Dáil Éireann Debate, Wednesday - 1 June 2005
20 Mr. Bruton asked the Minister for Finance his plans to introduce a new programme for prioritising capital projects; and the measures he is proposing in order that the past deficiencies in project evaluation, in cost overruns and waste will not be repeated in the next five years. [18653/05]
View answerProvision for public capital investment is set out in the five-year rolling multi-annual capital envelope introduced in budget 2004. This multi-annual commitment of resources, which maintains investment at or close to 5% of GNP or around twice the EU average, underlines the Government's priority to capital investment. The relative priority at programme level is set out in the various multi-annual allocations for Departments within the envelope.
Investment in excess of €36 billion, Exchequer capital of €32.6 billion and €3.7 billion in PPP capital will be made available under the capital envelopes over the period 2005-09 to accelerate the provision of infrastructure to support sustainable economic and social development.
As Minister for Finance, my key role is to advise Government on prioritisation of resources at programme level for capital investment purposes and to set the framework within which capital programmes and projects must be appraised and managed by Departments and their agencies. Departments have extensive delegated sanction within this framework for project level appraisal and selection.
I have, with Government approval, progressed the work commenced by my predecessor on the roll-out of capital envelopes, on revising guidelines for the appraisal and management of capital programmes and projects, and on reform of the rules relating to public procurement and public sector contracts. These initiatives are designed to lead to better appraisal and management of capital programmes and projects and to assist the execution of programmes and projects within budget.
The capital envelopes also incorporate a facility to carry over to the following year savings of up to 10% of Voted capital. This feature is also facilitating better planning and management of capital projects and programmes and discouraging any tendency to rush end-of-year spending on inefficient measures.
The move to fixed-price public construction and construction-related contracts, and the shifting of risks to the private contractor, will result in a closer match between tender prices and final project outturn costs. Departments are already reporting evidence of better management of capital projects, notably in the transport area, where projects are being completed ahead of schedule and within budget.
I am disappointed there will not be a new national development plan that would start to prioritise projects in a more coherent way. If the Minister is so happy with the delegated authority he is giving to Departments, will he assure the House that in all the many cases we have seen, these Departments have complied in every respect with his guidelines? For example, in the Kilkenny drainage project we saw an original quote of €13 million rise at design review stage to €24 million. At tender stage it rose to €35 million and on completion it cost €48 million. At each stage it appears the Minister gave his approval. I wonder if the re-evaluations he requires were done.
The Luas project, which was to have been connected and completed in four years at a cost of €450 million, ended up disconnected, taking eight years and costing €800 million. Is the Minister satisfied that these projects are applying the rules set by his Department? In the case of 19 roads projects we found that the costs rose by more than 80%, and the cost overruns for the overall roads programme amounted to nearly €10 billion. I do not share the Minister's assurances that the Departments running these schemes have the capacity to deliver on time and on budget.
It is disheartening to hear that the Minister is not taking serious initiatives to properly prioritise programmes or properly control costs, or to audit the evaluations being delivered. Has he rejected the ESRI proposal for a unit to be set up in the Department to audit these evaluations? Has he rejected the ESRI assessment that the good habits learned when we had EU funds have largely been forgotten within Departments in terms of evaluation cost control and the delivery of results?
The Minister needs to reassess his reply and introduce a system in which the public can have greater confidence, which will deliver value from what he proposes, involving a spend of €60 billion, a huge amount of money, over the next five or six years. If things go wrong, we will have lost a great opportunity.
It has been decided not to proceed as yet with another national development plan — the current plan runs to the end of 2006. The shape the next plan may take is an issue to be considered by Government in due course.
Regarding the figures regularly mentioned, it is pointed out in the report of the Comptroller and Auditor General and the report of the Committee of Public Accounts that the increases in costs can be attributed to the considerable expansion in the scope and number of the projects involved, a high rate of construction industry inflation in the early years of the programme — recognised by the PAC report — and some cost estimation deficiencies prior to 2000. Deputy Bruton mentioned in his statement certain differences of estimation which I am seeking to clarify.
The report of the Comptroller and Auditor General pointed out that in the estimated costs of the national roads programme 1999-2002, the increased costs can be attributed to construction inflation of 40%; changes in the scope of the projects, which added 20% to the cost; project-specific increases on projects with non-standard elements, such as the Dublin Port tunnel, which represented another 24% of the added cost; and the failure to cost certain elements, which added another 16%. That is an accurate reflection of the Comptroller and Auditor General's report on those issues.
The Deputy also asked about cost overruns in individual projects and named some of them. Measures have been taken to strengthen cost estimation and control. The coverage of cost overruns on individual projects contained in the appendix in the recent PSE report relates to projects completed in the years 2000-02 inclusive, and the cost outturns are compared with pre-construction estimates. Original scheme estimates used in the appendix date back in some cases to 1996. The fact that there are different figures relating to all that is not surprising. The explanations are not ones I need to give as they are given in the Comptroller and Auditor General's report and by the PSE.
Deputy Bruton spoke of cost overruns of more than 80%. One can see in the appendix that taking inflation alone — using the Comptroller and Auditor General-derived inflation factors for the period — the cost overrun is not 75% but 18%. I present those figures for the sake of accuracy, in terms of how the Government sees the position compared with the Opposition's view of the matter.
Regarding the question of better cost estimation and control, nobody is implying there were no deficiencies in cost estimation and control in the past. Indeed, regarding the current roads capital programme, we are coming almost from a standing start in terms of new motorway or dual carriageway standards. There is 180 km of dual carriageway at motorway standard, half of the total inter-urban network under way. The Department and the NRA have strengthened the cost estimation and control and procurement procedures. Looking at pages 23 to 30 of the public capital programme for 2005, one can see a significant improvement in terms of cost estimation and outturn costs, as well as some projects coming in under budget and before time. That brings a little balance to this debate and the range of ongoing.assertions.
I revert to the question I asked. Did these Department breach the guidelines issued to them by the Minister? For example, was the failure to cost 16% of the roads projects in breach of those guidelines? Regarding the changes in the scope of projects which accounted, between the non-standard and the standard, for 44% of the increases, did that comply with the Minister's requirements that a re-evaluation of the projects should be done to see if they remained justified at the new cost?
I have seen no evidence of re-evaluation of any projects contained in these programmes. The Minister may see matters differently, but the evidence I see is that these Departments are ignoring on a wholesale basis the guidelines issued by the Minister, while his Department does nothing about the matter. There is no point in the Minister issuing guidelines which look like good practice if the Departments freely feel they do not need to observe them, and ignore requirements like expenditure review initiatives. They ignore their responsibilities.
If the Minister wants to make his mark, he needs to reassert his authority in terms of how these projects are carried out. The Minister's predecessor lost credibility because of how he handled the Punchestown development. He destroyed credibility in the Minister's Department for proper evaluation and control and a proper approach to public spending. The Minister needs to reassert his authority and must do more than he has outlined in his very timid reply.
I do not accept that my reply was timid. I regard it as a reply necessary in the interests of providing some accuracy regarding the assertions made on these matters by the political opposition in recent weeks, and in the interests of bringing some perspective and balance to the debate.
The new cost appraisal guidelines I have introduced since becoming Minister for Finance are being discussed with industry and as far as we are concerned will be in place by the end of this year. In the past, these matters under scrutiny related to price variation clauses and underestimation of land acquisition costs. As the Comptroller and Auditor General's report and the Committee of Public Accounts noted, one can point to specific instances where there were project-specific cost overruns. In the case of the south-eastern motorway, for example, land acquisition costs were cited as being particularly high.
Even when one looks at the outturn costs and takes account of the reviews taking place, involving the NRA or other bodies, the benefits brought by providing a national transport infrastructure for the first time, particularly through our roads programme and the inter-urban network, reflect a rate of return which justifies even the outturn costs of these projects. That is clear. The ESRI has made the point that even considering the outturn costs, a cost benefit is involved.
The ESRI considered nothing on a project basis.
Clarity is sometimes lost in attempting to set out the complexities of the issues for the public to consider in an accurate manner. It is not appropriate to apply project concept costs relating to mid-1990 figures to work done in 2002, 2003 or 2004. Clearly, the outturn costs on the projects involved would be different. Those in households know that in terms of capital works they undertook, there were cost differences. It is not fair to compare apples with oranges.
I accept, as was pointed out in the report of the Comptroller and Auditor General and that of the Committee of Public Accounts, that because we never undertook such a huge capital programme before, deficiencies in cost appraisals arose in the past. The NRA has dealt with those. One can see that the projects coming forward, such as the road developments in Monasterevin, Kildare, Cashel, Limerick, Ballincollig and Youghal, are coming in on time and within budget. The structural problem is also being addressed.
