Tuesday, 9 April 2019

Questions (61)

Eoin Ó Broin

Question:

61. Deputy Eoin Ó Broin asked the Minister for Housing, Planning and Local Government to outline the reason for the significant variance in the cost of the management and maintenance in the first tranche of social housing public private partnership, PPP, programme bundle contract compared with similar projects being delivered by an approved housing body or a local authority; and his plans to review these costs before further social housing PPP contracts are entered into. [16709/19]

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Oral answers (10 contributions) (Question to Housing)

Figures I have received from the Department in the past two weeks suggest a significant variance in the cost for the delivery, management and maintenance of social housing from traditional approved housing bodies and local authority compared with the first bundle of the public private partnership, PPP, houses under construction. Will the Minister give us as much detail as possible about the cost of that public private partnership? Will he comment specifically on the concern many of us have about the variance in costs between the more traditional methods of delivery and the public private partnerships?

I am pleased to take the question to bring some clarity to this issue. The Deputy's question and some public commentary on this matter appear to be based on an assumption that the balance of the contract for bundle 1 of the social housing PPP programme after the pure construction cost is excluded is all attributable to management and maintenance of the homes to be delivered under the contract. This assumption is not true or accurate. I am happy to break down the figures with the Deputy. I cannot give all the science behind it but it will come out at a later stage.

The full value of the PPP contract includes a range of costs. The construction costs cover what might be referred to as the pure bricks and mortar costs in respect of the homes involved and the associated infrastructure, including play and community facilities. It is not only for houses but associated facilities. The remainder of the contract includes not only management and maintenance costs but also other costs, including the costs of finance for the project, projected inflation over the 25 years of the operational life of the contract, and the costs of complying with other terms of the contract. Such other terms include the requirement for certain quality requirements to be met when the homes involved are passed over to the local authorities concerned at the end of the 25-year period. That is the key part. They have to be handed over at the end of the period in a certain condition. That is the key part of the PPP.

It is a different model of delivery with its own requirements. This can give rise to incompatible comparisons between individual elements across different methods of delivery. It is one method among many in the toolkit. It is a question of comparing apples and oranges when people compare it directly with the approved housing body situation. I understand why there is confusion but at all times there is a value for money element to this. We have to apply a value for money process to the four different stages. Like all social housing project delivery mechanisms, it is essential that homes delivered through public private partnerships represent value for money for the taxpayer. In that regard, clear requirements are laid down centrally by the Department of Public Expenditure and Reform through which the National Development Finance Agency, as the professional financial advisers for projects of this kind, develops a public sector benchmark that reflects the cost of delivering the contract concerned through traditional procurement mechanisms. This is then used as the benchmark against which value for money tests are undertaken at a number of stages in the procurement - there are four different stages - primarily when it comes to assessing the final tenders submitted.

The successful tender under bundle 1 of the social housing public private partnership, PPP, was assessed in this manner and was lower than the public sector benchmark, thereby representing value for money.

None of what the Minister of State said reassures me that there is not a significant cost variance between approved housing body availability, payment agreements and public private partnerships. At the heart of this is the public sector benchmark, which is used to calculate that so-called value for money exercise. None of us get to see it. There is no transparency around it and we are not in a position to be able to verify what the Minister of State is saying, either here today or in previous parliamentary questions. On the basis of what the Minister of State said here today, the construction cost per unit is €225,000. That is higher than figures I have received from the Department of Housing, Planning and Local Government on comparative costs for local authority builds. In this contract with the public private partnership, there is a different inflation calculation to the one used for approved housing bodies, a different calculation for what the Minister of State called equality requirements, and an element of profit and risk adjustment. While I accept the two types of contracts, availability agreements with the approved housing body sector and PPPs are not the same, they do very similar things and nothing the Minister of State has said has reassured me that there is not a cost difference, if not a significant cost difference. Has the Minister of State seen the public sector benchmark? Is he satisfied that both the methodology used and the price comparisons represent value for money to the taxpayer?

I am not given all of the figures but I am satisfied with the process of how this is handled. There are four stages at which we assess the value to make sure that the taxpayer is getting value for money and that is how we judge this too. I will talk the Deputy through the process. The key criteria for assessing whether a PPP project represents value for money for the executive follow the guidance set out by the central PPP unit in the Department of Public Expenditure and Reform. This guidance sets out four specific tests that are applied to PPPs over the course of the planning and procurement process. The tests focus on assessing whether the PPP approach compares favourably with the alternative cost of using traditional procurement to achieve the same result. There are different methods of traditional procurement but they are all compared to make sure that we get the best value for money and do not lose out. Only one of the social housing PPP programmes has met the relevant thresholds for each of the four tests in this rigorous process and I am confident that it demonstrates value for money. That is the Deputy's concern, which the Minister, Deputy Eoghan Murphy, and I also have, to deliver top quality, good value housing quickly. We are satisfied that the process delivers that. The Deputy wants to have information released. I understand why he wants that but it would not be appropriate to do that at this stage. We are committed to release it after three bundles.

If I understand properly, the Minister of State has not seen the public sector benchmark, so he cannot unequivocally say that this represents value for money and he is taking it on trust. If one takes two housing projects that commenced construction today, the public private partnership that is currently under construction and traditional social housing delivered by a local authority and an approved housing body, it is unequivocal from the information that we have that the public private partnership will get a significantly larger amount of money to deliver, manage and maintain the units, and that is before we even get into the issue of risk adjustment or cost. Given that the Minister of State has not seen the public sector benchmark, why will he not publish it now? The contract has been signed and the contractors are on site. The Minister of State could publish this now because it is no longer of any commercial sensitivity to bundles 2 and 3 because they will have separate public sector benchmarks. Will the Minister of State give a commitment that, when that public sector benchmark is eventually published, he will come to the House or the committee where we can properly scrutinise it? If I am wrong at that stage and there is value for money, I am more than happy to accept it and hope the Minister of State would do the same.

We are a very open and transparent Department. When it is appropriate to do so, we will have no problem publishing that and explaining and defending it at the committee. I am familiar with the figures relating to these houses and what they cost on all the sites and in all the schemes. I am confident and happy to confirm to the Deputy that this is in line with where it should be.

Even though the Minister of State has not seen it.

I have not seen the benchmark but I know the figures.

That is the key.

It would not be appropriate for me to see the benchmark because it is not published yet. It is not information that I would have in my hands or head. A process has been put in place which involves many proper procedures to be gone through to make sure we are getting value for money. The Deputy, with respect, is probably comparing apples and oranges. This is a 25-year contract. They will be paid per month for upkeep and management of the house and all that goes with it. At the end of 25 years, the State will own that house. It has to be in a condition that is fit for purpose, as set down in the contract. That is different to the contract that is operated by approved housing bodies. I ask the Deputy to understand that. I think he probably understands that but might not want to admit that in public. There is a process there and I am happy to bring the Deputy through it with regard to the next phase of it too.