Thursday 24 May 2018

Richard Curran: Value of public spending on big projects needs to be transparent

Richard Curran

Richard Curran

The enormous consultants spend in setting up Uisce Eireann (Irish Water) raises some very serious questions about the nature of public spending on big projects.

Uisce Eireann appears to have followed all of the rules when it came to procurement and tendering, but expects to end up with around €85m of the start-up cost going to consultants.

There are consultants and there are consultants. In this case, Uisce Eireann is a start-up. In return for the money it is getting IT systems, expertise in developing systems and actual computer software and hardware. It isn’t just advice.

That doesn’t mean it was all warranted and great value for money. But at least there will be something to show for at the end of it. That isn’t always the case.

The key issues raised by the Uisce Eireann are about value for money, spending control, transparency and accountability and the flow of information about spending public money.

Yet, there are multiple examples of enormous public expenditure on consultants, of both the substantial kind and of the advice kind, where it isn’t clear what anybody has to show for it.

The shelving of the Poolbeg incinerator contract by Dublin City Council is perhaps a greater debacle. A consortium of consultants was paid €32m to represents the Dublin local authorities in contract negotiations with US incinerator firm Covanta. This represented one third of the €96m cost of the project, which has yet to see the light of day.

In late 2012 the government announced that the new €600m National Children’s Hospital would be located at St James’s Hospital and not at the Mater site as previously pursued. The Mater debacle cost €35m, much of that on professional fees and consultants.

Nama has been sharply criticised for excessive spending on external fees. However, an analysis of its annual report shows a couple of interesting things. Firstly, the €60m per year it pays mainly to the lender banks to manage a large chunk of its portfolio, sees around 550 people doing  that work. If Nama didn’t pay the banks to do it, the agency would have to hire 550 people itself.

In relation to insolvency fees it has introduced a raft of measures to reduce spending including fixed rate fees and small scale tendering. In 2012 it spent €4m on due diligence, €5m on legal fees and €7m on portfolio management fees. On the face of it, they seem sizeable but hardly excessive given the scale of the agency.

The real controversy over consultants is whether the work could have been done in-house or whether it was necessary to do it at all.

In that light one of the most questionable spends has been by Permanent TSB. This is private company, with some shares still traded on the stock market. But the taxpayer has piled around €2.3bn into it and essentially controls it.

If it needs more money, the taxpayer will most likely be called upon again.

But there aren’t any FOIs here. New chief executive Jeremy Masding took up the job in February 2012. Company accounts show it spent €25m on legal and professional fees in 2012, up from €23m the previous year – possibly fair enough.

But elsewhere the accounts say it spent €53m on “costs associated with professional and contractor projects in relation to restructuring of the group.”

This is a massive sum. Its former auditor, KPMG, received €5.5m for non-audit work in 2012 and it has hired a raft of other consultants.

It is not alone in banking. Prior to liquidation IBRC had been spending €350,000 per day on administrative expenses other than staff costs. The bank said that in the first half of 2012, its non-staff administrative expenses of €45m had fallen sharply because of a “reduction in professional fees.”

That €45m was separate to its €25m exceptional costs, which primarily related to non-recurring “professional fees.”

During the financial crisis banks turned to external consultants for all kinds of advice on solving their difficulties. Taxpayers have picked up much of the tab for that. The economic collapse has led to a boom in consultancy advice and professional fees.

Unfortunately, unlike in Uisce Eireann, we will never be able to get to the bottom of whether it was all necessary or not.

Online Editors

Business Newsletter

Read the leading stories from the world of Business.

Also in Business