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Report on Public Private Partnerships for Public Sector Infrastructure Projects - Liquidation of the Carillion Group: Motion (Continued)

Thursday, 4 April 2019

Dáil Éireann Debate
Vol. 981 No. 5

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(Speaker Continuing)

[Deputy John McGuinness: Information on John McGuinness Zoom on John McGuinness] The evidence is that large companies outbid everyone else and get the contracts and that there is not enough scrutiny of their financial affairs. An examination of the balance sheets of the companies in question would have shown suspect figures, and that should have come to light. I would have believed, in the context of Carillion, that this would have happened, particularly in view of the scale of the collapse.

On how many of the 19 recommendations is the Government going to act? In response to the committee's report, what action is the Department taking, in the context of the procurement process, to safeguard contracts by vetting the winners to the greatest extent possible, secure in the belief that they will carry out the work from start to finish?

The issue of subcontractors also arises. Considering that a €14 million fund was mentioned, we recommend in the report that the subcontractors be paid. There was quite a hullabaloo at the time, both in the media and at the committee, because we heard from the subcontractors. There was pressure put on for them to be paid part, if not all, of the moneys due. That did not happen. If we are to instil confidence in the sector and the PPP process, we have to take steps to earn the confidence of subcontractors throughout the country and ensure that the State's position is understood. I do not get that sense today.

Subcontractors remain concerned. The subcontractors involved with Carillion and Sammon have still not been paid in the way they should have been. To witness railings being taken down and moved away and subcontractors turning up at the gates of schools to take back the desks at which the children were to sit tells its own story. The Government cannot stand by and just watch that happen. It is damaging the very sector we are relying on to continue to create jobs and that created 1 million jobs in the past. I want to know the safety arrangements in the context of protecting the subcontractors. What did the Government do with the set of subcontractors involved before? Was payment made? What will be done about the big firms that win the contracts in the context of how they are paid and how they pay subcontractors? I hope the Minister of State will put in place a response to each of the recommendations and that the appropriate action will be taken to protect the individual subcontractors who were left skint as a result of the collapse.

Minister of State at the Department of Finance (Deputy Michael D'Arcy): Information on Michael  D'Arcy Zoom on Michael  D'Arcy I welcome this report. Most of the issues raised in it do not fall within the scope of PPP policy. The focus of much of this report seems to be the impact on subcontractors arising from the liquidation of Sammon, itself a subcontractor working on the schools PPP bundle 5 project. This intrudes on law dealing with the complex situation of company insolvency rather than PPP policy or public procurement policy. The position of any subcontractors engaged by a PPP company is essentially no different from that of subcontractors working on traditionally procured projects, whether in the public sector or private sector.

I absolutely sympathise with anyone who has experienced a financial loss. The State, however, is not to blame for this loss. The State meets its obligations and will pay the PPP company the contracted price for the project delivered. That said, the Government has considered this report in its entirety, and I am happy to set out how we will respond to its recommendations.

Last year, the Government launched its vision for how we can achieve a better future. Project Ireland 2040 includes two core elements, namely, a national planning framework and a €116 billion national development plan that sets out an ambitious and strategic vision for Ireland's investment in public infrastructure over the next ten years. With this plan, investment levels in Ireland will continue to increase at a sustainable rate and, very importantly, our infrastructure investment will be strictly guided by the national planning framework, which creates a single vision for our country as a whole, covering both rural and urban areas. This will deliver modern public infrastructure over the coming years that will improve the lives of people throughout Ireland and allow our companies and economy to continue to compete with the best in the world.

I will briefly explain what PPPs are and their role in the delivery of Project Ireland 2040. A PPP is an arrangement between the public and private sector for the purpose of delivering infrastructure or services that were traditionally provided by the public service. In effect, it is a form of procurement available to the public sector. When referring to PPPs, we generally mean that the asset is funded and constructed by the private partner, following which it is made available for public use and is paid for by the State and-or users over an extended period, typically between 20 and 25 years, following which the asset comes into State ownership. In the meantime, the PPP is regarded as off-balance sheet from a general Government perspective, which means that the initial capital cost of the project does not impact on the general Government balance over the construction period, but rather its cost is spread over the lifetime of the project.

Since the late 1990s, significant infrastructure projects have been delivered on behalf of the State using the PPP approach, including the pilot schools bundle in 2002, the National Maritime College in 2004, Cork School of Music in 2007, the Criminal Courts of Justice complex in 2009, the National Conference Centre in 2010, further schools bundles and a number of major motorway projects from 2005 onwards.

In July 2012, the Government announced plans for a major new €1.4 billion PPP programme, as part of a €2.25 billion stimulus programme of investment in public infrastructure projects. This comprised eight new PPP projects across the health, justice, transport and education sectors, of which schools bundle 5 is one. This was followed up with a second phase of the PPP programme, announced in 2014, to deliver 1,500 social housing units and a third phase, announced in 2015, to deliver projects across the higher education, health and justice sectors. There are now 28 PPP and concession projects that are either operational or in construction, in addition to those in procurement or planning. The annual cost of the unitary payment charges in respect of operational PPPs is some €290 million in 2019. The contractual capital value of all PPPs in operation or construction is over €5 billion.

In order to support value-for-money assessment, an analysis, called the public sector benchmark, is prepared that estimates the full cost of pursuing the project as a traditional procurement. As a general rule, a project proceeds as a PPP only if the tendered cost to the Exchequer is less than the public sector benchmark, which was the case in school bundle 5. The committee has suggested that the public sector benchmark be published before concluding a PPP contract. The public sector benchmark is confidential as it effectively says how much the State should be willing to pay for a particular category of project. However, current practice is already to publish the public sector benchmark, once it is no longer commercially sensitive.

In 2017, I initiated a policy review of the future role of PPPs to ascertain how they would contribute to Project Ireland 2040. The main outcomes of the review are: PPPs should continue to feature as a procurement option for projects that demonstrate value for money over a traditional procurement option; value for money should be the key deciding factor, an approach also recommended by the 2017 IMF review of our public capital investment processes; PPPs that have already been announced and that are in planning or procurement, as announced in budgets 2015 and 2016, will proceed as planned.

There is frequently a degree of misunderstanding regarding what a PPP project entails.

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