Tuesday, 21 May 2019

Questions (218)

Micheál Martin


218. Deputy Micheál Martin asked the Minister for Public Expenditure and Reform if there is a practice of stating prices for public projects that exclude VAT; and if he will make a statement on the matter. [21831/19]

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Written answers (Question to Public)

The Public Spending Code is the set of rules and procedures that apply to ensure that value for money standards are upheld across the Irish Public Service. The Code sets out the appraisal/business case requirements for every publically funded project. It stipulates that every spending proposal should be appraised carefully but the resources spent on appraisal should be commensurate with the cost of the projects or expenditure proposals. Projects over €5 million should be subjected to an economic appraisal.  

It is currently being reviewed as part of the ongoing reform of Ireland’s capital management systems to strengthen the existing guidance to better align with the realities of project delivery and with a particular focus in improved appraisal, cost estimation and management. The revised central elements of the Public Spending Code relating to the appraisal and management of public capital projects will be published before the summer.  Further technical guidance building upon these central elements will follow in the second half of 2019 and in 2020.

Costs are stated in different ways for public projects depending on the stage the project is at in its lifecycle.

The Public Spending Code sets out the requirements for business cases for public projects including: 

- setting out project objectives and scope,

- identifying and costing feasible options,

- analysing a narrowed list of viable options using financial and sensitivity analysis and, for projects over €5 million, economic analysis,

- setting out a risk strategy outlining key risks and potential mitigation measures,

- setting out a plan for project delivery,

- setting out a plan for how the project will be monitored and evaluated; and

- making a recommendation as to the delivery option which will achieve the desired outcome and which would represent value for money.

Within the business case, the financial analysis looks at the project cashflows over the economically useful life of the project to inform affordability. The cashflows should include all costs such as operating, capital, labour, tax, charges, etc. VAT is included in the financial analysis cashflows.

While the financial analysis assesses affordability, the economic appraisal assesses the economic and social value of the project. A number of adjustments are made to the financial analysis cashflow figures to arrive at the figures used in the economic analysis. The adjustments include reflecting the deadweight loss associated with taxation used to raise public funds and removing transfer payments such as VAT. VAT is not included in the economic costs of the project.

In recognition of the different VAT levels that are applied in different jurisdictions across the EU, the thresholds that determine the applicability of the EU procurement directives are stated as VAT exclusive. When tendering public contracts the same principle is usually applied.