrate that it is a better approach than direct funding from the Exchequer. That is a high bar. When we talk about the value-for-money assessments or reviewing individual contracts, that is where cost-benefit analysis comes in, explicitly comparative cost-benefit analysis, namely, an analysis of doing something in a way that involves a PPP versus direct delivery in terms of costs and benefits.

That is relevant in that arguments have been made in the area of housing. During the period of austerity we saw a failure to either buy or build social housing in a meaningful way and instead had temporary leases which then expired. These have been demonstrated to be poor value for money overall for the State and a poor cost-to-benefit ratio versus buying a building. However, the argument at the time was that due the fiscal constraints, there was a limit on how much we could spend directly. The suggestion was that we were reliant on the private sector for its ability to access financing in a way that would be off balance sheet. However, those arguments have not stood up for the last number of years. We saw large reserves of money within Ireland during this time and the fiscal rules have been suspended for a long number of years. In addition, the State has access to low or no-interest financing. In fact, the State has access to finance at a far more preferable rate than the private sector has, yet we are still seeing PPPs. We still see the incorporation of the additional costs that come with PPPs. For example, the costs of financing the private partner and to build in a profit for a private partner is an additional cost. That cost does not arise when the project is not done for profit but in PPPs a profit is built in, as is a return to shareholders. All of those are additional costs being added to projects.

We still see a huge level of leasing of social housing where the State may end up paying for social housing. A recent example that has been quoted widely is a Dublin property with a 25-year lease agreed at a monthly rental cost of €3,200. The State is going to pay that for 25 years and will not own the property at the end of the lease. Can Mr. Meaney comment on that historical piece and why those policies of leasing have continued even though there is no longer the external physical constraint? I am interested in PPPs in general and leasing in particular.

Separately, in regard to the 29 projects mentioned, will Mr. Meaney inform us whether a comparative cost-benefit analysis was done? I do not mean just an analysis of whether we will get a benefit for the money we spend, but an analysis of whether we are getting more or less benefit than we would if we were to deliver these projects with direct Exchequer funding.

Deputy Bernard Durkan took the Chair.

Mr. Kevin Meaney

I thank Senator Higgins. I will take the first part, about the overall policy level and strategy level which the IMF report probably went into and then how that translates to the value-for-money and cost-benefit analysis aspect or economic appraisal. The IMF was very much at the strategic level. Essentially, what it was saying was that PPPs should be used in comparison with any other type of traditional procurement and should only used where there is value for money for the State and that can be demonstrated. There should be no preferential treatment given to, for example, off balance-sheet treatment or the 10% of Exchequer limit we had previously.

The main change in how we introduced that is that there is now this charge against the sector's Exchequer amount for the construction cost in the years that it happens. By doing that, we are telling any sector that this is to be treated in the same way as any traditional procurement. There is no extra to be necessarily gained by going down the PPP route. If they go down the PPP route it is because they, within their analysis, have assessed that they will get better value for money for the asset being built, plus the 25 years, and that they will get it back at the end of that time period in as good or better condition than they would using traditional procurement. That is the key criterion.

In terms of an economic appraisal, all of these projects, and any projects that are put forward by State entities, initially have to go through the infrastructure guidelines for that preliminary business case step, of which that economic appraisal, as the Senator says, is a key criterion. A long list of options is weighed up to begin with. They are then reduced to a shortlist of options, of which PPP may be one. Then an economic appraisal has to be done to compare the different options on the shortlist. That happens at an early stage.

They also do a PPP assessment if they think the PPP route might be the best value for money for the infrastructure in question. Further value for money around the public sector benchmark is brought in at that point.

In terms of the overall strategy and policies, we have some really robust and substantial safeguards on early-stage assessments and assessments that happen at each point, from pre-tender to when a tender arrives and then before the contract is signed, all of the value-for-money assessments have to be done again. However, there is a comparison with potentially going down the traditional route at that preliminary business case stage.

Senator Alice-Mary Higgins

Two issues arise with that. One relates to the area of housing leasing. We do not get the property back at the end of the lease. We have been spending on housing leasing and the property is effectively owned by the original owner at the end of the lease, even though they have their mortgage paid by the State. In those contexts, we do not have that return, so it is hard to see how that approach is justifiable in the housing context. Will Mr. Meaney talk about that?

I note that Mr. Meaney is also part of the climate division in the Department of Public Expenditure, National Development Plan Delivery and Reform. One of the other things we lose when we go for a PPP and a long-term contract relates to responsiveness. The infamous example of how PPP is a bad, perverse incentive is in regard to toll roads, where we committed the State to compensating the operators if the numbers commuting went down. Of course, from a climate perspective, we want the numbers who rely on car usage to go down. We are in a situation where we almost have to compensate a private sector company if we get what is overall a good policy outcome for the State, which would be if the numbers reliant on cars went down.

Similarly, with some of these properties or buildings we might build, we have things, for example, like State policies on retrofitting and on energy standards for buildings. If we sign up to ten and 20-year contracts, do we lose the flexibility to ensure these kind of things, these other policies, including climate policies, are properly being reflected which we can actually ensure if they are in direct State ownership and control? As the witnesses will be aware if they head up the climate unit, climate policies, targets and requirements are escalating. For example, given that Ireland is now only heading for 29% versus the 51% it still needs to get to by 2030, we are obviously going to see a whole set of new radical climate policies that will have to be introduced. In that context, will those partnerships we have signed up to be able to respond or will that come with a supplementary charge for the State? My questions concern the flexibility and responsiveness we might lose in public private partnerships. Perhaps the witnesses would also explicitly address the issue of housing leasing.

Mr. Eoin Dorgan

Housing leasing is not a public private partnership. That approach is a policy decision the Department of housing is best placed to speak to. On the earlier point, looking back ten years, what we were faced with at that point was a severely fiscally constrained Government. The Government had to make decisions with numerous priorities in terms of where it put its money.

On the points about climate and toll roads, those were very early versions of PPPs that were very much built around a concession approach, which is not the norm any more.

The wider point about climate is very well made. The advantage of PPPs is that we can stitch in the final specifications a building, if it is a PPP project, should be delivered back to us. Obviously, with the very ambitious climate targets we have, it allows us to set out what the required specifications of the building will be in 25 years, which drives an obligation on the PPPs to make the required investments. The built environment is where we are best positioned to meet the targets. That is because of the very clear regulation we have for all new builds, which is reflected in the cost of new houses and buildings. We are internalising the climate cost in those buildings and it is allowing us to better meet those very ambitious objectives. There are other areas, and it is not really the built environment, where we have to a lot more to meet our climate targets. It is looking at the entirety. The PPPs allow us to set out what we want from them in terms of meeting climate objectives for 25 years, which is a benefit because we are internalising the positive climate outcomes we want on day one at construction point as opposed to, and this is where we have to weigh it up against traditional procurement, just trying to get what we can built and then having to source the funding to retrofit it in ten years' time or whatever. It is where it does make it challenging and that is where, given Mr. Meaney mentioned value for money and the public sector benchmark, it is having to make that determination between the two.

Senator Alice-Mary Higgins

Mr. Dorgan mentioned ten years ago, but in the past five years the fiscal context has been completely different. Are the cost-benefit analyses publicly available that look at direct Exchequer versus public private partnerships on any of those 29 projects? Are they published? Will the witnesses confirm we are in a different fiscal context and have been for a few years now?

Mr. Kevin Meaney

There have been a lot of publications in respect of projects. The sector has passed that area where there still might be commercial sensitivities. There are definitely links to, say, TII, which has 15 of the 30 projects, where those assessments of comparison between traditional build versus PPP are published. We can get those for the committee, and any other sectors we can. Some that are still in active procurement obviously may say there are commercial sensitivities, but there are plenty online that we do have.

Senator Alice-Mary Higgins

Thank you.

Mr. Eoin Dorgan

The fiscal policy is a Government decision. We are now broadly at 5% of GNI. In terms of capital investment, we saw the delivery of approximately 8,000 social housing units last year.

Deputy Richard Boyd Barrett

How many?

Mr. Eoin Dorgan

Approximately 8,000 social housing units.

Deputy Richard Boyd Barrett

Was that through PPPs?

Mr. Eoin Dorgan

No, that is across the board. The Senator was asking about a broad housing issue. There is affordable housing on top of that figure. The fiscal context has changed, which is reflected in the size of the national development plan now relative to seven years ago.

An Leas-Chathaoirleach

What is the total number of housing units?

Mr. Eoin Dorgan

The last estimate I heard for 2023 was 32,500 units.

Deputy Richard Boyd Barrett

Was that done through the PPP bundle?

An Leas-Chathaoirleach

Was it 8,000 units through the PPP?

Mr. Eoin Dorgan

No. All social housing programmes delivered approximately 8,000 units. Our colleagues in the Department of housing are best placed to respond.

Mr. Kevin Meaney

The two bundles of social housing have delivered about 1,000 units. One went operational in 2020 and the second one did so in 2021.

Deputy Richard Boyd Barrett

I thank our witnesses for a very interesting discussion. My starting point is to be deeply sceptical of PPPs. The comparison I would like to see, although I do not think it is on the agenda, but the witnesses can tell me if there has been any discussion about it, is, as well as comparing direct procurement, which, as the witnesses pointed out earlier, is paying a contractor to do something for the State, is what if the State did the work directly itself with its own construction capacity. That would obviously require developing such construction capacity, which we do not have that at the moment. It seems logical to me that if you do not have the profit element, it is ultimately going to be cheaper and we potentially get economies of scale if we have our own large construction capacity. There would be less replication of resources. Will the witnesses comment on that point? Has there been any discussion at all or examination of having our own construction capacity and how it might compare with these other models?

An Leas-Chathaoirleach

We have that.

Deputy Richard Boyd Barrett

Of a State construction company?

An Leas-Chathaoirleach

Yes, in local authorities.

Deputy Richard Boyd Barrett

It is a long time, if ever, since local authorities built houses.

An Leas-Chathaoirleach

All through the sixties and seventies. It was at that stage it changed over. I remember blocks of houses being built by local authorities. The problem or downside was-----

Deputy Richard Boyd Barrett

I am for that. Do not get me wrong.

An Leas-Chathaoirleach

I know.

Deputy Richard Boyd Barrett

What I am saying is it is a long time since we had it.

An Leas-Chathaoirleach

The downside of it was that the State had liability 24-7. It did not go away when the block of houses was built. We could not wait for one county either. Every county had to have the same capabilities. It worked well on a small scale, but when demand grew, it did not work. If you want to build a house, you get a building contractor to do it for a price. That does not necessarily contribute to the contractor’s profit. It keeps the contractor employed and also gets you your house, we hope.

Deputy Richard Boyd Barrett

That is an interesting perspective and your point about scale is well made. I want us to go in this direction, but we would require scale, which the local authorities do not have.

Senator Alice-Mary Higgins

Either way, it should be part of the comparative analysis.

Deputy Richard Boyd Barrett

Yes.

Senator Alice-Mary Higgins

It is a very good question.

Deputy Richard Boyd Barrett

Absolutely. Mr. Dorgan mentioned comparisons being made between direct procurement and a PPP. There is only a limited amount of construction capacity out there.

That means even if we get some foreign company to build schools or houses, it will still be relying on the labour capacity we have in the country, by and large. Is that not true?

Mr. Eoin Dorgan

Broadly. There is some additional capacity. The fundamental point is it is a policy decision on what the role of local authorities is. Is it direct build, which as the Deputy says they have not done for probably 50 years, versus the contract? The point could also be made that the public services provided by the State have got bigger and bigger and that is where we are seeing a much larger public service workforce. The State has probably expanded and its resources are now going into other areas and that has to be weighed up. It is really a Government policy decision.

Deputy Richard Boyd Barrett

I take that point. I am just wondering whether, to Mr. Dorgan's knowledge, there has been any examination of what might it look like if the State did it directly and employed architects, engineers, construction workers, tradespeople, and so on and did so at scale. How might that compare with either the direct procurement model or a PPP model? Is that even being looked at or considered? Is it ever in the equation for comparison?

Mr. Eoin Dorgan

It is probably more reflective of various pieces of academic research on where there are very state-led economies and what the outcomes and cost implications are versus a more European model that we have. Our Department has not done that specific piece of research.

Deputy Richard Boyd Barrett

It has not looked at it.

Senator Alice-Mary Higgins

Did the IMF not suggest that when it suggested direct expenditure from the Exchequer? Would that model not fit that kind of IMF suggestion? I apologise to Deputy Boyd Barrett for cutting in.

Deputy Richard Boyd Barrett

That is okay.

Senator Alice-Mary Higgins

It just strikes me that it seems very similar to what the IMF said, namely, we should be looking at direct expenditure from the Exchequer. That would be one form.

An Leas-Chathaoirleach

The State could contract out the development outfit to persons or companies who specialised in that particular area. The problem with what Deputy Boyd Barrett is talking about is the overheads. It is just the same as if you want to build a house. Do you employ the bricklayers on PAYE, for example, and have all the pension contributions and all that goes with it? The overheads multiply very rapidly and cost-benefit analysis will not stand up at all. I was a member of the local authority at the time it changed over and that is why it was changed. It was not workable.

Deputy Richard Boyd Barrett

With due respect to the Leas-Chathaoirleach, I believe we should look at it because there are swings and roundabouts. I realise that is probably not Mr. Dorgan's decision. He has answered the question to say it is not really being looked at it. There are swings and roundabouts. While there are overhead costs, look at the time it takes to get procurement done. It is a flipping nightmare. I think I am right in saying the Irish Government Economic and Evaluation Service, IGEES, has identified procurement problems and delays as one of the major problems in delivering housing. Am I not right?

An Leas-Chathaoirleach

No, the State delivery was equally bad-----

Deputy Richard Boyd Barrett

With respect, I did not ask the Leas-Chathaoirleach. I am asking the Department.

An Leas-Chathaoirleach

It was equally bad. Anyway-----

Deputy Richard Boyd Barrett

I am asking the witnesses. It is my time.

An Leas-Chathaoirleach

I know, but that is an economic theory and I am telling the Deputy I lived through that. I was part of the Administration.

Deputy Richard Boyd Barrett

The IGEES report on this is not an economic theory; it is a Government document.

An Leas-Chathaoirleach

It is an economic theory. Anyway, we will hear from Mr. Dorgan.

Mr. Eoin Dorgan

It identified a number of factors. There is also the regulatory approvals process. The key issue was capacity constraints, which was very much the subject of the ESRI study in terms of reviewing the NDP and, in a sense, looking at trying to strike the right balance between how much capital we put into it and what output we get. There is a need to be cautious. There is no point in putting in an excess amount of capital if we are just going to drive inflationary impacts and still get a very similar level of output. It is about trying to strike that balance.

Deputy Richard Boyd Barrett

Indeed. That is why I am sort of baffled as to why we would go for the PPP model at all, precisely because there is limited capacity. We need to increase the capacity. We are all relying on the same capacity unless we increase the capacity.

Mr. Eoin Dorgan

I suppose that is one of the advantages we mentioned, that is, we can look at getting bigger international players via more substantive contracts.

Deputy Richard Boyd Barrett

That brings me to my next question. One of the things that brought all of this very much into public view was when Carillion collapsed while it had the PPP deal for building six schools in Wicklow, Wexford, Tipperary and others. What is the evaluation of all that now, because it is obviously a clear risk? We got a contractor which then collapsed because of its connection with a bigger company which turned out to be in very serious financial trouble. We were then left with a serious problem. Another contractor was got in the end. I think Woodvale Construction from the North finished up the work. However, there were question marks and maybe Mr. Dorgan can fill me in on what happened. It was originally for design, build and maintenance and then there were questions on who was going to maintain them afterwards. What happened there?

Mr. Eoin Dorgan

There was a good review done by the Department of Education and the NDFA. It is available publicly and covers what happened and the lessons learned from it. What we saw is the projects got completed and the State did not have to pay additional funds to get those delivered, so we saw the schools being completed, in spite of the collapse. There are many State projects that have been procured normally where a contractor has collapsed as well and where-----

Deputy Richard Boyd Barrett

Does Mr. Dorgan know who did the maintenance afterwards, because there was a question mark?

Mr. Eoin Dorgan

The Deputy would need to ask the Department of Education. That level of detail would have to be supplied by the Department.

An Leas-Chathaoirleach

Is the Deputy finished on that?

Deputy Richard Boyd Barrett

No. I want to ask about the profit margin in all these things. How is that worked out? These private operators come in to make money. They are not doing it out of beneficence, or whatever the expression is. How do we work out the profit margin with them? Is there a standard profit margin?

Mr. Kevin Meaney

That would break down on a project-by-project basis. We go to tender seeking a price from them and obviously they have to build in the profit margin themselves. Whatever price comes back absolutely undergoes that value for money assessment. I will give some safeguards we are aware of. The transport sector might be a good example. Within the specifications TII would issue in a PPP are expected travel numbers that might pass through, especially if there are tolls and user charges to pay back. We are aware that in quite a few of the TII contracts, if, say, there are more users than in the specification, some of that money comes back to TII. That is a control whereby if demand is actually way in excess of what was expected at the time, the State benefits from some of that excess demand. It is a way of limiting the profits to a more normal level and ensuring the State accrues some of the benefit if there is extra demand and extra usage.

Deputy Richard Boyd Barrett

Okay, but the actual profit margin they make must be looked at and we cannot find that out until way afterwards. Is that right? It is essentially because of commercial sensitivity. It is a long time afterwards when we figure out how much profit was made.

Mr. Eoin Dorgan

That is really a matter for the companies in tendering. We will do our value for money test and if the value for money supports the project to go ahead, it must be assumed there will be a profit. As the Deputy says, a public-private partnership is not going to do this without building in an element of profit. It goes back to the broader point and the Deputy's concern that, even in traditional procurement when people are tendering, there is a profit margin there as well.

Deputy Richard Boyd Barrett

Are there any safeguards if they decide at a certain point it has not worked out profitably for them?

Mr. Eoin Dorgan

The bonds provided in advance are the security the State has. In some respects, when we look at the review the Department of Education and the NDFA did, we can see the impact of that meant the project got delivered in the end.

Deputy Richard Boyd Barrett

All right. I thank the officials.

An Leas-Chathaoirleach

Is that agreed?

Deputy Richard Boyd Barrett

Well, it is not agreed.

An Leas-Chathaoirleach

Any more comments? I know People Before Profit emphasises the lack of profit but, unfortunately, not everybody volunteers.

Until such time as one gets hundreds of thousands of volunteers, we are not going to go that route.

Deputy Richard Boyd Barrett

It is an interesting perspective, a Leas-Chathaoirligh.

An Leas-Chathaoirleach

We will argue that case and if we may want to remove the profit element from the private side, and give it to the State side, or vice versa. I am very fond of the Deputy and he is a nice guy and all of that kind of thing, but I would not go that far.

Deputy Richard Boyd Barrett

Likewise, a Leas-Chathaoirligh, I am very fond of him but I do not agree with him.

An Leas-Chathaoirleach

I do not go that route and it would not be a wise thing for the State to take that route.

Deputy Richard Boyd Barrett

That is an interesting perspective.

An Leas-Chathaoirleach

Does any other member wish to comment?

Deputy Rose Conway-Walsh

This has been a very interesting and useful discussion but I believe there are gaps there. We are right to ask about the profits which are being made. We have to ensure value for money and to continuously weigh up policy against what we are delivering. I am not a supporter of PPPs unless there is a particular expertise or advancement in technology, which is something we are trying to get at there. I certainly do not think that it should be a default position or policy in how we deliver and procure. I would very much like to see more aggregate information as to how measurements are done to ensure we are getting value for money. We cannot have the people who have made the decisions policing their own decisions in how they are evaluating this. There needs to be an evaluation and that evaluation should be done by the Department, NDP Delivery and Reform. We always talk about the expertise and building that up within that Department of public expenditure in order that it can make these assessments rather than the assessments being contracted out to consultants who get paid a whole lot of money to do that. It fits into what we are trying to achieve here overall. I look forward to more evaluations and to the information that that our witnesses will submit to the committee. When we get that information and analyse it, we may have a further session.

Deputy Richard Boyd Barrett

May I ask another question?

An Leas-Chathaoirleach

I call Deputy Jim O'Callaghan now, please, who is up in the gantry.

Deputy Rose Conway-Walsh

My apologies; I did not see Deputy O'Callaghan.

Deputy Jim O'Callaghan

I thank the guests for coming before the committee for an interesting discussion. All of the issues I am interested in have been raised and I will conclude by stating that I generally agree with the sentiments expressed by an Leas-Chathaoirleach but that is something I do not need to raise with him at committee. My thanks.

An Leas-Chathaoirleach

I thank Deputy O'Callaghan.

Deputy Richard Boyd Barrett

May I just ask one more question about the housing PPPs? I did not know we had some of them in our area until someone brought it to my attention lately. What is the deal with them? Do they manage them once they build them? Do the private companies which are involved in the partnership build them and then hand them back after 25 years, or whatever, or do they-----

Mr. Eoin Dorgan

They maintain them.

Deputy Richard Boyd Barrett

They maintain them.

Mr. Kevin Meaney

There is not an operating part but they maintain the assets and, if there are grounds, they maintain those as part of that. They retain ownership for 25 years and then the asset is handed back at the end of the 25 years in a state that is agreed-----

An Leas-Chathaoirleach

In a good state.

Mr. Kevin Meaney

-----in the contract, yes.

Deputy Richard Boyd Barrett

I thank an Leas-Chathaoirleach.

An Leas-Chathaoirleach

We have come to the end of today's meeting. I thank our witnesses and the members of the committee for their engagement today. The joint committee is now adjourned.

The joint committee adjourned at 3.04 p.m. sine die.