David Stanton
Question:8 Mr. Stanton asked the Minister for Finance if he has satisfied himself with the standard of project evaluation operated within Departments. [24844/04]
View answerThursday, 14 October 2004
Questions (8)
Oral answers (25 contributions)
While much has been achieved as a result of the increased investment by Government, I accept that there have been issues in regard to value for money and cost overruns on major capital projects raised by, among others, the ESRI in the mid-term evaluation of the national development plan.
The onus is on Departments and implementing agencies to appraise and manage properly capital projects and programmes under their aegis. My Department's capital appraisal guidelines provide a framework for this. The Government has taken a number of initiatives which are designed to secure better value from public expenditure and to improve project appraisal and evaluation. The new rolling five-year multi-annual capital envelopes announced in last year's budget will enable Departments to plan, implement and manage their capital programmes and projects more effectively and efficiently and to secure better value for money from their capital expenditure. Under the general conditions of Department of Finance sanction to expenditure from the envelopes, Departments are required to comply with the capital appraisal guidelines of my Department in all cases, to report regularly to their management advisory committee on the evaluation of capital projects prior to approval and to report progress on the management of capital programmes and projects. Departments are also required to put in place appropriate contractual arrangements for all significant grants of public funding to private companies and individuals or community groups to protect the State's interest in the asset created by the funding.
My Department is in the process of updating and revising its 1994 guidelines for the appraisal and management of capital expenditure. Revised draft guidelines have been circulated to line Departments for their comments and I envisage that the revised guidelines will be published before the end of this year. The capital envelopes and the revision of the capital appraisal guidelines will be complemented by planned changes in the format of public construction contracts and contracts for construction related services through the introduction of more fixed priced contracts and a much more sensible approach to design and other overheads. This latter initiative will provide greater certainty on outturn costs.
There is evidence of significant recent improvement in the management of capital programmes and projects. In the transport area for example, there have been a number of major projects which have recently been delivered on time and under budget. I intend through the operation of the envelopes system to keep project appraisal, management and outturn costs under review to ensure the requisite level of physical output for the substantial level of investment being provided.
Does the Minister accept that the Comptroller and Auditor General found that the reason for cost overruns in the roads programme was not, as the Minister suggests, the lack of rolling envelopes or poor contract arrangements? The reason was poor estimation of the cost to the tune of €4.1 billion. In the case of some projects such as the port tunnel and the south-eastern motorway, the explosion in costs was more than three times the original estimate. What is happening, and it was largely admitted by the Minister, is that rosy pictures are being painted at the time of the Government's approval of these projects, after which they rely on ministerial momentum and the fact that no Government is willing to abandon or dramatically reduce a project because it is too expensive. Does the Minister not accept that there is a major problem with these initial evaluations? It is not just in Ireland but is particularly acute in Ireland at present with the Comptroller and Auditor General's finding on the roads programme. There has been an increase of more than 100% in two years. Does the Minister accept that more needs to be done than what he says in his reply? Does he agree that he needs to accept the ESRI recommendation of an independent evaluation rather than relying on the rose-tinted glasses that many Departments use when viewing these projects?
The point being made is that prices are often tendered to prospective projects based on the support by a line Department for a capital project, the initial evaluation of which is often based on general assumptions. The real issue regarding value for money is that the price of a project is the price at tender stage. We must figure out if we are getting value for money by comparing that price to do the job at the time with the eventual outcome rather than referring back to an initial evaluation or round figure that was mentioned perhaps ten years before and which has no relevance——
On a point of information, the Comptroller and Auditor General stated that these projects were only running two years prior to when he evaluated them. These were not long remote history projects. The Minister is wrong in suggesting that.
At its most extreme, I can cite Luas projects. Twelve years ago I was in that Department and a figure was given for it.
That is not what the Comptroller and Auditor General dealt with in his report.
If the Deputy wants to raise a specific question on the Comptroller and Auditor General's report on the roads programme, then he should ask it and we can have a specific discussion about it.
It will be disallowed by the Chair.
That is fine. The Deputy will have to accept that the supplementary question is not specific to the roads. We must make the comparison between the price at the time we decide to go with a tender and the outturn costs, which is the real value for money issue at that stage. One can argue about whether a project can proceed but that is a different argument. In terms of value for money, there is much contention in the public eye.
They are both value for money issues.
There is a suggestion that under no circumstances do projects come in on time and under budget. There are projects which do. There is a need under the revision of the guidelines for fixed price contracts. There are a range of new innovations which will assist us in that. We treat the public service unfairly if, knowing the tender price and the outturn cost, we refer to an evaluation price which greatly pre-dates the time when the decision was taken to proceed with the project.
That is not what we are discussing and has nothing to do with the evaluation by the Comptroller and Auditor General.
That is a general point I would say in defence——
Yes, but it is not a relevant point.
I find it relevant because too often figures are given for the cost of capital projects which bear no relation to the tender costs, let alone the outturn costs. They are unfairly used as a means of overt criticism of Ministers.
Much of it is fair.
Much of it is unfair.
The Minister's predecessor rushed legislation through this House regarding the National Development Finance Agency. That was to have a major role in clearing up some of what was happening in this area of overshooting. What has happened to the NDFA since? What projects have been cleared through it?
Again if the Deputy asks a specific question I can give a full answer to it. The NDFA——
It was Government strategy to clear up this area. Surely we can ask a question about it.
I am sorry for opening my mouth. I was just about to answer. The NDFA deals with projects in excess of €20 million to help line Departments find the best way to finance those where they are outside the Exchequer envelope and going through the public private partnership process. That is one purpose of the NDFA and it is an add-on under the aegis of the National Treasury Management Agency where the NDFA is located. We are at the infancy stage of PPPs and we need to address that more quickly and not run down PPPs as not being an available option to us. That is what the NDFA is doing and it will have the expertise to assist greatly in ensuring that some of the overruns do not recur.
I want to ask a brief supplementary.
We are way over the time limit.
Surely we are all entitled to equal opportunity.
Yes, but within the time limit. If the time limits are not adequate, then the Deputy should seek a review of the rulings.