I am conscious that it is somewhat long. I wish to make a number of points.
I welcome the report from the Comptroller and Auditor General. It is an extremely valuable contribution towards deepening our understanding of the factors that resulted in a significant gap between the investment proposed for the programme in the national development plan and the latest Estimates. We will take its findings on board.
The main points I want to get across are the need to distinguish between the concerns the Comptroller and Auditor General has raised about inaccurate or incomplete estimation of the costs of the programme in the first instance which clearly raise issues for the forward planning, prioritisation and management of infrastructural programmes of this scale, and the wider but critically important issue of whether the significant amount of money now being spent on the roads improvement programme gives good value for money. We need to make the point that the issues are quite distinct.
I would like to comment briefly on the distinction between the role of the Department of Transport with regard to the national roads programme and the role of the NRA. I am delighted the authority is here today. The Department's role relates to the oversight, management and monitoring of the programme. Our role is to set the overall policy framework for the programme, ensure the funding is delivered for it and satisfy ourselves as to the arrangements the NRA has in place for the delivery of the programme. We are also responsible for review and ongoing reform. The NRA is here and can deal with specific questions that may be raised. We also engage in a number of independent programme evaluations over time to satisfy ourselves as to how the programme is being managed.
Investment in the national roads programme is a key priority. Roads account for 96% of passenger traffic and 93% of freight transport. Although only 6% of the total road network is comprised of national primary and secondary roads, these roads carry 46% of total traffic. As the committee knows, investment in the roads programme is now at its highest level ever at €1.28 billion in 2004. The impact of this investment is increasingly evident throughout the country.
A series of strategic policies laid out in the national development plan, the national spatial strategy, by the national competitiveness council and more recently in the enterprise strategy report make clear the importance that is attached to investment in the national roads programme. Nobody argues that the investment is in itself a bad idea. The question is rather whether we are getting good value from it.
I do not need to rehearse the reasons the Comptroller and Auditor General has already given as to why the costs increased. However, it is worth reflecting on the fact that significant scope changes were made in the programme from the time of the NDP. A number of additional projects were added to the programme. Also, significant inflation in the construction industry took place over that period. Members of the committee may remember that when I was here earlier this year, I spoke about our interpretation of the increases in costs. The Comptroller and Auditor General's findings are broadly in line with the results of other reviews of the programme carried out by or on behalf of the Department. I am glad he has acknowledged the improvements already made by the NRA in cost estimation, control and programme management.
With regard to value for money issues, the Comptroller and Auditor General's report provides a useful analysis of the factors which resulted in cost increases. However, the separate issue of whether we are getting value for the significant investment we are making must be considered. Our national road network is of critical importance to Ireland's competitiveness, to enhancing regional development and to our daily lives. This has been recognised in a range of strategic policies and endorsed by independent analysis.
The detailed appraisal procedures followed by the NRA indicate that while roads projects cost more than initially anticipated, they represent good value for money, given the significant economic and social benefits derived from addressing the deficiencies in our network. Cost-benefit analysis is carried out at various stages as each project progresses through planning so that the impact of cost increases arising from changes to project scope or design can be re-evaluated before irrevocable commitments are made. In other words, just because costs rise does not mean projects are poor value for money. One must satisfy oneself at each point that the cost-benefits stack up.
The majority of projects under construction now, particularly those being constructed under design and build contracts, are on budget and many are ahead of schedule. In the construction sector, time is money. Therefore, it is beneficial in cost-benefit terms if projects that address key bottlenecks in the road network can be brought in ahead of schedule, for example the Monasterevin, Cashel and Ashford-Rathnew bypasses.
As I mentioned previously to this committee, where scheme characteristics are suitable, public private partnership, PPP, arrangements can be undertaken. These effect risk transfer to the private partners and provide certainty regarding Exchequer funding exposure while also attracting a high level of foreign contractor interest. This is helpful and beneficial to the programme. The Kilcock-Kinnegad PPP project has been recognised as the PPP deal of the year by Project Finance International, and the standard set in that project is being applied throughout the roads PPP programme. More recently, we are benefiting from expert financial advice provided by the National Development Finance Agency, NDFA, which is now consulted by the NRA in respect of all major projects.
The Fitzpatrick report, which reviewed the programme in 2002, examined the cost of construction of a two-lane dual carriageway. The cost for that ranged from €1.1 million per kilometre to €7.4 million per kilometre in Finland while the average cost in the United Kingdom was €5.7 million per kilometre. By comparison, the Irish cost per kilometre at that time was approximately €4.5 million. These comparisons suggest that Ireland's cost base is not dramatically out of line with experience in other EU countries. Other local factors, such as the cost of land and labour and construction costs, must be taken into account.
I wish to mention some measures being taken by the Department to strengthen programme management, particularly in those areas which are not under the direct control of the NRA. The Minister for Transport and the Minister for Finance have agreed to establish a multi-annual funding framework for national road investment for the period 2004 to 2008. This provides greater certainty about resources and facilitates more cost-effective planning and implementation of the programme. 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 public private partnerships, PPPs, over the period 2004 to 2008.
The NRA has been asked 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 the Department of Transport and the Department of Finance which will incorporate provisions relating, inter alia, to the annual funding levels, contractual commitments and reporting and monitoring arrangements. In turn, these provisions will be set out in an agreement between the Department and the NRA.
Our interest in the context of multi-annual funding is to try to establish with as much certainty as is possible, given the nature of the complex area, what outputs can be achieved for a given level of investment. As part of the continuing efforts to support the NRA to improve management of the programme, a major review of arrangements for the implementation of the programme, including cost estimation and control, has recently been completed. Its recommendations are being given detailed consideration by the Department with a view to putting proposals to Government in the autumn.
Since the establishment of the Department of Transport in 2002, my colleague, Mr. John Murphy, and I have been considering how best to strengthen and harmonise arrangements for appraisal and management of capital spending across all transport programmes to facilitate comparisons across projects, programmes and modes. To this end, the Department has established a cross-cutting team on managing capital expenditure whose role is to develop a common framework for the appraisal, monitoring and evaluation of transport infrastructure and services investment. This is being done in full consultation with the NRA and the other transport agencies. In that context, we will also seek to define clearly the respective roles of the Department and its implementing agencies to strengthen management and accountability arrangements.
In recent years substantial progress has been made in ensuring the more timely and cost effective delivery of the national roads programme. Progress has been made on shortening the timescale for progressing projects through planning stage and as regards the allocation and management of risk on major roads projects. The NRA has been to the forefront in developing new forms of procurement and project management. It has pioneered a move in the direction of design and build contracts as an alternative method of procurement, which provides for improved efficiency and greater certainty of outturn by passing more risk to contractor and less adversarial relationships.
In the context of a significantly enlarged programme and seeking to enhance value for money, the NRA has also concluded that larger contracts are beneficial both in terms of economies of scale and in encouraging stiffer competition through attracting the interest of foreign contractors. The roads PPP programme is delivering deals that are internationally recognised as providing very good value. Some of the factors outside the direct control of the NRA, such as the legislation governing treatment of archaeology on major infrastructure projects, are being addressed. The Department is examining in detail any further changes in the management of the programme needed to strengthen further the capacity of the NRA to deliver agreed outputs on time and within budget with a view to submitting detailed proposals to Government shortly. I will be happy to elaborate on my statement.