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Select Committee on Finance, Public Expenditure and Reform, and Taoiseach díospóireacht -
Tuesday, 12 Feb 2019

Vote 13 - Office of Public Works (Revised)

We are considering the Revised Estimates for 2019, Vote 13 - Office of Public Works. We are joined by the Minister of State, Deputy Kevin Boxer Moran. This arises from the referral by the Dáil on 19 December 2018.

As Minister of State at the Department of Public Expenditure and Reform with special responsibility for the Office of Public Works, OPW, and flood relief, I welcome the opportunity to come before this committee to discuss the functions of the OPW and its 2019 gross allocation of just under €467 million. Within this allocation, programme A, which relates to flood risk management, received an allocation of just under €112 million. With the ongoing challenge of climate change and more severe weather, this allocation is most welcome in supporting both capital infrastructural and non-infrastructural work to mitigate against flooding nationwide and to provide much-needed protection to homes and businesses.

As the committee is aware, 29 flood risk management plans were published in 2018. These plans contain 118 new projects to be progressed over the next decade, which will provide protection to 95% of those properties assessed in the plans to be at significant flood risk. The first phase of the implementation has commenced, including 57 projects to be advanced by the OPW and the local authorities, consisting of 26 medium to major schemes, with values between €1 million and €40 million and 31 smaller projects, with individual values of under €1 million. The remainder of the projects will be progressed over the course of the next ten years. In addition to this, the OPW continues to implement the prior programme of capital flood relief, which has ten projects at the construction stage and a further 24 schemes at the design and planning stages. These new flood relief schemes, together with those 77 schemes complete or under way, will provide flood protection to approximately 33,000 properties at risk from significant flood events.

Programme B within the 2019 Estimates provides funding of €355 million for estate management. This facilitates the works of the Office of Public Works, OPW, in providing accommodation primarily, but not exclusively, for office use across 17 Departments, to An Garda Síochána and many other State agencies. The current OPW office accommodation estate comprises of 870,000 sq. m, accommodating approximately 40,000 civil servants.

Estate management also supports funding for heritage sites and monuments. In 2018, we have again seen an increase in visitor numbers at heritage sites and a corresponding increase in the Exchequer revenue. The culture and heritage estate managed by the Office of Public Works continues to play an important part in Ireland's tourism infrastructure. The OPW is happy to play its part in ensuring that visitors to Ireland who want to experience these sites have a full, fulfilling and engaging experience. The commitment of the Office of Public Works in this area is highlighted by the nomination of OPW-managed sites in recent awards. Kilkenny Castle, Newgrange, and the Phoenix Park were nominated for Ireland's favourite local attraction in the Irish Independent 2019 reader travel awards, with the Phoenix Park selected as the overall winner. This is in addition to the Phoenix Park receiving a gold international large park award from the World Urban Parks Association.

I have provided a brief outline of the broad-ranging essential works carried out by the OPW on behalf of Government and am more than happy to take questions on the OPW 2019 Estimate. I also express my appreciation for the committee's time and input in considering the valuable outputs to be achieved through this funding.

The Minister of State is very welcome here. There are a couple of things I would like to be enlightened on, if possible. I understand the Cabinet meeting is probably finished and I would like to know, in the context of the revision of the Estimates which is being undertaken, what, if anything, the OPW has been asked to bear. In terms of any potential reductions, where has the OPW agreed to take reprofiling reductions in terms of estimated spend?

Given the OPW's recognised and very valued expertise in building and development projects, perhaps the Minister of State can refresh our memories as to whether the OPW has had any role in the largest capital project in the history of the State, namely, the children's hospital. Has it provided any oversight, information or advice to the various committees involved in the children's hospital project? We all appreciate and know from our own constituencies the very good work that is done by the OPW. I am glad to see the Minister of State's reference to the Phoenix Park. The second issue on which I would expect the OPW to have some expertise as a consequence of its work is building inflation. What is the OPW's estimation of building inflation over the past two years given that a lot of its projects work on a contract basis and it is well used to dealing with contractors? On the children's hospital, we have heard some pretty staggering construction cost inflation figures. I would like to hear about the OPW's experience of building inflation.

Returning to our last discussion about the Phoenix Park, I am glad to see the park has won another award. What progress has been made on the issues we raised at that meeting, namely, the need to identify the costs in greater detail?

It is a project the OPW has been waiting to undertake for a number of years. What is the state of play on it? Is it likely to fall victim to the cutbacks being discussed by the Government or can the Minister of State tell us where the cutbacks are likely to be made?

Another project OPW has announced is the bridge over the River Liffey to link the Phoenix Park with the War Memorial Gardens via the lower road. The project is being put out for competition. Will the Minister of State inform us what stage it is at and whether such a project is likely to suffer in the revised scheduling and because of the cutbacks in allocations?

Communities throughout the country are also extremely anxious about flood relief programmes. There are large-scale flood relief programmes in different parts of the country. Are any of them being rescheduled because of the cutbacks the Government has indicated resulting from the runaway cost of the children's hospital project?

My Department has received no information on funding from the Cabinet. However, it has been widely flagged that a number of Departments have been asked about cutbacks in allocations. The information given to my Department is that a figure of €3 million is with the Cabinet, but I have received no information back on it. We have no role whatsoever in the children's hospital project. The Deputy is asking-----

Given the well regarded national and international expertise of the OPW in the management of a wide variety of projects, is the Minister of State telling us that this repository of knowledge of Government projects has not been asked for any advice? None of the commissioners is sitting on the multiple hospital boards that are overseeing the children's hospital project. I am aware that the Minister of State has no responsibility in the matter, but given the OPW's expertise which is better than that of most consultants, is the Minister of State informing the committee that-----

My answer is we have no role in the children's hospital project. The chairman can deal with the other question.

On construction inflation, costs have gone up by 3.95% nationally. This will have an impact when we price a job. For example, on a scheme we announced some time ago we saw that because of inflation some extra funding might be required. My apologies - I think I am reading it in error as the rate is 12%.

The Minister of State has now stated the rate is 12%.

Can I ask the Minister of State-----

Will the Deputy, please, wait for one moment? The Minister of State has stated the rate is 12%.

It was 3.9% and is now forecasted to be 7.4%.

That is the rate for 2019, but we have been reading that the rate of inflation is multiples of that figure for the children's hospital project. Going back to the expertise of the Office of Public Works, the projects listed by the Minister of State in the papers are complex, wide-ranging and based all around the country, including Dublin. Is he not surprised by the rate of inflation about which he is reading for the children's hospital? It is amazing that nobody in government thought to knock on anybody's door in the OPW to ask for some advice on such a project when costs were running away?

The chairman will answer that question.

Mr. Maurice Buckley

I will comment first on the rate of inflation. As Deputy Burton said, in the OPW we are experiencing rampant construction inflation. The figures the Minister of State has quoted are the market figures of the Society of Chartered Surveyors and the trend is upwards. This time last year we would have had a figure of 4% or 5% and been pricing our own building projects at a rate of 6% to 7%, thinking we were being conservative.

As the Minister of State said, construction inflation is recognised in the industry as being at least 8%. The OPW believes it is running much higher and my personal guess is that it is 11% or 12%. It is much higher again in specific parts of the industry, such as mechanical and electrical work which is a major component of the construction work on the national children's hospital that Deputy Burton asked about.

Major mechanical and electrical work is being undertaken in Leinster House. Is Mr. Buckley saying that level of inflation is being experienced in respect of the works in Leinster House? What level of inflation has the OPW provided for in respect of the Leinster House works?

Expenditure of €15 million was provided for the works on Leinster House. Having seen the work on a tour with Members today, the amount of work involved is apparent. The figure will exceed €15 million but I do not know by how much. A certain amount of work was not foreseen. This is evident when one peels back the lead flashing to see the damage, particularly around the chimneys and to the roof. One of the standing walls is a stand-alone wall without netting and bricks. It had to be stripped back and it is a very slow process. However, having seen the amount of work being done to restore Leinster House to the way it was all those years ago, I expect the final cost to be higher than €15 million.

The Minister of State indicated that €15 million was the original estimate. Is he saying the final costs will be €17 million or maybe €20 million?

It would be wrong for me to give a figure at this time. Faults were found when the flooring was peeled back and work was needed to address them. The ceilings had to be pinned up again, which takes time. Leinster House is a protected structure so the work is time consuming and costly.

Is the Minister of State putting the cost within the ambit of inflation figure he has been using?

No, it is for specialists that we are using.

The reason for the increase is extra work which had not been identified until the building had been opened up. However, the cost of the normal work being done is increasing by 6% or 7% up to about 11% or 12%, which are the figures the Minister of State cited.

I return to the OPW's relationship with children's hospital. In other major projects such as Abbotstown, the National Aquatic Centre and so on, where independent companies were involved in construction, the OPW or people with experience of the OPW were heavily involved in those projects, partly for technical reasons and expertise, but also, I imagine, for reasons of proper management and oversight. Is the Minister of State still telling us that no one from the OPW is involved in the national children's hospital project?

No, I said the OPW is not involved in the hospital. I will ask the chairman of the OPW to answer the question.

Mr. Maurice Buckley

The OPW has no formal role whatever in the children's hospital. There are many areas, such as education or the wider health remit, in which the OPW is not involved in any formal way. We have no involvement in project management or governance. One will often find, and this will have been the case with the children's hospital, that the OPW might be called informally to give technical advice, as the Deputy mentioned, on specific points of architecture or structural engineering issues that might arise during a project. It could be different things, such as site management. The OPW worked with the Central Bank on its headquarters project even though we had no formal role but we were able to give our building expertise where required.

Mr. Buckley is not aware of the OPW playing that type of role in the children's hospital project.

Mr. Maurice Buckley

Definitely not.

Nobody in the OPW has been chatting about seeing this, that or the other at the children's hospital.

Mr. Maurice Buckley

No, I can confirm definitely that there has been no formal role and any informal advice has literally been a phone call, meeting or whatever.

It is nothing that we would even log - just one expert suggesting something to another.

Mr. Buckley mentioned the Department of Education and Skills. I am sure he is aware of the schools where there is a major scare relating to serious defects, especially in schools in Fingal in north Dublin and in Tyrrelstown in Dublin West. While I know they were design-build contracts of their time, from more than ten years ago, I understand that the Office of Public Works, OPW, gave advice about some of what happened there.

Mr. Maurice Buckley

In the past, the OPW has been involved in building schools and educational establishments. There is a residual programme of six educational schools which we are completing or have completed. With regard to the so-called rapid build school programme, the OPW was not involved. The Department of Education and Skills has significant construction and structural expertise in its own right and since those issues have emerged, we have not been involved in the analysis, inspections or investigation of the issues.

With regard to the Phoenix Park gates project going to tender and the bridge across the Liffey, that is at competition stage. I will send the Deputy a better note later.

When does the Minister of State expect the gates to be completed or could the axe fall on them in the context of current cutbacks?

In quarter 2 of this year.

I welcome the Minister of State and his officials. He said the word on the ground is that he will be required to cough up €3 million from his budget in the current year. Has he been formally notified by the Department of Public Expenditure and Reform that that is the anticipated request?

How did the Minister of State learn that the Department is looking for €3 million?

I know it is looking for €3 million but until it is approved by Cabinet, I cannot yet say "Yes" or "No".

How does the Minister of State know?

I was informed by the Minister, Deputy Donohoe.

Where might the Minister of State find that €3 million in his Estimate?

The other Deputy asked if schemes would suffer around the country; they will not. I got an improved allocation, of an extra €9 million, and will lose €3 million of that. There is a lead-in period to most schemes. Some €9 million was announced for Carrick-on-Shannon last October. If that work was to start today, it would probably only draw down €1 million of that in 2019. The lead-in period gives me the scope to do that. As people know, I am hands-on with regard to flooding. I may have one or two ideas that I would like to spend more money on. They may be shelved for the time being. I am happy that the schemes which have been announced will not be touched in any way.

Where will the Minister of State find the €3 million?

It will be spread out. Some schemes may be delayed by a month or two but I do not see it happening because they do not need the whole €9 million immediately, based on what I received. I am happy to say that none of the schemes will be interfered with.

The OPW has a capital spending estimate for 2019 of €182 million. Approximately €76 million is for flood risk management and €106 million for estate management. Where is the axe most likely to fall? Will the OPW look to the flood schemes, estate management or other projects?

I do not know yet. No schemes that we announced will be touched because of the lead-in period to start the work. When some schemes go to planning, they could be delayed, so I build in that factor.

That is a surreal answer. It is not as if the Minister of State was anticipating an underspend of €3 million. He has brought forward the Estimates and that is what he plans to spend. The reality is that he has €3 million less to spend in 2019.

That will have implications. There is no point talking in circles. He might as well spell out where he thinks he will find the savings.

It will hit the flood relief budget, but I have not yet received back a communication from the Cabinet. I will need to go through it in detail to see where I make cuts, but I do not see schemes being affected.

Does the Minister of State have more schemes shovel-ready than for which he has money available? I am aware that there is a pipeline of schemes going through the planning process, but if the Minister for Finance, Deputy Donohoe, said to the Minister of State that he could give him an extra €20 million for schemes in 2019, would he be in a position to spend it?

I have a big capital programme up to 2020 and a budget of €1 billion over ten years. I intend to spend every penny. Of course, I would like to have more money, as would every Minister in his or her Department, but-----

Does the Minister of State have projects at an advanced stage that could absorb the money?

I do have projects at that stage

Therefore, the constraint is money. That is the point I am getting at.

No, at this stage there are no constraints when it comes to money.

I thought the Minister of State said he had more projects shovel-ready than for which he had money available.

I have enough money to cover the schemes that have been announced or that are on the way. I can absorb the loss in the lead-in periods for those schemes. Like any Minister, I would like to be able to spend the full allocation as I fought hard to get it.

In summary, the impact is likely to be a delay in undertaking certain flood relief schemes.

Will the delay be in the order of weeks or months, as both the Taoiseach and the Minister for Finance said?

I would say weeks.

Will the Minister of State have to come back when he finds the €3 million in savings in the Revised Estimates? I know that there was a request that this meeting not take place, but it was the view of the committee that it should in order that we could ask these questions before decisions were made on where the axe would fall.

That is a matter for the Chairman and the committee; it is not a decision I would make.

The answer is yes.

I want to pick up on Deputy Burton's point about construction inflation. Mr. Buckley was very helpful in his answers. A number of figures have been given. Mr. Buckley gave the committee his view from the prospective of the OPW that construction inflation was possibly running as high as 11% to 12%.

Mr. Maurice Buckley

That is the case and the feedback we are getting from the market. It expresses itself in different ways. We are seeing some big contractors choosing not to bid for particular contracts because they are saying they are absolutely full and cannot get staff.

I will not ask Mr Buckley to comment on the children's hospital project, but I am trying to use his knowledge to improve our understanding of how things work. In the case of that contract - I am sure it applies to others - a guaranteed maximum price is set and there are certain exclusions which can give rise to an increase in price above the guaranteed maximum price. One of the exclusions is national construction inflation running above 4% post-July 2019. If Mr. Buckley is telling us that construction inflation is running at 11% to 12%, we are looking at an excess of 7% to 8% on what has been built into the contract. If that level of inflation is sustained for a number of years, one is looking at a significant escalation. Is that a fair way of looking at it?

Mr. Maurice Buckley

I cannot really comment on the Deputy's question as I am not familiar with the contract for the children's hospital project. When I mentioned a construction inflation figure of 11% to 12%, I was expanding on the official Society of Chartered Surveyors' figure mentioned by the Minister of State of 7.8% to 8%. There may be a lagging behind.

How does the OPW treat the issue of construction inflation in the contracts into which it enters and of which it is in charge?

Mr. Maurice Buckley

When we are planning a project, it can take several years to complete owing to planning and procurement issues, etc. We try to estimate the cost as accurately as possible from the beginning. That estimate will become more precise as the contract nears procurement and in the placing of contracts. From the beginning-----

What does the OPW write into the contract to address the issue of inflation?

Mr. Maurice Buckley

If I was starting a project now that I would expect to be under construction in 2022, I would in my cost estimate take into account three years of construction inflation. Reverting to my earlier point, this time last year we were using a figure of 6% and thinking we were being conservative. Now we realise 6% was too low. A cost estimate is redone several times until one gets to the definitive cost in going to procurement and the placing of contracts.

On the type of contract the OPW would typically place, a contract worth €100 million would be a very large project for us. It is done at a point in time. A contractor bids for the contract with a price which is then fixed. The ultimate determinant in the contracts we place is the competitive process, including tenders. Up until the time we proceed to competition, we are still estimating the price. Five tenders might be received and we would then know the exact price.

Would the OPW include in the contract inflation at a certain figure and say the contractor would have to absorb that amount and that anything above it would provide grounds for a legitimate extra claim by it?

Mr. Maurice Buckley

No. It would be a fixed-price contract. I have never come across such an arrangement in an OPW contract.

If the OPW was entering into a contract-----

Mr. Maurice Buckley

The contractor would build its estimate of the rate of inflation into its bid for the project. The contractor, in expecting construction to take one or two years, would estimate the cost of labour and materials during that time.

The OPW would regard it as a fixed price contract, with some exclusions, for example, the nature of the works that have been discovered at Leinster House.

Mr. Maurice Buckley

It is a difficult issue. The Deputy is talking about managing risk. We have tried to move to fixed price contracts, with the risk being carried by the contractor. That is the situation I am flagging, although it is difficult to make it work, particularly for large and complex contracts. The scenario we in the OPW see most often involves something like a heritage building, for example, Leinster House, where we cannot specify in detail exactly what work is involved until we go in and get below the surface. The Minister of State knows another scenario very well, that of flood relief projects, in which every river is different and it is difficult to anticipate the technical problems that will arise. It is difficult to work with fixed price contracts. Much of the current theory is that the risk should be shared in a structured way between the contracting body and the contractor.

I am struggling to understand something. The OPW sits within the Department of Public Expenditure and Reform which also hosts the Office of Government Procurement in the overall management of State contracts. Mr. Buckley is saying the property arm - the OPW - does not use a contract model that provides for the contractor being compensated on an ongoing basis for construction inflation above a certain level. In the case of the national children's hospital, however, that is a key part of the contract, in the drafting of which the OPW's parent Department was clearly very involved. They are two different ways of managing contracts.

Mr. Maurice Buckley

There are several ways to manage contracts. We would be party to the continual review of the Government form of construction contract which is managed by the Department of Public Expenditure and Reform. There are a number of variations of the form over time. The OPW has used variations in the heritage area, but 99 times out of 100 we use the straightforward fixed-price contract which works in the case of most of our work.

My final question is for the Minister of State who has previously raised the issue of insurance and engaged with that industry on areas in which OPW schemes have been completed. The industry has provided certain statistics for the Department of Public Expenditure and Reform for the levels of flood insurance coverage in those areas and claimed that they are high.

They would argue that it is more than 80%. Is the Department and the Office of Public Works, OPW, continuing to work on that issue? Drilling into those statistics a little more, I want to know about properties in low-lying areas that were previously prone to flooding but have now benefited from a flood relief scheme completed by the OPW which has proven to be successful. Does the Minister of State have a handle on the proportion of those properties now able to get flood insurance? It seems that the statistics given by the industry to the OPW and to the Department are taking account of properties that always had insurance such as those that might be 100 m up a hill. I am referring to the properties that are low lying and were at risk of flooding or may have flooded, that now benefit from this taxpayer-funded scheme that has proven to be successful, but still cannot get insurance. That is my point.

Deputy McGrath is aware that I have met with representatives from the insurance industry on two or three occasions, and I am working very closely with the Minister of State, Deputy D'Arcy with regard to the insurance industry. Where flood relief schemes have been built and we have visited, we have spoken to those people and have been told that while it is slow they are seeing the insurance companies starting to insure them. I see cases like this regularly as I travel around the State. We have seen a bigger uptake. Where the OPW has built defences we have seen insurance companies working with people to get insurance in place. I can say this because I know a great number of people, for whom I have made representations previously, and especially more recently in Dublin with the Dodder River, who previously could not get insurance are now getting insured with insurance companies. This is where we have flood defences in situ.

I thank the Minister of State.

I want to clarify a point with the Minister of State arising from a question put by Deputy McGrath. The Minister of State said that the overall cost of works at Leinster House will increase from €15 million. Is that correct?

I would say so, yes.

What does the Minister of State base this on?

It would be like the Chairman going to do a job in his own-----

I understand that but on what does the Minister of State base the figures?

I was on a tour of the works in Leinster House this morning and I asked questions on the level of work I could see taking place. The architects showed the work. When the lead flashing is peeled back from around the chimney area one can see the level of damage done in that region. Other areas had plaster removed and the walls were cracked underneath. All of that-----

I understand that but I am talking about the figures.

The work can be seen, physically, but has the Minister of State quantified the level of overrun with regard to the €15 million? Does the Minister of State envisage or guess that it is €5 million, or are there actual reports from the contractors or individuals on site to say "Lads this is going to cost X percentage more". These things cannot be guessed. Will the Minister of State tell us how he established the amount by which the work will increase?

Mr. Maurice Buckley

They definitely cannot be guessed. On that particular contract, and picking up on Deputy McGrath's earlier question, we are dealing with a very old building from the 1750s and it was always clear that there would be additional works or technical challenges as the project went on. A particular method has been worked out in detail that is very solid and gives us very good cost oversight and control as to how to deal with and include any element.

What figure does Mr. Buckley estimate from that control system for what it will cost over and above the €15 million?

Mr. Maurice Buckley

The reason the Minister of State and I do not have an accurate figure is because the works are not complete. I was with the Minister of State on this morning's tour of the works with the Houses of the Oireachtas. The architects were able to explain to us that they had been through nearly 90% of the house and have uncovered the various issues. They have reduced the risk to very little. The Minister of State referred to the chimneys, which still have to be fully investigated. When that is done we will, know the timescale and the costs.

The Office of Public Works has a possible overrun on the Leinster House project and I understand the reason. That is not the question here. The OPW has an overrun on the €15 million and construction inflation may kick in on that overrun.

There is also a request, it is presumed from the Department of Public Expenditure and Reform, to cut back OPW works to the tune of €3 million. The State has told Departments to make cutbacks and Deputy McGrath asked how the OPW was going to achieve this €3 million cutback. The Minister of State has told us there will be a delay in the OPW starting some projects and perhaps the savings will be achieved that way. If that is to be the case, the OPW will not have spent all of its money in 2019. Will the OPW be handing back money to the Department in 2019? The Minister of State must have anticipated in the context of the budget that he was going to spend all of the money allocated to the OPW in 2019. If, however, all the money the Minister of State estimated for spending is not to be spent in 2019 because projects are to be delayed in starting or in the amount of money spent on them as they go along, then all of the allocated money will not be spent. The Minister of State is saying that he will not spend all of the money in 2019 but that there will only be a few weeks in the difference. The overrun on the works to Leinster House must also be factored in and whatever else might happen to that cost because of construction inflation. In examining his figures, and knowing the Cabinet was to meet this morning, where has the Minister of State identified hard figures to cut back the €3 million? It will not all be achieved by just staggering the start-----

As I said, it will be on the flood relief. We got word on the €3 million cutback to be made and we will have to come back with Revised Estimates on that. I will then be able to give the Chairman the specific areas in which the €3 million of cuts will take place. With regard to moving up the delivery on flood relief schemes, we have gone from approximately €45 million up to €76 million this year and will go to €100 million by 2021. I am quite confident that once I announce a scheme for the catchment flood risk assessment and management, CFRAM, system, which is the bible for the State when it comes to flooding, I will deliver on those schemes to protect people with regard to flood relief.

Will the OPW still deliver the €3 million to the Department and the overrun on Leinster House?

The overrun in Leinster House comes under the heritage side. The hit-----

What does the Minister of State mean when he says the heritage side?

The OPW portfolio is divided up into heritage, properties and-----

Is it the Minister of State's budget?

It is my budget. The flood side of the portfolio will take the hit for the €3 million. It will not be from the heritage funding or the properties side.

Okay. The €3 million will all be on the flooding side.

When the Minister of State said he got word of the €3 million cutback, was there any conversation with the Department or was it just a directive saying it was going to take €3 million from the Minister of State's portfolio? Was there any look at savings that could be made within the Department? Was the figure just given and that was it?

It was asked if savings could be made within the Department.

Did the Minister of State come up with the figure of €3 million or was it the Minister for Finance?

No. The Minister for Finance's Department came up with that figure.

When the discussions were taking place and the Minister of State was asked if there were any savings he could come up with, what figure did he come up with?

Like any Minister, I would not like to take any cut, but when asked to do it, I had to find a way of doing it. My officials and I looked at the area of flood relief, but I have not had the final answer from Cabinet on what or where. All I can say to the committee is that it will take place on the flood side of the portfolio.

I understand that but the Minister of State said a discussion took place and he was asked to say if any savings could be made within his Department that could be given up to the Department of Finance to facilitate the overrun at the children's hospital. Did the Minister of State put any figure on that, or was it just a case of him having a conversation about it but not giving them any figure on particular savings that could be found? Did they then come back with the figure of €3 million?

No. We were asked about €3 million.

So the Department was told that it was to be €3 million and it had to find the savings.

Yes. Find the savings of €3 million.

I am aware that the Minister of State cannot speak directly about the children's hospital but I have a general query on tendering and procurement.

Some of the weighting goes to the price, some to quality and so on. What would the norm be in a major project?

Mr. Maurice Buckley

I will take that. The weighting of tenders varies from project to project as the most economical tender evaluation process goes on, as I understand it. My information is no better than that of Deputy O'Brien and is drawn from what is in the media. I understand the children's hospital tender might have been 75% price-based.

I am wondering what the norm would be when the OPW is looking at tendering.

Mr. Maurice Buckley

That would not be unusual. We often have a tender 60% based on costs. I have no wish to keep coming back to Leinster House as if it was the most important project in Ireland, but it is a good example. Sometimes a critical or delicate project involves very fine conservation work that not everyone can do. Thus, there would be far higher emphasis on quality, experience and track record in that area in such a case. I do not know the exact figures off-hand. Generally, in my experience, cost would be in the order of 50% or above 50% and it would not be unusual for cost to be as high as 75%.

Does Mr. Buckley know of any other State contracts where the weighting for costs would be 75% plus? I am asking from off the top of his head and from his experience.

Mr. Maurice Buckley

As I have said, it does not strike me as unusual or exceptional, but I could not state off the top of my head how often that happens. I would not be keen to take a position on that without checking the details.

I imagine Mr. Buckley is aware of the EU guidelines around abnormally low tenders. Does the OPW take this into consideration when looking at the tendering process if someone comes in low? I gather the EU directive refers to approximately 15% of the adjusted average. If the lowest tender is 15% below the average of all the tenders, then it is considered an abnormally low tender. Does the OPW do any work on that? If someone comes in with a really low tender, does the OPW look at it or question it? Is it overlooked because so much emphasis is put on the weighting system? Is that the reason it is overlooked? I am trying to get some information on how the process works.

Mr. Maurice Buckley

Deputy O'Brien is probing a very difficult area and one that causes all of us a great deal of concern. I am not an expert on procurement in the area so I cannot quote exactly how the EU rules referred to by Deputy O'Brien are applied. Certainly, one might think one would be delighted to see a quote come in at 20% or 30% below the other five or six quotes, but actually it causes nervousness because it is often a signal that something is wrong. Perhaps the tenderer has left something out. We would evaluate tenders in detail and ensure that is not the case. Unfortunately-----

Let us imagine that was the case. Let us imagine the OPW looked at a given tender and had suspicions that it was simply too low or was not going to do what it said on the tin. Would the OPW be within its rights to simply ignore that tender?

Mr. Maurice Buckley

There are rules around that. Let us consider a hypothetical example involving a tender for three buildings. If a contractor tenders for only two of the three buildings then there are rules on how to deal with that and either the contract would be eliminated or it would be revised. I hope Deputy O'Brien does not ask me to quote the exact rules, but there is a transparent process and all the tenders are involved. Those of us in the industry would be concerned in general – I am not talking about a specific contractor or project. Everyone in public procurement and in the industry in general would be concerned about what we believe is a practice that has developed in the past ten years of certain contractors deliberately quoting low for contracts and then seeking to recover the price and more during the course of the work.

This difficulty seems to be coming to the fore the more I probe into it with different officials. If an organisation does not accept the lowest bid, it can create legal issues. One official from the Department of Health said the Department could end up on the steps of the Four Courts if it does not accept the lowest bid. If the evaluators know the lowest bid is simply not going to cut it, then what recourse is there?

In a case like that, an organisation should be able to say that it will not accept the lowest bid and outline the reasons without fear of legal action hanging overhead. How do we balance that?

Mr. Maurice Buckley

It is a very difficult situation. Sometimes the situation can be analysed and we can see the quote is too low because of X, Y or Z. That can be addressed and the tender can be eliminated. That does happen. However, there are situations – it happens at the OPW – where an organisation is forced in a certain way because it is a legal requirement in the procurement rules to accept the tender that would appear to be valid. It does happen that during certain projects we spend more of our time in arbitration and conciliation - going through prices and dealing with claims - than on the building sites doing the works, which is where we should be focused.

I presume that organisations spend more time worrying about that because the procurement system in this State does not have any statutory provisions around abnormally low tenders. In other jurisdictions there are provisions on the Statute Book so that if a tender is below a certain percentage of the adjusted average price then they can be eliminated without fear of the contractor taking legal action. Is that something we should consider, on the basis of Mr. Buckley's experience? Maybe I am drifting into policy now. Would it be helpful to the situation if the threat of the lowest bidder taking legal action in certain circumstances was taken off the table?

Mr. Maurice Buckley

I suppose Deputy O'Brien is in a way drifting into procurement policy and it is something I cannot really comment on as a Government official. Obviously, the clearer the rules of the game are and the clearer the legal situation, the better. That applies to everyone involved, not only the contractor and the OPW or the State but also the person doing the work. We are all concerned about being fair to the smaller builder and for there to be a level playing field. The person who is honest and quotes correctly should have the best chance of winning the work.

I cannot comment on the methodology to get there and I cannot comment on how the system in Ireland compares to other countries, but certainly as a major public procurement body in the construction area the OPW, along with all the other parties involved, is concerned to work on the system, learn from experience and get it right. There have been some concerning trends in the marketplace in recent years.

My final question goes back to the weighting system. It seems that cost is always the biggest factor or consideration in the weighting and then quality is the second factor. That may not be standard across the board but it seems to be the trend. A significantly higher weighting is given to cost. Is any weighting given to past performances of the contractor?

Mr. Maurice Buckley

It is difficult. Certainly, track record in terms of whether a contractor has done the particular work involved or whether it has done projects of that scale can be taken into account. However, behaviour or reputation as an "honest Joe" or otherwise cannot. It has to be objective.

The contractor-----

Mr. Maurice Buckley

The reason cost tends to be included at a high percentage is because cost is objective. It is made up of pounds, shillings and pence, or euro and cents. We can see exactly what it is. Once we start putting a high percentage on quality or prior experience and so on, we are getting into a more subjective area. If we are into more subjective evaluation, then unfortunately, we leave ourselves open to challenge.

If a contractor has a reputation for putting in low bids that consistently end up costing significantly more, that cannot be a factor in the tendering process. That is what Mr. Buckley is telling me.

In fairness, as legislators we have to look to change that. The question Deputy O'Brien is asking-----

I am simply asking if that is currently the position. If it is, then, as legislators, I, the Minister of State and you, Chairman, would be keen to change that system. I simply want to know whether that is currently the system. If a contractor has a reputation for consistently putting in low bids that end up costing the State significantly more, that cannot be a factor when an organisation is looking at a tendering process. Is that correct?

Mr. Maurice Buckley

That is right. It cannot be taken into account.

Will the Minister of State expand on his comment on the €3 million reduction? On profiled capital expenditure, he has a sum of €19.4 million pencilled in in 2019. There is a figure of €3 million for a project in Blackpool; €6 million in Douglas; €5 million in Ennis south; €3 million in Glashaboy; €1.6 million in lower Morell; and €800,000 in Sandymount. According to the Minister of State's earlier references, the cutbacks are largely expected to be made through delays in flood relief schemes. He suggested he would delay them by a number of weeks. Does it mean that will take a slice out of the six projects or will he identify one or two which will experience a longer delay or delays? How will he approach the matter? I presume the projects in Cork are of a piece, or can they be treated separately? Can the Minister of State give us some idea of what will happen? Alternatively, are there other elements of existing programmes which could be cut? I presume there is a certain level of energy in existing programmes and that it would be foolish to stop or delay them and that, therefore, what has been said applies to the new programmes. Given that the schemes cover many properties of families and individuals who are waiting for them, the Minister of State might enlighten us on how he proposes to address the issue. Will he tell us how he will identify the schemes that he will possibly hold back? Will he hold back a clutch of them, or will he merely say, as there are a couple of €3 million projects included, that the Government will hold back the first one, the project in Blackpool, because it is a tidy sum of €3 million and can be easily done? In what way will it be done?

I want to ask about the OPW's relationship with the Department of Public Expenditure and Reform. The OPW is within the remit of that Department but independent. I do not understand what the Department's involvement is in the oversight of the OPW's budget. While the Department does have a role, the OPW does not in the national children's hospital project. Does the Department look at the OPW's budget? For example, does the Minister, Deputy Donohoe meet the Minister of State before the budget to have a chat with him about what he proposes to do? Do the senior civil servants in the Department such as the Secretary General have a word with the chairman of the OPW or the commissioners in looking at both the capital and current budgets? In my experience as a Minister, this happens on an annual basis for all elements of the budget, capital and current. I wonder what is the experience in the OPW.

First, I see no effect on the schemes at construction stage on the River Dodder and in Ashbourne, Athlone, Bandon, Claregalway, Clonakilty, Ennis lower, Dunkellin, Skibbereen and Templemore. On the other six that are due to proceed to construction, some may be delayed in the planning process. It may not necessarily involve those schemes but others that are also ready to go on which we will delay in the planning process to absorb the cut of €3 million.

Let me interrupt the Minister of State. He has included a figure of €76 million in the Estimate. I have totted up the figures on page 5 and they roughly come to the €76 million mentioned in the Estimate. The Minister of State correctly states he will not touch the first lot of projects and some of the second lot and that the ones due to start in 2019 could be delayed. There are then some unspecified projects. Are they included in the third lot of projects? If the Minister of State is to find the €3 million in the Estimate of €76 million, it has to be in it somewhere.

In most cases, we will make stage payments. That is where I see us absorbing the cut of €3 million. There is a lot of arterial drainage work done also.

I will have to sit down and have a look. As I said, I gave a clear indication it is coming from the flood side. I will have to sit down and see exactly where I will make the savings to which I referred. I give an assurance that the schemes I mentioned will not be affected by this cut. No one sitting at this table knows better than I the pressure on people throughout the country. I have travelled around and I have seen it. I fought tooth and nail since I came into the Department to get every shilling I have and I will continue to do so, particularly for those people previously mentioned. We would all like to do something for them. I am quite happy, however, that there will be no interference with the current schemes.

I would like to clarify something regarding the table on page 5. In general, the Minister of State is stating that construction starting in 2019 may be delayed, for one reason or another, and that is where he may get the €3 million. Is that correct?

That is not necessarily the case. We have spent €76 million and last year we spent €67 million. Some schemes can be delayed through the planning process-----

That is what I am saying to the Minister of State.

-----and be held up.

I am referring to the six schemes presented by the Minister of State. They may very well be held up as part of this process.

I am sorry. Yes, that is correct.

It is because those schemes may be held up that the Minister of State will get his €3 million in savings. That is my point.

There is a report about flooding in different areas on the website of the Minister of State's Department. Two of those areas are in Kilkenny city. One has never flooded in 25 years. That report, however, is being used by the insurance company as a reason not to give a quotation for flood insurance. As a result, the property owners in that estate are not able to sell their properties.

As the Chair will be aware, we were asked to do a mapping exercise of the whole country in an EU context which we know now as the catchment flood risk assessment and management study, CFRAMS. It identified areas at risk of flooding as well as many areas where schemes could be undertaken to protect people. The first I heard of the areas mentioned by the Chairman was in a parliamentary question on that today.

That is correct.

I cannot give the exact answer required. I can only state that for most of the areas in CFRAMS there is a scheme to protect those people in future. Minor works schemes may be undertaken in other cases. The map the Chairman is asking me about is one of flood maps done for the whole country. It shows the risk, what insurance companies-----

My understanding is that map or report was not to be used for commercial reasons.

What would the Minister of State say to insurance companies? It is a fact that the area I referred to earlier has not flooded. Those people have been there for 25 years. Those people cannot sell their houses now because banks will not give mortgages where that map indicates there may be flooding.

When we announced CFRAMS, the areas identified as being at the highest risk were in Louth and Offaly. Those areas had never flooded before either but they are at risk.

With respect, I do not get any votes in Offaly or wherever the Minister of State is talking about. I am concerned about my own constituency.

The Chairman knows-----

Can anything be done for people who are refused flood cover from an insurance company? I am serious about this. The people concerned cannot sell their houses simply because CFRAMS indicated their properties may be at risk of flooding.

The maps we gave are not for the use of an insurance company or anybody else-----

They should not be used.

Those maps should not be used and people who find themselves in that position should go to the Ombudsman. We do not allow------

Would the Minister of State not have a stronger voice with the insurance companies than the Ombudsman?

The Chairman is around a long time. I have a memorandum of understanding with the insurance companies. I work with them. Where defences are built, I ask insurance companies to come on board and insure the people in those areas. There is a parliamentary question concerning the areas the Chairman asked me about in Kilkenny city. I will be back in this committee to talk about the Revised Estimates, however, and I will get more detail for him. I stress again that no insurance company should use those maps to hit people with an increase or refuse insurance.

That is fine. I thank the Minister of State.

I have a brief question related to flooding.

On planning, what is the relationship between the OPW, CFRAM and the local authorities? Part of the Tolka river basin in my constituency is in an area called Barnhill or Barberstown. Historically, there has been significant flooding in fields in this area every four or five years and also during periods of very heavy rain. The area is marked on the flood risk maps. However, the local authority describes the flooding as fluvial, rather than granting it another designation. What it is stating, therefore, although there is a railway line, is that there is no need to undertake an in-depth examination because it has identified the particular flood risk. People living in the area have photographs, as I do, of houses surrounded by flooding, yet Fingal County Council states the level of flood risk does not matter particularly in planning. Prior to the Minister of State's period in office, the OPW worked in the area for many years and probably completed flooding works in the vicinity of Dunboyne, Castleknock, Blanchardstown and, in particular, the two areas mentioned, Barnhill and Barberstown. Westmanstown is another. The OPW carried out a lot of specific drainage works, particularly on the tributaries of the River Tolka, on which, as those from the OPW will know, there can be heavy flooding. In Irish its name actually means "flood". I am really at a loss to understand the reason the flooding has been described as fluvial and not as flooding that merits particular examination. We have received this information in recent days and people are very concerned that a lot of properties will built in the fields which will be subject to the same risk of flooding.

I have a great relationship with all local authorities throughout the county. I have been to Fingal County Council a number of times with different issues related to flooding. I ask all local authorities about the risk of flooding in their areas and inform them of the minor works and general schemes available. I am not familiar with the scheme mentioned by the Deputy.

I do not expect the Minister of State to be familiar with it, but I was asking him whether the local authority was obliged to consult the OPW.

The local authorities always consult us. If a local authority is bringing forward planning proposals in an area in which there is a flood risk, it should inform the OPW and we will steer it on it.

I will write to the Minister of State about the matter.

I thank the Deputy.

Obviously, the Minister of State will revert to us on the matters raised to enable us to complete our consideration of the Revised Estimate. I have a question for him also, but I do not expect him to answer it now. However, I would appreciate receiving an answer to it at the next meeting. Will the Minister of State give the committee a note on the Department's legal costs year on year and a list of properties that are vacant and outline the security costs associated with its properties throughout the country? The Minister of State has a breakdown of the figure spent on Áras an Uachtaráin. We would appreciate it if that figure was provided for the committee secretariat.

I thank the Chairman and committee members.

I thank the Minister of State and his officials for their attendance.

The select committee adjourned at 4.10 p.m. until 9.30 a.m on Thursday, 21 February 2019.
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