I am pleased to present the State Authorities (Public Private Partnership Arrangements) Bill, 2001, to the House. The Bill has a pivotal role to play in the development of the PPP process and represents an important element of the Government's strategic approach to the development of public private partnerships in Ireland. The Government is determined to harness the potential of PPPs to contribute positively to priority economic infrastructure projects under the national development plan. The Bill facilitates that process. It is enabling legislation, the main purpose of which is to create the high level of legal certainty sought by investors wishing to embark on the PPP process.
The Government's policy in relation to PPPs envisages the development of pilot projects across a range of sectors. It is, therefore, essential that State authorities wishing to engage in PPPs have the opportunity to do so. The Bill creates the legal certainty to allow them participate in this new method of public procurement and to ensure that its benefits are available to every sector of the community. I hope that when it has considered the provisions of the Bill, the House will support the Government's effort to confirm the ability of State authorities to engage in public private partnerships.
PPPs represent a growing trend across the developed market economies of the world. However, this coming together of public services and private business is not a new phenomenon in this country. Interaction between the private sector to achieve the provision of public services in areas such as health and education has long been part of daily life in Ireland. These services have been funded and provided by a mix of central and local government and private, voluntary and community based organisations. Furthermore, many local authority services have been delivered through contract arrangements with the private sector. PPPs represent a refinement of, and are consistent with, these long-standing practices.
PPPs have developed very quickly. The first pilot project, involving a group of five post-primary schools, was launched in July 2000. Now there are 37 projects at various stages of procurement, ranging from roads to environmental services, public transport and third level education.
International experience shows that real benefits can be gained from PPPs. They can give better value for money compared to traditional procurement by transferring risks from the public to the private sector. They can also deliver improved efficiency in the adoption of whole life costing of services and innovation in the design, building and operation of assets.
PPPs can also provide better quality services through increased competition, incentives to higher standards and performance and an enhanced focus on the customer. PPPs can allow faster deliver of individual projects by linking the provision of the asset or service to payments, particularly in relation to more complex capital projects. PPPs can give us a better utilisation of assets through extended third party usage and can provide the context for better regulation as Government agencies focus on the role of regulator, planner and monitor rather than on day to day service provision. Moreover, PPPs can help maintain competitiveness through the opening up of sectors now sheltered from competition.
While all international experience points to all these benefits, the crucial element of successful PPPs is optimal risk transfer. By this I mean that a good PPP will ensure that project risks are allocated to the party best able to manage them at least cost. Our primary objective is to establish the procedures needed to capture the advantage of effective risk allocation through developing our pilot project programme. A well managed PPP will be based on optimal risk transfer. Effective risk identification, assessment and allocation are crucial to achieving increased value for money for the Exchequer and the taxpayer. For the private sector an opportunity is created to engage in a long-term business relationship.
The PPP unit in the Department of Finance is managing the standardisation of PPP procedures to ensure risks are evaluated in a consistent way across all sectors. For the public sector, this will ensure procuring authorities will have a sound basis for a rigorous qualification of risks to be transferred. The private sector partner will know that risk issues will be dealt with in a transparent and realistic way.
A related benefit is that long-term cost factors are recognised in addition to the initial capital expenditure. There are real incentives to focus on a holistic approach in the amalgamation of the design, construction, finance and operation in the creation of an asset from a whole life perspective. A further advantage of PPPs is that the taxpayer only pays for the services actually delivered. The private sector firms and their bankers take the risk that where they are unable to provide the required level of service, they do not get paid.
For small economies, such as Ireland's, an additional benefit of PPPs is that they can facilitate bigger and more complex infrastructural projects than would have been feasible under other arrangements. These larger design projects become more attractive to major international design, construction and engineering firms. The entry of overseas competition to a smaller market can generate the transfer of competencies and management skills through co-operation and joint ventures.
The Government will weigh the benefits of PPPs and analyse the potential difficulties and problems to be overcome in rolling out the PPP programme. We recognise that there are obstacles that can create disadvantages in adopting PPPs. PPPs can present difficult and complex contractual issues for both public and private sector partners. The public sector has to be satisfied that the business case for proceeding with a project on a PPP basis is sound when compared to the conventional approach.
For the private sector, the costs associated with bidding for PPP projects can be substantial. This is recognised in the Programme for Prosperity and Fairness which specifically provides for negotiation in relation to the question of client contribution to PPP tender bid costs. Discussions on this issue are in progress between the CIF and the central policy unit. For employees, significant issues can arise where public service staff are transferred to the private sector under PPPs. Discussions at the public private advisory group and ongoing regulatory developments in the field of human resources legislation will help to address these complex human resources issues.
It is important to recognise these issues and to deal with them as early as possible in the process. My approach is to ensure issues are resolved before they become problems, that problems are solved before they pose impediments to PPP projects and that impediments are removed by dialogue and agreement before they obstruct the successful delivery of PPP projects. However, I stress that PPPs must not be seen as a means of avoiding more fundamental difficulties in individual projects. A project should stand on its merits irrespective of the method of procurement.
The commitment of the Government to the PPPs is critical. Part of the reason we have made such good progress on PPPs has been solid Government support for it at the very highest level. This support is grounded on a clear appreciation of the economic case for PPPs and a focus on deliverables based on a requirement for a sound business case evaluation.
In this regard the structures for delivering PPPs are of crucial importance. The Government established a central PPP unit in the Department of Finance to lead, drive and co-ordinate PPPs. There are also units with responsibility for individual sectors in the relevant Departments. The Cabinet sub-committee on infrastructure and PPPs gives high level direction to the development of PPPs. It includes the Tánaiste, the Minister for Finance, the Attorney General and other senior Ministers. In addition, the head of the central PPP unit in my Department is chairman of two groups managing the PPP process, an interdepartmental group on PPPs which brings together key decision makers to ensure that there is coherence and consistency in developing partnership arrangements with the private sector, and a public private informal advisory group on PPPs which includes the representatives of employers' organisations, the Irish Congress of Trade Unions, the construction and civil engineering sectors and the national enterprise development, science and technology innovation board.
These groups have already advanced the PPP process by helping to address and resolve major legal and financial questions. The IAG negotiated the framework for PPPs which was formally launched by the Minister for Finance in conjunction with the social partners in November 2001. The adoption of the framework is an acknowledgement that the delivery of projects through PPP gives us all an opportunity to maximise the interaction and co-operation between the public and private sectors. Agreement on shared goals, objectives, principles and the appropriate distribution of risk for public investment and services delivery is fundamental. The framework constitutes an important statement of the high level principles for the conduct of PPPs at national, sectoral and project level which will help embed PPP as an important pillar of public capital procurement and the provision of quality public services.
A major communications and awareness raising programme is being rolled out by the central PPP unit of the Department of Finance with the assistance of the social partners. The aim of the programme is to explain to stakeholders and the general public what PPPs are and to allay many of the unfounded concerns about the PPP process.
Although the purpose of the Bill is to verify that State authorities have the statutory powers to enter into new procurement arrangements, it is important to emphasise that these powers are in addition to and in no way replace any of their existing powers already provided under relevant legislation. It is also important to note that traditional outsourcing of contracts or arrangements whereby the private sector designs and constructs an asset for the public sector is not covered in the Bill.
PPPs represent a new option for public procurement. They are not intended to replace traditional methods, but to supplement them. The Bill is a major step aimed at addressing a critical issue which has arisen in other jurisdictions in relation to the PPP process, that of certainty or the vires of public authorities to engage in PPPs. Wherever PPPs are in use as a public procurement option, it is recognised that the issue of legal capacity or vires of public authorities to enter into PPPs is crucial to their overall success. Investors in PPP projects understandably require a high degree of legal certainty regarding the vires of public sector contracting authorities. With this in mind, the Minister for Finance published this Bill which is now presented to the House. The Bill provides legal certainty as to the powers of State authorities to enter into PPPs and gives local authorities the power to enter into joint ventures.
I will now briefly describe some of the specific provisions of the Bill. Section 1 is a standard section containing definitions of certain words and phrases used throughout the Bill. Section 2 provides that the State authorities provided for in the Bill are those named in the Schedule.
Section 3, which deals with public private partnership arrangements, provides for and thus defines what is meant by the term "public private partnership arrangement". It gives statutory underpinning to the concepts of design-build-operate projects and design-build-operate and finance projects. It also provides that a State authority may arrange or provide for payments to a private sector partner and that the State authority has the power to contract with a person who has provided funding for the public private partnership arrangement. One of the benefits of PPP is that the State authority only pays for what it gets. This section allows for those financing the project to intervene or "step in" if necessary where the operator of a contract fails to deliver the required performance. A State authority may also form a company or become a shareholder in a company and may transfer an asset of the State authority to a partner.
This section also ensures that the Minister for Finance has the same degree of control over Exchequer funds used to finance PPP projects as he or she would have over analogous payments such as the borrowings of State agencies to fund infrastructure projects undertaken by traditional procurement methods.
Section 4 provides that the functions specified in the PPP arrangement may be conferred upon the partner. The partner may perform these functions in its own name, subject to the control of the State authority. Notwithstanding this, the functions will continue to be vested in the State authority. The relevant Minister's responsibility for the performance of that function is not affected. Where a number of local authorities or bodies join forces to engage in a PPP, they may agree that their functions will be performed by a lead local authority or body.
Section 5 gives retrospective authority to State authorities in respect of PPPs entered into prior to the entry into force, in due course, of the Bill.
Section 6 authorises the appropriate Minister, either before or at the time of entering into a PPP arrangement, to give written directions to a State authority and to a company formed to undertake a PPP project in relation to the management, accountability, accounting and financial affairs of that company. This section ensures that the appropriate Government accounting procedures are adhered to during the PPP process and that the accounting officer of the relevant Department may, via the relevant Minister, take steps to ensure that this is the case. The section further provides that an appropriate Minister may, after a PPP arrangement begins, give directions to both the State authority and the PPP undertaking on matters of policy relating to the particular PPP arrangement or to such arrangements generally.
Section 7 provides that the Minister for Finance, in consultation with the appropriate Minister, may amend the Schedule by adding or deleting a public authority by way of order to be laid before the Houses of the Oireachtas.
Section 8 is a standard provision allowing expenses incurred in the administration of the legislation to be paid out of moneys provided by the Oireachtas. Section 9 is a standard provision containing the short Title of the Bill and providing that the legislation shall come into operation four weeks after it is passed. The Schedule lists the State authorities covered by the Bill.
The text of the Bill presented to the House today is substantially different from that of the Bill as initiated. Significant changes were made following Committee Stage of the Bill in Dáil Éireann. These changes were made both as a result of Government initiatives and the very constructive and helpful suggestions of a range of interests, including Members of the Houses of the Oireachtas, public representatives generally, the social partners involved in the PPP process, that is, IBEC, the CIF and the ICTU, legal firms, financial institutions and members of the public.
All submissions received were carefully considered and in some cases follow up discussions took place between officials from my Department and relevant individuals and organisations. I thank all concerned for the useful and constructive suggestions that were received, but it has not been possible to accede to all requests for amendments to the Bill. I stress that this does not indicate a lack of Government commitment to dealing with the issues that were raised; on the contrary, the Government plans to deal with them expeditiously in the most appropriate way, with stakeholder consultation where necessary. In particular, it is acknowledged and accepted that the questions of pay, pensions and terms and conditions of public sector employees transferring to PPP undertakings need to be fully addressed and the Government is committed to doing so.
This Bill is enabling legislation. Its purpose is to ensure that the State authorities listed in the Schedule to the Bill have the power to enter into PPP arrangements. There is an extensive body of law and regulations concerning human resources issues. These issues fall properly to be dealt with within legislation and the existing industrial relations framework. It would be legally unwise to attempt to deal with such issues in the Bill.
The Government is trying to strike a balance between the needs and interests of the public sector and, ultimately, of the Exchequer on the one hand and, on the other, of the private sector. Public private partnership is a new departure and the Government is committed to the creation of an environment in which it can develop and flourish as a method of public procurement. I have already said that the Government's main aim in introducing the Bill is to ensure that sufficient certainty is created in relation to the vires of State authorities to become involved in PPPs and I believe that this aim has been achieved. PPPs offer a winning formula for all participants and I am pleased to be associated with the Government's efforts to create an environment in which a new method of public procurement can flourish. I commend the Bill to the House.