Denis Naughten
Question:34 Mr. Naughten asked the Minister for Transport the action he intends to take to ensure that the NDP roads programme is delivered on time and within budget. [20800/04]
View answerWednesday, 7 July 2004
Questions (13, 14)
Róisín Shortall
Question:35 Ms Shortall asked the Minister for Transport the steps he will take to ensure better value for money in view of the findings of the Comptroller and Auditor General of the serious cost overruns in the national roads programme; and if he will make a statement on the matter. [20787/04]
View answerOral answers (8 contributions)
I propose to take Questions Nos. 34 and 35 together.
Investment in the roads programme at €1.28 billion in 2004 is at its highest level ever and the beneficial impact of this investment is increasingly evident throughout the country. Virtually all projects under construction, particularly those being constructed under design and build contracts, are on budget and ahead of schedule, including the Monasterevin bypass and the Cashel bypass, both of which address key bottlenecks in the road network. Recent examples of major roads projects completed on time and within budget include the M1 at Cloghran, Lissenhall and Balbriggan and the Drogheda bypass, the Kildare bypass, Hurlers Cross and Shannon on the N18-N19 and the Youghal bypass on the N25.
In considering the national roads programme and its development and management in recent years it is important to bear in mind the major expansion in the scale of the programme over the period since 2000. Initial preliminary costing of the programme of work proved difficult due to the limited information available from the smaller preceding programme and the preliminary scheme outlines available as a basis for costing. In general, a comparison of outturn with tender costs, as opposed to initial unrefined scheme estimates, provides the most reliable guide to project and programme management performance.
To provide greater certainty about resources, which facilitates more cost effective implementation of the programme, I have secured the agreement of the Minister for Finance to the introduction of a multi-annual funding framework for national road investment. It provides for total national road development investment of more than €8 billion, of which €6.9 billion is Exchequer funding and €1.1 billion will be invested by the private sector in PPPs over the period from 2004 to 2008. I have asked the NRA to submit a five-year plan to ensure that the resources being made available under the capital envelope are utilised to best effect. The envelope will be underpinned by an agreement between my Department and the Department of Finance, which will incorporate provisions relating, inter alia, to the annual funding levels, contractual commitments and reporting and monitoring arrangements.
I have consistently highlighted to the National Roads Authority the importance of strengthening cost estimation, control systems and procedures on the management and implementation of the national roads programme. In recent years, the NRA has implemented a range of measures to improve cost estimation and control. These include the greater use of design and build lump sum fixed price contracts offering cost efficiencies, greater certainty of outturn costs and reduced scope for claims; standardisation of economic designs for high cost items such as bridges and other structures; securing greater involvement by foreign contractors; buy-out of price variation clause and risk where this gives good value; further attention to improving quality of site investigations and acceptance of such investigations by contractors as the agreed basis for pricing; and greater use of PPPs which leverage private sector investment in the programme, incentivise private sector innovation and limit the risk exposure of the Exchequer by transferring risk, including construction risk, to the private sector.
Since the publication of the NDP in 1999 the cost of the national roads programme mandated in the NDP has increased substantially from €6.96 billion, which reflected early 1999 prices at preliminary design stage, to €16.4 billion based on end 2003 prices and more refined estimates. The reasons for this increase from initial estimates drawn up in advance of detailed scheme design to the more refined scheme estimates now available have been examined in some detail by the Comptroller and Auditor General and major independent evaluations of the national roads programme by Fitzpatrick Associates in 2002 and Indecon in 2003.
The main reasons for the increase in costs are construction cost inflation, which accounts for 40% of the increase — since 2001 construction cost inflation has moderated from an annual average of 12% to less than 5%; more reliable estimates as schemes were refined as the design process proceeded; changes in scope of projects including upgrading of routes and higher road standards; and additional cost of land acquisition. The various measures taken to date are acknowledged in the report of the Comptroller and Auditor General and the other evaluations of the roads programme both of which acknowledged that the national roads investment programme is, in general, well managed and, in particular, as regards factors within the control of the NRA.
As part of the continuing effort by the NRA to improve management of the programme a major consultancy assignment on arrangements for the implementation of the programme, including cost estimation and control, has recently been completed. Its recommendations are being given detailed consideration and I will be anxious to ensure that those relating particularly to programme management and cost control will be implemented as a matter of priority.
Does the Minister agree that the cost of the project which is now €9 billion in excess of the original estimation gives rise to serious concern? It is now costing €16 million per mile to construct our roads programme. No comment has been made by the National Roads Authority and the absence of a comment from the Minister until today is a damning indictment of this massive cost overrun. Money has been thrown away and it is robbing from key infrastructure required in many parts of the country, especially the west, which is underdeveloped.
While the Minister made the comment regarding the cost overrun, he did not mention that 25% of the cost overrun was due to underestimation in prices. While the Minister makes the point that this was the pre-2000 case, is it not true that these concerns and the inadequacies in cost estimation were known as far back as 1998? Is it not also true that the cost overruns in 2002 were still at 9%? Does the Minister not agree that is a damning indictment of the Department of Transport, which is supposed to be supervising the NRA? It is my understanding that fixed price contracts cannot extend beyond an 11-month duration. Is that still the case or have those regulations been amended?
The Comptroller and Auditor General identified the main reasons for the increases in the cost of the national primary route programme to be 40% due to construction inflation, 16% due to failure to accurately cost elements at the planning stage, 20% due to changes in the scope of projects and 24% due to project specific increases, such as, some of the motorway schemes and elements of the port tunnel. In the past two years I made two important changes to ensure that projects come in on time and on budget. One was to agree a multi-annual programme with the Minister for Finance which allows for better management of the system by getting rid of the stop-go method we had before that. The second was to ask the NRA to introduce a fixed price system. I will check out the query about the 11 months but my understanding is that fixed pricing can go well beyond a period of 11 months.
I have stated publicly on a number of occasions that I strongly believe the figure for national roads in the 1999 national development plan was totally unrealistic. It did not include a range of projects, a list of which is available, which are now being done. It was envisaged that many of the inter-urban routes to Cork and Galway and so on would be a single carriageway, when, in fact, we decided to build motorways. Another factor, and this happens all the time — I even do it myself — is that when somebody looks at a capital project, he produces a ballpark figure. However, the only relevant figure is the figure in the actual estimate to which one says "yes" or "no" with regard to the cost of carrying out the work. The only sensible comparison is between the price on the day one signed that contract, including the price variation clause and the outturn. It is good politics to compare the original ballpark figure with the final outturn, but it is not accurate to do that.
The Government provided the figures.
Figures may be used to prove anything. The Minister has suggested that 40% of the increased cost is due to inflation. The Comptroller and Auditor General stated that a quarter of that figure was due to under estimation of the prices. My question is what systems have been put in place to ensure that estimates are accurate? A further 16% of the increase was due to a systematic failure to cost certain elements of schemes and a further 20% was due to changes in the scope of projects and new works. It is not possible to deliver a programme when there is such lack of certainty from the very start and such weak systems in place. I acknowledge that the NRA has taken some steps to improve the situation.
I am concerned at the Minister's assertion about fixed price contracts and public private partnerships delivering certainty of cost outturn. While they may do that, what steps is the Minister taking to ensure the public is getting value for money? Has the Minister considered the system that increasingly is being used in Britain and which some members of the Transport Committee had explained to them in detail on a recent visit to the British Department of Transport. They have a system of "preferred prime contractor" based on best value criteria. I think this is the critical issue. We must know what value we are getting for money. There must be a benchmark against which prices and estimates may be measured. Does the Minister intend to move towards such a system and has he inquired about the system in Britain? What can we learn from that?
Two other critical areas that impact significantly on the escalating cost of the road programme, is the cost of property acquisition and professional fees. Promises have been made for a new national roads authority Bill, or a critical infrastructure Bill or other such names. There is an urgent need to introduce legislation to control this area. What stage is it at and when can we expect to see the Bill? We have an archaic system whereby consultant engineers are paid a fee based on 4% of the contract price. They have no incentive to keep costs down. For example, if the cost of a project escalates by 200%, the consultant engineers get an increase of 200% in their fees. Could we have a fixed fee for consultant engineer or some type of incentive built into the project to keeps costs under some level of control?
I agree with the Deputy on many of the points she raised. The Minister for Finance decided recently that consultant fees on all projects would change from a proportional fee to a negotiated figure that was settled upon. Obviously that cannot apply to existing projects but it will apply to new projects. I agree entirely with the Deputy that professionals must be paid for the job as opposed to being paid a percentage of the cost of the job to give them an incentive to finish early.
I have asked the National Roads Authority to supply a costing of the cost per kilometre of identical roads in the United Kingdom, Germany and France and I hope to have that information very shortly. The Deputies may be aware that we carried out a similar exercise in regard to Luas, where we compared the cost of building a kilometre of light rail in other member states, which came out at €30 million per kilometre and we benchmarked that against the cost of a kilometre of Luas, which was there or thereabouts. It would be useful to benchmark a kilometre of road.
In my travels around the country when I would open these projects, I inquired on site, having compared the figures, which ranged from €7 million to €17 million per kilometre, the reason for the cost variation of a kilometre of road. I was taken to the section of road and shown that it had four overpasses and 16 viaducts which explained the difference. When the documentation was provided, the argument stacked up. I will try to do more benchmarking exercises, so that we can ensure that the work is carried out at a comparable cost to similar work in other member states. At the end of the day, the real test is to be able to build a kilometre of motorway at approximately the same cost as in nine or ten other countries. I will draw a comparison with international experiences.
I reassure the House that virtually all the projects are coming in on schedule. The changes I have made on fixed price contracting and multi-annual budgeting has ensured that is the case. I will keep the pressure on.
On the proposed legislation on critical infrastructure.
The Minister for the Environment, Heritage and Local Government is preparing legislation on that. It is no secret that it is running into serious constitutional type problems with the cost of land, who owns it and how much one pays for it.