Committee Reports > List of Committees > Joint > 1980 > Committee on State Sponsored Bodies > Report No. 16 - Nitrigin Eireann Teoranta

APPENDIX 11

LETTER TO CLERK TO JOINT COMMITTEE FROM THE CONSTRUCTION INDUSTRY FEDERATION

Re: Nítrigin Éireann Teoranta

Our submission on the above is as follows:—

(1)Press statement of 6th October, 1979 on the Marino Point factory (12 copies enclosed).*

(2)Copy of letter dated 21st May, 1976 from the Association of Consulting Engineers of Ireland, (12 copies enclosed).††

Note:

The Association is entirely independent of the Federation and represents engineers in private practice acting as agents for clients commissioning work.

(3)The documents referred to above apply to one particular plant. However, our problems with NET extend to 1965 and over the period of different political administrations. NET was started in the early 1960’s, on the basis that it would avoid imports of fertiliser by building a fertiliser plant at Arklow. While it may have succeeded in that purpose, it ran contrary to its general purpose, by importing contractors and consultant engineers to an entirely unnecessary degree. While recognising that expertise must be imported, if not available in this country, it is extraordinary that both in Arklow and Marino Point, the employment of Irish consultant engineers and contractors was minimal, in contrast to other semi-State bodies also funded by taxpayers money (such as the Electricity Supply Board).

The attitude of NET towards both categories has been, to say the least, uncooperative. Another feature, presumably related to the fact that former Industry and Commerce officials run NET, has been the defensive, to the point of aggressive, posture adopted by the Department since NET was started. As an example, in 1965 the Federation became aware that Wimpey (Mechanical) Ltd. was causing considerable problems for Irish firms, by paying considerably inflated rates during the Arklow plant construction. We approached the firm with no result. We approached NET with no result. We approached the Department of Industry and Commerce — we were informed that our statements, were “irresponsible”. Two weeks later, at a public Labour Court hearing, Wimpeys (Mechanical) Ltd. confirmed the inflated rates to which we have referred.

As another example of the undue protection afforded by officials of the Department of Industry and Commerce to the NET management, we refer to the Accounts of NET for the year ended 31st December, 1978, audited by the Comptroller and Auditor General. In the Auditor’s Report, point 2, the report is qualified by reference to the fact that the authority of the Minister (for Industry and Commerce, with the consent of the Minister for the Public Service) for the Managing Director’s salary had not been obtained. Previous reports were similarly qualified. Without commenting on the merits or demerits of the Devlin Report, it seems extraordinary that such an attitude is adopted in this case when the chief executives of other semi-State bodies, reporting to departments, are required to adhere rigidly to state guidelines (e.g. the Managing Director of the Agricultural Credit Corporation).

(4)We enclose herewith 12 copies of a letter written by a Mr. Brian O’Baoill F.I.Q.S. in 1976.† This letter was not, in any way, solicited by the Federation. To date, the letter has not been answered. The points raised in it are pertinent, both to Marino Point, to the original Arklow plant, to its extension and to its subsidiary, Arklow Plaster Teo.

It is regrettable that again over the space of several political administrations, the conditions of contract, and the contract administration, have not been made public. It is even more regrettable that a body owned by the taxpayer has been allowed to place numerous contracts without inviting tenders from Irish firms and with a consequent gross overexpenditure. A number of points arise which require detailed examination with, we suggest, the aid of construction cost specialists, such as quantity surveyors and independent mechanical consultants:

(a)Why was there such a considerable cost, and time, over-run on the Marino Point contract?

(b)Did a similar situation obtain on other contracts?

(c)What cost control procedures were operated by NET?

(d)What conditions of contract have applied to their various contracts over the years?

(e)What are their tendering procedures?

(f)What return have they received each year, on the total capital employed?

(g)At what rate do they receive gas from An Bord Gais, i.e. is it a subsidised price or commercial price?

Yours sincerely

Thomas Reynolds,

Managing Director.

8th April 1980.

ATTACHMENT

STATEMENT BY THOMAS REYNOLDS MANAGING DIRECTOR THE CONSTRUCTION INDUSTRY FEDERATION

Press Release—6 October, 1979

NET Plant, Marino Point, Cork

The opening of the NET Plant raises several very important issues which require detailed public explanation and public examination. This is necessary, not only in view of the enormous over-expenditure of taxpayers’ money, but also to avoid a similar recurrence on future sites.

The final cost of the plant was estimated by NET in 1973 to be £20 million. In 1974 it was estimated by NET to be £30 million. In 1976 the figure was increased to £60 million. In its report for 1978 NET stated that the expenditure was already £106 million. In February 1979 the Department of Industry, Commerce and Energy stated that the cost to date was £115 million. The real final cost has not yet been stated. In addition the completion of the plant is well over a year late which adds to this extraordinary inflation.

This statement by the CIF might be regarded as retaliatory, in view of the controversy in 1976 over the decision by NET, a semi-state body, to allow the non-Irish designers of the plant to award to itself the major contract for mechanical work without going to open tender. The statement does not have this objective. The events have confirmed the CIF viewpoint, but the underlying reasons and the lessons to be learned are more important. The then Minister for Industry and Commerce stated in 1976 that the award of this contract was based on “the paramount consideration that the plant must be completed on time”. The result, of a delay of more than a year, speaks for itself. The financial outcome speaks even more loudly.

The statements of the NET management are more directly relevant. In 1976 NET stated that the final cost would be £60 million. On May 24th, 1976, the Managing Director, Mr. J.B. Hynes, stated “all costs incurred in this (mechanical construction) as in all other parts of the job, are carefully monitored and certified by NET’s experienced construction team before payment”. His statement finished by stating that there has been “much ado about nothing”. £60 million 1976—£115 million in 1979 with more to come. Careful monitoring? Much ado about nothing? All in the context that the taxpayer pays the bill.

When it was revealed this year that the cost to date was £115 million, the NET General Manager, Mr. P. McSweeney, stated that cost escalation of this order was normal for this type of plant. This is completely incorrect. He mentioned the bad weather, fluctuations in currency and other factors. Rain fell on all sites, not just NET. Similarly, currency fluctuations and the other factors he mentioned affected other industrial sites. None experienced the extraordinary cost increases of the NET site. Mr. McSweeney stated that in any event the increased cost would be recovered by the price of the product charged to the Irish farmer. The fact that the consumer will have to pay considerably more does not excuse the over-expenditure and is no consolation to the taxpayer.

The trade unions have been blamed by the Department of Industry, Commerce and Energy as being responsible for the problems on the site to the extent that the Department expressed its “sympathy” with NET. It was stated by the Department that because NET is a semi-State body financed by the taxpayer, it was singled out by the trade unions. This is untrue. Other semi-State bodies, such as the ESB and the IDA, commission a considerable amount of complex construction work in excess of the NET programme but have never encountered problems of the order of NET. On the various sites with which we have been involved, we have on occasion disputes with trade unions, but to blame the trade unions for the problems encountered on the NET site is unjust and untrue. The Department’s “sympathy” should be reserved for the taxpayer.

It is relevant to point out that former officials of the Department manage NET. This is not the first occasion on which the Department has presented a flimsy and implausible defence of NET’s actions. In view of this situation, an independent enquiry is essential.

The reasons for the NET debacle require examination. The main reason was NET’s decision to give the entire responsibility for design and construction to a non-Irish firm. Pullman-Kellogg. There were a number of consequences:—

1.The firm was allowed by NET to award to itself the major (mechanical) contract without going to tender. Apart from the extraordinary action of a semi-State body acting in this fashion with public money, the firm with design responsibility became its own supervisor for its mechanical work and machinery purchase. This clearly contravened the normal function of the designer being independent of the contractor, with consequent financial effect.

2.In assigning complete responsibility to the non-Irish contractor, NET also decided that the firm should have entire responsibility for industrial relations on the site. In consequence, a firm which had no experience of Irish industrial relations was given, and accepted, this important task. Attempts by CIF to give the benefit of its knowledge were refused by NET and our approach to the Department of Labour was unsuccessful. The probable consequences were at that time (1975) pointed out to the Department.

The firm’s involvement in industrial relations was carried to the extent of telling the Irish Civil Engineering Contractors how they should conduct their industrial relations affairs. As a result of the firm being allowed to award to itself the mechanical contract, it employed over 500 mechanical operatives. It negotiated labour rates considerably in excess of the horm on such sites. Despite this, serious industrial relations problems occurred on the site. The same trade unions operate on the other large sites around the country, none of which have had the magnitude of the problems encountered on the NET site.

The expenditure on this site clearly confirms what we stated at the time of the controversy (1976)—the necessity of employing Irish contractors and sub-contractors. At the time, many people regarded this statement as being motivated entirely by self-interest. The results of the NET site are hard evidence, at the taxpayer’s expense, that non-employment of Irish construction firms is a disaster.

Finally, we trust that the matter, which involves very considerable expenditure of public funds, and state policy on a state company not employing Irish firms, will not be swept aside. Public investigations have been held for lesser reasons. We urge that this matter be fully and publicly examined.

*See attachment.

††See Appendix 12.

†Published in Irish Times, May 1976.