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Colm McCarthy: 'Flawed project puts public money at risk'

Governments can easily ignore official advice but broadband plan shows the pitfalls of this approach, writes Colm McCarthy

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Pupils at St Kevin’s NS, Ballard, Co Wicklow, were visited by the Taoiseach as the contract to deliver the National Broadband Plan was signed

Pupils at St Kevin’s NS, Ballard, Co Wicklow, were visited by the Taoiseach as the contract to deliver the National Broadband Plan was signed

Pupils at St Kevin’s NS, Ballard, Co Wicklow, were visited by the Taoiseach as the contract to deliver the National Broadband Plan was signed

Once the EU Commission signalled no objection on State aid grounds to the Government's NBP, the broadband plan, the course was set and the contract with the sole bidder was signed last Tuesday. The State is now committed to the expenditure of €3bn, roughly six times the initial estimate, to bring fibre broadband to every building in rural Ireland at an average cost of €6,000 per connection.

Connections are to be free, a policy never followed for any comparable utility roll-out. Connections to the electricity system are not free, nor are mains water connections or phone landlines. But no matter, once the political commitment is heard and believed, the imperative is to push ahead. A public spending code was meant to defend against poor project designs in the capital programme, but that proved to be expendable.

The Government chose the capital subsidy route on the advice of consultants KPMG, who felt it would ensure a competitive tender process. They were flat wrong about that. Another group of consultants, PwC, wrote a report, required under the public spending code, asserting that the benefits of the project exceed the costs. These consultants were flat wrong too - the Government's own experts in the Department of Public Expenditure, guardians of the public spending code, concluded that the cost-benefit report was 'not credible' and advised against signing the contract. Government ministers publicly cited the 'not credible' study from the consultants, dismissed their in-house advice and have signed a contract with the winner of a one-horse race. It is important to understand that there is no credible evidence available to support the view that the benefits of this project exceed the costs. The Government has, in spectacular fashion and with a real mega-project, abandoned its own public spending code. Perhaps the broadband plan will deliver the promised rural transformation but please understand that the Government has committed €3bn in the absence of any credible case for doing so.

Of course, governments are perfectly entitled to spend public money on political priorities, and to ignore civil service advice. The trouble is that they wish simultaneously to cloak themselves in the garb of prudence, aka the public spending code. This they have been able to do, at least until after the event when the cost over-runs emerge, through using consultants. Whenever a project promoter seeks approval for a large project it must be accompanied by a cost-benefit study and the city of Dublin is home to a most obliging stable of these consultants. No public project of any significance has ever been abandoned because the consultants, engaged by the project promoters, failed to find enough benefits to justify the admitted costs. This has often been a daunting challenge - the Bertie Bowl, a third stadium for Dublin which already had two underutilised stadiums in reconstruction, got the thumbs up from consultants, including PwC, in 1999, only to be abandoned during a brief outbreak of political common sense a few years later.

The demands for public capital investment, in Ireland and elsewhere, always exceed the volume of funds likely to be available. There are live, if long-shot, proposals for new airports, high-speed rail lines and stadiums in the regions, competing for political favour against a well-attested shortage of public housing, low-quality water supply and potholed roads. Choices must be made, which means that any serviceable system of project evaluation must reject the poorer projects. The Irish system claims compliance with the public spending code, in place since 1983 in successive iterations, but the cost-benefit studies for the larger projects never come up with a negative assessment. The project promoters commission the studies, are always able to locate consultants who share their optimism, and no project fails at the cost-benefit stage. This means that, for all practical purposes, there is no credible system of project appraisal in place and the controversy over the National Broadband Plan has helped to focus attention on the long-standing flaws in the system.

The central flaw is that nobody should be allowed to mark their own homework. Projects would never get on the agenda if there was nobody to champion their cause, but it is obtuse to persist with a system where the evaluation of major projects is outsourced to the people who designed them, or to consultants chosen by same. Project champions, such as the Department of Communications in this instance, have their uses, but should have no role in project evaluation. There is supposed to be, according to the public spending code, central oversight of the quality of project evaluation. At one time this function was undertaken by the Department of Finance, latterly by its offshoot the Department of Public Expenditure. If there is a positive from the broadband saga it has been the lifting of the curtain on this process of oversight - the Government's experts decided that the cost-benefit appraisal, prepared by consultants selected and paid by the project champions, was 'not credible'. They went on to state that the process was not consistent with the public spending code, for which the Department of Public Expenditure is responsible.

This was an opportunity for the Government, in the light of the extraordinary cost over-run at the National Children's Hospital and a sorry record of over-runs elsewhere, to re-assert control over the capital programme and defer decision on the broadband plan. Instead they decided to fire ahead, citing the 'not credible' PwC report in justification. It would have been quite coherent of the Government, in rejecting publicly the department's advice, to have disbanded their project evaluation team and the public spending code along with it. But this would be to admit the reality, that when electoral priorities intrude, Irish governments will risk public money rather than political capital. The opposition parties have criticised the decision-making process but have made no serious proposals to replace it. Would they also have chosen expediency and signed up when faced with the temptation to which the Government has succumbed?

The Government is reportedly considering a new arrangement which would see a 'panel of international experts' pronounce on any projects costing more than €100m. Any government happy to ignore their in-house experts and endorse publicly a 'not credible' report from (international) consultants has nothing to fear from any such panel. A serious reform would place the public spending code on a statutory basis. The law should preclude the preparation of cost-benefit studies by, or on behalf of, project promoters, whose work should be confined to the design of projects for consideration. The evaluation role should be reserved for a central unit in government charged with no other task and required to publish their appraisals and explain them to the relevant Oireachtas committees. It should be forbidden for cabinet even to consider a large capital project until an independent evaluation had been completed and published. Ultimately the elected government must have the prerogative of going ahead with projects against official advice, but it needs to be more difficult to do so.

The Government is committed to a substantial State capital programme over the next 20 years, resources permitting. Any more debacles like broadband or the children's hospital and scarce resources will be wasted.

Sunday Independent